Upper Volta - Third Telecommunications Project

Domwmt of The World Bank FOR OmcaAL USE ONLY Rqut No. 9167 PROJECT COMPLETION REPORT BURKINA PASO THIRD TELECOOMIUNICATIONS PROJECT (CREDIT 1235-BUR) NOVEMBER 30, 1990 Africa Technical Department, Industry and Energy Sahelian Department, Industry and Energy Operations Africa Region Ths document has a restcted dhluton and may be kd by recipie only in the pefoman of their official duties. Its contents may not otherwise be disclsed without World Bank autorization.  CW.RENCY 3OUIVALLiTS (1989) US$ 1 - CFAW 319 CrAw 1 US$ 0.0031 SDR 1 - US$ 1.31416 US$ 1 - SDR 0.78018 SDR 1 - CPAW 419 FISCAL YEAR January 1 - December 31 ASBIRVIATIONS AND ACRONYMS USED AfDB s African Development Bank (Abidj&a, COt. d'IvoLre) CCCE I Caisse Centrals de Coop6ration Econamique (Paris, France) DZL I Direct exchange lins (connected telephone subscriber line) Expressed Demand s Sum of working connections and waiting list ITU I International Telecommuanication Union LD s Long distance transmission, channel or circuit Microwave I Radio system working at frequencies above 1,000 Megahertz (normally used as long distance vide bank transmission carrier for telephone and television circuits) NSC s Ministbre des Transports et des Communications, in charge of sector polLcy and supervision of OPT ONATIL ONATEL : Office National des T6l4coumunications, operating entity for public telecommunications in Burkina Faso since January 1987--the actual beneficiary under the project ONPBF a Office National des Postes de Burkina Paso, entity in charge of postal services in Burkina since January 1987 OPT Office des Postes et T6ldcomiuLcations du Burkina Faso, the operating entLty for !wublic telecommunications in Burkina Faso up to December 1986--the .nLtial executing agency and beneficiary under the project SDR I Special Drawing Rigbt STD Subscriber Trunk Dialing in automatic interurban/ international telephone services Telez a Switched teleprinter service Trunk 2 Long distance, for interurban service UNDP a United Nations Development Programme  THE WOtLO S,AK FOR OFFICIAL USE ONLY W1s"wonC.D r. 20433 U$SA Office of Director."saval Operatic. Ivaluet-lom November 30, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Burkina Faso Third Telecommunications Proiect (Credit 1235-BUR) Attached, for information, is a copy of a report entitled "Project Completion Report on Burkina Faso - Third Telecommunications Project (Credit 1235-BURj" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This t acument Xua mUtntC dstnbuuon and may be to by rmaesnu only la ui PCsNo wc= of their ofiscuu iauuL. 1u content may not otherwm beet d g Wthout W.rt ana auwmjuun  FOR OFFICIAL USE ONLY BURRINA FASO THRID TELECOMMUNICATIONS PROJECT CREDIT 1235-BUR PROJECT COMPLETION REPORT Tab!.e of Contents Page No. PREFACE ......, .....................i EVAL.UATION SUMKM A R ........... PART I 1. PROJECT IDENTITY.. 1 2. BACKGROUND.. 1 3. PROJECT OBJECTIVES AND DESCRIPTION . . 2 - Project Objectives.. . 2 - Project Description... . 2 4. PROJECT DESIGN AND ORGANIZATION. 3 5. PROJECT IMPLEMENTATION ............................ 3 - Gredit Effectiveness and Project Start-Up. 3 - Procurement.. .. 4 - Project Implementation Schedule and Revision 4 - Project Cost ............ .. 5 - Allocation of Credit Proceeds . . 6 6. PROJECT R EESULTS ...... 6 - Physical and Operational Results. 6 - Financirl Performance ......... 7 - Accounting System. . .. .. I .... . 7 - Revenue Cycle. .. .................. . . . 7 - Covenants on Rate of Return and Debt Service Ratio 7 - Economic Rate of Return .8 7. PROJECT SUSTAINABILITY.... 8 - Project Benefits... . 8 - Institutional Imact 8... . - Economic Impact .... This document has a restricted distribution and may be used by recipients only in the performance of their ofhcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  TABLE CF CONTEN'TS (Cont.) Page No. 8. BANK PERFORMANCE ...................................... 9 9. BORROWER PERFORMANCE .................................. 9 10. PROJECT RELATIONSHIP .................................. 10 11. CONSULTING SERVICES AND STUDIES ....................... 10 - Technical ........................................... 10 - Financial Management and Audit ...................... 10 - Studies ........................... 10 12. PROJECT DOCUMENTATION AND REPORTING .. 13. CONCLUSION AND RECOMMENDED ACTION .11 PART III Tables 3.1 Related Bank Loans and/or Credits .12 3.2 Project Timetable .13 3.3 Credit Allocation and Disbursements. 14 A. Allocation of Credit Proceeda (original, revised and as disbursed). 14 B. Cumulative Estimated and Actual Disbursements 15 3.4 Project Implementation .. 16 A. Additional Facilities, Estimated and Actual (main components) ..... .................... 16 B. Completion Dates, Estimated and Actual .17 3.5 Project Cost and Financing. 18 A. Project Cost .18 B. Project Financing. .19 C. Country Exchange Rates. 9 3.6 Project Results ..20 A. Direct Benefits .20 B. Economic Rate of Return .......................... 21 C. Financial and Fiscal Impact ....................... 22 D. Studies ...................,.,,.,......... 23 3.7 Status of Covenants ................................... 24 3.8 Missions Data .26  TABLE OF CONTENTS (Cont.) Page No. Annexes 27 Annex 1 Growth of Facilities and Operational Performance (1980-1989 actual indicators and 1990 estimate at full development) ..................................... 28 Annex 2 Financial Statements 30 A. Income Statements .30 B. Funds Flow Statements. 31 C. Balance Sheets .............32  BURKINA FASO THIRD TELECOMMUNICATIONS PROJECT CREDIT 1235-BUR PROJECT COMPLETION REPORT I. PREFACE 1. This report covers the Third Telecomunications Project in Burkina Faso supported by Credit 1235-BUR. The credit for SDR 14.9 million to the then Republic of Upper Volta, which became Burkina Faso in 1984, was signed on August 26, 1982, became effective on July 8, 1983 and was closed on June 30, 1989, 24 months after the original closing date. 2. Parts I and III were pre, red by Bank Staff, based on information available in the project files, supplied by the Office National des Tel6communications du Burkina Faso (ONATEL) and a short mission in March 1990. 3. The Borrower did not prepare Part II despite repeated requests to do so.  - ii - BURKINA FASO THIRD TELECOMMUNICATIONS PROJE8T CREDIT 1235-BUR PROJECT COMPLETION REPORT EVALY ATION SUMKARY Background 1. The SDR 14.9 million (US$17 million) credit 1235-BUR was the third IDA telecommunications credit in Burkina Faso (formerly Upper Volta). The first two projects had been satisfactorily completed by the end of 1974 and 1979, after broadly meeting their developmental and organizational objectives. The third project was appraised in 1981 and Credit 1235-BUR was approved by IDA's Board in April 1982 (paras. 2.01 - 2.03). Project Oblectives and Description 2. The main objectives of the project were to: (i) expand, improve and establish reliable telecommunications facilities in and between towns with substantial economic activity; (ii) strengthon the institutional framework; and (iii) develop a sound financial basis for future operations and investment. 3. The project included: (i) the expansion of local telephone facilities in eight major towns, including 8,800 additional exchange lines and construction of outside plant; (ii) expansion of the long distance network through construction of three main transmission routes and provision of new trunk and international switching equipment; and (iii) technical assistance and training in development planning, operation and maintenance, administration and financial management (paras. 3.02 and 4.01). Implementation, Experience and Results 4. Physical implementation did not raise difficulties. Completion was delayed by about three years because of political instability and events in 1982-84. The project had to be updated and its scope revised in 1984-85 on account of actual costs, increasing demand and change of technology (paras. 4.01 and 5.01 to 5.04, and 6.01). Network expansion exceeded the initial target by 561. At project completion there were about 14,000 additional exchange lines installed, compared with 9,000 at appraisal, and 95Z of all 16,000 main working lines were connected to automatic exchanges. Overall demand and usage of service grew in line with appraisal estimates (para. 6.01).  - iii - 5. The estimated project cost was CFAF 10.84 billion ($40.5 million), with a foreign exchange component of about 70Z. The actual cost is CFAF 12.40 billion ($34.7 millio") with about 36? foreign exchange. Due to dollar appreciation by about 332 during intervening years, financing of foreign exchange portions was sufficient even for increased capacities under the revised project (para. 5.03). The local cost component was financed by OPT from self-generated funds (paras. 5.05 to 5.07). 6. In the financial area, achievements were well below appraisal expectations. The accounting system has remained inadequate and unreliable, and billing and collection are still poor. Government agencies continued to accumulate arrears. Due to a 20? tariff increase in 1984, the target 15? rate of return was reached from 1984 to 1986, but fell in subsequent years following commissioning of assets. Financial management remained weak and insufficient (paras. 6.02 to 6.07). At the beginning of the project, postal and telecommunications services were still under the responsibility of a single entity, OPT, but in 1986 the Government decided to split OPT into two -eparate entities. This decision, previously advocated by IDA, was 4 line with the current worldwide trend in the coumunications sector towards separate autonomous management of postal and telecommunications services. This major restructuring, however, delayed the implementation of sound managerial, financial and accounting systems and procedures. Efforts are currently being made to introducc these improvements within the next few years (paras. 5.03, 7.03, 11.02 and 12.01). Lessons to be Learned and Conclusion 7. The main findings and lessons to be learned from the project are that: (a) early detailed project planning, design and preparation with the help of consultants tinanced through a PPF contributed to the satisfactory implementation of the physical components at low costs (para. 5.01 to 5.07, and 6.01); (b) major political events in the country affected project timing anl IDA project supervision, but subsequent cooperation between the beneficiary and its lenders enabled the moderation of the detrimental effects of delays (paras. 5.01 to 5.03); and (c) the positive decision made by Government to reform the sector, splitting OPT into separate entities--one for Post (ONPBF) and the other for Telecommunications (ONATEL)--has demonstrated that although such reform can be launched very quickly, proper implementation of the new organizational Ptructures and management improvements require more time and the support of appropriate and sustained external assistance (paras. 5.04, 7.01 and 7.03).  - iv - 8. The follow-up of three telecommunications projects since 1969 in Burkina Faso (formerly Upper Volta) has shownr that: (i) on thi technical side, expansion of existing facilities and development of new systems have taken place successfully, with the resulting facilities being reasonably well operated and working efficiently; (ii) on the economic side, internal financial rates of return from the operation, though intermittently low, have been adequate, and estimated internal economic rates of return from the project have been high, showing the importance of telecommunications in economic development; but (iii) for the institutional aspects, improvement in management and particularly financial management, as well as changing the overall management culture towards a more customer oriented commercial approach are difficult, complex and slow processes. At the same time, growth in demand for services requires continued expansion and external financing. These findings indicate that there would be a rationale for continued IDA involvement in the sector, as wished by Government (paras. 13.01 and 13.02).  BURKINA FASO THIRD TELECOMMUNICATIONS PROJECT (CREDIT 1235-BUR) PROJECT COMPLETION REPORT PART I 1. Proiect Identity Title: Third Telecommunications Project Credit No.: Credit 1235-BUR RVP Unit: Africa Region Country: Burkina Faso Sector: AF5IE, Induttzy & Energy Sector Subsector: Telecommunications 2. Background 2.01 Telecommunications in Burkina Faso (formerly Upper Volta) are under the supbrvision of the Ministry of Transport and Communications (MTC). During the project implementation period, operation and development of public telecommunications services, domestic and international, were successively the responsibility of the Office des Postes et Telecouumunications (OPT) and the 'Office National des T6l1communications (ONATEL)l establ'shed in January 1987. OPT had been established in 1966 at IDA's suggestion during the preparation of a First Telecommunications Project (Credit 141-UV). It also operated postal services and provided various public financial services such as money orders, postal checking and savings accounts. In 1987, OPT's postal/financial operations were separated from those for telecommunications and entrusted to the 'Office National des Postes du Burkina Faso (ONPBF)'. 2.0Z IDA has been associated with the telecommunications sector in Up ar Volta since 1969 through three credits. The first one of US$0.8 million (Credit 141-UV), declared effective in June 1969, which partly financed a US$1.4 million project, was satisfactorily completed by the end of 1974 and the Project Performance Audit Report issued on June 2, 1976. The second IDA credit of US$4.5 million (Credit 431-UV), declared effective in May 1979, helped to finance the supply and installation of automatin telephone exchanges in the capital city and five provincial towns, the expansion of associated local networks and transmission routes, and the strengthening of OPT's financial management. The project was executed concurrently with the Ouagadougou-Abidjan and Ouagadougou-Lome microwave links financed by CCCE, and the satellite earth station and telex exchange projects financed by a consortium headed by the US Eximbank. The second project's objective of opening up Upper Volta to telecommunications has bten broadly achieved. The physical components of the project were executed on schedule and satisfactorily completed by December 1978. A Project Completion Report was issued on May 17, 1983. Following commissioning of the satellite earth station (1977), OPT had also taken over the responsibility for international overseas telecommunications  -2- services from F:ance Cable et Radio. Up to 1977, OP, was a relatively efficient organization which had redured its dependence on expatriate services. 2.03 Since 1977, however, the situation had been deteriorating and corrective measures were required. To this effect, and to further contribute to priority investments, under OPT's telecommunications development program from lS80 onward, the Government of (then) UTpper Volta requested IDA's assirtancs in financing a third tele:ommunications praject, in November 1978. shortly before completion of the .econd Project. The proposed project was intended to be part of the next OPT investment program. Government and IDA's views were that the sactor developmental and organizational objectives needed to be further supported. Furthermore, OPT's investment program was specifically designed to support broader economic development objectives of balanced regional development And involvement of the entire population in the development process. Suffizient communication infrastructure in both populated and remute areas of the country, and to enablj linkages with other countries, is essential for the effectiveness of this process. Some delays occurred in project preparation in this context (paras. 2.04 and 3.01) Credit 1235-BUR of SDR 14.9 million ($17 million), for the third telecommunications project for -hich this is the completion report, was signed on August 26, 1982, became effective on July 8, 1983, and was closed on June 30, 1989. 2.04 The project was prepared by OPT with the assistance of consultants financed through PPF No. P.r62 of March 8, 1979. Preparation was delayed by discussions on the size and phasing of OPT's proposed component under the Liptako-Gourma telecommunications project, a multinational scheme to interconnect countries in the semi-arid Sahelian region of Niger, Mali and Burkina Faso. The proiect was appraised in February 1981. Following agreement by Government on program/project objectives and the reduction of the Liptako-Gourma component to a more feasible part of OPT's investment program for the period 1982-1986, negotiations were held in Washington in February 1982. A credit of SDR 14.9 million was approved by IDA's Board on April 27, 1982. The credit agreement with the Government of Upper Volt& and a project agreement between IDA and OrT were signed on August 26, 1982 (para. 2.02). 3. Project Objectives and Descriptior 3.01 Proiect Objectives. The main objectives oi the project were tu: (a) expand, improve and establish reliable telecommunicrtions facilities in and between towns with substantial economic activity, population and demand for services; (b) strengthen the institutional framework necessary for higher levels of achievement in the sector; and (c) develop a sound financial basis for future operations and investments. To reach these objectives, the project also aimed at providing technical assistance for planning, design, and realization of network expansion, operation and maintenance, and introducing adequate management systems and procedures in all areus, as well as managers and staff training. 3.02 Project Description. The project was part of OPT's 1982-86 telecommunications investment program, designed to meet 75Z of demand for  3- service in the main cities and extend reliable service to provinces, and to improve OPT's management. Its main components were: (a) 8,800 lines of automatic telephone exchanges in a major towns; (b) extension of trunk and international switching equipment; (c) construction of ducts and installation of local subscriber networks in the 8 major towns; (d) construction of 3 transmission routes: one in cable, Ouagadougou-Deiougou; and two microwave links, Dedougou-Bobo and Bobo-Dioulasso and Bobo-Dioulasso-Diebougou-Goua; (e) training and improvements in maintenance and repair organization; (f) consultancy services to help in development planning, supervision of implementation and initial operation of facilities and in carrying out a Management Improvement Program to strengthen OPT's administration and financial management. 4. Proiect Design and Organization 4.01 The project was designed within OPT's 1982-86 telecommunications investment program, to meet its objectives (para. 3.02) and to assist OPT in (a) setting priorities and in strengthening its development planning; (b) selecting least cost technical and economic solution and making balanced investments; (c) introducing adequate management systems and operational procedures to increase efficiency and productivity; and (d) training staff. Basic project design and project organization remained unchanged throughout implementation. Some revisions, however, were required to meet increased demand and to adjust to the merging digital technology (para. 5.03). 5. Project Implementation 5.01 Credit Effectiveness and Project Start-up: Although the origit.al date was November 24, 1982 the Credit Agreement was not declared effective until July 3, 1983. Effectiveness was postponed because of: (i) difficulties encountered in obtaining the subsidiary loan agreement between Government and OPT and the legal opinion on the ratified Legal Documents of the Credit and Project; and (ii) delays in fulfilling conditions of effectiveness of the parallel financing arrangements with CCCE and Dutch Aid. Improvements could be achieved in this area by better informing the various parties involved during the document approval cycle. For instance, these documents and the ratifying procedure could be discussed and explained at negotiations. Concerning project start-up, the early engagement of consultants for detailed project planning under PPF enabled OPT to issue tenders for the mair, items to be financed by IDA by mid-1982. Suppliers had been selected for most of the procurement when the Credit became effective in August 1983. However, because political instability and events in 1982-84 (a coup d'Etat on August 4, 1983, involved two  changes of Minister, OPT's Board members, General Manager and several senior executives d:iring the subsequent year), OPT was not able to finalize the awarded contracts on time. Start of project construction was delayed by about 12 to 18 months for the IDA financed components and up to 24 months for the CCCE financed ones. Major contracts under the Credit were finalized and signed only in 1984. 5.02 Procurement. OPT/ONATEL properly adhered to the Bank's procurement procedures and the result of ICB was satisfactory. Tenders for each group of equipment and works attracted a large number of bidders and OPT obtaired good prices. Based on the contracts realized, the actual costs of the IDA project components were below appraisal estimates as follows: about 15Z below for the transmission component, 52Z for cables and associated materials, and 60Z for civil works. This is noticeable for such specific procurement in a small landlocked African country such as Burkina Paso. Performance of the suppliers and consultant was satisfactory, on the whole. One consultant had difficulty in providing and maintaining on site the staff needed. The contract was terminated and the works completed on schedule by another consultant already employed by OPT. Also, one microwave link was of insufficient quality and stability at provisional acceptance, but this was remedied by the supplier during the equipment warranty period. 5.03 Project Implementation Schedule and Revision. Physical project components, originally scheduled to be completed in December 1986, were completed about three -ears behind schedule. Table 3.4.B in Part III givs details of the completion dates, estimated and actual, for the main project components. The basic reason for the delay in both local and long distance installations were the late project start-up (para. 5.01). The project revision took place in 1984-85 when the awarded contracts could be finalized. It mainly resulted in an increase by about 55Z of the additional local and long distance network capacities in and between the main cities (para. 6.01) and in the acquisition of complementary digital switching equipment for trunk and international services, rather than of existing electromechanical installatioas, which proved difficult or too costly to expand as per OPT's initial plans. Table 3.4.A details the additional facilities, as estimated at appraisal and actual following revision. All new installations were not yet used in December 1989 at physical project completion. About 1,000 new subscribers were connected in 1987 and 2,000 each year in 1988 and 1989 when the number of working DELs reached about 14,000, the estimated appraisal target for December 1986. ONATEL expects to reach full development from the project by December 1990, when the total equipped capacity will be about 25,000 exchange lines and 16,300 DELs will be in operation, i.e. more than twice the number of DELs at project inception. Corresponding growth of facilities and operational performance is detailed at Annex 1. 5.04 The implementation of the institutional component was mediocre, in particular with regard to OPT's financial situation and performance from 1982 to 1986, the last year of joint postal and telecommunications operations. On the part of the Bank, supervision had to be repeatedly postponed or cancelled in 1983 and 1984 and little follow-up could take place. Government complied with some of its covenanted actions vis-a-vis  -5- OPT with regard to tariffs, staffing levels, external audits and some organizational measures, but the aspects concerning financial management, commercial accounting system and Government receivables were neglected or unsatisfactorily fulfilled. On the part of the Borrower, however, the perception of difficulties and diseconomies of management in joint operation of post and telecommunications, as had been previously stressed by the Bank, resulted in 1986 in the formal decision to split the OPT into an Office National des Telecommunications (ONATEL) and an Office National des Postes du Burkina Faso (ONPBF). The two entities were legally created and became effective in February 1987. The reorganization is in the early stages of implementation and, in particular, a protracted delay was observed in the start-up and establishment of effective financial management for the two new entities (paras. 6.02 and 7.02). The restructuring took place within Government policy of reorganizing and making more efficient the public sector in the country. It was prepared in 1985-86 by Government and OPT, through appropriate interministerial committees, with little, if any, external assistance. This was in line with the current worldwide trend to evolve institutions and management of the P and T sector towards separate autonomous and business-like operation of the services. This reform, however, made it difficult for the project objectives in the financial and accounting field to be fulfilled (paras. 6.02-6.03). More viable financial and commercial operation of the two entities is expected to be achieved within the next two years. 5.05 Project Cost. The cost of the project was estimated at CFAF 10.84 billian (US$40.6 million) with a foreign exchange component of about 702 of the total cost. The final cost is CFAF 12.40 billion (US$34.7 million) of which 862 is foreign exchange. A 14.4Z increase in the total project cost expressed in CFAF compares with a 14.5Z decrease when expressed in US dollars, largely due to average dollar appreciation by about 33Z during intervening years. Consequently, foreign financing was sufficient even for increased capacities under the revised project and on account of the good prices obtained from ICB (para. 5.03). In spite of a decrease in the local cost component, OPT was barely able to meet its share of the total cost by self-generated funds, largely because of its tight financial situation due to the non-payment by Government of its bills for rendered telecommunications services and of the corresponding arrears. A comparison of the project costs, as estimated at appraisal and actual as of December 31, 1989 is shown in Table 3.5.A of Part III. Project financing and the country exchange rate variations during the project period are detailed in Tables 3.'.B and 3.5.C, respectively. 5.06 The cost difference between appraisal and implementation stems from the following factors: (a) appraisal estimates were based on the use of electromechanical equipment for extension of some local and trunk exchanges and on the historical cost of similar equipment and works. The good prices obtained from ICB for grouped items (para. 5.02), the expanded use of digital equipment for local and trunk exchanges and the realization of larger systems made it possible to purchase about 602 more local systems at a total cost of only 5Z above the original estimate;  (b) cost of expanded transmission systems remained in line with original estimates and procurement of increased capacities resulted in about 1OZ decrease of the cost on a per channel basis; and (c) the use of contractors for civil works and installation of most local networks resulted in an increase of the foreign versus local cost components for this item, but ICB and grouped procurement for larger quantities resulted in about 30Z decrease of the cost on a per line basis. As a whole, notwithstanding the implementation delays, project execution proved relatively cost effective and technically satisfactory. 5.07 Allocation of Credit Proceeds. The original and revised allocation of proceeds and final disbursement by categories in SDRs for Credit 1235-BUR in SDR are shown in Part III, Table 3.3.A. The revised allocation was agreed on in June 1987 to reflect project revision (paras. 5.01 and 5.03). It was based on actual quantities and costs, and also reflected the dollar appreciation by about 502 for the period 1984 to 1986 during which almost half of the credit amount was disbursed. IDA's financing percentage of civil works for local line systems was increased from 602 to 85Z to reflect the higher foreign exchange component of the actual contracts. Cumulative estimated and actual disbursements, in US$ million for each Bank fiscal year, are shown in Part III, Table 3.3.B. 6. Project Results 6.01 Physical and Operational Results. The physical targets of the project as planned and achieved are shown in Tables 3.4.A and 3.6.A of Part III. In 1984-85, installed capacities for additional exchange lines w.ere increased by about 55Z, from 8,800 at appraisal to 13,700 by the end of 1989. As of December 31, 1989, there were 14,251 DELs in service, which closely compares with the appraisal forecast of 13,850 DELs in Decrmber 1986. OPT/ONATEL's main operational results and performance on maior indicators, each year from 1980 to 1989, are detailed in Annex 1. Appraisal estimates for 1986 are also shown. From 1988 on, data include additional installations of about 3,000 exchange lines and corresponding local and trunk facilities, realized by ONATEL to cope with a rapidly increasing demand, which followed the availability of new lines from the project. Average yearly growth of demand was about 15? since 1987 which coincides with appraisal forecast. At project completion 952 of the telephone subscribers were connected to automatic exchanges. Most of them had access through subscriber trunk dialling (STD) to nationwide interurban service between exchanges in 14 main localities throughout Burkina and to automatic international service with 45 countries. Annex 1, shows also that available local network facilities not yet used at full development by December 1990, would represent only about two years of demand growth. To cope with this, ONATEL is faced with the urgent need to undertake an important expansion program. International facilities are now close to saturation and thus require urgent expansion and diversification to ensure sufficient and reliable traffic routing.  -7- 6.02 Financial performarce. The financial situation was poor at OPT and is still poor at ONATEL, mainly because the quality of the financial management is low. This is felt in all aspects of the financial activities. 6.03 Accounting system. The audit report for the 1986 OPT accounts, the last to be audited, is dated July 1988. The 1987 accounts, ONATEL's first operating year, are not yet audited. The auditor, SOFIDEC, did not certify the 1986 accounts, because the system is in poor shape: (a) The accounting systems and procedures are not set up tightly, as there is no comprehensive documentation and no internal control, which go together, and the auxiliary and general computerized accounts are not coordinated; the level of competence of the accountants is low; furthermore there is no training. (b) The supply cycle, including purchases, stock management and physical inventory, is not properly organized, the staff is not competent and there is no effort to advise on the rotation of items. (c) There is no cash management. (d) There is no register of fixed assets. 6.04 Revenue cycle. The billing is slow and the collection is poor. In this most sensitive area, OPT before, and probably ONATEL now (although they claim that the collection rate was much improved at the end of 1989), have been losing much money. At the end of 1987, 0l of the connected lines were estimated unbilled, which is a loss of revenue but has no influence on receivables, and the collection rate was estimated, in 1987, to be SOZ. Consequently, the receivables were high, equivalent to 9 months of billing at the end of 1987. In spite of a corrective agreement of 1987 between Government and ONATEL, Government agencies had arrears of well over one year of consumption, as the budgeted consumption is kept each year at a constant level, while the actual consumption is rapidly increasing. 6.05 The only remedy left for ONATEL to deal with this situation was to compensate Government's arrears with its debts to Government. This, however, is bad practice for a utility company, because there is no relation between arrears and debts, and debts can be high enough to let Government's consumption get out of control, particu irly when civil servants' official phones are allowed to become free public telephones for friends and relatives. Controlling Government consumDtion is only possible when a utility financial management can act as an es .1 partner in a negotiation. Except for private subscribers who can be cut off, covenants do not appear to be the right way to reduce receivabies. It is more efficient to concentrate on reinforcing ONATEL's financial and accounting structure. 6.06 Covenants on rate of return and debt service ratio. In 1984 following a 20Z tariff increase, the rate of return on assets, the value of  which were approximately revalued (simply increased with inflation), exceeded the covenanted rate of return of 152 and remained at a satisfactory level in 1985 and 1986. The rate of return seemed to have fallen in 1987 because of large commissioning of assets. However, those high rates would have been much lower if adequate provisions for bad debts had been calculated. The same is true concerning the debt service ratio, which seems to be at the level requested by the appropriate covenant. Covenants on receivables, rates of return and debt service ratios, are interrelated and cannot be examined independently. 6.07 Economic rate of return. The internal financial rate of return of the investment programme is estimated, on the basis of the last available documents - the 1986 audited accounts, the 1988 supervision report, financial projections for 1988 and 1989 and estLiated revenues for 1990 and 1991 - at 192. This is less than the 252 rate calculated at appraisal, because of the time lag between the capital expenditures (1983- 87) and the expected substantial revenues (from 1991 on) from the new DELs. However, the internal economic rate of return, calculated with tariffs increasing with inflation until 1989, is at 28Z, compared to 302 calculated at appraisal, which shows more clearly the importance of the development of the telecommunications sector for the country's economy. 7. Proiect Sustainability 7.01 Project Benefits. The project's benefits are significant and relatively higher than expected. They include: (i) an increase both in the quality and the coverage of telecommunications services (para. 6.01); and (ii) the transformation of OPT's telecommunications branch into an autonomous operating entity, more efficient and possibly self-sufficient after substantial net contribution to Government resources (para. 6.02). The principal risks to sustainability is uncoordinated further development and poor management of the operating agency, as discussed below. 7.02 Considering the overall importance of telecommunications to economic and social development and the rapidly growing current demand for service (para. 6.01), the net benefits from investment under this project are likely to be maintained, as in the two preceding ones. The current project has practically multiplied by 2.5 the installed and in-service network capacities over a seven-year period. A recent study of telecommunications requirements in Burkina, made by ITU in 1988, shows that ONATEL's next short term development program through 1995 should consist of another doubling of current local network capacities by adding about 20,000 new exchange lines, together with expansion of trunk and international facilities and rural coverage. Several lenders have shown interest in cofinancing the next stage of deveiopment. Continued IDA involvement would be suitabi'e to assist in determining and arranging for the important external financing required and, simultane>isly, ensuring that development continues in a coordinated and cost-effective way as was experienced under the third project. 7.03 Institutional impact. The institutional impact of the project has been only limited, by introducing auditing, which happened to be late, and a sense of compelling private telecommunications users to pay for the  -9- services rendered, but the main reform of the sector was accomplished by the country alone when, in 1987, the Government separated postal and telecommunications entities. The little improvement brought about by the Canadian technical assistance would have to be pursued vigorously in reinforcing ONATEL's financial department with a strong manager, who could be an expatriate, and enough competent staff, so that it would be in a position to discuss on an equal basis with the technical department and the corresponding Government agencies. 7.04 Economic impact. The main economic impact is hardly measurable, but it is considerable when the penetration rate is of the order of 0.2Z (cumpared tu 502 in most advanced countries): it is what is brought about by a more than doubled telecommunications network, improved communications with provincial towns and more international lines. But this improvement needs discipline for the best efficiency of the network, i.e., satisfactory service, strict control of Government communications and timely payment of bills. 8. Bank Performance 8.01 Overall Bank performance has been satisfactory. In the initial stages, project preparation was combined with final supervision of the second project. PPF No. 062, started in 1979 for detailed project planning and engineering, enabled tendering for most IDA-financed items to take place in 1982-1983, before credit effectiveness. Due to political instability, supervision had to be repeatedly postponed from 1983 to mid- 1985, a period during which project implementation was delayed and could not be well monitored. Regular supervision took place from 1985 to project completion. Table 3.8 in Part III gives details of the supervision missions and of the types of problems which were encountered. 9. Borrower's Performance 9.01 Covenants. Government was Lhe Borrower and OPT, ONATEL since 1987, was the implementing agency. The status of compliance with the conditions of the Credit and Project agreements is indicated in Table 3.7, Part III. The main non-compliance of Government was: (i) its continued limited or non-payment of its telecommunications bills, though some partial compensation was agreed upon in 1987; (ii) the de-facto non-settlement of Government arrears for past usage of telecommunications; and (iii) the non- coverage of deficits of the Postal branch. Concerning OPT/ONATEL's compliance, impact of tariff study was limited and there were considerable delays in submitting the audited financial statements. 10. Proiect Relationship 10.01 IDA's relationship with Government and OPT/ONATEL on the project has been good. During project preparation, appraisal and supervision, OPT provided all the support needed.  - 10 - 11. ConsultinR Services and Studies 11.01 Technical. The project provided for technical consultancy services to assist OPT in project preparation, detailed planning, project management and supervision of execution of most of the works. Technical assistance was provided from the IDA credit, including initial engineering under PPF, and under the project components financed by other donors (CCCE, Dutch Aid, ITU). Due to project revision and delay, additional assistance of about 65 man-months was required, which was mainly financed by CCCE (Table 3.4.A). As a whole, the technical assistance services provided to OPT/ONATEL were satisfactory. 11.02 Financial management and audit. Little is known about Canadian technical assistance for the management improvement programme. Three men arrived in August 1986, three years following effectiveness, two for financial matters and one for personnel. We know from the auditor's report that they have started to write accounting procedures manuals, but they have not produced any report yet. Auditing was slow to start, as the 1983 accounts were the first to be audited, in February 1985 seven months overdue. Lateness seems to be the rule, since the audit reports of the 1984, 85 and 86 accounts were available in December 1986, June 1987 and April 1988, and we were told that the audit reports for the 1987 through 89 acco,.znts would reach the Bank at the end of 1990. The 1986 accounts were not at the certification standard. 11.03 Studies. Table 3.6.D in Part III gives a summary of the telecommunications tariff study completed in early 1983, and of its impact. New tariffs were introduced in 1983, but have never changed since then. OPT did not exploit the recommended principles for formulating and adjusting tariffs during the project period. The impact of the study was thus limited, although the new tariffs from 1983 were relatively high. ONATEL is currently updating the study with assistance from UNDP/ITU, in particular with regard to new services. 12. Prolect Documentation and Reporting 12.01 The development credit and project agreements were adequate for achieving project objectives in the key areas of sector development and managerial/organizational improvement to strengthen OPT's administration and financial management. The appraisal report of the project provided a useful framework for review and follow-up of implementation by both IDA and OPT. In particular, the developmc .t requirement forecast was realistic and could have been feasible notwithstanding external circumstances (para. 6.01). Project revision was discussed with IDA and CCCE in 1984-85 to allow for appropriate reallocation and best usage of the available development funds (para. 5.03). Progress reporting, however, lacked regularity and comprehensiveness, largely due to workload and difficult coordination under changing management (OPT/ONATEL had four different Directors-General during the project period). The necessary information was provided during supervision and internal reports from the operational divisions enabled us to complete and update the technical information. The reporting and exchange of information was, however, much less adequate with regard to institution building and reform, and strengthening financial  - 11 - management of OPT/ONATEL. ONATEL is currently establishing its own Information Management System (MIS), as was initially included in the project, to provide data necessary for senior management and monitor performance. 12.02 ONATEL and Government have informed IDA that a thorough project completion report is being prepared on their part to reflect their perspective on the project, its implementation, results and impact. The draft report has not yet been received. 13. Conclusion and Recommended Action 13.01 The three telecommunications projects since 1969 in Burkina Faso (formerly Upper Volta) have shown that parallel actions on both sector development and institutional building require a long time to achieve results. The main findings from the three projects were that: (i) on the technical side, installed capacities in telephone exchanges were increased twenty-fold, from 1,200 lines in 1969 to 24,000 lines in 1989, automatic service was extended from 2 to 16 locations and most subscribers have dialled access to 45 countries, or about 902 of the world's telephones. Facilities are reasonably well operated and work efficiently. (ii) On the economic side, internal financial rates of return from the operation were 102, 15% and 19Z under the first, second and third projects, respectively. Internal economic rate of return for the third project was at 28% compared to 30Z calculated at appraisal. (iii) For the institutional aspects, improvement in overall administration and financial management is slow and irregular. The financial situation of the telecommunications operating entity remains weak, with tight cash flow poaition, large debt service and insufficient financial strength to sustain further development. This, in turn, compromises the self-sufficiency of the operating entity. A continuous flaw in the soundness of telecommunications operations in Burkina Faso has been the non-payment by Government of its bills for the usage of services, the non-settlement of accumulated arrears and the non- coverage of postal deficits. An agreement between the Government and the operating entities on these aspects in the form of a Contract Plan is overdue. 13.02 Following the split in 1986 of the former OPT into two separate autonomous operating entities, the Government expected that IDA assistance would be continued to strengthen and improve the overall organization and financial management of the new entities and for the development and further improvement of tha services to the public. Particularly, Government considered that the Bank's experience in sector restructuring and in coordinating, financing and supporting development would best benefit ONATEL. In this context there would be a rationale for continued IDA involvement in the sector and it is therefore recommended that a dialogue be re-opened to establish a new basis for IDA cooperation with the sector that would imply the appointment of a strong financial manager. Financing requirements for future sector development could also be examined with other potential co-financiers. This exchange of views could take place in the framewotA of a possible stand-alone telecommunications operation or in the context of the preparation of the proposed projects for Public Enterprises and/or the Transportation sectors in Burkina Faso.  -12- BURKINA FASO THIRD TELECOMMUNICATIONS PROJECT CREDIT 1235-BUR PROJECT COMPLETION REPORT Part III - Statistical Data Table 3.1s RELATED BANK LOANS AND/OR CREDITS Year of Credit Title Purpose Approval Status Credit 141-UV a/ Rehabilitation of outside Feb. 1969 Completed in First Telecomunni- plants in two main cities, Sept. 1974 cations Project construction of long distance overhead lines and setting up basic organization and comercial accounting system of the newly created OPT Credit 431-UV a/ Provision of automatic June 1973 Completed in Second Telecommuni- telephone exchanges in October 1979 cations Project the two main and four provincial towns and expansion/construction of associated local networks and trunk transmission routes under OPT's 1974-77 development program; and improvement of OPT's - budgetary and administrative procedures a/ Burkina Faso was then the Republic of Upper Volta. The country's name was changed in 1984.  -13- Table 3.2: PROJECT TIMETABLE Item Date Planned Date Revised Date Actual Identification a/ 05/78 Preparation a/ 10/78, 04/79 and 05/80 b/ Government Application 05/75 c/ Appraisal Mission 02/81 Credit Negotiations 02/22-25/82 Board Approval 04/27/82 Credit Signature 08/26/82 Credit Effectiveness 11/24/82 02/24/83 07/03/83 d/ Credit Closing 06/30/87 06/30/88 06/30/89 e/ Credit Completion 06/30/87 12/31/89 02/02/90 f/ a/ These were identification and preparation missions combined with supervision/ completion of the second project. b/ Detailed project preparation was carried out with the assistance of consultants under PPF No. P.062 ($0.5 million) signed on 3/8/79. c/ Initial application made during revision of the second project and renewed in late 1979 at completion of second project. d/ Two extensions of the date of effectiveness were required due to delays in ratifying and obtaining legal opinion on all documents, in finalizing the re- lending agreement between Government and OPT, and in fulfilling conditions of effectiveness of the parallel financing agreement with CCCE under the project. e/ Two extensions of the closing date were required to enable completion of local networks and small telephone exchanges in the six provincial towns. f/ Date of last disbursement and closing of the credit account book.  -14- Table 3.3: CREDIT ALLOCATION AND DISBURSEMENTS Table 3.3.A: ALLOCATION OF CREDIT PROCEEDS (CR. 1235-BUR) (SDR) Final Category Original Revised a/ Disbursement (1) Civil works 1,920,000 4,795,000 4,931,248 (2) Materials, equipment and installation /,580,000 8,715,000 8,816,989 (3) Vehicles and tools 350,000 26,500 24,819 (4) Consultants and experts' services, fellowships 1,570,000 770,000 762,807 (5) Refunding of Project Preparation advance 440,000 364,138 364,137 (6) Unallocated 3,040,000 229,362 TOTAL 14,900,000 14,900,000 14,900,000 a/ Revision was made on June 18, 1987, on the basis of the revised project and contractual costs of most items. EL  -15- Table 3.3.B: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ millions) -----------Disbursements---------- Bank Fiscal Year Appraisal Actual as Z of Ended June 30 Estimate Actual Estimate 1983 3.34 0.42 12.4 1984 7.14 3.02 42.3 1985 11.14 4.48 40.2 1986 14.54 7.60 52.3 1987 17.00 12.36 72.7 l9E8 17.00 14.45 85.0 1989 17.00 16.67 98.1 1990 a/ 17.00 17.00 100.0 a/ Credit closing date was June 30, 1989. IDA honored qualified withdrawal applications received up to February 2, 1990. The whole Credit amount was then disbursed.  -;L6- Table 3.4: PROJECT IMPLEMENTATION Table 3.4.A: ADDITIONAL FACILITIES, ESTIMATED AND ACTUAL (MAIN COMPONENTS) Appraisal Actual Estimate Installations Indicators Installations (or PCR Estimate) 1. Local Telephone a/ - External plant capacity (main lines) 17,000 20,200 - Exchange capacity (lines) * In Ouagadougou and Bobo-Dioulasso 7,600 12,000 * In six provincial towns 1,200 1,680 - Total 8,800 13,680 2. Long-Distance System a/ - Nc. of LD transmission routes b/ 3 3 - No. of LD telephone circuits (capacity) 460 700 - Trunk exchange capacity (circuits) 400 600 3. Miscellaneous - Message accounting and billing processor 1 1 - Tool sets, vehicles b/ 1, 6 1, 10 - Buildings 6 9 4. Technical Assistance c/ - Expert manmonths (IDA - other) * Engineering 75 -60 70 -130 * Management improvement 75 80 - Total 210 280 a! Financed in part by CCCE, mainly in large cities. b/ One cable route and some additional support equipment were financed by Dutch Aid. c/ Includes expert services under PPF. Additional engineering was mainly financed by CCCE for digital exchange equipment and local line network construction, and for computerized telephone accounting and billing system.  -17- Table 3.4.B: COMPLETION DATES, ESTIMATED AND ACTUAL --------Completion Dates a/---------- Appraisal Component Estimate Actual 1. Local Networks - External plant 12186 09/89 - Switching 06/85 09/88 2. Long Distance Network - Cable link 06/85 06/86 - Microwave links 06/86 09/89 - Trunk exchange equipment 12/85 10/86 3. Telex - Exchange (concentrator in Bobo-Dioulasso) 06/84 12/84 4. Miscellaneous - Accounting, billing processor 06/86 06/88 - Tool sets, vehicles 06/86 06/88 - Buildings 06/86 06/87 5. Technical Assistance 12/87 10/89 -----------------------------------------------------------------__----------__------- Completion Project Init.al Estimate Actual Closing date 06/30/87 06/30/89 Physical completion 06/30/86 09/31/89 b/ a/ Project start-up was delayed by about 12 months due to political instability in the country and the resulting late decision on the final contracts for the sophisticated installations (telephone exchange, transit exchange and microwave links), and project completion by about three years, as a whole, to enable completing construction of one microwave route which had been insufficiently surveyed, ane of local networks in provincial cities. Two extensions of the closing date ier. required for delivery and acceptance of all systems. b/ Following physical completion of the local networks and of the si!-, provincial exchanges by September 1989, it was expected that about 2,700 addtitional DELs from the revised project, still to be cz"nected, would be in service by the end of 1990.  -18- Table 3.5: PROJECT COST AND FINANCING Table 3.5.A: PROJECT COST (CFAF million) Actual or ----Appraisal Estimate a/ - PCR Estimate b/---- Item Local Foreign Total Local Foreign Total 1. Switching equipment c/ 110 2,780 2,890 147 3,531 3,678 2. Local networks 2,820 2,220 5,040 1,167 3,456 4,623 3. Transmission 254 1,870 2,124 257 2,747 3,004 4. Buildings 54 54 168 144 312 5. Tools & vehicles d/ 125 125 10 10 6. Engineering e/ 300 300 6 453 459 7. Technical assistance & training 310 310 51 259 310 TOTAL PROJECT COST 3,238 7,605 10,843 1,796 10,600 12,396 (Total cost $ million) f/ (12.0) (28.6) (40.6) (4.2) (30.5) (34.7) a/ Includes contingencies. bl Total cost is actual at project completion. Local/foreign cost distribution is estimated, mainly for local networks and transmission items, because contracts with suppliers are often expressed in CFAF or FF and do not separate the local and transferable components of the costs. c/ Includes extension/adaptation of trunk exchange equipment and provision of equipment for computerized billing and collection. d/ Excluding vehicles for local networks. e/ Includes PPF. fl The US$/CFAF exchange rates used are 1/270 at appraisal and 1/357.5 at completion, the later rate being the average exchange rate during the eight-year project period (see table 3.5.C).  -19- Table 3.5.B: PROJECT FINANCING (S million) Actual or PCR Appraisal Estimate a/ Estimated Completion Cost a/ Source Local Foreign Total Local Foreign b/ Total- IDA 3.0 14.0 17.0 17.0 17.0 CCCE 1.1 11.9 13.0 9.8 9.8 Dutch Aid 0.5 2.7 3.2 3.7 3.7 OPT 7.4 7.4 4.2 4.2 Total 12.0 28.6 40.6 4.2 30.5 34.7 (Total, in CFAF million) (3,238) (7,605) (10,843) (1,896) (10,500) (12,396) a/ Exchange rate used - US$11270 CFAF at appraisal and $1/357.5 CFAF, the intervening years' average, at completion (see Table 3.5.C). b/ Contracts with foreign suppliers are often expressed in CFAF or FF and do not separate the local and transferable components of the cost. Foreign cost as shown may include some local cost components. Table 3.5.C: COUNTRY EXCHANCE RATES al Exchange Rate (CFAF per $1) Year Annual Average 1981 270.0 1982 328.6 1983 381.1 1984 437.0 1985. 449.3 1986 346.3 1987 300.5 1988 297.9 1989 319.0 Appraisal year average 270.0 Intervening years' average 357.5 Completion year average 319.0 a/ Fixed parity: 50 CFAF - 1 French Franc (floating)  -20- Table 3.6: PROJECT RESULTS Table 3.6.A: DIRECT BENEFITS Main Performance Indicators given in tho table below are as on December 31 each year: in 1982 and 1986, the years of project start-up and initially expected completion; in 1989 at actual project completion; and at full dovelopment as estimated by December 1990. Details on the growth of facilities and their usage and on operational performance, by year, for the various services are given at Annex 1. ------1982------ ------