Upper Volta - Telecommunications Project

RESTRICT-ED Report No. P-666 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF UPPER VOLTA FOR A TELECOMMUNICATIONS. PROJECT January 30, 1969  DITERNATIONAL DEVELOPM IT ASSOCIATION REPORT AND RECONI4i2DATION OF THE PRESIDEINT TO THE EXECUTIVE DIRECTORS ON A DEVELOPMENT CREDIT TO THE REPUBLIC OF UPPER VOLTA FOR A TELECOIHVIUNICATIONS PROJECT 1. I subunit the following report and recommendation on a proposed development credit in an amount in various currencies equivalent to US $0.8 million to the Republic of Upper Volta to assist in the financing of a tele- comraunications project. PART I - HISTORICAL 2. The proposed credit would be the first lending operation of the Bank Group in Upper Volta. In September 1967, an IDA reconnaissance mission visited Upper Volta and discussed with the Government a proposed program of telecommunications expansion for the three-year period 1969-1971. After agreement was reached on the reorganization of the Post and Telecommunica- tions services into an office with administrative and financial autonomy, an IDA rmission visited Upper Volta in June 1968 to appraise an interim three-year program of rehabilitation and improvement of existing telecom- munication facilities. 3. Negotiations for the proposed credit took place in Washington between December 8 and December 14, 1968 iwith a delegation headed by H.E. Bila Zagr6, tiLnister of Post and Telecommunications and Information. 4. In the past, we have had difficulty in finding projects with satisfactory rates of return in Upper Volta. vloreover, the Government's capacity to identify and prepare projects has been limited, and other sources of aid (mainly France and the European Economic Community) have been important. However, an active program of project identification and preparation has recently been undertaken by the Bank's Permanent lIAission in Western Africa. A feeder roads program, a cotton and food crops project in the Black Volta area, and a livestock project are in the course of preparation and are expected to develop into projects for wihich Bank Group financing may be considered. PART II - DESCRIPTION OF THE PROPOSED CREDIT 5. Borrower: Republic of Upper Volta Beneficiary: Office des Postes et Tel6communications (OPT) Amount: Various currencies equivalent to US $0.8 million Purpose: To assist in the financing of the OPT's construction and rene-wial program (1969-1971) for the expansion and rehabilitation of tele- communications services in Upper Volta.  - 2 - Amortization: In 50 years, including a 10-year period of grace, through semi-annual installments of 1/2 of 1% from April 15, 1979 through October 15, 1988 and of 1-1/2% from April 15, 1989 through October 15, 2018. Service Charge: 3/4 of 1% per annum. Relending Terms: The borrower would relend the proceeds of the credit to the OPT at 6-1/2% per annum for a period of 20 years including a 4-year grace period. Estimated economic return: About 9.5%, PART III - THE PROJECT 6. A detailed description of the project is given in the attached Appraisal Report entitled "Appraisal of the Telecommunications Program of the Office of Post and Telecommunications - Upper Volta" (TO-693a) dated January 24, 1969. 7. The existing telecommunications system in Upper Volta is very modest and closely reflects the geographical pattern of economic and ad- ministrative activities. I-t has been essentially developed in and between the two main cities of Ouagadougou and Bobo-Dioulasso, and toward the Ivory Coast border along the railway to Abidjan. Telephone density is only 0.6 per 100 population and is the lowiest in Africa. Except for overseas services in Ouagadougou, the existing installations are inadequate for the present traffic and insufficient to cope with the estimated potential demand. The local cable netwrork is saturated in Ouagadougou and trunk traffic between main cities and with Ivory Coast is congested; more circuits are required for commercial traffic on the main connections. The existing installations also suffer from lack of maintenance due to insufficient budgetary alloca- tions during the past years, and require improvement to provide a minimum quality of service. Until their recent reorganization, the Post and Tele- communications Services wzere operated as a Government department and lacked administrative and financial autonomy suitable for the operation and development of public telecommunications services. 8. The project for which the credit would be made includes the con- struction, renewal and expansion of the local telephone subscribers' net- works in Ouagadougou and Bobo-Dioulasso, and the improvement and expansion of the overhead lines and telephone installations of the long-distance telecommunications netwzork. The project would be executed by the newly established Office of Post and Telecommunications (OPT). Set up on the pattern of other similar offi-ces in I-est Africa by a decree of June 10, 1968, the OPT, which began its operations on January 1, 1969, is a Govern- ment entity with sufficient autonomy to be commercially operated on a  - 3 - self-supporting basis. Recently enacted legislation creating the OPT provides for the introduction of commercial accounting, coordinated with efficient budgeting and costing systems. Moreover, during negotiations the Government and the OPT have agreed on the establishment of separate accounts for postal and telecommunication operations. The OPT, with the recently-recruited additional key senior staff, is capable of executing the project, and outside specialists will assist in the construction of the main works. 9. The project is well conceived and is technically and economically sound. It will yield an incremental rate of return estimated at about 9.e-. This rate, which does not include any indirect benefits, is above the return of other public investment projects under consideration for Upper Volta, TLe objectives of the proposed credit go beyond the specific purposes of finan- cing an urgently needed rehabilitation project; it would help establish a new Office of Post and Telecommunications on a commercial basis. It would also help, together with technical and financial assistance from the French Fonds d'Aide et de Cooperation, to assure the future viability of the tele- communications system in Upper Volta. The credit could also provide a rea- sonable basis for further lending in this sector. 10. The estimated total cost of the project is $1.2 million equivalent, of which $0.8 million representing the foreign exchange component would be financed by the proposed credit. The local costs of the project wrill be mr', from funds internally generated by the OPT to iwhich all assets and liahiliti.,s of the old P & T Department have been transferred, with the exception of irdnor specified items. Procurement will be on the basis of international compet-. tive bidding except for about $82,000, representing the estimated foreign exchange component of various construction contracts WhiS6 _ra to, 6ir_J1 t Attrart international interest. 11. The Government :-ould relend the proceeds of the proposed credit to the OPT at 6-l/2- per annum for tw,enty years including a four-year grace period. PART IV - LOAN INSTRUMENTS AND AUTHORITY 12. The draft Development Credit Agreement between the Republic of Upper Volta and the Association, the draft Project Agreement between the Association and the OPT, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Associ- ation are being distributed to the Executive Directors separately. The draft credit documents conform generally to the pattern of credit documents for similar telecommunications projects.  PART V - THE ECOMONY 13. An EconoiLc R1eport entitled "Current Economic Position and Prospects of Upper Volta" (AlJ-la), dated January 21, 1969, will to iistributei shortly to tha 2xecubivR Directors. Since 1960, the economy has progressed little in terms of real income which has remained at arourd $50 per head, among the lowest in the world. The lack of econormic grcwth is attributed to the very limited natural resources, to a strong and in- creasirng population pi.essure in the central plateau which is only allevi- ated by emigration abroad, and to the absence of an active development policy on the part of the previous Government. In addition, the budgetary situation had been deteriorating until 1966 when the military took power. 14. The new Government has applied a financial rehabilitation prcgramn with firmness and efficiency. Current expenditures have been stabilized dnd commitments controlled, and new taxes have been levied, wTith the result, thaL in 1967 a budget surplus was achieved permitting the financing of some in-- vestment expenditures. Also, the heavy short-term debt incurred in previo-a years has been much reduced. At the same time, a realistic 1966-70 develop- ment plan was prepared and has been reasonably well implemented during its first year. 15. Service of e.ternal public debt is currently around 7% of exports of goods and services and 5, of Government revenue. However, the accumulated short-term debt owed for the greater part to expatriate firms is not yet fh' ,y liquidated and puts an additional burden on the budget. 16. In summary, economic performance has recently improved and prospects for satisfactory development policies appear favorable. However, because of the country's poverty and the virtual impossibility of raising Upper Volta's taxes beyoncd their present high levels (16% of' total GDP and 25% of monetary GDP), Upper Volta's capacity to borrow on conventional terms is very limited. Upper Volta is therefore considered eligible for IDA financing. PART VI - COMPLIANCE IITH ARTICLES OF AGREEMENT 17. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VII - RECOTiMENDATION 18. I recommend that the Executive Directors adopt the following resolution:  RESOLUTION No. IDA Approval of a Development Credit to the Republic of Upper Volta (Telecommunications Project) in an amount equivalent to US $800,000. RESOLVED: THAT the Association shall grant a development credit to the Republic of Upper Volta in an amount in various currencies equivalent to eight hundred thousand dollars (US $800,000) to mature on and prior to October 15, 2018, to bear a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum, and to be upon such other terms and conditions as shall be substantially in accordance with the terms and conditions set forth in the form of the Development Credit Agreement (Telecommunica- tions Project) between the Republic of Upper Volta and the Association, and the form of the Project Agreement (Tele- comraunications Project) between the Association and the Oifice des Postes et T6l6communications de Haute Volta, which have been presented to this meeting. Robert S. McNamara President Attachment January 30, i969