Tanzania - Third Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22256 IMPLEMENTATION COMPLETION REPORT (IDA-24860) ONA CREDIT IN THE AMOUNT OF SDR 53.6 MILLION (US$ 74.45 MILLION EQUIVALENT) TO THE UNITED REPUBLIC OF TANZANIA FORA THIRD TELECOMMUNICATIONS PROJECT June 5, 2001 Global ICT Group Policy Division Country Department 4 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 (Exchange Rate Effective April 18, 2001) Currency Unit = Tanzania Shilling 1 TShs = US$ 0.00113 US$ 1 = 884 Tshs FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS ADB African Development Bank ARPU Average Revenue Per User CCS Capital Construction Supervision Unit DANIDA Danish International Development Agency DEL Direct Exchange Line EMS Express Mail Service ERR Economic Rate of Return EU European Union FRR Financial Rate of Return GOT Government of Tanzania GSM Global System Mobile ICR Implementation Completion Report IDA International Development Association IDC Institutional Development Consultancy IFC Intemational Finance Corporation ISP Intemet Service Provider JICA Japanese Development Agency KFAED Kwait Fund for Arab Economic Development MOF Ministry of Finance MOCT Ministry of Communication and Transport PSRC Parastatal Sector Reform Commission PMU Program Monitoring Unit QAG Quality Assurance Group SAR Staff Appraisal Report SDR Special Drawing Rights SIDA Swedish Intemational Development Agency SOBS Service Order and Billing System TCC Tanzania Communications Commission TPC Tanzania Postal Corporation TPTC Tanzania Post and Telecommunication Corporation TRP Telecommunication Recovery Program TTCL Tanzania Telecommunications Company Ltd. WLL Wireless Local Loop Vice President: Calisto Madavo, AFR Country Director: James W. Adams, AFC04 Sector Director: Mohsen Khalil, CITDR Task Team Leader: A. Shanmugarajah, CITPO  FOR OFFICIAL USE ONLY CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 11 7. Bank and Borrower Performance 12 8. Lessons Learned 14 9. Partner Comments 15 10. Additional Infornation 19 Annex 1. Key Performance Indicators/Log Frame Matrix 20 Annex 2. Project Costs and Financing 21 Annex 3. Economic Costs and Benefits 23 Annex 4. Bank Inputs 24 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 26 Annex 6. Ratings of Bank and Borrower Performance 27 Annex 7. List of Supporting Documents 28 Map No. IBRD 23747 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   Project ID: P002780 Project Name: TELECOM III Team Leader: A. Shanmugarajah TL Unit: CITPO ICR Type: Core ICR Report Date: June 4, 2001 1. Project Data Name: TELECOM III L/C/TFNumber: IDA-24860 Country/Department: TANZANIA Region: Africa Regional Office Sector/subsector: CC - Telecommunications & Informatics KEY DATES Original Revised/Actual PCD: 02/01/1989 Effective: 10/26/1993 01/10/1994 Appraisal: 05/30/1992 MTR: 11/01/1995 07/28/1997 Approval: 04/27/1993 Closing: 06/30/1999 12/31/2000 Borrower/Implementing Agency: GOVT.OF TANZANIA/GOT Other Partners: Swedish International Development Agency (SIDA), African Development Bank (ADB), Danish International Development Agency (DANIDA), European Union (EU), Japanese Development Agency (JICA), and Kuwait Fund for Arab Economic Development (KFAED) STAFF Current At Appraisal Vice President: Calisto Madavo Edward Jaycox Country Manager: James W. Adams Francis Colaco Sector Manager: Emmanuel Forestier Robert Hindle Team Leader at ICR: A. Shanmugarajah Ann Ishee ICR Primary Author: Yann P. Burtin 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time:  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The Third Telecommrunications project was part of a Telecommunication Recovery Program (TRP) that was identified by the Government of Tanzania (GOT), the Tanzania Post and Telecommunication Corporation (TPTC) and various donors. The TRP of US$220 million provided capital investment to (i) expand telecommunication services to subscribers in urban and rural areas; (ii) rehabilitate the existing network to improve quality of service and TPTC's profitability; and (iii) modernize the sector's legal and regulatory framework and institutional arrangements. The project objectives as described in the Staff Appraisal Report were as follows: (i) to establish a market oriented policy and regulatory framework, to introduce private sector participation in non-basic services in the near term, and develop an action plan to secure private investment in basic services; (ii) to facilitate commercialization and corporatization of TPTC, and build its institutional capacity; and (iii) to eliminate existing bottlenecks in the availability of telecommunication services, particularly to business subscribers, so as to satisfy the most urgent demand and foster the development of other sectors. The project was designed to build on the implementation and lessons learned under the First and Second Telecommunication Projects (Credits 1173-TA and 1810-TA respectively). The main lessons learned from these projects were: (i) upfront procurement work allows supervision to concentrate on basic institutional issues; and (ii) institutional restructuring of the Tanzania Post and Telecommunication Corporation (TPTC) is necessary in order to improve financial performance and to implement successfully the physical components. The project objectives were consistent with the Country Assistance Strategy at the time which emphasized improved efficiency in public sector management and the creation of an appropriate legal and regulatory environment for private sector development. The project was also consistent with the Bank's telecommunications strategy, which called for promoting the growth of telecommunications services by creating an enabling environment for private sector participation, and supporting capital investment projects in areas where piivatization is not immediately possible and where the lack of telecommunication services is a key constraint to the development of other sectors. 3.2 Revised Objective: The project's implementation coincided with a decade of change of approach in the telecommunication sector, putting a greater emphasis on private sector participation and competition. After the restructuring of TPTC (e.g., splitting it into Tanzania Postal Corporation-TPC and Tanzania Telecommunications Company Ltd.-TTCL), the establishment of the regulatory body (Tanzania Communications Commission-TCC), and the adoption of a new telecommunications policy highlighting the new role of TTCL in a competitive environment, GOT requested assistance to undertake the privatization of TTCL. 3.3 Original Components: The original components of the project as described in the Staff Appraisal Report (SAR) were the following: -2 -  1. Policy and Regulatory Framework (US$1.] million). Technical assistance was to be made available to the Ministry of Communications and Transport (MOCT): (i) to assess current sector structure, review the government strategy, identify options for private sector involvement and competition and define an implementation plan with clear milestones; (ii) to execute the implementation plan; and (iii) to carry out training for MOCT and regulatory staff. 2. Institutional Development and Project Implementation (US$5.4 million). Technical assistance was to be made available to TPTC: (i) to carry out the studies required to restructure TPTC (e.g., establish separate entities for postal and teleconmmunication activities), and define the organizational structure for the telecommunication entity; (ii) strengthen the TTCL's corporate organization, including operations, financial planning and marketing activities; (iii) to provide training to TTCL, TPC and TCC's staff and develop courses at the staff college; and (iv) to retain an external fnrm to be accountable for procurement and installation of new works under the program (in order to increase TPTC's implementation capacity). In addition, this component financed a new financial management system for TTCL. 3. Rehabilitation and Expansion ($67.95 million). Investment lending was made available to TPTC to purchase the necessary equipment to: (i) rehabilitate existing facilities; (ii) supply, install and commission of new exchanges; (iii) expand long distance transmission links; (iv) expand the junction network in Dar-es-Salaam using radio link and fiber optical systems; (v) supply small capacity radio link systems in rural areas; and (vi) provide telephone instrument vehicles and ancillary equipment. The project components were directly related to the project objectives, and were designed to address the major challenges facing the sector's development, such as a legal and regulatory framework that did not allow for private sector entry and an incumbent on the verge of bankruptcy, due to extremely poor management from 1986 to 1990. The network rehabilitation and expansion component was large and complex, requiring strong project management to avoid delays in the implementation. Taking into account the lessons leamed in the First and Second Telecommunication Projects, and to ensure that TPTC would have adequate capacity to effectively manage this component, the disbursement for the equipment portion was to be done in two phases, and two units were established: (i) the Capital Construction Supervision Unit (CCS) whose responsibilities were technical in nature and included, among others, supervising and coordinating the planning, tendering, contracting and execution of planned activities under the program; and (ii) the Program Monitoring Unit (PMU) responsible for coordinating the whole TRP including training, technical assistance, donor funding, and project accounting at the corporate level. A shortcoming of project design was the lack of a clear implementation and flow-of-funds arrangements after TPTC was split, and when the postal and telecommunication entities were established. This resulted in delays on the implementation of the network rehabilitation and expansion component, and in the creation of three special accounts and 19 different disbursement categories/sub-categories on the Bank's side. 3.4 Revised Components: There was no formal revision of the project components. However, rapid changes in the industry taking place during implementation quickly rendered the project as designed less relevant, since TTCL was in no position, as a public enterprise, to respond to the technological and market developments. To rectify this shortcoming, upon Government's request during the mid-term review, it was agreed to accelerate TTCL's privatization. A new team leader, with the necessary expertise, was assigned to the project on Bank's side, and savings derived from the declining cost of telecommunication equipment to be purchased under the project were assigned to finance the advisory services necessary to develop this new agenda. - 3 -  This was achieved at the policy level through the financing of consultancies and study tours to assist GOT in establishing a current and well developed Telecommunication Policy focusing at enhancing the sector development and TTCL's performance (e.g., national policy workshop and the appointment of a policy adviser in MOCT). In addition, the project financed consultancies that focused on: (i) TTCL's financial strengthening (e.g., international audit, TTCL financial adviser, pre-privatization restructuring study); and (ii) TTCL's sale to an international strategic partner (e.g., Financial and Legal Advisers). On the Government's side, it was agreed that the Parastatal Sector Reform Commission (PSRC), would manage the overall transaction process in close collaboration with TCC, TTCL and donors. A dedicated Steering Committee, chaired by MOCT, was established to build consensus within GOT, and provide strategic directions to PSRC on TTCL's privatization. The Bank provided assistance to the steering committee in financing key studies and ensuring donors' coordination and feedback on strategic decisions. 3.5 Quality at Entry: The project pre-dates the introduction of the Quality Assurance Group (QAG) process at the World Bank and quality at entry was thus not evaluated by QAG. Nonetheless, the quality of the project at entry is satisfactory when evaluated by prevailing standards. The project also pre-dates the introduction of the logical framework approach; therefore, this was not included in the SAR. However, Annex 2-4 of the SAR provided a list of performance indicators for TPTC, that were monitored during project implementation and form the basis for the data presented in Annex 1. Additionally, measures were taken to ensure that the project would be ready for implementation upon effectiveness. The selection of the consultants for the efficiency audit and financial review of TPTC, the appointment of a financial controller for TPTC, with adequate qualifications and experience, and the commencement of procurement of a comprehensive billing system for TPTC were conditions of project effectiveness. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project outcome is rated satisfactory with respect to the achievement of the objectives. GOT adopted a policy and an adequate legal and regulatory framework geared towards increased private sector participation. Significant liberalization was introduced in various segments of the sector, and several private operators are providing basic, mobile, data, paging, internet, pay-phone and other value-added services. The cellular market is growing rapidly with five mobile operators (Zantel, Mobitel, Vodacom, Tritel and TTCL). The mobile subscriber base surpassed the number of fixed subscribers at the end of the year 2000 (see graph below), and was estimated to be around 250,000 at the end of March 2001, compared to 2,000 at the end of 1995 (the first mobile license was awarded to Mobitel on October 1994). As a result, the overall teledensity - fixed and mobile subscribers - has increased from 0.3 in 1993 to 1.2 lines per 100 inhabitants in March 2001. Following TPTC's restructuring, major investments made under the TRP led to an increase of 81 percent of total number of TTCL subscribers (from 91,000 in 1995 to 165,000 by July 2000). TTCL's productivity and exchange capacity increased, as the number of staff per 1,000 direct exchange line (DEL) decreased to 26 in July 2000 from 53 in 1995, and its exchange capacity increased to 215,000 in July 2000, from 128,000 in 1995. Despite the improvement of the quantitative indicators, operational performance remained below appraisal targets. -4 -  At mid-term review, due to TTCL's poor financial and operational performance, the government and the Bank agreed to accelerate TTCL's privatization and promote competition in telecommunication service provision (e.g., mobile, data, internet). Following an extensive consultation process with all key stakeholders, led by the Steering Committe, high quality advisors were recruited to assist GOT in privatizing TTCL through an international competitive bidding process. On June 25, 2000, Detecon/MSI offered US$120 million for a 35 percent stake in TTCL and committed to have more than 800,000 connected lines before the end of the four-year exclusivity period. Negotiations were finalized in February 2001, and the privatization of TTCL was considered a success by all stakeholders. More details on TTCL's transaction are given in section 4.2. Main line and Mobile Penetration * Main line penetration (%) a Mobile penetration (%) D 0.7 - C 0.5