Ghana - Second Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16247 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF GHANA SECOND TELECOMMUNICATIONS PROJECT (Credit 1946-GH) January 21, 1997 Economic Management and Social Policy Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency unit - Cedi US$I = Cedi 186 (May 1988 auction rate) US$1 = Cedi 1,675 (September 1996) Weights and Measures Metric System Fiscal Year of Borrower Government - January 1-December 31 GPT - January 1 -December 31 Abbreviations and Acronyms CFD - Caisse Franqaise de Developpement (formerly CCCE) DEL - Direct Exchange Lines ERP - Economic Recovery Program GOG - Government of Ghana GPT - Ghana Posts and Telecommunications Corporation GP - Ghana Postal Services Corporation GT - Ghana Telecommunications Company Limited IDA - International Development Association MOTC - Ministry of Transportation and Communications NCA - National Communications Authority OECF - Overseas Economic Cooperation Fund (Japan) PABX - Private Automatic Branch Exchange PMBX - Private Manual Branch Exchange PPF - Project Preparation Facility SOE - State-owned Enterprise STP - Second Telecommunications Project Vice President Callisto Madavo Director Serge Michailof Acting Technical Manager: Thomas W. Allen Operations Officer Marilyn S. Manalo  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT GHANA SECOND TELECOMMUNICATIONS PROJECT (Credit 1946-GH) TABLE OF CONTENTS Page Preface Evaluation Summary i Part I Project Implementation Assessment A. Background ................................................ 1 B. Project Objectives and Description .......................................... 2 C. Achievements of Project Objectives ........................................ 3 D. Major Factors Affecting the Project ......................................... 7 E. Project Sustainability ...................... .......................... 7 F. IDA's Performance .................. .............................. 8 G. Borrower's Performance ................................................ 8 H. Assessment of Outcome ................................. ............... 9 I. Future Operations ................ ................................ 9 J. Key Lessons Learned ........................ ........................ 9 Part II Statistical Annexes Table 1. Summary of Assessments .10 Table 2. Related Bank Loans/Credits .11 Table 3. Project Timetable .11 Table 4. Credit Disbursements .11 Table 5. Technical Performance Indicators .12 Table 6. Primary Performance Indicators .13 Table 7. Studies Included in the Project .13 Table 8. Project Costs and Financing .14 Table 9. Economic Costs and Benefits .15 Table 10. Status of Legal Covenants .16 Table 11. Bank Resources - Staff Inputs .19 Table 12. Bank Resources - Staff Missions .19 Appendix: 1. Final Supervision Mission's Aide Memoire 2. Borrower's Contribution to the ICR Map 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. l   IMPLEMENTATION COMPLETION REPORT GHANA SECOND TELECOMMUNICATIONS PROJECT (Credit 1946-GH) PREFACE This is the Implementation Completion Report (ICR) for the Second Telecommunications Project in the Republic of Ghana for which Credit No. 1946-GH in the amount of SDR 13.8 million equivalent was approved on July 26, 1988 and made effective on December 15, 1988. The credit closed on June 30, 1996, three years later than originally projected. Final disbursement took place on November 18, 1996, at which time a balance of SDR 480,411.07 was canceled. Co-financing for the project was provided by the Overseas Economic Cooperation Fund of Japan, the Japanese Government, the Netherlands Government, and Caisse Franqaise de Developpement. The ICR was prepared by Ms. Marilyn S. Manalo (Economic Management and Social Policy Department, Africa Region) with input from Messrs. Paul Bermingham, Rogati Kayani, and Peter Wright (Industry and Energy Department), and the Ghana Telecommunications Company Limited. Comments received from co-financiers were taken into consideration in the report. Preparation of this ICR began during IDA's final supervision mission and is based on material in the project file. The borrower contributed to the preparation of the ICR by providing its views as reflected in the mission's aide memoire and furnishing data incorporated in the report.   IMPLEMENTATION COMPLETION REPORT GHANA SECOND TELECOMMUNICATIONS PROJECT (Credit 1946-GH) EVALUATION SUMMARY Introduction 1. In 1987, Ghana had over 300 active state-owned enterprises (SOEs). The SOEs performed poorly as evidenced by their large operating losses, low productivity, increasing liquidity problems, inability to pay taxes and service debts, and growing requirements for government subsidy. The Ghana Posts and Telecommunications Corporation (GPT), the state-owned monopoly providing all telecommunications services, experienced these same problems. It also impeded the Goverrnent of Ghana (GOG) from advancing its objectives under the Economic Recovery Program (ERP), launched in 1983. IDA provided resources under a number of operations to support the ERP and address the country's economic decline. The Second Telecommunications Project (STP) was one of these projects and was designed to address specific reforms in the telecommunications sector. 2. IDA's assistance in Ghana's telecommunications sector started in 1975 under the First Telecommunications Project (Loan 1122-GH). The project objectives were not satisfactorily met and the sector continued to perform poorly. It constrained economic improvements envisaged under the ERP and required significant Government budgetary outlays for equipment rehabilitation and maintenance. Recognizing the critical role the telecommunications sector had to play for the ERP to achieve its objectives, the Government decided to embark on a program to support reforms and development in the sector. Project Objectives and Description 3. Consistent with the telecommunications sector goals, the objectives of the STP were to: (a) improve the institutional and management structure of the telecommunications sector; (b) realize the optimum utilization of existing assets through the rehabilitation or replacement of old apparatus and the maintenance and provision of complementary equipment; and (c) improve GPT's financial performance. Two components supported the project objectives: the technical assistance and training component and the rehabilitation and expansion component. With this assistance, GPT was expected to eventually function as a commercial enterprise and become a net contributor to the Government treasury.  ii 4. The project objectives were justified given the critical role telecommunications played in the Government's efforts to reform and rehabilitate SOEs, implement a divestiture program, and develop the private sector. Acknowledging sectoral weaknesses and lessons learned from the first telecommunications project and responding to the country's development priorities and IDA's country assistance strategy, steps were taken to promote the achievement of the project goals. Funds were provided for preparatory work and covenants intended to strengthen GPT's financial management capacity were incorporated in the legal documents. The project correctly focused on the need for network reliability and operational competency to reverse the financial drain on the treasury and improve the efficiency of the productive sectors. It did not unrealistically burden an already weak system with sector expansion to meet the rising demand for communications services. The program goals also served to restrict co-financing programs to implementation levels manageable by GPT. Implementation Experience and Results 5. The project was originally scheduled to be completed by June 30, 1993 but was delayed by three years. Delays were mainly due to the Government's interference and inefficiencies in procurement procedures and a series of senior management turnovers in the early years of project implementation. 6. The following physical components of the project were completed and contributed to the improved performance of GPT: installation of a new international telephone exchange; rehabilitation of the satellite earth station for international services; rehabilitation of the external cable network in key areas in Accra; rehabilitation, replacement, and expansion of exchanges; and the rehabilitation, acquisition, and expansion of equipment and transmission systems. Support for the rehabilitation and expansion work was provided by external cable, switching, transmission, power and engineering experts. Also, consultants assisted in the development and validation of technical courses on teletraffic, power and air-conditioning, switching, outside line plant, and transmission. Local instructors received training in these areas overseas. 7. On the institutional side, achievements included the: development of a telecommunications policy, telecommunications master plan, corporate plan and a manpower development plan; establishment of a Corporate Department and functional units (network planning, project implementation, network maintenance, traffic operations, finance, supplies, management information systems, and manpower planning and development) in GPT; capacity building in the Finance Department; and development of a management accounting system, an electronic data processing center, and materials management policies and procedures. These developments notwithstanding, GPT's inability to operate fully as an autonomous and commercial entity continued to render it organizationally weak and financially insolvent. GT was unable to consistently comply with some of the financial covenants of the legal agreement with IDA. As a result, for example, issues relating to debt service and investments were addressed later and in the context of the privatization of GT.  iii 8. Improvements made to the telecommunications infrastructure and GPT's institutional capacity enabled GPT to belatedly (only in 1995) achieve some 1992 target performance indicators provided in the appraisal report. The Government's intervention in the procurement of consulting services, implementation delays or cancellation of some co-financed commitments, the absence of tariff increases, a series of senior management turnovers, and GPT's difficulty in improving and carrying out its manpower planning and development policies and procedures (also reflected in poor incentives for GPT's staff) were the main contributing factors to the poor performance in the early years of the project. 9. The total project cost was approximately US$210 million with IDA resources amounting to approximately US$18 million and co-financing resources approximately US$192 million. Compared to the appraisal estimate of approximately US$173 million, the higher costs resulted from additional investments and changes in the rehabilitation and expansion work. The financial and economic rates of return of the project is estimated at 23 percent compared to the appraisal estimate of 13 percent and 21 percent, respectively. 10. Recognizing that the existing telecommunications sector structure continued to fail to meet the communication requirements necessary for the economic growth of the country, the Government commenced its efforts to reform the sector in 1993. The objectives of this program were to achieve rapid expansion and improve the quality of service through increased private sector participation, the promotion of competition and the establishment of an appropriate regulatory framework. Considerable progress has been made in the implementation of the reform program as evidenced by the: split of GPT into GT and GP; ongoing work to sell a controlling interest in GT to a strategic investor, to sell a license to a second network operator (bids had already been opened in December 1996), and to restructure GT's debt; creation of a regulatory agency, the National Communications Authority (NCA); preparation of draft model licenses, interconnection agreements and a tariff policy paper for the sector; and implementation of a staff retrenchment program. Summary of Findings, Future Operations and Key Lessons Learned 11. Overall, the objectives of the project were partially achieved. The project contributed to the development and modernization of the telecommunications infrastructure; increased the volume, quality and coverage of telecommunications services; and supported the implementation of a sector reform program which incorporates the private delivery of services in a competitive market. 12. Overall, IDA's performance was satisfactory. Project preparation and supervision were adequate. Following unsuccessful efforts to develop the financial management and manpower capacity of GPT, in 1993 and 1994 IDA, adopting a participatory approach, assisted the Government in the formulation of a strategy to reform and improve the performance of the sector.  iv 13. The performance of the Borrower and GPT was satisfactory particularly regarding the implementation of the physical component of the project. Unfortunately, the benefits of the improvements on the infrastructure were reduced by GPT's inability to fully profit from the capacity building efforts made under the project. GPT could not function autonomously from the Government nor competitively within the market structure it was operating in to sustain the institutional and financial management improvements it achieved in the early years of the project. This notwithstanding, the Government, starting in 1993, recognized and adopted essential steps to solve the root problems of the sector. It continues to make progress in implementing an ambitious sector reform program based on market liberalization and private sector investment. 14. The project outcome is satisfactory based on the fact that: (a) many of the objectives under the rehabilitation and expansion component were realized; (b) many of the sub-components under the capacity building component were carried out although not all the goals were fully attained; and (c) the Government is well advanced in the implementation of a far-reaching sector reform program which includes privatizing communication services and developing a competitive market and improvements in the telecommunication policy and regulatory environment. 15. It is likely that the sustainability of the operations and benefits achieved under the project will be maintained and improved as the Government continues to implement its ambitious sector reform program. The Government recognizes that reforms should be carefully implemented and used to improve the technical and operational capabilities of GT. Sustainability depends critically on the changes in management responsibility and accountability, the introduction of a sound financial management program, updated telecommunication operations and maintenance procedures, and implementation of sectoral reforms in a coordinated manner. 16. The plan for the project's future operation and the measures to maximize the project benefits will have to be built into the laws and expansion program governing the sector. The National Communications Authority (NCA) will define the key elements to the development of a competitive market by decree, including the functions, organization, and financial resources of the service providers, and the regulatory issues governing market entry, licensing, price regulation, and abuse of dominant position. A new Bank operation is under preparation to support the NCA and the implementation of this phase of the sector reform program, and the development of telecommunications services in the rural areas. 17. The key lessons learned from this operation are that: (a) state-owned monopolies are generally unable to satisfy the demand for services and to mobilize the investment and skills needed to develop the telecommunications sector; and (b) in today's increasingly global and competitive economy, performance in the telecommunications sector can be improved significantly through the introduction of fundamental sector reforms which allow private participation and the introduction of a competitive market structure.  IMPLEMENTATION COMPLETION REPORT GHANA SECOND TELECOMMUNICATIONS PROJECT (Credit 1946-GH) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Background 1. In 1987, Ghana had over 300 active state-owned enterprises (SOEs). The SOEs performed poorly as evidenced by their large operating losses, low productivity, increasing liquidity problems, inability to pay taxes and service debts, and growing requirements for government subsidy. The Ghana Posts and Telecommunications Corporation (GPT), the state-owned monopoly providing all telecommunications services, experienced these same problems. It also slowed down the ability of the Government of Ghana (GOG) to advance its objectives to address the country's economic decline under its Economic Recovery Program (ERP), launched in 1983. In support of the comprehensive reform program for the SOE sector under the ERP, IDA provided resources under a number of operations. One operation, the Second Telecommunications Project (STP), was designed to address specific reforms in the telecommunications sector. 2. Prior to the STP, IDA's involvement in Ghana's telecommunications sector started in 1971 when preparation work for the First Telecommunications Project started. This first operation (Ln. 1122-GH), for US$23 million, was approved in 1975. The project was designed to: fund part of the 1976-1980 investment program of GPT; improve the quality of telecommunications services; extend services to new subscribers; and strengthen GPT. The project objectives were not met' when the project closed on June 30, 1985. The main contributing factors were: the difficult economic conditions in Ghana; lack of adequate staff and management at GPT; delays in implementing an overly optimistic schedule; large overruns in local costs that GPT could not finance without Government support; and delays in meeting a cost overrun in foreign exchange due to a decision to change switching technology from electromechanical to digital electronic. 3. When the STP was prepared in 1987, the telecommunications sector was still performing very poorly. This was reflected in: low telephone density (0.3 DELs, down from 0.4 DELs in 1981 per 100 people); inadequate and uneven distribution of telephone facilities between urban and rural areas; unreliable and delayed service; GPT's unhealthy financial position and inadequate investment levels; and a weak organizational structure. Project Performance Audit Report, Report No. 6400-GH, September 5, 1986  2 As a result, the sector continued to significantly constrain economic improvements envisaged under the ERP and to require significant Government budgetary outlays for equipment rehabilitation and maintenance. Recognizing the critical role the telecommunications sector had to play for the ERP to achieve its objectives, the Government decided to embark on a development program to support the telecommunications sector. B. Project Objectives and Description 4. The STP was designed to support the telecommunications development program and, consistent with the sectoral goals, its objectives were to: (a) improve the institutional and management structure of the sector; (b) rehabilitate old equipment, replace obsolete assets, and maintain and provide complementary assets to realize the optimum utilization of existing assets; and (c) improve GPT's financial performance. Support was provided to enable GPT to function as a commercial enterprise so that it could become a net contributor to the Government thereby eliminating the need for government subsidies. 5. The project had two components to support these objectives: the technical assistance and training component; and the rehabilitation and expansion component. About 54 percent of the IDA credit supported the first and third objectives of the project with financing for consultancy services (organization, finance, regulation and policy, engineering), training (telecommunications management, digital technology, finance, accounts and procurement, curriculum development). With the availability of co- financed resources for the physical components of the project, the remaining 46 percent of the project resources provided for the achievement of the second project objective. Funding was provided for spare parts for existing equipment; replacement parts for defective exchanges and cables; replacement for obsolete exchanges; telephones, teleprinters; private manual branch exchanges, private automatic branch exchanges; public call offices; replacement equipment for digital trunk exchanges, microwave equipment, multiplex equipment and power plant; replacement of microwave and UHF transmission systems; provision of: a coast station, rural transmission facilities, VFT/TDM systems and sub-base band insert equipment; vehicles for planning, construction, operation, maintenance work; power and air conditioning equipment; computer, tools and test equipment; and construction materials for flood protection works and for residential buildings. 6. The project's objectives were justified given the critical role the sector was playing in the Government's efforts to reform and rehabilitate SOEs, implement a divestiture program, and develop the private sector. Moreover, at the time the project was prepared the available resources and expertise were limited qualitatively and required improvement. The comprehensive changes pursued under the project were expected to have wide ranging effects in increasing efficiency in the market mechanisms, health and transportation sectors, and the government and parastatal administration, among others. These objectives were clearly stated and realistically responsive to the country's  3 development priorities and IDA's country assistance strategy. The project correctly focused on the need for network reliability and operational competency to reverse the financial drain on the treasury and improve the efficiency of the productive sectors. It did not unrealistically burden an already weak system with sector expansion to meet the rising demand for communications services. The program goals also served to restrict co- financing programs to implementation levels manageable by GPT. 7. Taking into account the sectoral weaknesses and the lessons learned from the first telecommunications project, steps were taken before the approval of the project to promote the achievement of the project's goals. Two advances under the Project Preparation Facility funded consultancy services for the preliminary work to split and reorganize GPT, develop a telecommunications master plan and a corporate plan, and support project management and accounting. To advance the project goals, the legal agreements included, among others, covenants requiring: (a) the Government to formalize a moratorium on GPT's debt service obligation on loans made by the Government from its own resources; (b) GPT to generate sufficient internal resources to fund the greater of either the local costs of their investment program or the annual average of their capital expenditure; (c) prior approval from IDA on GPT's investments exceeding $1 million; (d) GPT to establish functional units covering network planning and maintenance, project implementation, traffic operations, finance, supplies, MIS and manpower planning and development; and (e) annual audit reports. C. Achievement of Project Objectives 8. Overall, the objectives of the project were partially achieved. The project contributed to the development and modernization of the telecommunications infrastructure; increased the volume, quality and coverage of telecommunications services; and paved the way toward sector reforms, which incorporate the private delivery of services in a competitive market. A summary of achievements under the project are provided below and in Part II of this report. Rehabilitation and Expansion Component 9. GPT's performance improved following the completion of rehabilitation and maintenance work. This included the installation of a new international telephone exchange (co-financed by Caisse Francaise de Develloppement (CFD); rehabilitation of the satellite earth station for international services (co-financed by Japan Exim Bank); rehabilitation of the external cable network in key areas (co-financed by the Overseas Economic Cooperation Fund (OECF, Japan) and the Dutch and Japanese governments); rehabilitation, replacement, and expansion of exchanges; switching equipment; the rehabilitation, acquisition, and expansion of equipment and transmission systems; and civil works (co-financed by Japan Exim Bank, Telectron and those mentioned above). A network optimization study for Accra and Kumasi, completed in early 1993 by consultants, provided direction to infrastructural developments. By 1995, there were 63,740 connected lines (compared to 38,046 in 1987, 49,847 in 1994 and the projected  4 target of 61,000 by 1992); the targeted capacity for the telex exchange was attained; and the number of telex subscriber lines exceeded expectations at 1,010 lines. While there were improvements in the exchange fill, the number of faults per year per DEL, the call completion rates, the average operator answer time to book calls, and the number of telecommunications staff per 1,000 DELs (performance targets listed in the SAR) were not attained. 10. External cable, switching, transmission, power and engineering experts were part of a project management team which assisted GPT in implementing the STP. They supported the rehabilitation and expansion work program including the provision of design and detailed engineering; materials procurement; equipment installation, acceptance testing, and commissioning; network operations and maintenance; and manpower training and development services. Technical Assistance Component 11. A telecommunications master plan was developed in response to the need to continue with a substantial program of network rehabilitation and in recognition of staff shortages and the lack of a coordinated telecommunications planning function in GPT. A master plan for 1987-2006 was drawn which established development targets for the sector, defined target standards of service, and determined key policy decisions required to implement a consistent long-term network development program. 12. The development of a reorganization plan was funded under the project. Emanating from this work were recommendations on the options and modalities to implement the separation of GPT into two entities corresponding to the telecommunications and postal functions. In 1990, an action plan for splitting up the corporation and an organizational structure were developed. The subsequent process of splitting the corporation was drawn out primarily due to the lack of management and legal capacity in the Government and in GPT. It was only in December 1993 that the Statutory Corporations Act was passed and provided for the conversion of GPT into two limited liability companies. Following the adoption of a new telecommunications sector policy (approved by the Cabinet in April 1995),2 the Government formally split GPT into the Ghana Telecommunications Company Limited (GT) and the Ghana Postal Services Corporation (GP) in August 1995. A certificate to commence business was issued to GT in October 1995. Currently, the Government is in the process of selling a 30 percent stake in GT to a strategic investor (who also will have management control) and expects to conclude the sale by early 1997. 2The telecommunications sector reform policy aims to achieve rapid expansion and improve the quality of telecommunications services through increased private sector participation, the promotion of competition, and the establishment of an appropriate regulatory framework. In 1995, IDA approved advances under the Project Preparation Facility totalling US$2 million to assist the Government in implementing the reform policy.  5 13. In response to the Government's agreement under the IDA-financed Structural Adjustment Credit (Cr. 1777-GH) to have corporate plans prepared for all major parastatal organizations in Ghana, allocations under the STP were made for a five-year corporate plan. During project preparation, it was agreed that the plan would focus on the short-term financial performance of GPT and would establish objectives and define program and resource requirements necessary to meet these objectives. A corporate plan for 1990-1994 was prepared by consultants and a Corporate Affairs Department was later established within GPT. With inadequate resources, however, the department has not been able to function effectively and to complete an update of the corporate plan for years 1994-1998. Also, prior to the split of GPT into two companies, functional units were established for network planning, project implementation, network maintenance, traffic operations, finance, supplies, management information systems, and manpower planning and development. A further reorganization of GT took place after its split from GP. 14. To overcome management deficiencies and develop an information base for financial planning, funds were provided for the services of the following experts: a commercial manager, management accountant and stock and stores accountant. These consultants were contracted to focus on the development of systems and procedures and train local counterparts in GPT in areas including: financial management and reporting, budgets and forecasts, billing and collection, debt management, tariff review, and stock inventory, control and pricing. Though their appointments were delayed by the Government's cumbersome procurement procedures and their performance was unsatisfactory to GPT (except for the management accountant), the consultants' work led to the preparation and implementation of a management accounting system and the development of materials management policies and procedures. In the future, to meet acceptable reporting requirements, additional work will be necessary to improve the accounting system, particularly with regard to the preparation of an accounting manual and the development of policies and procedures for supporting account systems. 15. An electronic data processing center (EPDC) was established in 1993 with project funds. After experiencing start-up and implementation delays and switch over problems during acceptance testing, the center is now fully operational. While it provides facilities for billing (national and international), payroll and financial management, the effectiveness of these tools has been undermined by problems with the operating procedures. Also, given its uncompetitive salary structure, GT has difficulties recruiting and retaining qualified staff to run the EPDC. These problems, plus the need to cope with a larger client base, have made providing useful and timely financial management tools problematic for GT. 16. Resources under the project were also allocated to improve GPT's financial performance. Despite assistance under the project, its financial position continued to remain weak (summarized in Part II of the report). Several factors contributed to this: high investment costs to finance network expansion, delays in connecting new capacity to subscribers, delayed billing, poor collection practices, high accounts receivables, and insufficient tariff increases. The billing process continued to be plagued by difficulties  6 due to, among others, late processing or batch processing of bills by computer houses, poor coordination between the engineering and commercial sections of GPT, delayed implementation of a rationalization exercise to identify subscribers whose lines were not working but continued to receive bills, delays in completing an aging analysis to identify the uncollectable arrears that had to be written off, high cross debts between government agencies, and the shortage of qualified and motivated staff. Improvements in the collection process during the earlier years of the project was not sustained by a collection task force. 17. Sales revenues also continued to remain low because, despite an acceleration of inflation in recent years, tariffs were increased only twice during the project implementation period: in May 1988 and again in April 1993. A tariff study to develop principles and procedures that would guide GPT in the formulation and implementation of a tariff structure was planned but not undertaken. With approval from IDA, resources for this component were reallocated to other components. A review of tariffs and tariff setting procedures commenced in 1995 in the context of the on-going sector reform program. Tariffs remain low compared to some countries in sub-Saharan Africa. 18. When assets were revalued at the time of finalizing the split of posts and telecommunications, it became clear that GT's liabilities significantly exceeded a fair valuation of their assets. GT has been unable to service its debt obligations to the Government for several years. The Government has agreed to absorb a large portion of this debt as part of the privatization of GT. 19. GPT's compliance record on the financial covenants of the legal agreement with IDA was insufficient in some areas and absent in others. While they regularly submitted audit reports, these were late because of the problems described above. They did not comply with the Project Agreement, Section 2.04 (settlement of its debt obligations to the Government) and Section 4.02 (a) (internal generation of funds for investment purposes). On the Government's part, they did not comply with the Development Credit Agreement, Section 3.01 (c), requiring that they fully exercise their rights on GPT's debt obligations. The debt service and investment issues were addressed later and in the context of the privatization of GT. 20. Under the manpower planning and development component of the STP, objectives were partially met. With the provision of services from consultants and a technical advisor, 26 courses on teletraffic, power and air-conditioning, switching, external line plant, and transmission were developed and validated. Also, seven instructors were trained overseas under a fellowship program covered in the consultant's contract. However, funds originally allocated for overseas fellowships in management, engineering and finance were reallocated (following Idea's clearance) to finance equipment and other requirements for the training school and additional resources necessary for the network optimization study. Rehabilitation work on the training school was completed and all training equipment delivered. Also, Gut's uncompetitive salary  7 structure made it difficult for the company to retain some trained staff beyond a period predetermined to compensate GPT for the training provided to the staff. 21. On other miscellaneous project components, the project funded the purchase of 20,000 telephone sets. Because of lack of funds, the Government decided to cancel the payphones and PABX components. The construction of housing units, incorporated in the project to serve as an incentive to staff, was delayed by procurement and materials storage problems. After the resolution of these problems, construction of 100 housing units is now underway. 22. As summarized in Tables 8a and 8b in Part II, the total project cost was approximately US$210 million with IDA providing approximately US$18 million and co-financiers approximately US$192 million. Compared to the original project cost estimate of US$173 million, the higher costs resulted from additional investments and changes in the rehabilitation and expansion work. The financial and economic rates of return on these investments is estimated at 23 percent compared to 13 percent and 21 percent, respectively, estimated at appraisal. D. Major Factors Affecting the Project 23. The key factors which affected project execution were: (a) excessive interference by the Government in the procurement of consulting services during the early years of the project. They repeatedly prevented the early appointment of consultants serving key functional areas in the project management unit. Also, their procurement clearance process was cumbersome and long for foreign consultants and some co-financed components. These procurement problems resulted in a two-year delay in project implementation. (b) GPT's inability to function autonomously and on a commercial basis. Given the absence of a conducive market structure, it could not operate competitively and efficiently nor make investment, financing, tariff, and personnel decisions to improve its overall performance. These factors, along with delays or cancellation of some co-financing commitments and changes in the rehabilitation and expansion work, contributed to the Credit closing three years later than originally forecasted. E. Project Sustainability 24. It is likely that the operations and benefits achieved under the project will be maintained and improved as the Government continues to implement its ambitious sector reform program. Since 1993 when the Government started preparation work for its telecommunications reform program, considerable progress has been made as evidenced  8 by the: split of GPT into GT and GP; ongoing work to sell a controlling interest in GT to a strategic investor and to sell a license to a second network operator (bids had already been opened in December 1996), and to restructure GT's debt; creation of a regulatory agency, the National Communications Authority (NCA); preparation of draft model licenses, interconnection agreements and a tariff policy paper for the sector; and implementation of a staff retrenchment program. 25. The Government recognizes that reforms should be carefully implemented and used to improve the technical and operational capabilities of GT. Sustainability depends critically on the changes in management responsibility and accountability, the introduction of a sound financial management program, updated telecommunication operations and maintenance procedures, and implementation of sectoral reforms in a coordinated manner. F. IDA's Performance 26. Overall, the Association's performance was satisfactory. The project was adequately prepared as manifested by the: correct analysis of the major constraints to the development of the telecommunications sector; careful assessment of the background, experience and qualification of Government and GPT staff; design of the project that supported realistic goals and the development strategy and priorities of the Government and IDA; and correct identification of the project's risks. In considering lessons from the first telecommunications operation, conditions for credit effectiveness were established and some technical assistance and training commenced prior to the signing of the credit. 27. Supervision of the project was adequate as reflected by the quality (skills mix and continuity) of Bank staff, frequency and length of field visits, accuracy in reporting of implementation progress and problems, and established harmonious and cooperative working relationships with GPT and other co-financiers. Following unsuccessful efforts to develop the financial management and manpower capacity of GPT, in 1993 and 1994 IDA adopted a participatory approach in assisting the Government to formulate a strategy that would improve the performance of the sector. G. Borrower's Performance 28. The performance of the Borrower and GPT was satisfactory particularly regarding the implementation of the physical component of the project. Unfortunately, the Borrower's returns on the infrastructural investments were reduced by GPT's inability to fully profit from the capacity building efforts made under the project. Unable to function autonomously and competitively within the market structure it was operating in, GPT could not consistently sustain the institutional and financial management improvements it achieved.  9 29. In spite of these deficiencies, since 1993 the Government has been implementing a comprehensive reform program to solve the root problems of the sector. It continues to support a program that is based on market liberalization and private sector investment. H. Assessment of Outcome 30. The project outcome is satisfactory based on the fact that: (a) many of the objectives under the rehabilitation and expansion component were realized; (b) many of the sub-components under the capacity building component were carried out although not all the goals were fully attained; and (c) the Government continues to implement a far- reaching sector reform program which includes privatizing communication services and developing a competitive market and improvements in the telecommunication policy and regulatory environment. I. Future Operations 31. The plan for the project's future operation and the measures to maximize the project benefits will have to be built into the laws and expansion program governing the sector. The NCA will define by decree key elements to the development of a competitive market, including the functions, organization, and financial resources of the service providers, and the regulatory issues governing market entry, licensing, price regulation, and abuses of a dominant position. A new Bank operation is under preparation to support the NCA and the implementation of this phase of the sector reform program, the expansion of telecommunications services in the rural area, and the development of the postal sector. J. Key Lessons Learned 32. The key lessons leamed from this operation are that: (a) state-owned monopolies generally are unable to satisfy the demand for services and to mobilize the investment and skills needed to develop the telecommunications sector; and (b) in today's increasingly global and competitive economy, performance in the telecommunications sector can be improved significantly through the introduction of fundamental sector reforms which allow private participation and the introduction of a competitive market structure.  10 PART II: STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievements of Objectives | Substantial | Partial | Negligible [ iNot _ l g ~~~~~~~~~~~~~~~~~~Applicable Macroeconomic policies=_ _ _ Sector policies _ Financial objectives / Institutional development Physical obje1^ctvs Poverty reduction / Gender concerns / Other social objectives / Environmental objectives / Public sector management V Private sector development $ Other (specify) __ / }Likely I Unlikely Uncertain B. Project Sustainability l L l U C. Bank Performance | Highly Satisfactory [ Satisfactory Deficient Identification Preparation assistance l Appraisal V Supervision D. Borrower Performance | Highly Satisfactory [ Satisfactory Deficient Preparation | V Implementation V i Covenant compliance E. Assessment of Outcome Highly Satisfactory | Satisfactory Unsatisfactory 0 I I ~ ~~~~~~~~~~~~~~~~~~~~/ I , 1  11 Table 2: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Approval Status Preceding Operations: First Telecommunications Extend and improve the quality of 1975 Completed Project (Cr. 1 122-GH) telecommunications services; strengthen Ghana Posts and Telecommunications Table 3: Project Timetable Steps in Program Cycle Date Planned Date Actual Identification November 1985 Preparation October 1986 November 1986 Appraisal February 1987 November 1987 Negotiations May 9, 1988 Board approval September 1987 July 27, 1988 l Signing | August 15, 1988 Effectiveness November 15, 1988 December 15, 1988 Project completion December 31, 1992 June 30, 1996 Loan closing June 30, 1993 June30, 1996 Table 4: Credit Disbursements - Cumulative Estimated and Actual (US$ million) Fiscal Years 1988 1989 1990 1991 1992 1993 1994 1995 1996 Appraisal estimate 0.2 2.0 9.0 14.2 17.0 19.0 0.0 0.0 0.0 Actual disbursement 0.0 3.0 3.8 5.4 8.7 13.4 15.1 16.9 18.0 Actual as % of estimate 0 150 42 38 51 71 0.0 0.0 0.0 Final disbursement date: November 18, 1996  12 Table 5: Technical Performance Indicators SAR Target (1992, project Actual Actual Actual Actual Target Item completion) 1992 1993 1994 1995 1996 1. Exchange capacity 76,300 56,500 56,500 49,847' 102,500 180,000 2. Total Direct Exchange Lines 61,000 48,460 49,391 46,059' 63,740 105,000 3. Exchange fill (%) 87 86 87 81 62 58 4. No. of international circuits: - satellite 216 219 220 471 591 - terrestrial 90 69 69 56 60 5. Telex exchange capacity 1,784 1,784 1,784 1,784 1,784 1,784 6. Telex subscriber lines 930 945 975 985 1,010 1,010 7. No. of faults/year/DEL 1 1.3 0.4 0.5 0.9 0.9 8. Average % of faulty DEL at any 10 6 6 5 5 5 time 9. Faults cleared (%3 ) - within 24 hours 65 - within 48 hours 80 Not avail. Not avail. Not avail. Not avail. Not avail. - within 7 days 95 - within 30 days 100 10. Avg. call completion rates (%) - Int'l: outgoing 50 47 44 27 30 60 - Int'l. incoming 50 21 17 34 37 50 - National STD 60 49 50 52 57 80 - Local 75 58 67 65 75 90 11. Average operator answer time to book calls (w/in 10 sec.,%) - Int'l 90 43 55 51 30 50 - Inland 90 43 44 44 50 50 12. Total telecom staff 3,460 2,880 3,811 3,881 3,501 3,324 - telecom engineers 50 45 47 48 54 60 13. Telecom staff/1000 DELs 57 85 77 77 61 37 14. Training (staff weeks) 15,900 3,188 6,052 6,528 6,608 6,700 Capacity readjustment to eliminate non-operational manual exchanges.  13 Table 6: Primary Performance Indicators 1992 1993 1994 1995 Actual Actual Actual Actual 1. DELs/l00 population 0.31 0.30 0.28 0.37 2. Revenue (constant 1987 prices, Cm) 7,037 11,633 11,493 12,028 3. Costs (constant 1987 prices, Cm) 4,981 8,764 9,834 7,200 4. Rate of return:revalued net fixed asset 23.3 30.2 12.5 17.0 5. Debt service ratio -0.7 -0.7 n.a. n.a. 6. Current ratio 1.4 2.1 0.8 0.8 7. Subscriber accounts receivable (months) 11 7 5 7 Table 7: Studies Included in the Project Study Purpose Status Impact Reorganization of GPT Develop proposal to split, Completed GPT formally split into reorganize GPT Ghana Telecommunications Co. Ltd. and Ghana Postal Service Corp. on 8/31/95 Manpower Development Develop optimum level of Completed Full benefits not realized productivity, cost because of GPT's effectiveness of human uncompetitive salary resources structure Accrual Accounting System Develop an accrual Completed System developed and in accounting system operation Supply Management Establish a comprehensive, Completed Materials management integrated materials policies and procedures management and control developed and adopted system Tariff Develop principles and On-going but not Policy under development in procedures in formulating implemented under project the context of sector reform and implementing tariffs I_II_  14 Table 8A: Project Costs (US$) Component Appraisal Estimnate Actual Local Foreign Total Local Foreign Total Switching equipment 1.6 30.6 32.2 48.5 48.5 External cable network 10.1 52.9 63.0 87.4 87.4 Radio, multiplex equipment 1.0 14.9 15.9 40.8 40.8 Satellite earth station 0.1 6.6 6.7 Telephones, teleprinters, PABX, PMBX 0.1 2.8 2.9 5.5 5.5 Power, airconditioning equip. 0.1 1.7 1.8 _ 0.4 0.4 Vehicles 0.0 1.5 1.5 2.8 2.8 Computer, tools, test equip. 0.1 1.4 1.5 2.1 2.1 Civil works 2.0 3.4 5.4 0.3 4.2 4.5 Technical assistance (consultant vices, training) 0.8 18.8 19.6 0.5 17.5 18.0 Physical contingency 1.6 6.7 8.3 Price contingency 5.2 9.0 14.2 TOTAL 22.7 150.3 173.0 0.8 209.2 210.0 Table 8B: Project Financing (US$) Appraisal Estimate Actual Local Foreign Total Local Foreign Total Ghana Gov't. 9.8 1.5 11.3 0.0 0.0 GTP 5.5 2.5 8.0 0.8 8.2 9.0 IDA 0.7 18.3 19.0 18.0 18.0 France (CFD) 21.8 21.8 17.3 17.3 Netherlands Gov 18.8 18.8 48.8 48.8 Japan (Grant) 9.2 9.2 10.9 10.9 Japan (Exim) 7.0 7.0 __ 9.0 9.0 Japan (OECF) 6.7 69.5 76.2 95.0 95.0 Ireland (Telectron) 1.7 1.7 2.0 2.0 TOTAL 22.7 150.3 173.0 0.8 209.2 210.0  15 Table 9: Economic Costs and Benefits (US$ million) Economic and Financial ROR Streamns I/ -------(Constant 1987 Prices)-----------) Average Incremental Incremental Incremental Incremental Exchange Program Operating Operating Program Operating Operating Net Yea RaeI Defkao CD Cost Revenue Cos Cos Revenue Benefit 1987 176 100 4.2 0.00 0.00 4.20 0.00 0.00 -4.20 1988 230 107 2.1 -0.01 5.74 1.96 -0.01 5.35 3.40 1989 303 107 6.3 3.50 14.57 5.91 3.28 13.67 4.48 1990 345 113 10.5 15.57 24.37 9.32 13.83 21.64 -1.51 1991 390 115 16.8 20.17 31.01 14.61 17.54 26.97 -5.18 1992 520 120 29.4 21.45 29.60 24.52 17.89 24.69 -17.72 1993 827 120 37.8 33.24 42.62 31.61 27.80 35.65 -23.77 1994 1,041 124 79.8 38.71 42.27 64.42 31.25 34.12 -61.55 1995 1,432 134 23.1 26.42 45.84 17.22 19.69 34.17 -2.74 1996 1,432 131 40.70 85.11 0.00 30.33 63.44 33.10 1997 1,432 133 43.20 91.99 0.00 32.20 68.57 36.37 1998 1,432 136 45.20 97.49 0.00 33.69 72.67 38.98 1999 45.20 97.49 0.00 33.69 72.67 38.98 2000 45.20 97.49 0.00 33.69 72.67 38.98 2001 45.20 97.49 0.00 33.69 72.67 38.98 2002 45.20 97.49 0.00 33.69 72.67 38.98 2003 45.20 97.49 0.00 33.69 72.67 38.98 2004 45.20 97.49 0.00 33.69 72.67 38.98 2005 45.20 97.49 0.00 33.69 72.67 38.98 2006 45.20 97.49 0.00 33.69 72.67 38.98 2007 45.20 97.49 0.00 33.69 72.67 38.98 2008 45.20 97.49 0.00 33.69 72.67 38.98 ERR, FRR = 23% 1/ Assumptions: For 1988 through 1995 incremental operating costs are calculated as the excess of total operating costs in each year compared to those in 1987; for 1996 through 1998, incremental operating costs are projected based on the incremental number of lines; the incremental operating cost for 1998 was used for 1999 through 2008. For 1988 through 1995 incremental operating revenues are calculated as the excess of total operating revenue each year compared to those in 1987; for 1996 through 1998, incremental operating revenues are projected based on the incremental number of lines; the incremental operating revenue for 1998 was used for 1999 through 2008.  16 Table 10: Status of Legal Covenants Development Credit Agreement Section Description Type Status Orig. Date Rev. Date Comments 3.01 (b) Proceeds of the credit to be on-lent to GPT under a Fin OK Effectiveness SLA on conditions acceptable to IDA 3.01 (c) Borrower to exercise its rights under the SLA and not Fin Not On-going To be resolved as part of waive its rights thereunder without the agreement of complied financial restructuring IDA presently under way as part of process of privatizing GT 3.02 Government to make quarterly deposits into the Fin Not 1990 Project Account (sec. 4.04 of PA) for GPT FYs 1988 complied to 1990 3.03 Procurement to be governed by Schedule I of the PA Mngt. OK _ 4.01 Forward the auditor's report on the Special Accounts Fin OK 6 mths. from _ and SOEs to IDA end of FY 4.02 Government to formalize its moratorium on GPT's Fin OK No date Financial restructuring will debt service obligations on loans made by stated be concluded in early 1997 Government out of its own resources until the as part of the process of restructuring referred to in para 5 (f) of Schedule 2 of privatizing GT the PA has been completed and exchange views with IDA on these arrangements  17 Project Agreement _ | Type Status Orig. Date Rev. Date Comments Section l l l l l _ l 2.04 GPT shall perform all of its obligations under the Fin Not On-going Being addressed as part of SLA, except to the extent that IDA may a1L:rnmnIia _____ ___ I Jbprvt -prirh 1,VtAsr otherwise of GT to be concluded before its privatization 3.03 GPT shall take out and maintain insurance consistent Fin OK On-going GT only insures vehicles - with appropriate practice remaining assets are self- insured. 4.01 (b) GPT shall furnish IDA with draft accounts for each Fin OK 04/30 FY after 1989 annually 4.01 (b) GPT shall furnish IDA with audited accounts for Fin OK 07/31 each FY after 1989 annually 4.02 (a) For every year after FY 1990, GPT shall produce Fin Not On-going Being addressed in the funds from internal sources equivalent to the greater complied context of the privatization of: of GT.