Appraisal Project Information Document-Integrated Safeguards Data Sheet - P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project - P159297

 The World Bank P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project (P159297) Combined Project Information Documents / Integrated Safeguards Datasheet (PID/ISDS) For Official Use Only Appraisal Stage | Date Prepared/Updated: 22-Jun-2016 | Report No: PIDISDSA19083 Oct 04, 2016 Page 1 of 16  The World Bank P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project (P159297) BASIC INFORMATION A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Fiji P159297 P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) EAST ASIA AND PACIFIC 05-Sep-2016 23-Nov-2016 Transport & ICT Lending Instrument Borrower(s) Implementing Agency Investment Project Financing Republic of Fiji Ministry of Communications For Official Use Only Financing (in USD Million) Financing Source Amount Borrower 0.41 International Bank for Reconstruction and Development 5.95 Total Project Cost 6.36 Environmental Assessment Category B - Partial Assessment Decision Track I-The review did authorize the preparation to continue Other Decision (as needed) Type here to enter text B. Introduction and Context Country Context 1. Fiji is one of the more developed and connected countries in the Pacific region with the highest rates of mobile phone and Internet penetration, and the most affordable information and communication technologies (ICT) services. Fiji has the potential to leverage these technologies to diversify its economy and transform public service delivery, to reduce internal inequalities and also to become a regional hub for ICT-enabled jobs and services. Development opportunities in Fiji have been largely concentrated on the main island, Viti Levu; and the Government wishes to facilitate more equitable access to economic and social development opportunities in other parts of country. The Oct 04, 2016 Page 2 of 16  The World Bank P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project (P159297) planned deployment of a new regional submarine optical fiber cable connecting Fiji (Suva on Viti Levu) to Samoa in 2017i presents an unprecedented opportunity to deliver high-speed low-cost Internet connectivity, and associated economic and social benefits to the Northern Division (Vanua Levu and Taveuni islands) the country’s poorest and least developed area. A direct cable connection (branch/spur) to Savusavu in Vanua Levu from this new Samoa-Fiji cable can be achieved at substantially lower cost than a direct cable from Suva to Savusavu. 2. Fiji is comprised of about 332 islands (one-third of which are inhabited) in the South Pacific Ocean about two-thirds of the way from Hawaii to New Zealand. Of the total population of about 875,000, about 77 percent live in the Central and Western Divisions of Fiji on the island of Viti Levu, and 16 percent in the Northern Division (Vanua Levu and Taveuni). Currently about 50 percent of Fijians live in rural areas. Poverty is higher in rural areas, at 44 percent, compared to 26 percent in urban areas, and larger households tend to have a higher incidence of poverty, particularly in rural locations. The Northern Division has the highest rates of poverty (48 percent) according to the most recent Household Income and Expenditure Survey. The Northern Division was also among the areas hardest hit by the recent Cyclone Winston (February/March 2016). For Official Use Only 3. Fiji’s economy is relatively diversified, but new, nontraditional, sources of growth can also be developed. Average gross national income is US$5,100 per capita (World Bank, 2016). Agriculture, sugar and tourism drive economic activity, together with some contributions from natural resources (forestry, fishery and mining). Agriculture employs around 70 percent of the labor force, but accounts for just 10 percent of gross domestic product (GDP). The sugar industry has traditionally occupied a dominant role in economic activity, but has declined significantly in recent years due, in large part, to the end of preferential tariffs. The economy has become increasingly dependent on tourism with about 650,000 visitors annually. Fiji’s growth momentum remains strong despite the downward revision in growth forecasts to 2.4 from 3.5 percent following Tropical Cyclone (TC) Winston in February 2016. Despite the cyclone, visitor arrivals have held up, rising 5.2 percent in the year to May 2016, as most tourist resorts escaped damage. Personal remittances also rose 6.8 percent on the year in January –May 2016 as families and relatives overseas responded to the cyclone. Recovery-related construction activities and improving labor market conditions further boosted consumption and investment. The growth outlook remains positive, supported by the continued strength of tourism, remittances, and public spending on recovery and reconstruction. Inflation is expected to rise to 2–3 percent as shortages in some agricultural products, strong domestic demand, and capacity constraints from reconstruction activities put upward pressure on prices. The Fiji dollar is expected to continue to depreciate relative to the US dollar in 2016–18, both as a result of a stronger US dollar and higher domestic inflation. 4. Fiji has the potential to develop its digital economy, including a local ICT-enabled services industry, e-commerce, and digital government platforms which, with affordable high-speed Internet connectivity available nationwide, could benefit the majority of the population. A number of key enabling factors are already in place, including: a liberalized telecommunications/ICT services market; existing submarine cable connectivity from Suva to Australia and the United States via the Southern Cross Cable Network (SCCN); an emerging sub-regional cable network connecting Tonga, Vanuatu and prospectively Samoa; a growing technical skills base and talent pool, supported by national and regional universities; and an emerging ICT services sector, including offshoring/outsourcing industries. Fiji has a small but growing ICT-enabled services/business process outsourcing industry. It won the 2014 European Outsourcing Association’s Offshoring Destination of the Year Award, which acknowledges operators that have most successfully serviced the United Kingdom and other European outsourcing Oct 04, 2016 Page 3 of 16  The World Bank P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project (P159297) markets. The Government has recognized the importance of ICT as an enabler of private sector investment and development, and has implemented several favorable policies and incentives, including the previous development of free trade zones. 5. With continued investment in human capital, physical infrastructure, and the enabling regulatory environment, Fiji as a whole has potential to provide ICT enabled services/industries and an ICT talent pool for the wider Pacific region. While the main expansion in Fiji’s digital economy is likely to continue around the capital of Suva and main development corridors, the extension of high-speed Internet to the Northern Division is expected to stimulate local businesses, through improved connectivity, e-commerce potential and reduced transaction costs, plus the development of smaller- scale ICT services. 6. More widespread and affordable access to ICT services can facilitate improved economic opportunities for women, and provide valuable access to information and services. Gender differences are strongly embedded in Fijian culture and tradition. The roles of women are impacted by ethnicity and vary in degree at the household level, but male-dominated hierarchies tend to be common regardless of For Official Use Only ethnicity. Women’s involvement in political, social and economic activities is promoted through many international and regional gender equality commitments by the government. Women’s civil society organizations have been instrumental in getting policies and laws in place for women’s rights and gender justice in Fiji. In February 2014, the Government approved the National Gender Policy, which seeks to promote gender equity and equality by removing all forms of gender discrimination and inequalities to attain sustainable development. Sectoral and Institutional Context 7. Fiji’s ICT sector has benefited from two key factors: its access to the SCCN since 2000, and its competitive market structure. The SCCN optical fiber cable lands in Suva on Viti Levu, providing high- capacity connectivity to global telecommunications networks via Australia and the US. Fiji liberalized its telecommunications market in 2008, resulting in major improvements in coverage and access. The 2008 Telecommunications Promulgation Act which opened the market also established an independent regulator, the Telecommunications Authority of Fiji (TAF). The TAF deals with licensing, technical regulation, and spectrum, although some aspects are managed by the Ministry of Communications (MOC), and consumer matters. TAF also maintains a database for telecoms/ICT monitoring and evaluation system, established under an earlier Institutional Development Fund (IDF) Grant. The Fiji Commerce Commission (FCC) is responsible for monitoring unfair trade practices and introducing price controls when necessary. MOC is responsible for sector policy. 8. The current market structure is summarized in Figure 1 below. The main operators are Fintel, provider of international connectivity services, Telecom Fiji Limited (TFL), operator of the Public Switched Telephone Network (PTSN), Vodafone Fiji Limited, a mobile service provider, and Digicel, a mobile service provider. Fintel and TFL are 100 per cent owned subsidiaries of Amalgamated Telecom Holdings (ATH). Vodafone Fiji is owned 51% by ATH and 49% by the Fiji National Provident Fund (FNPF). Communications Fiji Ltd provides radio communications services and has a small shareholding in Oct 04, 2016 Page 4 of 16  The World Bank P4: Pacific Regional Connectivity Program: Phase 3B, FJ Connectivity Project (P159297) Unwired, an ISP which is majority owned by Digicel via its ownership of DataNets of PNG. Operators receive 15-year unified licenses allowing them to provide any service for that period. 9. Access. Basic mobile phone penetration as of June 2016 was 118 percent of the population. Mobile broadband (3G/4G) coverage is near-universal with 96 percent of the population within reach of a 3G signal and 50 percent within reach of a 4G signal. Mobile broadband penetration is about 50 percent. Fixed broadband access (mostly ADSL, some optical fiber) is currently about 5 percent. 10. Affordability of ICT services has improved significantly since market liberalization, and particularly since the FCC’s imposition of wholesale price regulations in 2010. The impact on prices from increased mobile Internet competition, and removal of duties on mobile broadband devices also has been significant. Post-paid prices have remained roughly the same between 2006 and 2016, but the amount of included data has increased. For prepaid users, the pricing options have become more flexible as operators have shifted to “bundled