El Salvador - Second Telecommunications Project

RESTRICTED Report No. PU-78a This report is for official use only by the Bank Group and specificafy authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT OF THE ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) EL SALVADOR March 9, 1972 Public Utilities Projects Department  CURRENCY EQUIVALENTS US$1 = Colones (0) 2.50 Colon 1 = US$0.40 Colones 1,000,000 = US$400,000 FISCAL YEAR January 1 to December 31 LIST OF ABBREVIATIONS AND TITIES USED IN THE REPCRT ANTEL - Administracion Nacional de Telecomunicaciones -- an autonomous Government-owned corporation responsible for telecommunications. HF - High frequency (radio) - up to 30 mHz ITU - International Telecommunications Union Telex - Telegraph exchange service for subscribers VHF - Very high frequency (radio) - 30-300 mHz GLOSSARY OF TECHNICAL TERMS USED IN THE REPORT Carrier - A system of providing a number of circuits over one radio link, coaxial cable or pair of wires Drop Wire - Local overhead distribution wire to subscribers premises Microwave - A system of communications using frequencies over 300 mc and working on a line of sight propagation basis Mhltiplex - Part of the equipment in a carrier system -- see above -- which shifts and stacks the different circuits in the frequency spectrum appropriate to the particular carrier system Telephone Stations - Locations where telephone instruments on direct exchange lines or extensions are fitted  EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACICNES (ANTEL) APPRAISAL OF TIE SECOND TELECCMUNICATIONS PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS i 1. INTRODUCTION 1 2, THE ECONOMY AND THE TELECOMMUNICATIONS SECTOR 2 The Economy 2 Telecommunications Sector 2 Existing Telecommmnication Facilities 2 Local Teliphone Service 2 Long Distance Service 3 Telegraph Service 3 International Facilities 3 Quality of Service h 3. THE PROGRAM AND PROJECT 5 The Program 5 The project 5 Peoject Costs 5 Execution of the Project 6 Procurement 6 Disbursements 7 4. JUSTIFICATION 8 Demand for Subscriber Lines in Metropolitan San Salvador 8 Demand for Subscriber lines Outside Metropolitan San Salvador 8 Demand for Long Distance Facilities 8 Least-Cost Solution 9 Internal Financial Rate of Return 9 5. THE BORROWER 10 Organization 10 Staff 11 Training 11 6. FINANCES 12 Sumnary of ANTEL's Finances 12 Past Financial Performance 12 Present Financial Position 12 Auditing 13 Government Bills 14 Hospital 14 Tariffs 14 Financing Plan 15 Future Finances 16 7. aECOP2MENDATIONS 18 n2is re-port is based on the findings of an appraisal mission to El Salvador ir. August/September 1971,comprised of Messrs. M. DeLima and H. Hillebrenner   LIST OF ANNEXES 1. International Sector Table - Telecommiunications 2. Basic Data as of September 30, 1970, and for 1971-75 Program 3. Statistical Data on Existing Exchanges as of September 30, 1970 4. Growth in Exchange Capacity, Connected Lines and Telephone Stations 5. Central American Microwave Network 6. Summary of Annual Program Costs (1971-75) 7. Physical Program (1971-75) 8. Project Details 9. Technical Consultants -- Draft Terms of Reference 10. Schedule of Construction 11. Estimated Schedule of Disbursements 12. Internal Financial Rate of Return 13. Organizational Chart -- ANTEL 14. Staff Details 15. Income Statements 16. Notes and Assumptions on Financial Statements 17. Balance Sheets 18. Summary of Tariffs 19. Summary of ITU Expert's Main Recommendations 20. Sources and Applications of Funds Map El Salvador -- Exchanges and Long Dlistance Network --IBRD 3640   EL SALVADOR ADMINISTRACION NACITONAL DE TELECOMUNICACIONES (ANTEL) APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT SUMMARY AND CONCLJSIONS i. This report covers the appraisal of a four-year (1972-75) project forming part of the five-year (1971-75) development program of the Adminis- tracion Nacional de Telecomunicaciones (ANTEL). A Bank loan of US$9.5 million is proposed to cover all the foreign exchange costs of the project, whose total cost is estimated to be 031.7 million (US$12.7 million). ii. The project would alleviate the present congestion and meet part of the estimated demand during 1971-75 by providing for an additional 18,000 local exchange lines, mostly in San Salvador, and for the expansion of the long distance network. The internal financial rate of return of the project is estimated to be 18.6%. iiie All project items to be financed by the Bank, except some exten- sion equipment, would be procured through international competitive bidding. For reasons of economy and standardization, extensions to equipment estimated to cost about US$0.6 million would be procured from existing suppliers at prices to be approved by the Bank. iv. The proposed loan would be the Bank's second telecommunications lending operation in El Salvador; the first one, Loan 358-ES, was made in 1963 for a project to provide local and long distance equipment. That project was completed satisfactorily in December 1968. v. The Borrower would be ANTEL, a Government-owned corporation which is responsible for domestic and international telecommunications in El Sal- vador. WhLile ANTEL's financial management is satisfactory, the technical organization does not have the expertise needed to prepare the project engineering details and plans. ANTEL has therefore agreed to retain techni- cal consultants to assist the engineers on the project. 7i. ANTEL's financial position is satisfactory. In the past few years the Corporation has managed to convert an unfavorable financial situation to one of reasonable soundness, and during the project period 1972-75 would provide about 40% of its investmient requirements from internal cash genera- tion. During that period, liquidity would be sufficient to meet current obligations and the annual rate of return on net fixed assets in operation would average 13%. vii. During negotiations agreement was reached on the points set out in paragraph 7.01. The project would be suitable for a Bank loan of USS9.5 million for a term of 20 years, including a grace period of five years.   EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) APPRAISAL OF THE SECOND TELECOMMWNICATIONS PROJECT 1. INTRODUCTION 1.01 The Government of the Republic of El Salvador has requested Bank assistance in the financing of a telecommunications project to extend and improve the existing facilities. This would be the Bank's second lending coperation for telecommunications in that country. 1.02 The proposed Borrower is the Administracion Nacional de Tele- comnnicaciones (ANTEL), a Government-owned corporation responsible for the country's domestic and international telecommunications services. 1.03 In 1963, the Bank approved a US$9.5 million loan to ANTEL to help finance the foreign exchange costs of a project designed to increase the local telephone exchange capacity and to improve the long distance service. The project was completed satisfactorily in December 1968. l.oh In the preparation of a further program of expansion, ANTEL ran into difficulties due to the lack of a chief engineer and supporting plan- ning staff and the settlement of overdue accounts with suppliers. Three Bank missions visited El Salvador in January and June 1969 and in June 1970 to review these problems. Following discussions during these visits, ANTEL strengthened the financial organization, negotiated settlements with the suppliers for rescheduling payments to them, and prepared a program of expansion. In November 1970 a mission composed of Messrs. M. DeLima, H. Hillebrenner and B. Holmgren appraised the project. In Febrdary 1971 ANTEL, in order to give a number of telephones to waiting applicants before the presidential and congressional elections in February-March 1972, awarded a turnkey contract for the Centro exchange which was a part of the original project. This necessitated preparation of a revised project excluding the equipment procured under the turnkey project. Messrs. DeLima and Hillebrenner visited El Salvador during August/September 1971 to appraise the revised project.  -2- 2. THE ECONOMY AND THE TELECOMMUNICATIONS SECTOR The Economy 2.01 El Salvador, with an area of 21,000 km2 and situated on the Pacific Ocean between Guatemala and Honduras, is the smallest of the main- land Latin American countries. Its population totals some 3.5 million, of whom about 0.6 million live in San Salvador, the capital and commercial and administrative center of the country. San Miguel in the east and Santa Ana and Sonsonate in the west are the other major urban centers. 2.02 The 1970 gross domestic product was estimated to be US$935 million and the annual per capita income US$260. The economy is based mainly on coffee, cotton, fish, sugar and textiles. The major exports are coffee (US$114 million), cotton (US$23 million), shrimp (US$5 million) and sugar (US$7 million). 2.03 Most of the industrial production is concentrated in the area around San Salvador, while coffee, cotton and sugar are produced in the areas around San Miguel, Santa Ana, San Vincente and Sonsonate (see Map). La Union, La Libertad and Acajutla, the main ports, handle the bulk of the foreign trade. 2.04 For the development of national resources and to provide a rapid, reliable means of exchanging information between the producers, ports and San Salvador as the country's administrative and business center, adequate telecommunication services are essential. The project aims at extending and improving such services. Telecommunications Sector 2.05 ANTEL is responsible for all public services in the telecomuni- cations sector. When not able to provide suitable long distance service, ANTEL allows private users to obtain licenses from the Government on an annual basis to operate point-to-point HF radio systems. The military, civil aviation and maritime authorities have established some telecommuni- cation facilities for their special operational needs. Existing Telecommunication Facilities 2.06 The telephone density in El Salvador as of January 1, 1971, was 1.11 telephones per 100 persons. Annex 1 sets out statistical information on telephones in various countries of the world. The existing exchanges and the long distance network in El Salvador are shown on the map. These facilities are inadequate in quality, capacity and spread to meet the country's needs. Annex 2 sets out basic data on the existing facilities and the 1971- 75 expansion program. Local Telephone Service 2.07 As of December 31, 1970, there were 35 local automatic exchanges with a capacity of 40,320 lines and 28,h34 connected lines, along with a  - 3 - number of small magneto exchanges with 1,074 connected lines. A list of the automatic exchanges together with their capacity and the number of connected lines iS in Annex 3. The growth of connected lines from 1967 to 1970 (see Annex 4) has -anged from L% to 17%, with an average of 8% per year. Long Distance Service 2.08 Long distance service (see map) is provided between the principal urban centers by a microwave system. Less important towns are connected to the network on open-wire lines with carrier systems. Facilities for sub- scriber dialing of long distance calls are available to nearly all subscribers on the automatic exchange network; for the others, long distance service is provided on a semi-automatic basis. Telegraph Service 2.09 San _alvador is connected by telex and fixed point-to-point teleprinter circuits to 15 traffic centers using voice frequency telegraphs over microwave and carrie- systems. Another 200 telegraph offices in the country are connected by open-wire lines to these traffic centers. 2.10 A telex system of 200 lines with 130 subscribers is working at San Salvador. There are presently 15 applicants awaiting telex facilities, which cannot be provided for lack of cable capacity. International Facilities 2.11 For places outside Central America, international telephone traffic is handled by high frequency (HF) radio telephone circuits connecting San Salvador to Jacksonville, Florida, whence the traffic is routed to all places in the United States and elsewhere in the world. Except traffic to Panama which uses HF radio facilities, the traffic to the Central American countries is handled by circuits provided on very high frequency (VHF) radio, microwave and open-wire carrier systems. The international manual exchange is in San Salvador. 2.12 Using HF radio facilities, ANTEL connects with the International Telegraph and Telephone Company (ITT) and Radio Corporation of America (RCA) in New York and from thence to transmit all international traffic to places in the United States and to the rest of the world with the exception of traffic to Panama and Guatemala. Traffic to Panama is transmitted on a direct HF radio circuit via ITT, while Guatemala traffic is routed via a direct connection to that country. 2.13 International telex service, introduced in El calvador in 1968, has grown rapidly. The traffic, which totalled 31,000 paid minutes that first year, has increased to 130,000 paid minutes in 1970. 2.14 With the commissioning of the Central American microwave network in November 1971, El Salvador has been connected to Costa Rica, Guatemala, Honduras and Nicaragua by 196 long distance circuits, with extensions to Mexico from Guatemala and to Panama from Costa Rica. Dbtails of the scheme are shown in Annex 5.  -14 - Quality of Service 2.15 Lack of investment and proper planning in the past has caused the telephone network to have a number of deficiencies, which in turn have led to poor service There is a long waiting list of applications, congestion on local and long distance routes, and a high fault incidence in the local distribution network. 2.16 In the San Salvador exchange system the main difficulties have arisen because of the lack of expansion since 1958 of the Centro automatic exchange, the most important one in the city, even though the number of connected subscribers in the city has increased threefold. This has resulted in acute congestion on all calls flowing into and out of this exchange. Inadequate investment in the cable distribution network has made it necessary to extend the network by long lengths of drop wire, which has brought about a high incidence of faults. Congestion on the long distance routes has been caused by an insufficient number of circuits. ANTEL's 1971-75 expansion program (see paragraph 3.01 and Annex 7) is designed to eliminate these difficulties and improve the service.  3. THE PROGRAM AND PROJECT The Program 3.01 ANTEL has drawn up and the Government has approved a development program to be carried cut during 1971-75, comprising the following main items: (a) Completion of the Central American microwave network--El Salvador section (see Annex 5 for details); (b) ongoing works for extension of local distribution cables in San Salvador; (c) installation of an 8,000-line automatic exchange at Centro with associated subscriber and inter-office cables; (d) extension of the long distance automatic exchanges by 960 lines; (e) construction of ANTEL's headquarters building; and (f) the project for Bank financing described in paragraph 3.02 below. The cost of the program (see Annex 6 for details) is estimated to be M5l.2 million (USs20.5 million), including a foreign exchange component of US$15.3 million equivalent (038.3 million). The proposed installations are listed in Annex 7. The Project 3.02 The project would be carried out during the four-year period 1972- 75 as part of the 1971-75 development program, and consists principally of the following (details are in Annex 8): (a) Installation of 18,000 additional lines of local automatic exchange equipment; (b) local exchange cable network and telephone equipment at subscribers' premises to provide 1h,500 exchange connections; (c) installation of long distance equipment on various routes to provide about 750 more circuits; and (d) technical consultants to advise ANTEL on preparation of speci- fications and bid documents and on bid evaluation (Draft terms of reference are showm in Annex 9). Project Costs 3.03 The estimated costs of the project are given below. X of Local Foreign Total Local Foreign Total Total 7/milion) (U-j5 million) l.(a) Local automatic exchange equipment 0.o 6.8 7.4 0.2 2.7 2.9 23 (b) Subscribers' equip. 0.6 0.7 1.3 0.2 0.3 0.5 4 2. Local exchange cable 4.3 10.0 14.3 1.7 4.0 5.7 45 3. Long distance equip. 0.4 4.7 5.1 0.2 1.9 2.1 16 4. Buildings 1.4 - L. 0.6 - o.6 4 5. Consultants - 0.5 0.5 - 0.2 0.2 2 6. Contingencies - Physical 0.6 1.0 1.6 0.2 0.4 0.6 5 - Price 0.1 0.1 0.1 0.1 1 Total Cost 8.0 23.7 31.7 3.2 9.5 12.7 100  -6- 3.0k The cost estimatee for equipment and cables are based on recent experience of costs in Sar Salvador and adjacent countries and reflect ade- quately the effecJs of changes in the values of foreign currencies; in addition the cost estimates include a contingency provision of 10%. This provision is expected to be adequate since the trend of equipment prices has been downward due to improvements in design and manufacture; in respect of cables also the copper prices currently are less than those used in preparing the cost estimates. No separate price contingency has therefore been provided ir, equipment and cable items. A price contingency of about 10% of the cos4 of building materials has been separately provided. In addition, to cover quantitative increase of equipment and cables due to design changes, a contingency allowance of 5% has been provided in foreign and local costs of these items, and a further 5% in local costs to cover increases in salaries and wages. Execution of the Project 3.05 The schedule for execution of the project is given in Annex 10. This schedule is realistic. AREL staff would draw up the specifications, do the planning, and lay and commission the iiocal cables. The civil eng- ineering work of laying ducts and constructing manholes would be done by local contractors under supervision of ANTEI, staff. 3.06 The technical consultants (see paragraph 5.06) would help ANTEL with the engineering and procurement of the automatic exchanges, coaxial cable and long distance equipment. ANTEL would provide the installation staff to work under supervision of the supplier's engineers, who would be responsible for laying the coaxial cable and for the installation and performance of all equipment obtained under the project. Procurement 3.07 The equipment for the project would be procured through interna- tional competitive bidding, except for certain additions to existing equip- inent. These exceptions, consisting of extension to local exchanges, are estimated to have a total cost of about Us$0.6 million or about 7% of the procurement to be financed by the Bank. The installations to which this equipment would be added were procured after international bidding under Toan 358-ES, and ANTEL proposes to procure the additions from the original suppliers. The prices to be paid would be based on the original prices and would be subject to the Bank's approval prior to placement of orders. 3008 ANTEL's proposals are in line with the plans for these extensions of switching equipment in existing exchanges drawn up at the time of the initial installation for a least cost system development. To allow for future extensions to the planned capacity, equipment common to the total installation was provided in the first phase of the expansion program; hence the required additional equipment must be of the same type. The only practical way of filling the exchanges to the planned capacity is to add equipment of the same type as already installed. To go in for completely new installations would result in foregoing planned economies.  - 7 - 3.09 El 3alvador is a member of the Central American Common Market. Tn accordance with the Central American Agreement on Fiscal Incentives for Industrial Development, ANTEL is obliged to give suppliers from member countries a preference of 50% of the import duties applying to suppliers from non-member countries. Suppliers from Central American countries would be allowed, in accordance with current Bank policies, a preference in bid evaluation of 15% of the "'F price or 50% of the import duties, whichever is lower. It is expected that the value of orders placed in Central America under this arrangement would not exceed US$1.7 million, including procurement -n El Salvador of about U3tl.0 million. Disbursements 3.10 The estimated disbursements of the loan during the 1972-75 project period are shown in Annex 11. Disbursement would be for the CIF costs of imported equipment, the foreign costs of superviLiory personnel and consultants, and for 95 of the total expenditures on locally procured cables (the balance of 5% represents local taxes) up to a maximum of 1'S`1.0 million equivalent. As ANTEL cannot meet the anticipated demand for tele- communications facilities during the oroject neriod, any unused balance of the loan would be used to finance additional equipment, similar to that already procured under the loan, after consultation with the Bank.  - 8 - 4. JUSTIFICATION 4.01 El Salvador is under-sUrDlied with telecommunication services in that the network is congested and there is unsatisfied demand for telephones in metropolitan San Salvador. The project is designed to reduce these de- ficiencies by (a) removing the congestion in the local and long distance network, and (b) meeting part of the new demand for telephones. On completion of the project, the telephone density wil1 increase from the present 1.11 telephones per 100 persons to 1.3. it is not possible to plan for a higher rate of growth at this time because of nersonnel as well as financial constraints. Demand for Subscriber Lines in Metropolitan San Salvador 4.o2 In metropolitan San Salvador, with 74% of all telephone subscribers in the country, demand cannot be met because the Centro exchange serving the area has been saturated since 1966 and no new connections have been given in Centro since then. ANTEL's demand forecast conservatively estimates the unsatisfied demand in the Centro exchange area by assuming that demand at the time of saturation (1966) was equal to supply, that it increased since then by the national average growth of telephones (8% annually) up to 1970, and that the demand growth rate thereafter will be between 10% and 13%, depending on commercial activity in the areas concerned. Unsatisfied demand is most likely under-estimated because the national average growth of tele- phones reflects supply which was itself constrained and because telephone growth in the urban areas is higher than in the country as a whole. 4.03 ANTEL projects demand in 1975 to be about 50,000 (based on the above-mentioned future growth rates of 10-13%). The actual nunber of connections planned upon completion of the project is about 42,000 and thus would meet only part of the demand. This gap between supply and demand is due to ANTEL's presently limited capability to take on a bigger program of expansion, and is expected to be closed in the next phase. Demand for Subscriber Lines Outside Metropolitan San Salvador 4.04 In the exchange areas outside San Salvador, which serve the remaining 26% of the telephone subscribers, all the demand is being met. Demand based on historical growth figures is expected to increase from 6,200 at the end of 1970 to about 8,000 at the end of 1975. The exchanges that are close to capacity are being extended as required, resulting in the addition of 1,000 lines. Another 1,000 lines of equipment are being installed to replace ten local battery exchanges. In 1975 the total capacity of the lines will be 15,720. Demand for Long Distance Facilities 4.05 Precise traffic forecasts are difficult to make under conditions like those in El Salvador, which has practically no network history. The network, including long distance facilities, was established essentially within the past five years and is congested. The demand forecast, which  - 9 - has been worked out for each route, takes into account the expected increase in new subscribers and the calls being lost because of the congestion. The project is designed to meet this demand and provides for a 150% increase in the number of circuits, to a total of 1,250. Least-Cost Solution 4.o6 The project does not include any major item for which an evaluation of alternatives is feasiDle; it provides for a large number of small additions over the whole network. All exchange, multiplex and carrier equipment provided under the project would be located in existing buildings and is, in fact, an expansion of existing facilities; thus there are no realistic alternatives in locations. All fundamental decisions determining the system were made in the early 1960's. These are still sound and provide the framework for the least- cost system development. Internal Financial Rate of Return 4,.07 The internal financial rate of return on the project at present tariffs is 18.6% (see Annex 12). A sensitivity analysis (paragraph 7 of Annex 12) has been carried out, showing that the rate of return is between 12% and 24% for variations of the main parameters of 10%. This internal rate of return, which is above the opportunity cost of capital, is a minimum estimate of the internal economic rate of return.  - 10 - 5. THE BORROWER 5.01 ANTEL, the proposed borrower, is responsible for all domestic and international telecommunication services in El Salvador. Created by Act of August 27, 1963,as an autonomous Government-owned public corpora- tion, ANTEL has the right to plan, acquire, construct and operate tele- communication facilities. It also has authority to fix tariffs and other charges for its services (see paragraph 6.13), subject to approval of the Minister of Economics. QgEanization : .02 8NTEL is administered by a five-member Board of Directors, each ui<th a tenure of four years, designated as follows: (a) one full-time director, appointed by the President of the Republic to hold the office of President of the Board; (b) two directors and two alternates, one each appointed by the Minister of Economy and Minister of the Interior; (c) one director and one alternate, elected by banks operating in El Salvador; and (d) one director and one alternate, elected by agricultural, industrial and commercial associations. ANTEL's day-to-day business is administered by the President of the Board and by the General Manager, who also functions as the Secretary of the Board. 5.03 An organization chart is shown in Annex 13. Under the President and General Manager are separate departments for telecommunications planning and for commercial, financial and telecommunications operations. This organizational setup is similar to that of maTy other telecommunication entities and is satisfactory. Until about two years ago, however, the financial and technical sections were weak due largely to staff shortages. A11TEL has taken action to improve the situation. 5.0o Appointment of a Financial Manager and a Chief Accountant has strengthened ANTEL's financial management. Accounting procedures are in line with accepted commercial practices and allow for meaningful financial analysis. Billing and the payroll are computerized and efficient. Balance sheets and income statements are prepared on a monthly basis, within one month. A cost accounting system is used to analyze, on a monthly basis, the revenue and costs of ANTEL's main services. 5.05 The technical maintenance organization has likewise been strengthened by the appointment of a Chief Engineer, the recruitment of qualified engineers and training abroad. Maintenance of equipment obtain.Ld under the previous Bank loan was taken over by ANTEL two years ago from the suppliers, who earlier had a contract for this work. ANTEL is maintaining the equipnent satisfactorily.  - 11 - 5.06 Recently, ANTEL set up the nucleus of a planning and traffic unit. While the unit is competent to handle cable planning and engineering, 4t- does not have the exDerience needed to draw up specifications and do the engineering of the exchange and long distance equipment to be provided under the project. ANTEL has agreed during negotiations to engage technical consultants acceptable to the Bank to assist ANTEL in procurement of equip- * ent provided in the project and in the preparation of a 1976-80 telecommu- nications development r'rogram. AMZTEL proposes to have some of its engineers work with these consultants to gain experience. I; is expected that the consultants' services will be needed for about a year, but the period should be extended if continued assistance is necessary. Staff 5.07 ANTEL's staff totals about 2,300, of whom 1,300 are telephone employees. ExcluWing the 1,000 telegraph employees and with 37,800 working telephones in M Salvador, the employee ratio works out to 34 per 1,000 telephones. The telephone staff includes 400 operators and adminis- trative personnel. Since that number is adequate to handle increased workload during construction of the project, ANTEL has given assurances during negotiations thnat it will maintain the strength of non-technical staff during the project period at a level no higher than the present ore. This is expected to increase productivity and reduce the employee ratio to about 23 per 1,000 telephones by 1975, which is a reasonable ratio considering there is a large open-wire trunk network. 5.08 Annex 14 gives details of number of employees in each department, pay scales and service conditions. The pay scales are commensurate with duities and the salaries are comparable with those paid by similar entities for similar duties and qualifications. Turnover of staff is negligible. Training 5.09 Operating, clerical and lower-grade technical staff are trained within ANTEL. Engineers are trained in Europe, and technicians in 1Mfexico. For the special needs of the Central American microwave network, the contractor is training engineers and technicians in Costa ilica. ANTEL's present training program will enable it to have adequately trained personnel for the construction, operation and maintenance of the present and projected additions to its facilities. 5.10 The Government has agreed to a proposal from the International Telecommunications Union (ITU) to locate a regional training center in San Salvador to meet the needs of telecommunications entities in Costa Xica, Nicaragua, Honduras, Guatemala and El Salvador for training intermediate and high-level telecommunications staff. After some delays this scheme is now getting under way. Since ANTEL's annual requirement for such techirial staff is relatively small and since there are alternative trairnng schemes3 the delayed start of the regional training scheme will not have any significant effect on the operation and maintenance of AN'TEL's facilities.  - 12 - 6. FINANCES Sunmmary of ANTEL' s Finances 6.01 Since ANTEL's creation in 1963, its financial performance has been satisfactory in terms of return on the rate base, but certain outside factors combined with poor financial management led to liquidity problems and inability to pay suppliers in 1967. Since then, financial management has improved substantially, as has the cash position. As of the end of 1970, ANTEL had a solid financial foundation for its expansion program. Future earnings should continue to be satisfactory and cash generation through the projecu period should be adequate. Past Financial Performance 6.02 In 1967 there were two main reasons for ANTELts difficulties: (a) price escalations in contracts for cables, caused mainly by unexpected price increases for copper; and (b) a deterioration of accounts receivable due to a change in billing procedures. 6.03 However, with increasing revenues after completion of the first expansion project and improved financial management, the situation has been corrected. In the past two years, ANTEL's financial position and liquidity have been satisfactory. At the end of 1970, accounts receivable were down to 48 days of annual revenues and all suppliers have now been paid. 6.04 Income statements for 1968-70 are shown in Annex 15; related notes are in Annex 16, part A. Some salient features of ANTELts financial per- formance in the past are given below. 1965 1966 1967 1968 1969 1970 Net Operating Income (million %) 2.0 1.9 2.7 5.1 5.0 5.8 Operating Ratio (%) 76 79 78 66 68 65 Rate of Return (%) 17.6 9.6 8.3 12.6 12.0 14.6 During the period 1965-1970 net operating income increased by 190% due to system expansion, and the operating ratio improved from 76 to 65. The rate of return has been well above the required 9% except in 1967, when it declin- ed to 8.3% due to an increase of assets of more than 40% in that year. Present Financial Position 6.05 Balance sheets for 1968 through 1970 are shown in Annex 17. Related notes are listed in Annex 16, part B. A summary of the audited balance sheet as of December 31, 1970 is given below.  - 13 -