Nepal - Nepal Telecommunications Corporation Fourth Telecommunications Project

Document of The World Bank FOR OmCIAL USE ONLY Report No. 14259-NEP IMPLEMENTATION COMPLETION REPORT NEPAL NEPAL TELECOMMUNICATIONS CORPORATION (NTC) FOURTH TELECOMMUNICATIONS PROJECT MARCH 30, 1995 Infrastructure Operations Division South Asia Country Department II Telecommunications & Informatics Division 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 EOUIVALENTS (As of February 1995) Currency Unit = Nepalese Rupee (NRs) US$1.00 = NRs 49.84 NRs 1,000 = US$20.06 NRs I = paisa FISCAL YEAR July 16 - July July 15 ABBREVIATIONS AND ACRONYMS DANIDA = Danish International Development Agency EIRR = Economic Internal Rate of Return FINNIDA = Finnish International Development Agency FIRR = Financial Internal Rate of Return HF = High Frequency (3-30 MHz) IBRD = International Bank for Reconstruction and Development ICB = International Competitive Bidding ISD = International Subscriber Dialing ITU = International Telecommunication Union JICA = Japan International Cooperation Agency LCB = Local Competitive Bidding MARTS = Multiple Access Radio Transmission Systems MOIC = Ministry of Information and Communications NTC = Nepal Telecommunications Corporation O&M = Operations and Maintenance PABX = Public Call Office STD = Subscriber Trunk Dialing UNDP = United Nations Development Programme VHF = Very High Frequency (30-300 MHz)  NEPAL FOR OFFICIAL USE ONLY FOURTH TELECOMMUNICATIONS PROJECT CREDIT 1588-NEP IMPLEMENTATION COMPLETION REPORT Table of Contents Paze No. Preface .................... ii Evaluation Summary .................... iii Statement of Objectives ................... Project Implementation ..................3 Technical Assistance ..................4 Project Costs ..................4 Disbursements ..................4 Operational Performance ..................5 Institutional Performance ..................5 Manpower & Training ..................5 Project Sustainability ..................6 Bank Performance ..................6 Borrower Performance ..................6 Assessment of Outcome ..................6 Future Operation ..................6 Key Lessons Learnt ..............................................................7......................7 Tables and Appendix Table I Summary of Assessments Table 2 Related Bank Loans/Credits Table 3 Project Timetable Table 4 Loan/Credit Disbursement: Cumulative Estimated and Total Table 5 Key Indicators for Project Implementation Table 6 Key Indicators for Project Operations (Performance Indicators) Table 7 Studies Included in the Project Table 8 Project Costs Table 8A IDA Financial Costs Table 8B IDA Project Financing Table 9A Economic Costs and Benefits - Financial IRR Table 9B Economic Costs and Benefits - Economic IRR Table I 0 Status of Legal Covenants Table 1 1 Compliance with Operational Manual Statements Table 12 Bank Resources: Staff Inputs Table 13 Bank Resources: Missions Appendix I Borrower's Evaluation Summary 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 WoTld Bank authorization.   ii NEPAL FOURTH TELECOMMUNICATIONS PROJECT CREDIT 1588-NEP IMPLEMENTATION COMPLETION REPORT Preface 1. This Report covers the implementation of the Fourth Telecommunications Project in Nepal, supported by Credit 1588-NEP. The Credit for SDR 20.7 million to the Nepal Telecommunications Corporation (NTC) was signed on April 10, 1986, became effective on December 17, 1986 and was closed on June 30, 1994, one year later than the original closing date. Final disbursement took place on November 28, 1994, at which time a balance of SDR 1,239,515 was canceled. Cofinancing for the project was provided by DANIDA, FINNIDA and JICA. 2. This report has been prepared by Alberto Cruzat (Task Manager), Peter Wright, Raja Basu and David Delgado from IENTI for the South Asia Region and reviewed by Robert Panfil, Chief SA2IN, Marie Garcia-Zamor, Chief SAIIN, Kazuko Uchimura, Project Advisor, and David Groves, Project Advisor. The borrower provided comments that are included as Appendix I to the ICR. 3. Preparation of this ICR began during the Bank's final supervision/completion mission, July 3-17, 1994. It is based on material in the project file. The borrower contributed to the ICR by preparing its own evaluation of the project's execution and commenting on the draft ICR.   iii NEPAL FOURTH TELECOMMUNICATIONS PROJECT CREDIT 1588-NEP IMPLEMENTATION COMPLETION REPORT Evaluation Summary Background 1. Public telecommunications services in Nepal are provided by the Nepal Telecommunications Corporation (NTC), a fully Government owned corporation under the overall guidance of the Ministry of Information and Communications (MOIC) of His Majesty's Government (HMG). 2. IDA's involvement in Nepal's telecommunications sector began in 1969 with a credit of US$1.7 million (Credit 166-NEP) approved in November 1969. Since then IDA has financed four more operations : Credit 397-NEP for US$5.5 million approved in June 1973; Credit 799- NEP for US$14.5 million approved in August 1978, Credit 1588-NEP for US$22 million approved in April 1986 (closed in June 1994) and Credit 2364-NEP for US$55 million approved in April 1992. The December 1977 PPAR report for Credit 166-NEP and April 1989 report for Credits 397-NEP and 799-NEP rated these projects as successful overall, contributing significantly to the development of infrastructure, improving the quality of telecommunications services and supporting NTC's institutional development. Proiect Obiectives and Project Description 3. The Project was designed to strengthen NTC as an institution, expand local telephone facilities in Kathmandu and other urban areas, provide telephone services for the first time to about 90 rural communities, expand facilities to cater to resultant additional domestic long distance and international traffic, expand existing telex facilities and extend service to towns other than Kathmandu. 4. The Project included: (a) funding of management consultants, technical assistance and fellowships for foreign training of NTC staff; (b) installation of (i) about 35,000 lines of local automatic switching equipment with associated cable distribution network and subscriber plant to connect about 31,000 new subscriber lines, and replace 1,370 lines of all remaining manual exchanges, (ii) about 2,500 additional terminals in national/international trunk exchanges, (iii) about 75 transmission systems in the long distance network, (iv) equipment for expansion of the existing earth station and the telex exchange, and (v) about 550 local and long distance public call offices in urban areas and about 200 long distance connections and public call offices in about 90 rural areas; (c) provision of air conditioning and power equipment for telecommunications buildings, vehicles, computer equipment, teleprinters, office aids and training equipment, and (d) civil works for laying of cable ducts, and construction of cable networks and buildings for telecommunications equipment and offices.  iv Proiect Results 5. With the use of the additional funding derived from exchange rate fluctuation, the achievements of the Project exceeded the initial estimates. Approximately 43,000 lines were added to the network compared to the Project estimate of 35,000. Twenty Multi-Access Radio Telephone Systems (MARTS) were installed (with 12 already commissioned) connecting 3,500 rural subscriber lines. Due to the physical extension of the Project the closing date was extended by one year. 6. NTC's financial position was satisfactory throughout the Project and it met the financial covenants set under the project. There were some delays in submission of audited financial statements but these were not significant. The internal economic and financial rate of return, calculated over a life cycle of 15 years, were 14.5% and 16.8% respectively, compared with the Appraisal estimates of 17.3% and 16.1% respectively over a life cycle of 22 years. Additionally, the economic rate of return is larger than the Opportunity Cost of Capital (OCC) of 10%. However, collections, especially from HMG, have been a persisting problem during the Project. Nevertheless, with IDA's assistance, NTC reached a satisfactory agreement with HMG which settled the total amount of Government arrears as of April 1994. Also, with the assistance of FINNIDA, there has been considerable progress in the area of billing. A countrywide automated billing system was commissioned in 1993 to process more than 95% of the bills issued. As a follow-up, a computerized ledger and billing system will be installed under the Credit 2364-NEP. Proiect Sustainability 7. Under the Project, the NTC has established a sizable telecommunications network in 73 of Nepal's 75 districts to support Nepal's developing economy. This company is sustainable in terms of cost recovery and general financial situation. Through the establishment of a MIS system, automated billing facilities, and institutional studies, the Project has paved the way for later projects to complete the transition to a private sector, commercially run organization. The Project has also strengthened the procurement and implementation capabilities in NTC. The overall management of the organization has been modernized but more work needs to be done in this respect. This is being done under Telecommunications V which is focusing on sector wide restructuring to introduce competition in existing and new services. Conclusion 8. After initial teething problems with the co-financing arrangement, and the contracting of management consultants, the Project was smoothly implemented. The objectives of the Project relating to (a) physical expansion and (b) institutional objectives were substantially fulfilled. The Association's main contribution were three-fold: (i) establishing the co-financing arrangement and grant facilities; (ii) for the first time connecting the rural areas to the telecommunications network; and (iii) establish the groundwork for future sectoral reform in line with the trend in other countries. The main lessons from this Project are: (a) that close Project implementation supervision is critical to avoiding major problems; (b) that it is advisable to have advanced preparation of procurement documents; and (c) that the size of the T/A included in the Project has to be tailored to the absorbing capacity of the entity. These lessons were applied in the Fifth Project preparation.  NEPAL FOURTH TELECOMMUNICATIONS PROJECT CREDIT 1588-NEP IMPLEMENTATION COMPLETION REPORT Statement of Obiectives 1. The Fourth Telecommunications Project was a major component of Nepal's FY86-90 telecommunications development program which had a total investment of about US$115 million. Investment on the IDA funded Project represented about 57% of this total (US$ 65.3 million). The IDA credit of SDR 20.7 million (US$ 22 million equivalent at the time of effectiveness) was provided to His Majesty's Government (HMG) to be onlent to Nepal Telecommunications Corporation (NTC) at an annual interest rate of 12% repayable over 10 years after 5 years of grace, with NTC assuming all foreign exchange risks. In addition to IDA, DANIDA (US$7.5 million), FINNIDA (US$5.3 million) and JICA (US$ 30 million) contributed as donors to the Fourth Project (see Table 8B). NTC, a fully Government owned corporation under the overall guidance of the Ministry of Information and Communications (MOIC) of HMG is responsible for the provision of public telecommunications services in Nepal. 2. IDA's involvement in Nepal's telecommunications sector began in 1969 with a credit of US$1.7 million (Credit 166-NEP approved in November 1969). Since then IDA has financed four more operations: Credit 397-NEP for US$5.5 million, approved in June 1973; Credit 799-NEP for US$14.5 million, approved in August 1978, Credit 1588-NEP for US$22 million approved in April 1986, closed in June 1994; and Credit 2364-NEP for US$55 million, approved in April 1992. The December 1977 PPAR report on Credit 166-NEP and the April 1989 report on Credits 397-NEP and 799-NEP rated these projects as successful overall, contributing significantly to the development of infrastructure, improving the quality of telecommunications services, and supporting NTC's institutional development. 3. The Fourth Project was approved by IDA on April 30, 1985 but was not signed until April 10, 1986, due to HMG's delays in undertaking a 20% increase in tariffs which was required as a condition of effectiveness. The Project was designed to strengthen NTC as an institution, expand local telephone facilities in Kathmandu and other urban areas, provide telephone services for the first time to about 90 rural communities, expand facilities to cater to resultant additional domestic long distance and international traffic, expand existing telex facilities and extend service to towns other than Kathmandu. 4. The main components of the Project were as follows: a) enhancement of NTC's management and operational capabilities through management consultants, and fellowships for foreign training of NTC staff; b) development of long term planning capability within NTC for long term development of the sector through sector experts; c) provision and installation of about 35,000 lines of digital switching equipment (including 1,370 lines for replacement of all existing manual equipment), about 159,000 pair-kilometers of telephone cables, about 390 km of cable ducts, jointing materials and other accessories for the net expansion of local network capacity by about 33,630 lines;  2 d) provision and installation of subscriber facilities to connect about 31,000 new subscriber lines; e) provision and installation of about 2,500 additional circuit terminals in the existing national/international trunk exchange; f) provision and installation of about 500 local and 50 long distance coin boxes for public call offices in urban areas to serve non-subscribing public; g) provision and installation of three high capacity digital microwave radio systems on main routes and twelve small capacity digital microwave radio systems on spur routes; h) provision and installation of about 60 VHF/UHF radio systems to connect about 200 long distance telephone connections and public call offices in about 90 rural communities; i) provision and installation of equipment for expansion of the earth station for international satellite communication; j) provision and installation of equipment for expansion of the existing telex exchange by 250 terminations, 4 VFT systems and provision of about 150 electronic teleprinters; k) provision and installation of air conditioning and power equipment in telecommunication buildings; I) provision of vehicles for project implementation, computer equipment, office aids and training equipment; and m) civil works associated with laying of cable ducts, and construction of cable networks and buildings for telecommunications equipment and offices. 5. The experience gained under the first three IDA projects played a major role in designing the Fourth Project, the thrust of which was directed towards continued expansion of the network and institutional improvement in NTC of planning, project implementation and strengthening of NTC's financial position. The technical assistance program therefore included carrying out an institutional review, tariff studies, network planning, establishment of a MIS and automated billing facility, revaluation of fixed assets, and development and implementation of technical and financial training programs. To emphasize the importance of the technical assistance, the appointment of management consultants was a condition of credit effectiveness 6. The Project was initially appraised in September 1983, with Negotiations in April 1984, which ended without agreement on the issues and without agreed Minutes of the discussions. IDA required HMG to present the cofinancing agreements to cover the balance of costs of the Project as a condition of Board presentation. This condition was not acceptable to HMG. Subsequently, HMG negotiated with other Governments cofinancing for the Project which affected both the project scope and IDA financing. Consequently it became necessary to reappraise the Project in February 1985. Final negotiations took place in the field between February and March 1985, and the Credit was presented to the Board in April 30, 1985.  3 7. At the time of Board presentation the cost of the Project to be financed by IDA was set at SDR 20.7 million (US$22.0 million equivalent), but in the course of Project implementation the Project scope was expanded to utilize exchange rate gains which have increased the dollar equivalent of the SDR 20.7 million credit to US$30.0 million. Out of this amount, NTC utilized US$ 28.2 million, and the remaining US$ 1.8 million were canceled. Proiect Implementation 8. Loan Effectiveness and Project Start-up. To ensure timely implementation of the Project, conditions of effectiveness included : (a) issuance of bid invitations for transmission equipment for rural areas, subscriber facilities and expansion equipment for the earth station; (b) the continued operation of the project implementation unit established for the first three projects; (c) appointment of management consultants for institutional and sectoral development; (d) signing of the subsidiary Loan Agreement between NTC and MOIC; (e) signing of all co-financing agreements for the proposed financing of the project; (f) increasing NTC's tariffs in effect on January 1, 1986 by at least 20%; and (g) payment by HMG of NRs 3,500,000 as part settlement of overdue bills. The original date of effectiveness, October 6, 1986, was extended to January 5, 1987 because of delays in appointment of the management consultants, in HMG signing the subsidiary Loan Agreement, in signing the Belgian grant, in payment of the first installment of NRs. 3,500,000 by HMG of the overdue bills to NTC, and issuance of bids for the earth station. The credit became effective on December 17, 1986. 9. Prior to effectiveness, NTC raised a number of concerns as to the magnitude of the proposed management consultancy, more so, given the shortage of skilled staff and NTC's weak institutional capacity questions were raised as to NTC's ability to absorb the degree of change anticipated. It was therefore agreed to modify the assignment and revise the TOR. As a result of the revision of the TOR, the appointment of the management consultants was changed from a condition of effectiveness to a dated covenant. All other condition being fulfilled, the Project became effective on December 17, 1986. 10. Project Implementation. With the delays in Project effectiveness (see para. 3 above), the start-up period took longer than the appraisal estimates. However, by the end of FY88 the project pace had picked up, NTC had procured about 36% (by value) of the IDA funded equipment and the project was about 42% complete, only six months behind schedule. After initial problems with the Earth Station procurement, it was installed with little delay. Delays in the construction of civil works were considerable--about six to eight months behind schedule. About 86% (except rural) of the Project was completed by November 1989. The outstanding problem was with the Multi-Access Radio Telephone System (MARTS). Due to re-planning, it had to be rebid, which in turn led to a two-year delay in implementation. As a result, all procurement associated with the MARTS was similarly delayed. In addition, there were several implementation problems, specifically: (a) geographical coordination; (b) a severe lack of experienced staff; (c) a lack of AC power; (d) the delay in scheduling of priority of installation; and (e) inadequate arrangements for engaging the private sector to operate PCOs at MARTS locations. Other logistical problems included a lack of vehicles and gasoline (in particular during the Transit and Trade Embargo imposed by India) and some technical problems faced with the performance of the large MART system purchased from NEC. 11. In October 1, 1992 IDA approved amendments to the Development Credit Agreement, reallocating funds within the categories of Schedule I to accommodate changes in the Project Description and to utilize savings of about US$8 million arising from exchange rate differences between the US Dollar and SDR. The changes included: (a) an increase of local automatic exchange lines by 10,000; (b)  4 an installation of facilities to accommodate a further 7,100 lines; and (c) an increase in installation to 18 MART systems and associated solar power equipment, and about 215 UHF/VHF radio systems. 12. On Project closure most of the work has been completed. Only eight of the MART systems remain to be installed. All other physical components have been installed and are functioning. Key indicators of project implementation are provided in Table 5. Technical Assistance 13. Management Consultancy. Under the TA component, Bell Canada International (BCI) was appointed to assist NTC upgrade its institutional capacity. BCI's final report submitted in April 1989, proposed inter alia: (a) establishment of an appropriate Management Information System (MIS); (b) appointment of new personnel to organizational positions created according to the consultants recommendations; (c) a job planning and review system for day-to-day management; (d) new exchange maintenance procedures; and (e) inventory/stores control procedures including standardization of material, creation of stock items, and operation of inventory control. The MIS was installed in 1989 and is functioning satisfactorily (this is being expanded under Telecommunications V). The inventory system has been operational at the Kathmandu store since 1989. 14. A fixed assets evaluation was carried out by management consultants in 1990, and NTC's records were amended accordingly. Subsequently, NTC has revalued its assets annually to reflect changes in the NRs value of the foreign currency denominated debts. This type of inflationary accounting is appropriate to the inflation level of Nepal, which does not require a more advanced system which includes adjustments to the Income Statement. 15. With the assistance of FINNIDA, and financing from IDA, an automated billing system was installed and is handling about 95% of the total lines. Under Telecommunications V, a more advanced billing system is being installed as part of the new Corporate Data Base project, jointly financed by FINNIDA and IDA. With DANIDA's, support, experts assisted NTC in designing the outside cabling and transmission network. Project Costs 16. The original estimated Project cost at credit signing was US$65.3 million equivalent. The IDA financing was SDR 20.7 million (equivalent to US$ 22 million). However, with the devaluation of the US dollar against the SDR, the original SDR amount became equivalent to around US$ 30.0 million, resulting in a favorable exchange rate gain of about US$8.0 million. Given the good progress of Project implementation and compliance with all covenants, the scope of the Project was expanded and the savings used to finance this additional expansion. At Closing Date, the total IDA financed components of the Project are estimated at US$28.2 million equivalent; the remaining US$ 1.8 million were canceled. With this the total Project cost increased to about US$74 million according to current estimates. A summary of estimated and actual Project costs is shown in Table 8A for the IDA funded part of the Project, and in Table 8B for the whole Project. Disbursements 17. Although there was a lag in Project start-up, disbursements during the first three years after effectiveness were in line with Appraisal estimates. After 1990, disbursements fell short of expectations  5 primarily because of the increase in project scope and the delays in the procurement of the MARTS. The schedule of estimated and actual disbursements is provided in Table 4. ODerational Performance 18. NTC's technical and financial performance throughout the Project has been satisfactory. NTC met most of the operational and financial targets, and exceeded some of them. This is commendable considering the shortage of skilled staff in the organization. 19. Technical Performance. The Project exceeded most of its operational objectives (Table 6). Subscriber connections were planned to reach 68,500 by the end of the project but 77,000 lines were installed; 73 out of the 75 districts have been connected by the MART systems with about 3,450 lines under this Project (to be completed in 1994/95). 20. Financial Performance. NTC has met the financial conditions set under the Project and its accounts have been audited by qualified external auditors. Although there were some delays in presenting the audit reports, NTC has now met the due dates as required by the Project Agreement. Institutional Performance 21. Under the Project, Bell Canada International was employed as management consultants to assess the institutional deficiencies of NTC and make recommendations to improve its operational efficiency. The original TORs for management consultancy, which were quite comprehensive, were subsequently modified to relate to NTC's implementation capacity. Implementation of the consultants' recommendations was initiated under the Project and continues under the Credit 2364-NEP. 22. The management of NTC has been sound, and the successful implementation of the Project bears witness to this. The institutional capacity of NTC was considerably strengthened throughout Project period. During Project implementation there was a limited amount of reorganization, primarily to facilitate delegation of authority in key operational and financial areas. Through the various technical assistance programs, NTC staff has been re-enforced with training and management capabilities to improve the efficiency of the organization. The Project Implementation Unit's performance has been commendable in terms of the procurement activities and implementation of all physical components. Manpower and Training 23. One of the objectives of the Project was to increase the efficiency of staff. The ratio of staff to subscribers lines improved from 124 per 1,000 lines in 1985 to about 60 per 1,000 in 1993. This was primarily due to the high rate of expansion of installations compared to the small increase in staffing. Under the Project, through the grant facilities and the training component, a number of fellowships were offered to staff primarily for improving operational and technical skills. In addition, visiting experts provided a number of training courses locally. These will be continued under Telecommunications V (Credit 2364-NEP). However, the limited number of skilled personnel still remains a binding constraint to the economic development of the country in general and the sector in particular. This scarcity of telecommunications managers is of major significance with the opening to a more competitive market.  6 Project Sustainabilitv 24. The Project has established a sizable telecommunications network in 73 of Nepal's 75 districts to support Nepal's developing economy. NTC is sustainable in terms of cost recovery and general financial situation. Through the establishment of a MIS system, automated billing facilities, and institutional studies, the Project has paved the way for later projects to complete the transition to a private sector, commercially run, organization. The Project has also strengthened the procurement and implementation capabilities in the organization. The overall management of the organization has been modernized but more work needs to be done in this respect. Telecommunications V is focusing on sector wide restructuring to introduce competition in existing and new services. Bank Performance 25. IDA's performance under the Project was satisfactory. Basic institutional weaknesses, especially in the areas of skilled managerial and technical expertise, were identified and appropriate TORs prepared for assistance to NTC through management consultancy and training. Under the umbrella of this Project, IDA assisted NTC in obtaining grants and financing from Belgium, France, Finland and Denmark. It also helped in coordinating with JICA for the development of the rural network. 26. IDA made an effort to process bid documentation expeditiously and assisted NTC and its Board in resolving procurement difficulties. Some minor delays were experienced at the beginning in the clearance of bidding documents but this was quickly resolved. IDA supervised the Project twice a year and 17 missions were carried out during the project (10 of the missions were shared with the 5th Telecommunications Project preparation, appraisal and supervision). The details of the missions are provided in Table 13. The two main delays occurred during Project preparation, a 12 months delay between Negotiations and Board presentation (see para. 5 above) and a 20 months gap between Board and Effectiveness (see para. 3 above). The Bank made use of the lessons coming from these cases and preparation of the Fifth Project did not suffered these delays. Borrower Performance 27. NTC made a serious effort to implement the Fourth Project efficiently and the major problems of coordination still remaining are being solved during implementation of the ongoing Fifth Telecommunications Project. NTC managed changes in its top management and a major reduction of staff without impairing project implementation. Assessment of Outcome 28. The Project met its objectives both in institutional and physical terms. At the end of the Project NTC was prepared, technically and managerially, to operate the substantive increase in lines to be carried out under the Fifth Telecommunications Project. Additionally, HMG reached an understanding of the alternatives for telecommunications sector organization. Future Operation 29. On May 12, 1992, IDA's Board approved the Fifth Telecommunications Project (Credit 2364- NEP) for SDR 40.1 million (US$55.0 million equivalent). This Project is under successful implementation. The understandings on sector reform have been greatly expanded through several workshops and consultancies undertaken under the Fifth Telecommunications Project. IDA present and  7 future involvement in the sector will center on sector reform, principally, the establishment of a Regulatory Agency, open entry and competition in the provision of services, and commercialization/privatization of NTC. The Japanese PHRD Fund has recently approved HMG's request to finance further initiatives in Nepal's telecommunications sector organization, in particular, training and consultancies required in the process of establishment and organization of an adequate Regulatory Agency. IDA has also received a request to finance frequency management and monitoring equipment for the Regulatory Agency. Key Lessons Learnt 30. Under the Project the cofinanciers, DANIDA, FINNIDA and IDA learnt that close project implementation supervision is critical to avoiding major problems, and to detect any problems in sufficient time for appropriate corrective action. Thus, under the Project, it was decided to engage an engineering consulting firm as permanent Project Supervisor representing the three donors. This solution has proved its value during implementation of the Fifth Telecommunications Project, where difficult procurement situations have been brought into attention on-time for appropriate action. 31. IDA also learnt the value of advanced preparation of procurement documents by the time the Project is taken to IDA's Board for approval, and the size of the T/A to be included in a Project should be tailored to the absorbing capacity of the entity. These lessons have been applied in the Fifth Project, where all major procurement processing documentation was prepared in advanced of credit effectiveness, and where the proposed T/A fitted the absorbing capacity of NTC.  8 Tablel: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible Not Applicable Macro policies 7 F F V Sector policies 7 F 7 23 Financial Objectives F T 7 F institutional objectives V z 7 L Physical objectives 23 0 0 z Poverty reduction Gender issues z 7 F V Other social objectives 7 7 D 3 Environmental objectives LV Fi Public sector management Fi M LVi Private sector management L7 Li Other (specify) Li L i V B. Project sustainabillty Likely Unlikely Uncertain F-VI FL Oi Highly C. Bank performance satisfactory Satisfactory Deficient Identification FT oi Fo Preparation assistance LV Li Appraisal V E L Supervision V 7 L Highly D. Borrower performance satisfactory Satisfactory Deficient Preparation i Li F Implementation Li L i Covenant compliance iV L Operation (if applicable) i LV Highly Highly E. Assessment of outcome satisfactory Satisfactory Unsatisfactory unsatisfactory VgrL O O  9 Table 2: Related Bank Loans/Credits Loan/Credit Title Amount Purpose Year of Status T (US$ OOOs) Approval Preceding Operations Cr-0166 Nep 1,781 Telecommunications 1969 Closed in 1976 Cr-0397 Nep 5,500 Telecommunications 1973 Closed in 1982 Cr-0799 Nep 14,500 Telecommunications 1978 Closed in 1985 Following Operations Cr-2364 Nep 55,000 |Telecommunications 1992 Disbursing  10 Table 3: Project Timetable = Steps in Project Cycle Date Planned Date Actual/Latest Estimate I. Identification April 4, 1983 April 4, 1983 2. Preparation 3. Appraisal September 4, 1983 September 4, 1983 4. Negotiations February 1985 February 1985 5. Board Presentation April 11, 1985 April 11, 1985 6. Signing April 10, 1986 7. Effectiveness October 6, 1986 December 17, 1986 8. Project Completion June 30, 1990 9. Loan Closing June 30, 1993 June 30, 1994  11 Table 4: Loan/Credit Disbursement: Cumulative Estimated and Total (US$ OOOs) | ( Appraisal Estimate Actual Actual as a % of Estimate Fiscal Year 1987 250 170 68.0% Fiscal Year 1988 1,000 3,840 3840.0% Fiscal Year 1989 4,500 6,690 148.7% Fiscal Year 1990 12,500 8,350 66.8% Fiscal Year 1991 19,000 10,500 47.6% Fiscal Year 1992 22,000 13,000 58.9% Fiscal Year 1993 18,300 83.4% Fiscal Year 1994 25,200 114.6% Fiscal Year 1995 28,196 128.2%  12 Table 5: Key Indicators for Proiect Implementation Item Procurement/ SAR Estimate Actual Implementation _ Land & Buildings Procurement Dec 87 Implementation Dec 88 July 91 (Dhangarhi exchange) Switching Equipment Procurement June 89 Implementation Sept 89 a) E- IOB (ALCATEL) March 1994 b) System 12 (BTMC) Sept. 1991 Transmission Equipm. Procurement Sept 89 Implementation March 90 a) JICA Augt. 1994 (03 Area) b) NOKIA July 1989 c) BTMC Jan. 1989 Earth Station Procurement Dec 87 Implementation March 88 July 1988 Consultancies Bell Canada March 90 15 Jan. 1987 - Nov 1988 Austroconsult Augt. 1990  13 Table 6: Key Indicators for Proiect Operations (Performance Indicators) Fiscal Year Ending July 15 1987 1987 1988 1988 1989 1989 1990 1990 Estimate Actual Estimate Actual Estimate Actual Estimate Actual 1. Exchange Capacity Added in Year 0 6,790 20,920 11,960 11,800 8,380 16,310 Total line Year end 35,780 34,970 56,700 46,930 68,500 55,310 71,620 2. Working Lines Added in Year 6,000 3,988 8,000 6,393 10,000 9,991 11,047 Total line Year end 28,000 24,500 36,000 30,893 46,000 40,884 51,931 3. Number of Rural Communities with Access to Telephones Added in Year 0 0 62 Total line Year end 17 17 79 4. Total Staff 2,999 3,077 3,230 3,494 Staff/ 1,000 lines 92 122 76 100 66 79 74 5. Rate of Retum 15 20.6 16 12.4 13 12.2 16.3 6. Operating Ratio 46 56 46 64 52 57 57 7. Current Ratio 2.5 1.6 2.8 1.4 3.0 1.4 8. Debt Service Coverage 2.2 2.2 2.0 2.0 1.9 1.4  14 Table 7: Studies Included in the Project Studv Purpose as defined Status Impact of Study at Appraisal/redefined Management Institutional Started January 1987 Created MIS, inventory control, re- Consultancy - Bell strengthening of NTC finalized July 1990 organization Canada International . Human Resource Re-organization done August 1990 improved organizational communication Analysis management improvement Tariffs Study appraise and adjust done December 1990 used several times in tariffs adjustments I tariffs I.I_I  15 Table 8: Proiect Costs (US$ millions) Appraisal Estimate ITEM _ Local Costs | Foreign Costs Total Switching Equipment 1.5 21.0 22.5 Cables, Ducts and Accessories 0.8 10.1 10.9 Subscriber Facilities 0.1 1.8 1.9 Transmission Equipment, main 0.3 5.8 6.1 Transmission Equipment, rural 0.2 3.0 3.2 Earth Station 0.4 3.0 3.4 Telex and Teleprinters 0.1 0.6 0.7 Vehicles, computers, office aids and training 0.3 1.0 1.3 equipment Consultancy and training 0.1 1.5 1.6 Civil works for cable network and building 3.5 3.4 6.9 Total Base Costs 7.3 51.2 58.5 Physical contingency 0.7 1.1 1.8 Price Contingency 1.5 3.5 5.0 Total Contingency 2.2 4.6 6.8 Total 9.5 55.8 65.3  16 Table 8A: IDA Financial Costs (US$ Million) Item A praisal Estimate Actual/Latest Estimate Local Foreign Total Local Foreign Total Costs Costs Costs Costs Cables, ducts & accessories 3.4 3.4 7.90 7.90 Subscriber facilities 2.4 2.4 1.32 1.32 Transmission equipment, main 0.5 0.5 4.34 4.34 Transmission equipment, rural 3.8 3.8 6.92 6.92 Earth station 3.7 3.7 3.62 3.62 Telex and teleprinter 0.7 0.7 - - Vehicles, computers, office aids & training equipment 1.3 1.3 2.95 2.95 Consultancy & training 1.9 1.9 1.15 1.15 Civil works for cable network and building 4.3 4.3 - - Total 22.0 22.0 28.20 28.20  17 Table 8B IDA Project Financing (US$ Million) Source App aisal Estimate Actual/Latest Estimate Local Foreign Total Local Foreign Total Costs Costs Costs Costs __ IBRD/IDA 22.0 22.0 26.83 26.83 Belgium 10.9 10.9 10.49 10.49 Denmark 7.5 5.5 10.73 10.73 Finland 5.3 5.3 5.71 5.71 France 10.1 10.1 13.37 13.37 NTC 9.5 - 9.5 7.12 - 7.12 Total Fourth IDA Project 9.5 55.8 65.3 7.12 67.13 74.25 Ongoing Works 0.1 3.8 3.9 ; - JICA Project 1.6 28.4 30.0 . Pre-investment 4.0 12.0 16.0 Total Program 15.2 100.0 115.2 N/A N/A N/A  18 Table 9 A: Economic Costs and Benefits CALCULATION OF THE FINANCIAL RATE OF RETURN For all projects, this table identifies the major costs and/or benefits that enter into the calculation of a re-estimated net present value (or economic rate of return) or, where the net present value (or economic rate of return) was not estimated, of cost-effectiveness in achieving project objectives. These calculations understate the overall benefits to be derived from the investment program in as much as they did not take into account consumer surplus and external benefits to non users of the telecommunications services provided by NTC. The internal financial rate of return of the program was estimated in the SAR to be 16.1 %, and the projected intemal economic rate of return was estimated in the SAR to be 17.3%. 47/48 48/49 49/50 50/51 year ended 15 July 199- 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Investment 0.00 744.35 134.42 217.19 574.97 355.41 Incremental Revenue (0.00) (0.01) 80.37 263.33 456.34 879.99 1,380.75 1,404.28 1,364.62 Incremental Cost 0.00 (0.00) 9.48 33.37 50.01 70.99 86.07 103.98 166.37 Incremental Rev-Cost (0.00) (0.00) 70.89 229.97 406.33 809.00 1,294.69 1,300.30 1,198.25 Net Benefit Stream (0.00) (744.35) (63.53) 12.78 (168.64) 453.59 1,294.69 1,300.30 1,198.25 1,198.25 1,198.25 1,198.25 Inflation Deflactor 1.00 1.11 1.20 1.32 1.58 2.24 2.50 2.65 2.82 2.99 3.17 3.36 Deflacted Benefit Stream (0.00) (670.59) (52.94) 9.65 (106.76) 202.77 518.15 490.94 424.80 400.75 378.07 356.67 FIRR project life 15 years(U - 2001) 16.80% FIRR project life 20 years(Z - 2006) 18.22% 1 2 3 4 5 6 7 8 9 10 11 12 Summary of assumptions: 1 - Investment period of 5 years 88-92, proceeding capacity increases by one year 2 - From 1995 to the end of the period the net benefit stream is constant in current NRs. These values are then adjusted by the deflactor.  19 Table 9 B: Economic Costs and Benefits CALCULATION OF THE ECONOMIC RATE OF RETURN For all projects, this table identifies the major costs and/or benefits that enter into the calculation of a re-estimated net present value (or economic rate of retum) or, where the net present value (or economic rate of return) was not estimated, of cost-effectiveness in achieving project objectives. These calculations understate the overall benefits to be derived from the investment program in as much as they did not take into account consumer surplus and external benefits to non users of the telecommunications services provided by NTC. The internal financial rate of return of the program was estimated in the SAR to be 16.1 %, and the projected internal economic rate of return was estimated in the SAR to be 17.3%. 47/48 48/49 49/50 50/51 year ended 15 July 199- 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Investment 0.00 737.23 133.13 215.11 569.47 352.01 Incremental Revenue (0.00) (0.00) 72.34 237.00 410.71 791.99 1,242.68 1,263.85 1,228.16 Incremental Cost 0.00 (0.00) 8.78 30.91 46.33 65.76 79.72 96.31 154.11 Incremental Rev-Cost (0.00) (0.00) 63.55 206.09 364.38 726.24 1,162.95 1,167.54 1,074.05 Net Benefit Stream (0.00) (737.24) (69.58) (9.02) (205.09) 374.22 1,162.95 1,167.54 1,074.05 1,074.05 1,074.05 1,074.05 Inflation Deflactor 1.00 1.11 1.20 1.32 1.58 2.24 2.50 2.65 2.82 2.99 3.17 3.36 Deflacted Benefit Stream (0.00) (664.18) (57.99) (6.81) (129.83) 167.29 465.43 440.81 380.77 359.21 338.88 319.70 FIRR project life 15 years(U -2001) 14.48% FIRR project life 20 years(Z -2006) 16.12% 1 2 3 4 5 6 7 8 9 10 1 1 12, Summary of assumptions: 1 - Investment period of 5 years 88-92, proceeding capacity increases by one year 2 - From 1995 to the end of the period the net benefit stream is constant in current NRs. These values are then adjusted by the deflactor. The Economic IRR was calculated using the SCF of 0.90 applied to: (a) the Local Component of the investment (9.56%) (b) 100% of the Benefits (Revenue); and (c) the Local Component the O&M costs (74.7%)  20 Table 10: Status of Legal Covenants Agreement Section Covenant Type Present Original Revised | Description of Covenant Comments status Fulfillment Fulfillmen _ _ _ _ _ _ _ _ _ _ _ _ _ Date t Date Credit 3.04(a) Financial OK 1987/88 HMG to settle Arrears Complied April '94 Credit 3.04(b) Financial OK 12/15/86 proposal to pay accounts within 2 months Credit 3.04(b) Financial OK since 1987 1991 adopt to implement above Credit 3.05 Financial OK 85-89 Acquire Land and access rights Credit 3.06(a) Sector Policy OK 85 Grant Import License Conditionality Project 2.02(b) Project OK 12/15/86 Appoint Management The TORs of the Implementation Consultants Consultancy were Arrangements changed in December '86. Project 2.08 Project OK 1987 to establish a Project Implementation Implementation Unit Arrangements Project 4.02(b) Financial OK Annual present audited statements within 8 months Project 4.03(a) Financial OK Annual to have an annual rate of return of 12% Project 4.04(a) Financial OK 87-91 not incur any debt exceeding NRs 30 million Project 4.04(b) Financial OK Annual Debt Service Coverage of I__ _ _ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 .5  21 Table 11: Compliance with Operational Manual Statements There have not been any significant lack of compliance with any applicable Bank Operational Manual Statement.  22 Table 12: Bank Resources: Staff Inputs Stage of Planned Revised Actual Project Cycle Weeks US$ Weeks US$ Weeks(1) US$ Through Appraisal NA NA 9 Appraisal - Board NA NA 36 Board - Effectiveness NA NA 6 Supervision NA NA 82 Completion NA NA 8 Total NA NA Note: (1) Staff-weeks in the field  23 Table 13: Bank Resources: Missions Performance Rating Stage of Project Month/Year Number Of Persons Days in Specialized Staff Implement Develop Types of Cycle Field skills ation mental Problems _ represented Status Status Through 3/83- ENG, FNA, FNA Appraisal Sept 9 - 27/83 2(D.J./M/S.) 18 ECO Negotiations April 84 and Re-Appraisal Feb 85 3 ENG, FNA Negotiations April 85 (field) Board April 30, 85 Mission July 17 - 25, 85 Mission Oct 6 - 11, 85 4 (DJ, RL, JM, HL) 5 ENG, ECO, FNA, ENG Mission Jan 30 - 31, 86 1 (JM) 2 FNA Mission May 17 - 22, 86 2 (DJ, HL) 5 ENG Signing April 10, 86 Mission Oct 18-23,86 1 (HL) 5 ENG Effectiveness Dec 17, 86 I Supervision Feb 5 - 13, 87 3 (JM, HL, HS) 8 FNA, ENG, ENG Supervision Jan 25 - Feb 4, 88 1 (HL) 9 ENG Supervision July 24-Aug. 1, 88 1 (JM) 8 FNA Supervision April 5 - 17, 89 2 (HL,AC) 12 ENG, FNA Supervision Aug. 26-29, 89 1 (AC) 3 FNA Supervision Nov. 15-Dec 4,89 2 (HL,AC) 19 ENG, FNA Supervision June 8 -11, 90 1 (AC) 3 FNA 2 2 Supervision Aug. 8-31, 90 2 (AC, HL) 23 FNA, ENG 2 2 procurement +prep 5th Project delay, Supervision Dec 5 - 19, 90 2 (AC, PS) 14 FNA, ECO +tariff study, prep 5th Project  24 _ Performance Rating Stage of Project Month/Year Number Of Persons Days in Specialized Staff Implement Develop Types of Cycle Field skills ation mental Problems represented Status Status Sector Workshop June 15 -19, 91 3 (AC, PS, BW) 3 FNA, ECO, ECO Supervision July 12 - 30, 91 2 (AC, HL) 18 FNA, ENG 2 1 delay in +Appraisal 5th appointment Project of Auditor Supervision May 27 - June 10, 92 2 (AC, HL) 14 FNA, ENG 2 1 procurement +start 5th Project delay Supervision Nov. 8-13, 92 3 (AC,HL,BW) 6 FNA, ENG, 2 1 procurement ECO delay Supervision April 17 - 23, 93 2 (AC, HL) 5 FNA, ENG 1 1 Supervision July 21 - 24, 93 1 (AC) 3 FNA 1 1 Supervision Nov. 8 - 19, 93 3 (AC, PS, PW) 11 FNA, ECO, 1 1 ENG . Supervision Feb 13-March 5, 94 2 (AC, PW) 20 FNA, ENG 1 I I Supervision July 3 - 17, 94 2 (AC, PS) 14 FNA, ECO HS HS  Appendix 1 Page 1 of 2 NEPAL FOURTH TELECOMMUNICATIONS PROJECT CREDIT 1588-NEP (ICR) Borrower's Evaluation Summary Assessment of the Proiect obiectives. desian, implementation and operation experience: a) The project objectives were clear and appropriate; b) The project was designed appropriately to meet the project objectives; c) The planned implementation schedule was suitable in general, however, the implementation schedule did not take into consideration certain problems. Evaluation of the Borrower's own performance 1. NTC tried its best to execute the project as efficiently as possible in spite of certain difficulties. The major difficulties faced by the NTC were as follows: a) Changes in telephone exchange sites due to nonavailability of electric power; b) Change to the type of exchange due to unreliable power; c) Some procurement delays. 2. Some problems could have been avoided by conducting a detailed site survey before finalization of the exchange sites. 3. Experience with this project offered the following lessons: a) Prior detailed survey is essential and has to be completed before finalization of the project. b) Problems in the procurement process have to be considered in planning the implementation schedule.  Appendix 1 Page 2 of 2 Evaluation of the Bank 4. IDA's overall performance in designing and implementing the Fourth Project was quite satisfactory. IDA has supported the development of telecommunications sector in Nepal between the period 1986-1992. It provided adequate guidance to NTC for the successful and timely implementation of the Fourth Project, inspite of many unforeseen difficulties. IDA was also instrumental in shaping the organization of NTC to enable it to handle the development activities in an efficient manner. It was IDA's suggestion that NTC appoint Management Consultants for the strengthening of its organization and institutional development for carrying out the development activities. Implementation of the consultant's recommendations gave a new impetus to NTC. NTC took a new attitude in this phase toward the management of operation and maintenance activities, planning activities and development activities. 5. Even though the appointment of Management Consultants resulted in a set of well defined recommendations, NTC was only able to implement these recommendations in a phased manner. There are still many recommendations which are yet to be implemented. Besides the seven areas covered by the consultants as per the terms of reference, there are still other important areas which need to be strengthened. NTC reviewed these areas on its own along the same line as the consultants formulated. IDA might have more closely monitored the implementation of the consultants recommendations and guided NTC in institutional development. 6. IDA has to be commended for their guidance regarding tariffs. IDA suggested a tariff study to be carried out by a consulting firm. As result of the tariff study, NTC was able to apply a tariff which was closer to a cost base tariff. IDA has also to be commended for their effort in ensuring that NTC collect government arrears. 7. NTC expected IDA to take the leading role in coordinating the activities of the various donor agencies. IDA fulfilled this expectation by maintaining close contact and liaisoning with the various donor agencies and closely monitoring the status of the various subprojects. NTC expected IDA to assist NTC in recovering government arrears and in institution development. IDA's efforts in these respects were commendable. 8. IDA's supervision effort during the Fourth Project was adequate and satisfactory. NTC was able to maintain a good working relation with IDA throughout the project.