Uganda - Second Telecommunications Rehabilitation Project : Uganda Posts and Telecommunications Corporation (UPTC)

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4892-UG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 38.3 MILLION TO THE REPUBLIC OF UGANDA FOR A SECOND TELECOMMUNICATIONS REHABILITATION PROJECT FEBRUARY 21, 1989 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.  CURRENCY EQUIVALENTS Currency Unit: Uganda shilling (U Sh) US$1.00 = U Sh 150 U Sh 1,000 = US$6.67 FISCAL YEAR Government and UPTC: July 1 - June 30 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AFDB - African Development Bank DEL - Direct Exchange Line EAPTC - East Africa Posts and Telecommunications Corporation INTELSAT - International Satellite Organization ISD - International Subscriber Dialling NTC - Nippon Telecommunications Consultants PANAFTEL - Pan African Telecommunication (Network) POSB - Post Office Savings Bank STD - Subscriber Trunk Dialling UPTC - Uganda Posts and Telecommunications Corporation VFT - Voice Frequency Telegraph VHFIUHF - Very High Frequency/Ultra High Frequency  FOR OFFICIAL USE ONLY UGANDA SECOND TELECOMMUNICATIONS REHABILITATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Uganda Beneficiary: Uganda Posts and Telecommunications Corporation Amount: SDR 38.3 million (US$52.. million equivalent) Terms: Standard IDA, with 40 years repayment period Onlending Terms: SDr- 33.5 million (US$45.7 million) equivalent at annual rate of 8? to be repaid over 15 years after 4 years of grace, with UPTC assuming foreign exchange risk. SDR 4.8 million (US$6.6 million) equivalent as equity contribution. Financing Plan: UPTC USS 6.5 million IDA US$ 52.3 million TOTAL US$ 58.8 million Economic Rate of return: 14.32 Staff Appraisal Report: SAR Report Number 7437-UG 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 disclc-d ,,i hout World Bank authorization.|  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO r%GANDA FOR A SECOND TELECOMMUNICATIONS REHABILITAT10N PROJECT 1. The following report on a proposed development credit to the telecommunications parastatal, the Uganda Posts and Telecommunications Corporation (UPTC) in Uganda for SDR 38.3 million (US$52.3 million equivalent) is submitted for approval. The proposed credit would be at & standard IDA terms with 40 years repayment period and would mainly help finance the rehabilitation of telecommunications facilities in and around Kampala damaged during internal disturbances and provide essential technical assistance to UPTC to improve its efficiency and productivity. 2. TPTC will be the beneficiary of the entire IDA credit and the Government will onlend to UPTC the proceeds of the credit to be used for financing telecommunications equipment, plant and associated services (US$45.7 million) and to be repaid over a period of 15 years, including four years of grace, bearing the standard annual charge applicable to such onlending agreements, with UPTC bearing the foreign exchange risk. The remainder of credit funds (US$6.6 million) would be transferred by the Government to UPTC as equity contribution. 3. BackRround. In the aftermath of many years of internal disturbances and turmoil, Uganda's economy faces formidable difficulties. In the short run, Uganda must effectively deal with rampant inflation and achieve economic stability while mounting a mzjor recovery effort to reverse the downward trend in its economy devastated by war, insecurity and mismanagement. Rehabilitation of the basic infrastructure and increased capacity utilization of major sectors of the economy is the key short-term objective while institutional strengthening lay the ground for a sustained development in the longer run. 4. The telecommunications network impacts every aspect of the economy. It can facilitate or greatly impede efficiency of operations in all sectors, public or private. Uganda has limited telecommunications facilities, concentrated in large towns, particularly Kampala. Although telephone density is comparable to that of other similar economies in the region (Sudan, Tanzania), service is hampered by severe damage to the local cable networks and subscriber facilities. As a result utilization of existing system capacity is reduced to about 48?, and at any given time about a quarter of the connected telephones lines are out of order. 5. In 1983 IDA financed its first Telecommunications Project (Credit 1367 for US$20.4 million equivalent) to rehabilitate the telecommunications network in major population and business centers, badly damaged during the 1978/79 war. The project also introduced a program of institutional development. Project implementation initially was generally satisfactory; operations of some strategic telecommunications facilities were improved, an act established UPTC as an autonomous body, and some badly needed improvements in accounting and subscribers' billing and collection functions were made. However, resurgence of internal disturbances culminating in a civil war destroyed part of what had been  2 rehabilitated and seriously impaired UPTC's ability to furtlher rehabilitate and maintain the telecommunications services. The project consequently fell far short of original performance targets. Rampant inflation and inadequate tariffs to offset its impact combined with the prolonged absence of stable management led to serious erosion in the gains in institution building which had been achieved under the first credit. 6. The Government has demonstrated its support to the telecommunications sector with the inclusion of a telecommunications rehabilitation project as one of the priorities in the public sector investment program, and shown its commitment to UPTC's financial viability. The Government agreed to two substantial tariff increases in the past two years and more recently re-adjusted UPTC's tariffs to offset the impact of devaluation of the Uganda shilling. Although tariffs adjustments have made UPTC into a reasonably profitable institution, its management, planning and operational capabilities need to be upgraded and key issues affecting UPTC's efficiency, such as poor salaries and incentives, and a lack of skilled manpower, need to be addressed more forcefully. 7. Rationale for IDA Involvement. IDA's country strategy is to assist the Government in its overall economic recovery effort through improved macroeconomic management, improved policy environment for the productive sectors, and rehabilitation of critical infrastructure, of which telecommunications is one. The proposed project would be a continuation of the infrastructure rehabilitation and institution building undertaken under the first rehabilitation credit. IDA's continued association with the sector would enable financing for urgent sector rehabilitation at the least cost and, with IDA's coordinating role, facilitate donor support for the next stage of sector development. 8. Project Objective. The proposed project is a self-contained, balanced and integrated package of high priority components within the UPTC's agreed investment program. Its main focus would be on (i) rehabilitation of the economically critical facilities and increasing the utilization of existing exchange capacity to partly satisfy currently unmet demand and (ii) improvement of UPTC's operational and financial performance through institutional development. 9. Proiect Description. The project would be implemented over a four year period and comprise: (a) (i) rehabilitation of the local cable networks in Kampala, Entebbe and Jinja through replacement of and some expansion in primary and secondary telephone cables and associated equipment; (ii) provision of telephone instruments, PBX, teleprinters, facsimile and data equipment; (iii) provision of 100 subscriber units of rural radio call equipment and a transmitter to rehabilitate the existing radio call network; (iv) cables and associated equipment for networks in provincial towns; (v) a computerized subscribers' record system and microcomputers; and (vi) vehicles and tools; (b) institution building through (i) technical assistance to UPTC for strengthening corporate planning, financial management,  3 training and maxipower develop:nent; (.i) consultancy services to assist UPTC in implementing its institutional development strategy; (Wii) fellowships and twinning arrangements with a suitable telecommunications agency; (iv) provision of laboratory equipment and training aids; and (c) provision of spare parts and materials for telecommunications maintenance and operation. 10. The total cost of the project, excluding duties and taxes is estimated at US$58.8 million equivalent with a foreign exchange component of US$52.3 million (892). A breakdown of costs and the financing plan are shown in Schedule A. Procurement and disbursement information are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Uganda are given in Schedules C and D respectively. A general map of Uganda is also attached. The Staff Appraisal Report No. 7437 dated February 21, 1989 is being distributed separately. To facilitate timely start up of project implementation UPTC has engaged consultants for procurement assistance, under a PPF advance of US$1 million. A second advance of US$500,000 was approved in October 1988 to finance urgent institutional needs. 11. Agreed Actions. It has been agreed with the Government and UPTC that: (i) UPTC will consult with IDA on any proposals for investments estimated to cost more than 10? of the investment planned for any one year; (ii) Prior to December 31, 1989 UPTC will conduct a review of its organizational structure and develop and implement proposals aimed at reducing the workload of the Managing Director; UPTC will also assess overall staffing gaps and redundancies and prepare a detailed staff training program; (iii) UPTC will review its remuneration package to ensure its competitiveness and, if necessary, make appropriate adjustments and design and establish an appropriate incentive system by June 30, 1989; (iv) prior to September 30, 1989 UPTC will have finalized twinning arrangements for in-service training; (v) by June 30, 1989 UPTC will issue telephone and telex bills witnin 15 days of the end of billing period; (vi) performance indicators will be established to monitor amongst others, generation of sufficient income by UPTC to finance its local currency investment requirements through retained earnings and generate not less than 12? rate of return on its net revalued assets; (vii) UPTC's tariffs will be reviewed every six months and adjusted, if necessary, and pending such adjustment, tariffs would be automatically modified in accordance with an agreed formula to offset a part of the cost increases. 12. Actions acceptable to IDA have been taken on the following: (a) adoption by UPTC Board of directors of a Policy Statement which will not be changed without consultation with IDA; (b) submission of an action plan to reduce by June 30, 1990 UPTC accounts receivable to no more than 90 days of sales; (c) submission of audited accounts; and (d) UPTC has submitted a proposal for meeting the urgent needs of technical assistance for the Pinance Department. 13. As a condition of credit effectiveness, the Government and UPTC have agreed to sign the Subsidiary Loan Agreement and UPTC has agreed to: (a) award the turnkey contract for the network rehabilitation; (b) submit a  4 comprehensive institutional development program; and (c) appoint financial consultants and recruit a Financial and Expenditure Accountant and a Management Accountant. 14. f-;nefits. Adequate uninterrupted telecommunications service to key sectors of the economy as well as the Government is crucial to Uganda's economic recovery program. The Droposed project would nearly double the existing telephone exchange capacity utilization through rehabilitation of damaged cable network and associated equipment. Its main impact would be in the capital city of Kampala and surrounding areas where most of the country's businesses as well as Government departments and parastatals are located. The overall economic rate of return of UPTC's 5 year investment program, of which the proposed project is an integral part. is estimated at about 14Z. The project would arrest further deterioration of the existing telecommunications network and maximize its utilization for the benefit of productive sectors of Uganda's economy. It would also establish UPTC as a commercially oriented, financially sound and operationally effective entity which could pave the way for eventual investment in UPTC's equity by private investors. 15. Risks. The risks mainly revolve around the overall uncertain country situation. Considerable institutional risks in terms of UPTC's poor financial performance and/or inadequate management and operational controls also exist. Given the Government's commitment to the speedy rehabilitation of key sectors of the economy and the ongoing dialogue between the Bank, the Government and UPTC, these are viewed as acceptable risks. Institutional risks to a large extent are mitigated by UPTC's and the Government's acceptance of technical assistance and other institution building measures and their commitment to work for UPTC's financial viability. 16. Recommendation. I am satisfied that the proposed credit would comply with the Artictes of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments by W. David Hopper Washington, D.C. February 21, 1989  Schedule A UGANDA SECOND TELECO2*UNICATIONS REHABILITATION PROJECT ESTDMATED COSTS AND FINANCING PLAN Local Forsian Total *-(US$ million)-r--- Estimated Costs Kampala-Entebbe-Jinja Network Rehabilitation 3.4 28a4 31.8 Computerization - 0.6 0,6 Rural Call Stations 0.5 1.3 1.8 Subscriber Terminal Equipment 0.5 2.0 2.5 Cable Material 0.9 1.5 2.4 Vehicles - 1.8 1.8 Engineering Consultants - 1.7 1.7 Institutional Development - 5.8 5.8 Total Base Cost 5.3 43.1 48.4 Contingencies Physical 0.3 2.2 2.5 Price 0.9 4.0 4.9 Total Investment Cost 6.5 49.3 55.8 Recurrent Purchases - 3.0 3.0 TOTAL COST 6.5 52 3 58.8 Local Fore$gn Total --- (US$ million)----- Financing Plan UPTC 6.5 - 6.5 IDA - 52.3 52.3 TOTAL 6.5 52.3 58. 8  Schedule 8 Peg. I of 2 UGANDA SECOND TELECOMMUNICATIONS REHASILSTATION PROJECT Procurement Method */ Project Component ICe Neg LIS gI Other i/ Total 1. Network RhabIlIttation 36.0 (32.4) - - 8.6 (32.4) 2. Computerization - - - 0.7 (0.7) - - 0.7 (0.7) 3. Rural Call Stations 1.S (1.5) - - - - - - 1.5 (1.6) 4. Subseribers Terminel 2.1 (2.1) - - 0.2 (0.2) - - 2.3 (2.3) Equipment S. Cable Material 1.7 (1.7) - - - - - - 1.7 (1.7) 6. Vehicles 2.1 (2.1) - - - - - - 2.1 (2.1) 7. Engineering Consultants - - - - - - 2.0 (2.0) 2.0 (2.0) 8. Institutional Development - - - - 0.2 (0.2) 8.4 (6.4) 6.6 (6.6) 9. Recurrent Purchass 1.0 (1.0) 2.0 (. 0) - - _8 0 (8. ) Total 45.0 (40.6) 2.0 (2.0) 1.1 (1.1) 0.4 (8.4) 56.5 (62.3)2/ Note: / Costs Include proporti-onate continguey provisions, excluding UPTC work force and force account. j/ Negotiated contracts. e/ Limited International Bidding. V Other includes Bank's Guidelines for the use of consultants. / IDA financing In parenthesi.  Schedule B Page 2 of 2 Disbursements Cat.nory Amount X - (USF1i Tlon)- Locel Network 32.4 lOOX of foreign expenditures Equipment, spares tools, vehicles 11.3 lOOX of foreign expenditures or SOX of local expenditures Consultant.' Services and Training 7.1 10OX of foreign *xpenditures PPF Refinancing 1.5 Total 52.3 == Estimated IDA Disbursements IDA Fiscal Year 1989 1990 1991 1992 1993 1994 -- - US mlII I-y- = - Annual 2.0 12.0 12.0 14.0 8.0 4.3 Cumulative 2.0 14.0 28.0 40.0 49.0 52.a  Schedule C UGANDA SECOND TELECOMMUNICATIONS REUABILITATION PROJECT TIMETABLE OF XEY PROJECT PROCESSING EVENTS (a) Time tak.n to prepares 12 months (b) Prepared by: UPTCIIDA (c) First Bsnk missions July 1987 (d) Appraisal mission departures May 14, 1988 (e) Negotiationst December 15, 1988 (f) Planned Date of Effectiveness. June 15, 1989 (g) Relevant PCRsIPPAR OED Report #893 10121175  Schedule 0 THE STATUS OF 8ANh GROUP OPERATIONS IN UCANDA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30. 1988) ---------USS MUliton------- Amount (Les Cancellotions) Loan or Undle- Credit No Year Borrower Purpose Bonk IDA b.trsed One (1) loan and fourteen (14) crodits fully disbursed 6.40 28B.48 1248-UC 1982 Uganda Industrial Rehabilitation 36.00 14.02 1828-UG 1983 Uganda Agricultural Rehabilitation 70.00 18.02 1328-UG 1988 Uganda Third Educetion 82.00 .10 14S4-UG 1984 Uganda Second Technical Assist. 16.00 6.68 144S-UG 1984 Uganda Third Highway 68.00 48 93 lS10-UC 1985 Uganda Water Supply and Sanitation Program 28.00 6.09 1639-UG 1986 Uganda Agricultural Development 10.00 9.92 160-U0 1986 Uganda Second Power 28.80 84.71 16l-Ui 1985 Uganda Petroleum Exploration Promotion 6.10 6.28 1808-UG 1987 Uganda Fourth Highway 10.18 14.75 1024-UC 1088 Uganda Forestry Rehabilitation 18.00 11.24 0840-UG 1988 Uganda Non-Sector Specific (Econ. Recov. Cr/SAF) 24.00 9.11 1844-UC 1988 Usgnda Non-Sector Specific (Econ. Reco. Cr./SAF) 65.00 82.28 1869-UG 1986 Uganda South West Ag. Rehab. 10.43 0.41 :898-UC 1906 Uganda Sugar Rehab. 24.90 24.89 1934-4G 1088 Uganda HbsIth Rec. 42.50 89.74 1951-41 1988 Ugand Tech. Asat. III 18.00 17.61 ota i 8.40 756.79 808.80 of which has been repaid 8.40 4.09 Total now outstading 0.00 761.90 IDA amunt sold: 17.60 of which has been repaid 17.50 TOTAL NOW HELD BY BANK AND IDA 0.00 71.0 TOTAL UNDISBURSED 0.00 a80.88  SNSrI~A,e RURAL SERVICES DESIGN PROJECT // (~f ';- \_ (> \s ~~~~~E T H I O P I A .-. L E Y'1 E ', - R it -I N '. 7 sx1 UGADA . , y , SOMALIA *RI~~~.de 9 / \ / _ * DH T&lng tEl 4 Q s X W x S X vS / I Cle~~~~~n t* I brXA-X4 , A TaE R. N, 0 ..E A ERN A AL L E Y)R OAI APPROMATE '. PRO1ECr LOCA0I C A - -bg DpI -hv (T-tfi-' i Rmblowl.. ~ ~ ~ -- mIw- A - F TERN~~~~~~~~~~~~~~~~~~f~ Cih ~~AMIOXIMA1~~ ~ J C 0 A10 T" - - ~~~ Uo.~~~~~~~~~~od Moi.ffra ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ iW -di