Zambia - Telecommunications Project

Report No. 729-ZA FILE COPY Zambia Appraisal of a Telecommunications Project May 5, 1975 Public Utilities Department Telecommunications Division Not for Public Use Document of the International Bank for Reconstruction and Development This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization.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.  CURRENCY EQUIVALENTS Currency Unit = Kwacha (K) US$1.00 = K 0.64 K 1 = US$1.56 K 1,000,000 = US$1.,56o,o0o MEASURES EQUIVALENT 1 Kilometer (km) = 0.621 statute mile FISCAL YEAR January 1 - December 31 TITLES AND ACR(NYMS ADB - African Development Bank CIF - Cost, Insurance, and Freight DEL - Direct Exchange Line GDP - Gross Domestic Product Gentex - Telegraph exchange switching system used by public telegraph service GNP - Gross National Product GPO - General Post Office of Zambia ITUJ - International Telecommunication Union PABX - Private Automatic Branch Exchange SIDA - Swedish International Development Agency SNDP - Second National Development Plan of Zambia SSB - Single Sideband Radio System SWEDTEL - Swedish Telecommunication Consulting, AB Telex - Teleprinter Exchange Service UHF - Ultra High Frequency Radio (300 - 3,000 MHz) UNDP - United Nations Development Program VHF - Very High Frequency Radio (30 - 300 MHz)  ZAMBIA POSTS AND TELECCMMUNICATIONS CORPORATION (PTC) APPRAISAL OF A TELECCMMUNICATIONS PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ..................... .. ..... .. i-ii 1. INIRODUCTION .. ............................................ 1 2. THE ECONCOY AND THE TELECOMMUNICATIONS SECTOR ............. 2 TIhe Economy ..2........., 2 The Telecommunications Sector ........................... . 2 Existing Telecommunications Facilities ................. 3 Service Standards ..... ................................... 4 Ongoing Works ............................................ 4 3. THE PROGRAM AND THE PROJECT .............................. 6 The Program .............................................. 6 The Project .. ............................................ 6 Cost of the Project ..............................*. . 6 Contingencies ............................................ 7 Items for Bank Financing ................................ . 8 Procurement Arrangements ................................ . 8 Disbursements ............................................... 9 Execution .. .............................................. 9 4. JUSTIFICATION OF THE PROJECT .............. .. ............. 10 Main Objectives .......................................... 10 Demand for Telecommunications Services ................... 10 Least Cost Solution ........ ........... .... ............... 11 Economic Rate of Return ............... ..... ............ . 12 5. THE BORROWER ............................................. 13 Organization .......................................... 13 Management ............................................... 13 Staff ............. ....................................... 14 Recruitment ........... 1 Training .................................................. 1 Accounts ............................. 15  TABLE OF CONTENTS (Continued) Page No. Audits ....... .......................... ......... 0.......... 15 Billing and Collection ................. .. ............ ... 15 Tariffs ................................................... 16 6. FINANCES ................................................. 17 Background ............................................... 17 Past Finances ... .......................... .................... 17 Present Financial Position ............................. .. 17 Financing Plan ........................................... 18 Future Finances .......................................... 20 Fiscal Impact ............................................ 21 7. RECOMMENDATIONS .......................................... 22  LIST OF ANNEXES 1. International Statistical Data 2. Existing Facilities and Ongoing Works 3. Annual Program Expenditures 4. Summary of Exchange Capacity and Direct Exchange Lines 5. Project Works 6. Estimated Schedule of Disbursements 7. Demand and Supply of Telephone Direct Exchange Lines (WB No. 9750) 8. Long Distance Circuits in 1980 9. Monitoring Indicators 10. Rate of Return 11. Organization Chart (WB No. 8572(2R)). 12. Accounting and Financial Services Reorganization--Terms of Reference 13. Summary of Tariffs 14. Income Statements 15. Income Statements - Telecommunications Division 16. Balance Sheets 17. Funds Flow Statements - Telecommunications Division 18. Balance Sheets - Telecommunications Division 19. Notes and Assumptions on Financial Statements MAP IBRD 10940   ZAMBIA POSTS AND TELECOMMUNICATIONS CORPORATION (PTC) APPRAISAL OF A TELECOMMUNICATIONS PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project for the expansion and mod- ernization of the telecommunications network in Zambia for which a Bank loan of US$32.0 million equivalent is proposed. The borrower would be a recently established corporation, the Posts and Telecommunications Corporation (PTC), which has succeeded the General Post Office (GPO), a Government department, for the operation of postal and telecommunications services in Zambia. GPO has been unable to meet the fast growth of demand for telecommunications services. This has put a heavy strain on the pres- ent limited and inadequate facilities resulting in poor service. ii. The project, which forms part of the development program of the Zambian telecommunications network, consists of installation of 31,000 lines of telephone switching equipment; cables and subscriber apparatus to add about 31,000 new subscribers; and expansion of long distance equipment to remove congestion, to improve quality of services and to extend services to new areas. The project which is estimated to cost K 50 (US$78) million with a foreign exchange component of K 33 (US$52) million, would be financed by the proposed loan, by a grant from the Swedish International Development Agency, by a loan from the African Development Bank, by a Government loan and from internal sources. This would be the first Bank loan for telecom- munications in Zambia. iii. Zambia's industrial, agricultural and population centers are widely dispersed and need the support of an efficient telecommunications service. The present facilities are inadequate in quantity and the service is poor with severe congestion of the network. The project would improve the telecommunications services by meeting the bulk of the demand and by removing congestion. The project would help in achieving government objec- tives for economic development aiming at developing and diversifying the modern sector and increasing agricultural output. iv. The Posts and Telecommunications Corporation Act of 1975 estab- lishing PTC gives the new corporation sufficient autonomy to enable it to carry out efficiently its operations and provides for adequate separation between postal and telecommunications services. It the'reby removes the main organizational constraints which hampered the development of telecom- munications services when they were run by the GPO, a Government department. v. All procurement of Bank financed items would be by international competitive bidding in accordance with Bank guidelines on procurement.  - ii - vi. The financial situation of the telecommunications operations has been and is projected to continue to be satisfactory. Internal sources are expected to cover about one third of total requirements of funds. The internal return on the project which is a minimum estimate of the economic return is estimated at 16.7%. vii. The project is suitable for a Bank loan of US$32.0 million equiv- alent for a-term of 20 years including a grace period of four years.  ZAMBIA POSTS AND TELECOMMUNICATIONS CORPORATION (PTC) APPRAISAL OF A TELECCMMUNICATIONS PROJECT 1. INTRODUCTION 1.01 The Government of Zambia has requested Bank assistance in financing its telecommunications development program to be carried out by the Posts and Telecommunications Corporation (PTC), a recently estab- lished Government corporation responsible for public telecommunication services in Zambia. 1.02 The program, which forms part of the Second National Development Plan of Zambia (SNDP), will expand and improve the service to meet the bulk of demand in areas now being served and extend services to areas where tele- communication services are sparse or non-existent. It will also provide high quality telecommunications to other countries with the installation of microwave links to Tanzania and Malawi and the construction of an interna- tional transit center which will improve operation of international circuits. The program is expected to be completed by the end of 1980. 1.03 The project proposed for Bank financing consists of the new works in the program. It includes the installation of about 31,000 lines of exchange equipment together with appropriate expansion of the cable network and associated plant, which will meet the bulk of the expected demand for telephone connections by the end of the project period. It also provides for substantial expansion of the long distance facilities which will meet the demand for long distance traffic in areas already served and extend services to areas where they are at present scarce or non-existent. 1.04 The estimated cost of the project is K 50.1 (US$78.2) million with a foreign component of K 33.4 (US$52.2) million. A Bank loan of US$32.0 million is proposed to cover about 60% of the foreign exchange cost of the project. The remaining cost of the project will be covered by a loan from the African Development Bank (ADB), a grant from the Swedish International Development Agency (SIDA), by Government and by PTC. 1.05 The borrower of the proposed loan, which would be the first for telecommunications in Zambia, would be the Posts and Telecommunications Corporation (PTC), a statutory corporation established under the Posts and Telecommunications Act of 1975 and succeeding the General Post Office of Zambia (GPO), a department of the Ministry of Power, Transport and Works. 1.06 An appraisal mission composed of Messrs. S. A. Sathar, A. Grisez and B. Holmgren visited Zambia in November and December 1973. A follow-up million composed of Messrs. A. Grisez and B. Holmgren was dispatched to Zambia in January 1975 to update information obtained during the appraisal mission. This report is based on information provided by the GPO and on the findings of the two missions.  2. THE ECONaMY AND THE TELECOMMUNICATIONS SECTOR The Economy 2.01 Zambia, a landlocked country in the southern half of Africa has an area of 752,600 km2 and a population estimated at 4.5 million (1973), growing at about 2.5% per annum. Nearly half of the population lives in the Copperbelt Province and in a small corridor along the railway running from the Copperbelt Province through Lusaka, the capital, to Livingstone and is employed in mining, agriculture, industry, commerce and administration. The remainder of the population,'mainly engaged in small scale agriculture, is unevenly scattered over the rest of the country, with relatively heavy concentrations in some limited areas with good agricultural potential, especially in the Eastern and Luapula Provinces, and a very low density elsewhere. The economy in Zambia is dominated by the copper industry, which contributes nearly 40% of GDP, 95% of exports and provides the major part of Government revenues. The GNP per capita was about US$380 in 1971. 2.02 Government objectives for economic development aim at (i) develop- ing and diversifying the modern sector, including mining, and (ii) increasing the agricultural output by raising the productivity, especially in rural areas with good agricultural potential. Achievement of these objectives requires an adequate telecommunications network capable of providing effi- cient domestic and international services to support administrative, commer- cial and industrial activities. It must cover adequately the wide area over which agricultural and rural population is scattered in order to allow inte- gration of the population, administration and commerce. The Telecommunications Sector 2.03 Public telecommunications services are provided jointly with postal services by the Posts and Telecommunications Corporation (PTC) under the provisions of the Posts and Telecommunications Corporation Act of 1975. PTC has just succeeded the General Post Office of Zambia (GPO), a department of the Ministry of Power, Transport and Works. 2.04 The decision for converting GPO into a corporation was taken by the Government in order to vest it with sufficient autonomy, which was not possible under the civil service regulations if GPO continued as a Govern- ment department. The Act under which PTC is established achieves this goal by giving it adequate powers in such essential fields as planning, staffing and procurement. It also provides for an adequate separation between postal and telecommunications services with respect to finance and accounts. Powers retained by the Ministry of Power, Transport and Works, PTC's parent Ministry, are those usually associated with governmental responsibilities and include approval of tariffs, budgets and development goals. These arrangements are satisfactory. 2.05 PTC is responsible for allocation of radio frequencies, controlling sites of radio stations and licensing of all private telecommunications.  -3- 2.06 Apart from PTC, the Ministry of Information, National Guidance and Culture with its affiliated broadcasting service, the Civil Aviation Department, the Railways, Police and Defense services have specialized telecommunications networks for their own purposes. The Zambia Broadcast- ing Services operate radio and television stations, but leases the inter- connecting circuits from PTC. 2.07 Privately owned and operated telephone systems, having access to the public network, include four exchanges operated by mining companies for their own use, which connect about 2,200 telephones. In addition, a portion of ordinary PABXs, connecting about 14,000 telephones, are privately owned and maintained. Since PTC lacks the necessary staff to take over the main- tenance of these systems, the present arrangements are suitable. 2.08 Although at present there is no manufacture of telecommunications equipment in Zambia, a factory now manufacturing electric cables might extend its production to telephone cables in the near future. Existing Telecommunications Facilities 2.09 As of December 1973 Zambia had about 59,000 telephone stations including the 16,000 telephone stations conmected to privately owned and operated systems (para. 2.07), which is equivalent to about 1.3 telephones per 100 population. Although this appears relatively high in comparison with similar countries in Africa (see Annex 1), such comparisons are not indicative of the adequacy since these other countries have large waiting lists which therefore conceal the extent of requirements. In Zambia, there is a large unsatisfied demand for telephone service as shown by the waiting list of 8,400, which is about 32% of all the direct exchange lines (25,900 DELs). The details of the existing facilities are given in Annex 2. (a) Local Telephone Service 2.10 As of January 1975 the public network comprised 47 local telephone exchanges out of which 29 were automatic and the remainder manual. The total installed capacity of these exchanges was 35,500 lines (34,700 automatic and 800 manual) and their fill was an acceptable 75% on average. The automatic exchanges are of the step-by-step Strowger type except for a crossbar exchange in Lusaka and a few crossbar mobile exchanges in the rest of the country. (b) Long Distance Service 2.11 A backbone microwave system connects the Copperbelt Province to Livingstone through Lusaka. It provides high quality circuits to serve about 90% of all the telephone subscribers in the country. Apart from this main route, the long distance network consists of VHF/UHF radio systems and open- wire lines equipped with carrier systems. These are shown on the map. 1/- the most recent date for which statistics are available for telephone sta- tions in the whole of Zambia. However, up-to-date data for PTC is given in paras. 2.10-2.12 and 2.14.  - 4 - Automatic trunk switching exchanges are installed in Lusaka, Kitwe, Ndola and Livingstone which provide "Subscriber Trunk Dialing" (STD) service to the 12 principal towns situated in the Copperbelt Province and along the railway line running from the Copperbelt Province through Lusaka to Livingstone. (c) Telegraph Service 2.12 The telegraph service is available in about 70 towns; 14 of them have access to the gentex service while others are served by point-to-point telegraph circuits established mostly by SSB HF radio and operated in morse code. (d) Telex Service 2.13 As of December 1973, 404 telex subscribers were connected to three auto-aiatic exchanges of the Strowger type, installed in Lusaka, Kitwe and Ndola. The unsatisfied demand for telex service stood at 100. (e) International Services -2.14 An earth satellite station, commissioned in late 1974, provides high quality communications to overseas destinations. African traffic is established by HF radio, except for the traffic to Malawi and Southern Rhodesia which is via land-line carrier. Service Standards 2.15 The quality of the local telephone service is poor due (i) mainly to overload of the existing facilities which is largely a consequence of the present shortage of facilities (see para. 2.09), and (ii) in some cases, to the fact that some of the existing exchanges have outlived their normal life. 2.16 The quality of the long distance telephone service is also poor.- The STD network is heavily congested due to an under-dimensioning of the trunk switching equipment. Further, use of unreliable open-wire systems and obso- lete VHF radio systems in large areas of the country has resulted in substandard quality in these areas. 2.17 The domestic telegraph service, which is mostly on HF radio, is rather poor. The telex service, apart from the fact that there is a substan- tial delay in providing new connections, is reasonably satisfactory. The international telegraph and telephone services are also reasonably satisfactory although the latter is congested due mainly to overload of manual switchboards handling international calls. Ongoing Works (January 1975) 2.18 A contract has been placed with L. M. Ericsson for 19 new crossbar exchanges and these are expected to be commissioned in 1976-77. The total  - 5 - capacity of these exchanges is 22,450 lines of which 9,400 lines are for replacement of equipment which has outlived its useful life. The cable network of Lusaka is being improved and expanded under a contract; this work is expected to be completed by the end of 1975. The telex network is being expanded and modernized through two contracts relating to (i) a new electronic exchange with a capacity of 800 lines to replace the existing old Strowger exchanges, which is expected to be commissioned in early 1976, and (ii) teleprinters and other subscriber plant to meet the requirements for the next five years.  3. THE PROGRAM AND THE PROJECT The Program 3.01 The program, which is scheduled for execution over the 1975-80 period, consists of (a) the ongoing works described in paragraph 2.18 and (b) the proposed project described in paragraph 3.02. The cost of the program, which includes the preliminary expenditure for the subsequent program of expansion to commence in 1981, is estimated to be K 69.9 (US$109.1) million including a foreign exchange component of US$69.3 million equivalent. Annual and total capital expenditures are shown in Annex 3 while selected network data is given in Annex 4. The Proj ect 3.02 The proposed project is composed of new works which will be implemented in the 1975-80 period and consists of the following main items: (i) installation of local exchange equipment of about 31,000 lines including 7,900 for replacement of worn out equipment, giving a net addition of about 23,100 lines; (ii) expansion of the cable networks to provide about 31,000 connections; provision of PABXs (including a 1,000-line PABX in Lusaka for the Government) and subscriber apparatus; (iii) expansion of long distance network including new microwave links between Lusaka, Kasama and Nakonde on the Tanzanian border, between Lusaka and Chipata on the Malawi border, and between Livingstone and Mongu; construction of about 2,500 km of VHF/UHF radio links; addition of multiplex equipment on existing and new routes to pro- vide about 2,200 additional long distance circuits; construction of new trunk exchanges in Lusaka, Kitwe, Ndola and Livingstone; (iv) extension of gentex service to about 25 additional localities which are at present served by means of point-to-pointtelegraphcircuits; and (v) installation of an international switching center in Lusaka. Details on the project are given in Annex 5 and in the map. Cost of the Project 3.03 The estimated cost of the project, summarized below, is K 50.1 (US$78.2) million, including a foreign exchange component of US$52.2 million equivalent. Details, including annual expenditures, are given in Annex 3.  -7- % of Total K million US $ million Expend- Local Foreign Total Local Foreign Total iture Local Exchange Equipment 0.46 6.01 6.47 0.71 9.38 10.09 16.7 Distribution Networks 2.55 6.42 8.97 3.98 10.02 14.00 23.0 Subscriber Apparatus & PABXs 0.38 0.67 1.05 o.60 1.04 1.64 2.7 Microwave & UHF/VHF Systems 1.42 8.90 10.32 2.21 13.89 16.10 26.5 Long Distance & Inter- national Switching Equip. - 2.97 2.97 - 4.63 4.63 7.6 Vehicles - o.96 o.96 - 1.50 1.50 2.5 Consultants Li - 0.26 0.26 - 0.40 0.40 0.6 Sites and Buildings 7.94 - 7.94 12.39 - 12.39 20.4 Sub-total 12.75 2-6.19 38.94 19. 40.86 60.75 100.0 Physical Contingencies 0.10 0.83 0.93 0.15 1.29 1.44 2.4 2 Price Contingencies 3.83 6.42 10.25 5.97 10.02 15.99 26.3 2 TOTAL 16.68 33.44 50.12 26.01 52.17 78.16 Li Amount to be split between accounting and technical consultants. of basic estimate. 3.04 The project cost estimates for imported equipment and services are based on PTC experience of prices obtained for the ongoing works (see para. 2.18), and on recent experience of local expenditure for civil works, buildings and installation. The basic prices, before contingencies, have been updated to reflect the situation at the beginning of 1975 by using the past trend for price of telecommunications equipment and associated services and works. 3.05 The cost estimates do not include any custom duties or import taxes on telecommunications equipment, which is exempt from these under current fiscal system. They include a small provision, viz. US$200,000 or about 15% of the CIF cost, for vehicles which are liable,to custom duties under this system. Zambia has no agreement giving preferential tariffs to other countries. Contingencies 3.06 Ordinarily no physical contingencies are associated with either local or foreign exchange costs of local service items as these form part of a continuing growth process and comprise a large number of works spread  - 8 - throughout the country with deviations in the estimates tending to balance out in the aggregate. However, physical contingencies on both local and foreign costs of 7% have been included in the project estimate for items associated with the long distance network to cover a possible growth of the long distance traffic at a faster rate than projected. 3.07 Price contingencies provided for in the estimate of total project cost amount to 24% of foreign exchange costs and 30% of local costs and are based on likely price increases for telecommunications equipment, associated services and civil works over the project period. Items for Bank Financing 3.08 The items proposed for Bank financing are summarized below (cost estimates include equipment costs plus, where applicable, foreign exchange costs of installation): Local switching equipment 8.73 Subscriber and junction cables and associated plant items 5.25 Subscriber apparatus and PABXs 1.04 Microwave systems, UHF/VHF radio, multiplexing 9.29 Vehicles and consultants 0.79 Unallocated 6.90 TOTAL 32.00 3.09 The African Development Bank (ADB) is financing the microwave link between Lusaka, Kasama aLxd Nakonde on the Tanzanian border, which will form part of the Pan-African Telecommunications Network, and various spurs of this link, estimated to cost together about US$8.6 million, including a foreign component of US$5.2 million. SIDA is participating to the extent of US$2.5 million in the financing of the trunk and international switching equipment, estimated to cost US$3.7 million - the remainder being financed by PTC. Other main items forming part of the project but not proposed for Bank financing are: a 5,000 line extension of the Ridgeway exchange in Lusaka, estimated to cost US$1.3 million, the 1975-1976 expansion of the cable networks (US$4.8 million) in the Copperbelt cities to be executed under a turnkey contract; part of the new vehicles needed during the project period, and extension equipment for existing facilities. Procurement Arrangements 3.10 All equipment and material financed by the Bank would be subject to international competitive bidding in accordance with the Bank Group's  "Guidelines for Procurement". As requested by Government, a domestic pre- ference of 15% of the CIF cost or the applicable customs duties, whichever is lower, would be applied to bids on cables to provide for a possible bid from a local manufacturer (see para. 2.08). The estimated cost of these cables is not expected to exceed US$4.5 million. Disbursements 3.11 The proposed Bank loan would be disbursed against CIF cost of imported equipment and materials, the foreign cost of services and the ex-factory cost of any locally awarded contract for goods specified under the loan. Estimated disbursements from the proposed loan are shown in Annex 6. Any unused balance of the loan would be made available after consultation with the Bank for purchase of additional goods or services similar to those already procured under the loan. Execution 3.12 PTC is carrying out planning and detailed engineering of the project with the assistance of a planning unit provided by Swedish con- sultants (SWEDTEL) who are at present located with PTC's parent Ministry in Lusaka and will be transferred to Ndola and attached to PTC directly. PTC has just drawn up the specifications for the switching equipment inclu- ded in the project; the specifications for the microwave link Lusaka- Kasama-Nakonde have been set up by a consultant sponsored by the International Telecommunication Union (ITU); other microwave links and VHF/UHF radio systems forming part of the project will be surveyed by a consultant team not yet selected. The switching equipment and the trunk bearers will be installed by the equipment suppliers while the expansion of the cable networks in the ;aain cities will be executed up to 1976 by contractors with the assistance of local staff. After 1976, PTC staff will execute all cable network expan- sion on its own which is the most desirable arrangement. Other minor works included in the project will be installed by PTC. Depending on its staff resources (see para. 5.08 and 5.09), PTC may need assistance for supervision of installation and commissioning of the switching equipment; in this case PTC would contract the services of a suitable consultant. The above arrange- ments for project execution have been discussed and agreed upon during negotiations.  4. JUSTIFICATION OF THE PROJECT Main Objectives 4.01 Past development of the Zambian telecommunications network has been far behind requirements, as shown by the large waiting list for tele- phone and telex connections (see paras. 2.09 and 2.13) and the poor service standards at present reached (paras. 2.15 to 2.17). The Government, well aware of the adverse consequences of poor telecommunications services on achievement of its economic and social targets has decided to remedy the present situation. The program which includes the proposed project is the most important step in this direction. Its implementation will (i) reduce the waiting list to a more reasonable relative level, (ii) remove the present congestion of the network, (iii) extend the long distance network to 32 additional cities spread over the country and not served at present, and (iv) provide high quality international telecommunications with the instal- lation of adequate switching facilities enabling semi-automatic operation of international telephone links. Demand for Telecommunications Services (a) Local Telephone Service 4.02 As of December 31, 1973, PTC had about 25,900 direct exchange lines and about 8,400 waiting applicants, giving a total expressed demand of about 34,300 DELs. This does not take into account the existence of a latent demand consisting of (i) demand in the areas not yet served, such as Lundazi and Samfya, which is not recorded in the waiting list established by PTC, and (ii) latent demand in the currently served areas from persons who, because of the long delays in getting connections, have refrained from applying for telephones. The latent demand has been estimated at about 3,000 giving a total demand of about 37,000 at the end of 1973. 4.03 The demand has been forecast to increase from the end of 1973 at a conservative rate of 9% per annum, giving a total demand of 68,000 DELs at the end of 1980. Though this rate is lower than in other developing countries, it is consistent with the past trend in Zambia and is reasonable. The number of persons waiting for connections at the end of the project period is estimated to be about 15,000 and represent 28% of the number of connections, PTCts limited manpower resources prohibitting it from coping fully with demand by this date. Historical growth of demand and DELs as well as forecasts are shcwn in Annex 7. (b) Long Distance Services 4.04 Forecasts established by PTC for the long distance traffic are based on (i) an assumption that the total local and long distance traffic (both outgoing and incoming) per subscriber will be, on average, 0.11 erlang irrespective of the size of the local telephone exchange system to which the  - 11 - subscriber is connected, and (ii) an allocation of the total traffic per subscriber between local and long distance services. These assumptions are incorrect - total traffic per subscriber is usually lower in small exchanges and the proportion of the total traffic which is for long distance in the large exchanges is too high. For these reasons the forecast estimates of PTC were considered high for the specific configuration of exchange sizes in Zambia. The program has been adjusted to a more realistic forecast which provides for a slower overall growth. Annex 8 gives the circuit requirements for 1980 calculated from these revised forecasts. (c) Telex Service 4.05 As of December 1973, the demand for telex connections stood at 504 including a waiting list of 100 applicants. Based on an increase of about 10% per annum, which is reasonable, demand is expected to be about 1 00 the end of 1980. The expansion proposed in the project is designed to meet this demand. (d) International Services 4.06 New international facilities together with additional multiplex and switching provisions included in the project, will improve significantly the quality of the international telephone and telex services. Partly as a result of the better quality, telephone and telex traffic is expected to grow at an average annual rate of 25% and 19% respectively over the project period (1975-1980). Telegraph traffic, which is far less sensitive to improvement of the quality of related facilities, is likely to show a moderate increase. Least Cost Solution 4.07 The development of the telephone network is based on the use of common control switching equipment for the new exchanges. This solution, which has already been adopted for the exchanges under construction, is the best suited to the specific configuration of the Zambian telephone network. Decision already made for replacing gradually much of the old step-by-step exchanges is justified since these exchanges have reached the end of their economic life. 4.08 Development of the primary long distance network is based on micro- wave links rather than coaxial cables. This provides the least cost solution in this case and will also facilitate the subsequent addition of a television channel. The secondary network will be extended by VHF/UHF radio facilities, better suited to local conditions than open-wire lines. The existing open- wire lines will be used only to provide short local circuits, where their lack of reliability will be less critical than for the long distance circuits which they provide at present. 4.09 Local network planning and plant provisioning periods follow appro- priate practices. For the new and extended cable networks, PTC has recently  - 12 - adopted modern solutions, including the use of conduits and cross-connection cabinets in the large networks, which give flexibility and are economical in the long term. Economic Rate of Return 4.10 The internal rate of return on the project, defined as the dis- count rate which equalizes the stream of expected revenues attributable to the project with the capital and operating costs, net of amortization, taxes and duties attributable to it, is 16.7%. The basis of this estimate is given in Annex 10. A sensitivity analysis has been carried out, showing that even an unfavorable combination of the main parameters would result in a rate of return of no less than 12.0%.  5. THE BORROWER 5.01 The Posts and Telecommunications Corporation (PTC), the recently established Government Corporation which has replaced the General Post Office (GPO), would be the borrower; its role in the sector is given in paragraph 2.03. Organization 5.02 PTC's present organization is along normal lines for an entity operating both the posts and telecommunications services. It is shown in Annex 11. The headquarters consists of five divisions - Telecommunications, Posts, Finance and Accounts, Personnel and Administration, and Training. The last three divisions are common and deal with both postal and telecom- munication services. 5.03 The telecommunications division is organized in three sections: (i) Engineering Projects, dealing with the development-related activities; (ii) Engineering Services, responsible for the maintenance of the network; and (iii) Telecommunications Services, responsible for commercial matters (including billing), traffic and statistics, and manual operations. The present structure is strongly centralized with PTC headquarters at Ndola and a small regional office in Lusaka which is responsible for the day-to-day operation and maintenance in the southern half of the country. These arrange- ments are satisfactory considering the present size of the network and operations. Management 5.04 PTC's management, headed by a Postmaster General, a Zambian national, is adequate. The present Director of Telecommunications was provided under the Swedish Aid (SIDA) in the fall of 1972 and has considerable experience in this field. Most other senior executives in the telecommunications division are expatriates, especially in the engineering section where they account for almost 100% of the managerial staff. They are generally competent. The Director of Finance is also an expatriate, and while he will require assistance to set up a new accounting system (para. 5.11), he will be able to maintain it after the new system is set up. 5.05 The policy of the Government is to Zambianize posts now filled by expatriates as soon as qualified and competent Zambians are available. This policy would in the long run ensure that the know-how acquired in the oper- ation and development of the network will stay in Zambia and provide better continuity of management. Recruitment and training needs to achieve this are discussed in paras. 5.08 to 5.10. A first step towards Zambianization  - lit - has been taken recently at the management level with the appointment of a Zambian to the post of Assistant Director, Telecommunications Services. Further steps in this direction will be taken when competent staff is available. Staff 5.06 As of December 1973 the total staff employed for telecommunications activities was about 1,600 including 150 for telegraph operations, This works out to a ratio of 35 staff per 1,000 telephones installed, which is reason- able. Expatriates were still numerous in the telecommunications division (about 200), filling technical posts ranging from telecommunications engineers to jointers. More rapid Zambianization should be possible in the future as a result of improvements both of local recruitment (para. 5.08) and in train- ing methods (para. 5.10). 5.07 In view of the need for gradual Zambianization of the posts filled by expatriates (para. 5.05) and the growing need for skilled staff resulting from the future expansion of the network, it is necessary to determine the manpower and training requirements for the next five to six years. Some steps have already been initiated by PTC in this direction. It was agreed during negotiations that PTC will complete these by December 31, 1975 and submit the results to the Bank for comments. Recruitment 5.08 In the past, with a few exceptions, recruitment from the Univer- sity of Zambia and the Zambian Institute of Technology has not been possible due to the insufficient number of graduates compared to Zambia's overall requirements. Improvement is expected in the future as a result of the increase in the number of graduates and more competitive salaries which can be introduced now that telecommunication services are run by a corporation. Recruitment of lower grade staff has improved considerably with the increased number of secondary school graduates. Even so the present arrangement for recruiting all technicians at secondary school level also needs review; lower educational qualifications should be sufficient. 5.09 In the short term, for some years more, PTC will have to continue relying on foreign recruitment to meet its growing requirements. It has been experiencing problems in recruiting competent staff from its traditional source, the UK, but it hopes to meet these requirements by recr,uiting primarily in Asia, where the response has been satisfactory. Training 5.10 The PTC training school at Ndola, assisted by UNDP, is equipped for the simultaneous training of 150 postal and telecommunications trainees up to the technician level. The training has been based on a curriculum of City and Guilds Examination (UK) which covers diverse needs and involves a period  of four years for each technician to be qualified. Recently the prograri has been reviewed by PTC and a modular and job-oriented system has been adopted. This type of training system, which is used in USA and Sweden, is based on giving a number of short courses (of a few weeks up to two months) each aimed at training for a particular job. Adoption of such a system should make it possible for the training center to produce the necessary output of skilled technical staff in the future without any major increase in the fac- ilities already available. Accounts 5.11 Although PTC's present accounting system (which was taken over from GPO) produces annual financial statements based on the accrual con- cept, it has a number of deficiencies in that: (i) it does not provide for separate accounts of the postal and telecommunications operations necessary to assess the financial performance of each service; (ii) it lacks a work order system and (iii) it lacks an effective budgetary control system. It is essential to overcome these deficiencies and introduce an adequate com- mercial system of accounting. Since PTC does not have the staff capable of undertaking this job, financial/accounting consultants to be financed under the proposed loan have been retained. These consultants will make recommendations for the setting-up of a proper accounting system and assist in its implementation (terms of reference in Annex 12). During negotiations, assurances were obtained that the necessary studies will be completed by September 1975 and implemented in accordance with a time schedule to be agreed with the Bank. Audits 5.12 GPO's accounts were being audited annually by the Auditor General. Although the Auditor General, if given necessary resources, can carry out an audit of PTC satisfactory to the Bank, the scope and timeliness of these audits at present, from the Bank's viewpoint, is inadequate. Government corporations in Zambia are in general audited by private firms. Assurance was obtained during negotiations that beginning with FY1975 annual audits will be performed by an independent auditor acceptable to the Bank and that the auditor's report and certified financial statements for PTC and its two services separately will be submitted to the Bank within eight months after the close of each fiscal year. Billing and Collection 5.13 The present billing system, which utilizes simple accounting machines, is fairly satisfactory. Howiever, since the volume of work is expected to double over the next five years, the present system will need to be reviewed to recom- mend modifications as may be needed. Such a review has been included in the terms of reference of the accounting consultants (para. 5.11). Up to October 1973, all Government bills were paid by the Ministry of Finance, which were  - 16 - later settled with the various Ministries and Government Agencies. These arrangements worked quite well. In late 1973 the procedure was changed and collection had to be made directly from each Ministry and Agency. Some transitional difficulties were being experienced in getting the accounts settled, but the situation subsequently improved and will be kept under review. Tariffs 5.14 The present telecommunications tariffs are set out in Annex 13. The level of these tariffs is inadequate to generate a reasonable rate of return and to provide the funds necessary to expand and improve the service (para. 6.4). The structure of the present tariffs, which is based on meter- ing of local calls with no free calls, is basically sound. The annual rental of K 17.00 (US$27.00) and the call charge of K 0.03 (US$.045) are both within the range encountered in many countries. The long distance tariff has recently been reviewed and adjusted to eliminate some minor anomalies.  6. FINANCES Background 6.01 Up to 1972, GPO, which has now been succeeded by PTC, was required to invest its annual net operating surplus in Government bonds and it re- ceived its annual capital requirements from Government in the form of loans. After 1972, GPO was allowed to retain its surpluses for capital development and only the net requirements were being met from Government. While postal services are being operated at a loss, the telecommunications services gen- erate a satisfactory surplus which, after covering the postal deficits, resulted in an cverall satisfactory financial situation. The future fin- ancial situation of the telecommunications service is expected to be sound with the rate of return to be 11%. Funds generated out of telecommunica- tions operations are in future expected to be used for telecommunications development and would provide 33% of investment requirements. Past Finances 6.02 Income statements for the consolidated operations (posts and tele- communications) for the 1968-1974 period are shown in Annex 14. Proforma2/ income statements for telecommunications separately are shown in Annex 15. Although postal service is being operated at a loss which is estimated to be about US$1.0 million, the telecommunications service generated a profit resulting in a net profit for the combined operations of K 1.3 million in 1972 and 1973. However, the practice of automatically using the surplus of telecommunications operations to cover deficits arising out of postal opera- tions did not promote operational and developmental efficiency and good fin- ancial management. With the new corporation, the two services will be finan- cially autonomous and transfers of funds will only be made as a result of properly prepared action for which the implications have been critically analyzed. As measured by the rates of return on net plant in service, past financial performance for the consolidated operation was satisfactory up to 1972 when it exceeded 10%; however it decreased in 1973 to 7% and in 1974 to 4.7% (estimated). The rate of return of telecommunications separately has also been satisfactory. Present Financial Position 6.03 Actual balance sheets for the consolidated operation are shown in Annex 16, and the position as of December 31, 1973 is summarized below: j GPO has not kept separate accounts for postal and telecommunications operations.  - 18 - K US$ % Assets Fixed Assets 31.5 49.1 - Less: Depreciation 8.3 12.9 - Net Fixed Assets 23.2 36.2 7 Work in Progress 0.9 1.4 3 Current Assets - Net 11.9 18.6 33 Total 36.0 56.2 100 Liabilities Capital 10.1 15.8 28 Reserves 11.1 17.3 31 Loans - (Government) 14.8 23.1 41 Total 36.0 56.2 100 6.04 Fixed assets are stated at historical cost. This valuation is reasonable since local inflation has been low and prices of telecommunica- tion equipment have been fairly stable. Plant life estimates are high for some items and low for others but on balance appear to be on the high side which has caused inadequate provision for the accumulated depreciation. During negotiations, it was agreed that the depreciation rates and the adequacy of the depreciation reserve would be reviewed and any changes required implemented by about December 1975. Separate accounts are not kept for postal and telecommunication operations except for equipment used exclusively for telecommunications purposes. The value of these items con- stituted 84% of fixed assets at December 31, 1973. The remaining fixed assets comprising buildings and vehicles would to a large extent be attri- butable to telecommunication operations and overall, more than 90% of fixed assets are for telecommunication purposes. Proforma balance sheets for tele- communications operations are shown in Annex 17. 6.05 Long term capital consists of: (i) the value of the assets taken over when GPO was formed in 1963; (ii) reserves which include retained earnings and a sinking fund; and (iii) funds obtained from the Government for capital development. Interest of 5-1/4 to 6-1/4% is payable to the Government on long-term capital except for the reserves. Financing Plan 6.o6 Forecast funds flow statements are in Annex 18. Requirements of funds for telecommunications development and sources from which they would be met over the 1975-1980 period are summarized in the following table:  - 19 - K Us$ Million Million % USES Construction Ongoing Work 10.0 15.6 14 Proposed Project 50.1 78.2 72 Future Project 9.8 15.3 14 Total Uses 69.9 109.1 100 SOURCES Internal From Operations 41.5 6h.7 59 Less: Debt Service & Other 20.5 3 .0 29 Net from Operations 21.0 32.7 30 Decrease in working capital 1.9 3.0 3 Subtotal 22.9 35.7 33 Grants and Borrowings Proposed IBRD 20.5 32.0 29 ADB 3.3 5.2 5 SIDA 1.6 2.5 2 Government 17.0 26.5 24 Future 4.6 7.2 7 Subtotal 470 73. 4 T Total Sources 69.9 109.1 100 6.07 The funds available from internal sources are projected to be K 35.7 million. This estimate assumes that additional revenues would need to be raised through adjustments in the tariffs in the 1976-1980 period. Debt service includes debt service payments on the estimated portion of existing debt that has been incurred in respect of telecommunications development, and the loans that are being contracted for the program. The decrease in working capital is due to the liquidation of securities that has been used in the past for investment of surplus funds. 6.o8 The funds froa external sources include (a) a loan from ADB, (b) a grant made by the Swedish International Development Agency (SIDA) to finance the trunk and international exchange, (c) a loan from Government already included in the proposed 1975 budget, (d) a loan to be made from Government to cover the estimated remaining requirements, and (e) the proposed Bank loan. Also included is a portion of an assumed future loan which would partly cover advance payments on the program beginning in 1979.  - 20 - 6.09 The financing plan does not provide for any dividend to be paid during the construction period and it also assumes that beginning in 1975 telecommunications profits no longer will be used automatically to cover postal requirements (para. 6.02). During negotiations, assurances were obtained that payments of dividends will only be made after Bank approval. Furthermore, during negotiations, assurances were obtained that telecommuni- cations funds would be used for other purposes only when those funds were surplus to telecommunications' operational, debt service and investment requirements and that, in the event of deficits resulting from other activities carried out by PTC, Government would take steps satisfactory to the Bank to cover such deficits. Future Finances 6.10 Forecast income statements and balance sheets of telecommunica- tions are given in Annex 15 and 17. Notes and assumptions are given in Annex 19. Salient features are shown below: Year Ending December 31: 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Operating Revenue 8.7 9.0 9.4 10.1 13.7 16.8 19.7 23.2 26.6 29.6 32.7 Net Income 3.1 2.3 2.1 0.6 0.5 0.4 0.5 1.5 2.3 2.8 3.4 Operating Ratio % 65 75 76 83 80 78 76 75 74 75 76 Rate of Return 16 12 12 9 11 11 11 11 11 11 11 Debt/Equity - 3 7 55 57 64 70 72 72 69 66 Debt Service Coverage 3.5 3.0 7.0 2.5 2.2 2.4 2.3 2.1 2.1 1.5 1.6 6.11 Operating expenses before taxes are projected to increase during the 1975-80 period by an annual average of 16% and income taxes by an annual average of 18%. This forecast takes into account the fact that the new corporation will no longer enjoy various exemptions and privileges in the past enjoyed by GPO such as exemptions from taxes and customs duties. It also provides for general salary increases that will make the salary level in the new corporation more competitive. These are needed to attract compe- tent staff to operate and maintain the expanded network. As revenues based on present tariffs only are expected to increase by 13% per annum, the re- turn on net fixed telecommunications assets in operation without tariff increases is expected to gradually decrease to below 3% by 1980. Overall, telecommunications would without a tariff increase show a loss after 1975. To ensure that the telecommunication operations earns a satisfactory return on its investments and to allow a reasonable contribution from earnings for the financing of this project as well as for continued development after the completion of the proposed project, it was agreed during negotiations that the retu-rn on telecommunication assets would be maintained at not less than 11% beginning in 1976. This requirement will make necessary gradual adjust- ments of tariffs from 1976 that would increase the level of revenues towards the end of the period by about one third.  - 2X - 6.12 During the construction period short-term finance is expected to be required to overcome temporary funds shortages. During negotiations, assurances were obtained that such funds will be available as and when required. The overall financial position is expected to be satisfactory and the debt/equity ratio is expected to be about 69% after the completion of the project. During negotiations it was also agreed that Bank approval would be obtained before new long-terra debt is assumed unless the debt service coverage exceeds 1.4 (actual present internal cash generation divi- ded by maximum future debt service for all existing debt and the proposed loan). Fiscal Impact 6.13 During the 1975-1980 period, Government is expected to receive interest payments totalling K 9.7 million and tax payments o- K 7.5 million. Since the Government has already included about K 5.7 million in the 1975 budget for the telecommunications capital development program and a further contribution of K 11.3 million is required in 1977-1979, the net fiscal impact is a K 0.2 million receipt by Government. After the construction period, the net payments to Government would becane larger.  7. AGREEMENTS AND RECO'MEIDATION 7.01 The followrng assurances have been obtained. (a) If necessary PTC would contract the services of a suitable consultant to assist in supervision of installation and com- missioning of the switching equipment (para. 3.12); (b) A new accounting system will be established with the help of management/financial consultants (para. 5.11);, (c) Audit reports together with certified financial statements will be submitted to the Bank within eight months after the close of each fiscal year (para. 5.12); (d) PTC will review depreciation rates and the adequacy of the accumulated depreciation (para. 6.o4); (e) Dividends during the construction period will only be made after Bank approval (para. 6.09); (f) Telecommunications funds will only be used for other purposes when these funds are not needed for telecommunications purposes and that in the event of deficits resulting from other activities carried out by PTC, the Government would take steps satisfactory to the Bank to cover these deficits (para. 6.09); (g) Tariffs will be maintained at a level adequate to assure a minimum rate of return on average net assets of 11% (para. 6.11); (h) Funds will be made available as and when required to overcome projected temporary cash shortages (para. 6.12); and (i) Additional debt will only be incurred with the approval of the Bank if historical 12-months internal cash generation will cover maximum future debt service at least 1.4 times (para. 6.12). 7.02 A condition of effectiveness of the loan is that the Government has entered into an agreement with PTC to lend the amount required to complete the financing plan (para. 6.08). 7.03 With the above assurances, the proposed project constitutes a suit- able basis for a Bank loan of US$32 million for a term of 20 years including four years of grace. April 15, 1975  ANTNEX 1 z A 4 B I A POSIr ANiD T'F.LR!M'JU1CATTONS CPORATIO(N (PTC1 Inter,ation.l Statistical Data Gross Natio.al Prod.ct Population T F L F P H 0 N E S Per Per Capit. NATIONAL PBINCIPAL CITMiVi! National International Services C{ITY Capita Growth Rate 1970 Total No. Per 100 Pop. Growth Rate % Auto Staff per S of Tot= , % or Tot0l Long i;rect Accezs to: 1970 1965-1970 000 0 1970 1970 1965-1970 matic 1,000 tel.8/PopulationTclephones Distance Subrine us? - 000's No. % % No. j S aality1/Satellite Cable USA 4,235 3.4 206,800 "5,222 56.38 5.4 99.9 n.e. 45 51 E Atl. Pac. X Sv*den 2,788 3.2 8,050 4,307 53.74 4.9 99.7 n.e. 34 43 ' - X Cana,a 2,720 2.8 21,700 9,753 42.28 5.5 98.8 n.e. 41 49 * Atl. X svits.rlend 2,610 2.4 6,350 2,847 45.38 6.o 100.0 4 37 50 E _ X France 2,288 3.7 51,000 8,114 16.05 7.3 80.1 11 25 50 E AU. X Germany (Fed.Rep.) 2,270 3.7 61,800 13,835 22.39 9.4 100.0 n.e. 29 46 E Atl. Ind. X Australia 2,169 2.4 12,500 3,599 29.27 6.1 89.7 22 64 67 E Pac. Ind. X NeW Zealand 2,o68 1.7 2,950 1,203 42.63 4.6 86.7 18 54 63 F _ X UK 1,862 2.0 56,050 13,947 24.96 7.0 98.6 20 33 43 E Atl. Ind. X Japan 1,430 10.0 102,800 23,132 22.50 13.4 91.8 n.a.. 36 48 E Ind. Pac. X Italy 1,343 4.6 53,600 8,528 15.98 9.0 100.0 n.s. 23 53 1 Atl. X Venezuela 971 1.4 10,650 378 3.70 7.8 97.6 18 35 83 F Ind. Pan. X Argentisa 836 1.0 24,400 1,688 6.90 2.5 92.7 24 47 86 G Atl. X Singapore 753 3.8 2,100 136 6.70 11.5 100.0 14 100 100 - _ _ Trinidad nd Tobago 750 4.8 1,000 56 5.60 8.0 99.8 n.$. li 63 a Atl. Costs Ries (1973) 590 2 1,775 84 2.16 20.5 95.9 19 19 80 G _ Mexico 966 3.4 50,950 1,328 2.67 12.9 93.0 n.a. 27 75 0 AUl. Yugoslavia 553 4.2 20,600 623 3.05 11.0 95.9 19 12 49 G Chile 487 1.8 9,800 348 3.60 6.8 87.2 16 35 76 F Atl. Ivory Coast 445 7.5 5,100 38 0.75 12.0 89.0 n.&. 23 83 F-G Atl. Zamobia 400 3.6 4,150 52 1.25 10.9 98.0 32 13 62 p _ _ Fiji 400 2.7 5-C 17 3.43 7.9 85.5 33 14 53 G _ X Iran 370 4.9 29,8 ); 307 1.03 8.1 86.1 20 24 82 F Ati. Nolaysia 358 4.3 11,050 169 1.58 6.9 89.8 45 3 34 E Ind. Guatemala 331 1.7 5,153 38 0.76 10.6 95.9 20 15 91 P _ _ Colombia 319 1.4 21,350 546 2.63 7.4 96.8 n.e. 26 77 0 Atl. China (Taiwn) 305 6.5 14.250 339 2.37 18.0 e2.2 39 26 72 f Pac. Li Salvador 292 2.1 3,500 35 1.03 9.7 95.5 33 28 84 G Iraq 275 2.9 9,100 120 1.25 14.1 81.8 47 54 74 P - Drazil 258 1.6 93,500 1,787 1.94 7.2 93.3 n.e. 20 66 F Atl. Pea,a & Neo Guinea 221 2.5 2,400 19 0.79 16.1 85.4 34 4 78 P _ _ nneg.al 194 1.4 3,800 28 0.73 2.0 92.0 50 31 93 P Atl. Csylon 188 2.3 12,550 61 0.49 7.7 98.7 n.L. 5 57 P Thaitlnd 150 6.6 36,200 145 0.54(1972) 12.0 97.0 27 8(Bangkok 74 P Atl. Ind. Gh&na (19710) 168 0.7 9,000- 47a 0.53 10.3 83.91 127 14. only) 76. Fo _ Kenya 134 1.4 10,800 72 0.69 7.1 85.1) (7 73) l;acda 112 1.1 8,550 28 0.29 9.2 79.6) 49S/ 5 61) 0 * Id. -:r--nvia 82 1.2 13,150 32 0.24 8.8 74.4) 3 43) Pnkcstan 106 3.1 129,550 193 0.17 9.8 78.2 140 7 75 F India 102 1.0 550,100 1,160 0.21 8.8 75.7 129 4 50 F Irdonesia 1972 10" 0.8 118,250 241 0.20 6.7 57.0 72 8 53 F lnd. Ethi,pia 80 2.0 25,200 46 0.18 13.1 89.3 59(1972) 4 81 P _ _ Nigeri 70 0.3 65,650 81 0.13 6.2 79.2 n... 3 57 P Atl. Nepal 67 0.4 10,800 6 0.06 19.2 83.9 120 5 91 Upper Volta 56 0.1 5,200 3 o.0o 6.o 82.5 70 3 82 P _ _ alnwi 52 2.2 4,500 12 0.26 1.4 89.8 n.e. 3 57 P PVli 50 1.2 5,000 5 0.10 3.0 57.0 117 6 72 P _ _ J/ These figres are not strictly comparable. In some cases international, locl and lor.g distance services are provided by different organizations in the s-oe country. Teleeraph staff may or may not bh included and there are wide -sriatio.s in the use of contract labor for both maintenance and construcion work. The n-ber of telephone operators required eiso varies with the proportion of manual to automatic service. J e.g., In the USA, 45A of the popylation live in the principal citiee and have 51% of the country's telephone,. E - E Excellent - Most citie, cod centers connected by tuicrowave or coania1 syste.. with extensive Subscriber Trnk Dialing. G . Good - Principl cities connected by microwave or coaxial syotey s with Subocriber Trunk Dialing. F - Fair - Principal cities con-ected by microwave or co.-ial sy:tlcm but calls handled semi-automaticdlly or ranually. P - Poor - Little or no rmicrowave or coaxial; calls between interconnected cities handled manually. d/ Countri,a wbich have satellite earth station. or submarine cable terminals within their border,. e/ lervice provided by a co-=on organization. Sources: Sopulation and G.N.P. - World Benk Atlas (1970) Telephone Statistics - The World', Telephones by A.T. T T. (1970) 14ng Distawce and Interatioosr. Service - Division Recordc May 15, 1974  ANNEX 2 Page 1 of 3 pages ZAMBIA POSTS AND TELECOMMCATIONS CORPORATION (PTC) Existing Facilities and Ongoing Works Existing Facilities Local Telephone Facilities 1. The exchange capacity of the telephone network is 35,524 lines (January 1975) out of which 34,709 are automatic and 815 are manual (see Annex 5 for details). Automatic exchanges are in operation in 26 towns of whdch Lusaka, Kitwe and Ndola have more than one exchange. "Subsatellite units" (SSUs), which technically form part of a main exchange but are located at the center of the distant area they serve, are used in eight cities. Most automatic exchanges are of the Strowger step-by-step type and have been installed up to the mid-fifties. The few main exceptions are (i) a 5,000-line crossbar exchange at Lusaka Ridgeway, and (ii) six 1,000-line crossbar mobile exchanges used on a temporary basis to provide new connections in networks where this would be otherwise impossible due to lack of exchange capacity. Manual exchanges are in operation in 17 cities. 2. As of December 1973 there were 25,859 Direct Exchange Lines giving an exchange fill of 72.8%. The total number of telephones in service was about 43,000 out of which nearly 2,000 were connected to some 180 party lines. 3. The subscribers' distribution netwiorks make extensive use of a armored cable laid directly in the ground. PTC is now using ducts in the main cities and has shifted recently from paper insulated, lead sheathed cables to plastic insulated plastic sheathed cables. Most distribution networks have little or no spare capacity. Long Distance Facilities 4. The primary long distance network consists of (i) a 2GHz microwave link, installed in 1968, which connects Lusaka and the Copperbelt (Ndola, Kitwe); (ii) a 6.8GHz microwave link, recently commissioned, which connects Lusaka and Livingstone; (iii) 2GHz UHF radio links between Kitwe and Mansa, and Kitwe and Solwezi; and  ANNEX 2 Page 2 of 3 pages (iv) various open-wire lines equipped with carrier systems (see map). The secondary network consists of open-wire lines with carrier systems, some VHF radio links, and a few HF radio links. 5. Transit switching units commissioned in September 1971 in Lusaka, Ndola, Kitwe and Livingstone provide STD service between twelve main towns located in the Copperbelt and along the railway line running from the Copperbelt province through Lusaka to Livingstone. The service, however, is poor due to congestion in these exchanges. Domestic Telex and Telegraph Facilities 6. The telex network consists of three automatic exchanges of the Strowger type with a capacity of 460 lines in Lusaka, Ndola and Kitwe to which 404 subscriber lines are connected (December 1973). 7. A gentex service is in operation between 14 main towns while point-to-point circuits, most of them being established by means of SSB HF radio equipment, provides about 60 other towns with telegraph service. International Facilities 8. A satellite earth station has been put in operation at the end of 1974 and provides high quality circuits to other continents; however the congestion of the manual switchboard positions associated to the earth station results in a rather poor quality of the telephone service, waiting times of several hours before an intercontinental call is put through being usual. The situation will improve in the future with the commission- ing of an international transit center - which forms part of the Project - which will make possible semi-automatic operation of international circuits. 9. Traffic to Rhodesia and Malawi is routed over land lines equipped with carrier systems (from Livingstone and Siavonga to Rhodesia, and from Chipata to Malawi). Other interafrican connections, except a six-channel VHF link between Kitwe and Lubumbashi in Zaire, are provided by HF ISB radio systems in Lusaka to Nairobi (2 telephone channels, 8 telegraph channels) and Dar es Salaam (1 telephone channel, 4 telegraph channels). International telex traffic is automatic to Rhodesia, Malawi, Botswana and South Africa; it is operated manually elsewhere. Ongoing Works (January 1975) Local Telephone Facilities 10. Nineteen ARF crossbar telephone exchanges totalling 22,450 lines are to be installed in 1976-1977 at Kitwe (9,000 lines), Chingola (3,000 Uncc), 1Nufulira (3,000 lines), Luanshya (3,000 lines), Choma (800 lines), Chipata (800 lines), Mazabuka (800 lines), Monze (600 lines), in the rest of the  AN1IIEX 2 Page 3 of 3 pages Chona Group (3 exchanges totalling 350 lines), the Chipata Group (5 exchanges totalling 500 lines), the Kitwe Group (2 exchanges totalling 400 lines), and at Mumbwa (200 lines). The contract for these exchanges includes trunk switching equipment for Ndola (200 lines), Choma (400 lines) and Chipata (200 lines). 11. The cable network in Lusaka is being expanded under a turn-key contract passed to L. M. Ericsson, which will bring the capacity of the primary cable network to 13,500 pairs by the end of 1975. Long Dstance Facilities 12. Ongoing works include (i) the construction of UHF radio links between Goma, Pemba, Namwala and Itsehi Teshi and between Pemba and Gwembe, and (ii) various expansions of multiplex equipment on existing facilities. April 12, 1975  ZAMBIA POSTS AND TELECOMMUNICATIONS CORPORATIOMI (PTC) ANNUAL PROGRAM EXPENDITURES - Telecommunications (US $ million ) 1975 1976 1977 1978 1979 1980 TOTAL 1975-1980 Local Foreign Total Local Foreign Total Local Foreigr. Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total I. ONGOING WORKS 1. Land & Buildings 2.39 - 2.39 1.68 - 1.68 4.07 - 4.07 2. Local Facilities a. Exchange Equipment - 2.90 2.90 - 1.35 1.35 - 0.79 0.79 - 0.10 0.10 - 5.14 5.14 b. Subscriber & Junction Cables & Accessories 1.23 o.58 1.81 1.00 0.20 1.20 2.23 0.78 3.01 3. Long Distance Facilities a. Trunk Switching Equipment included in 2.a above b. SHF/UHF Radio and Multiplexing 0.27 0.46 0.73 0.01 0.02 0.03 0.28 0.48 0.76 4. Telegraph & Telex Services a. Switching Equipment - 0.67 0.67 - 0.29 0.29 - o.96 o.96 b. Telegraph Equipment & Telex Apparatus - 0.50 0.50 - 0.51 0.51 - 1.01 1.01 5. Consultants (Accounting) - 0.18 0.18 - 0.18 0.18 6. Contingencies 0.10 0.16 0.26 0.06 0.07 0.13 _ 0.03 0.03 o.16 0.26 o.42 TOTAL ONGOING WORKS 3.99 5.45 9.44 2.75 2.44 5.19 - 0.82 0.82 - 0.10 0.10 6.74 8.81 15.55 II. THE PROJECT 1. Land & Buildings 0.62 - 0.62 1.86 - 1.86 3.10 - 3.10 3.78 - 3.78 3.03 - 3.03 - - _ 12.39 - 12.39 2. Local Facilities a. Exchange Equipment - - _ _ 0.51 0.51 0.12 2.43 2.55 0.22 2.75 2.97 0.25 2.41 2.66 0.12 1.28 1.40 0.71 9.38 10.09 b. Subscriber and Junction Cables and Accessories - 0.47 0.47 0.30 2.02 2.32 0.39 3.12 3.51 1.51 2.23 3.74 1.20 1.57 2.77 0.58 0.61 1.19 3.98 10.02 14.00 c. Subscriber Apparatus & PABX - - - 0.08 0.12 0.20 0.10 0.24 0.34 0.12 0.32 0.44 0.15 0.29 0.44 0.15 0.07 0.22 o.60 1.04 1.64 3. Long Distance Facilities a. Trunk Switching Rquipment - - - - 1.02 1.02 - 1.73 1.73 - 1.06 1.06 - 0.70 0.70 - 0.12 0.12 - 4.63 4.63 b. SHF/UHF Radio & Multiplexing - 0.26 0.26 0.50 2.43 2.93 0.65 3.30 3.95 0.55 3.56 4.11 0.29 2.61 2.90 0.22 1.73 1.95 2.21 13.89 16.10 4. Miscellaneous, Vehicles, Consultants _ 0.20 0.20 - o.42 0.42 - 0.32 0.32 - 0.32 0.32 - 0.32 0.32 - 0.32 0.32 - 1.90 1.90 5. Contingencies a. Physical Contingencies - 0.02 0.02 0.04 0.23 0.27 0.05 0.35 0.40 0.04 0.32 0.36 0.01 0.24 0.25 0.01 0.13 0.14 0.15 1.29 1.44 b. Price Contingencies 0.10 0.04 0.14 0.52 0.86 1.38 1.02 2.24 3.26 1.48 2.69 4.17 1.93 2.59 4.52 0.92 1.60 2.52 5.97 10.02 15.99 TOTAL PROJECT 0.72 0.99 1.71 3.30 7.61 10.91 5.43 13.73 19.16 7.70 13.25 20.95 6.86 10.73 17.59 2.00 5.86 7.86 26.01 52.17 78.18 III. FUTURE PROGRAM A 1. Land & Buildings 1.10 - 1.10 2.01 - 2.01 3.11 - 3.11 2. Local Services 0.55 1.31 1.86 1.30 3.04 4.34 1.85 4.35 6.20 3. Long Distance Facilities 0.10 0.15 0.25 0.15 0.35 0.50 0.25 0.50 0.75 4. Miscellaneous - 0.10 0.10 0.20 0.50 0.70 0.20 O.60 O.80 5. Contingencies 0.50 1.00 1.50 1.10 1.90 3.00 1.60 2.90 4.50 TOTAL FUTURE PROGRAM _ 2.25 2.56 4.81 4.76 5.79 10.55 7.01 8.35 15.36 TOTAL PROGRAM 4.71 6.44 11.15 6.05 10.05 16.10 5.43 14.55 19.98 7.70 13.35 21.05 9.11 13.29 22.40 6.76 11.65 18.41 39.76 69.33 109.09 L Preliminary expenditure for the future progran for which the physical works will commence in 1981. March 1975  ZAMBIA POSTS AND TELEC014IJNICATIONS CORPORATION (PTC) Sumnmary of Exchange Capacity and Direct Exchange Lines (1975 - 1980) (Thousands) Year Exchange Capacity DELs Lusaka Copperbelt Other Provinces Total Cumulative Lusaka Copperbelt Other Provinces Total Cumulative Auto Manual1 1/ Total - Total 1/1/75 10.6 17.4 6.7 0.8 35.5 35.5 7.2 13.9 5.5 26.6 26.6 - - - Yearly Additions - - - - - - Yearly Additions - - - 1975 - - - - - 35.5 1.2 0.6 0.2 2.0 28.6 1976 - 6.8 3.0 (0.3) 9.5 45.0 1.0 1.2 0.6 2.8 31.4 1977 5.0 1.7 0.1 - 6.8 51.8 1.7 0.7 0.6 3.0 34.4 1978 5.4 1.1 6.2 (0.1) 12.6 64.4 2.1 2.1 0.9 5.1 39.5 1979 2.7 o.6 3.5 (0.4) 6.4 70.8 2.9 2.5 1.3 6.7 46.2 1980 - - 1.0 - 1.0 71.8 2.6 2.7 1.6 6.9 53.1 12/ Figures between brackets indicate a decrease. i/ Figures for 1/1/75 are estimates. March 1975  ANNEX 5 Page 1 of 5 pages ZAMBIA POSTS AND TELECOMMUNICATIONS CORPORATION (PTC) Project Works 1. LOCAL EXCHANGE AND NETWORK Estimated Completion Date (a) Full details on the development of exchange capacity during the project period are given in See Table the table on page 4 of this Annex. (b) Local distribution networks including cables, wires, associated plant, subscriber apparatus December 1980 and PABXs to connect an additional 31,000 subscribers. (c) A 1 ,O0O-line PABX for Government Ministries June 1978 2. LONG DISTANCE (a) Large capacity (960 channels) microwave links (i) Lusaka-Kasama-Nakonde, financed by ADBI/ March 1978 (ii) Lusaka-Chipata-Malawi ./ September 1979 (iii) Livingstone-Mongu July 1979 (iv) Kitwe-Luanshya January 1978 (b) Medi-um and small capacity UHF/VHF radio links (i) Chipata-Lundazi-Chama December 1979 (ii) Kabwe-Chibombo March 1979 (iii) Kabwe-Kapiri Mposhi January 1979 1/ including medium capacity spurs to Isoka and Chinsali. i/ including medium capacity spurs to Feira and Chadiza.  ANNEX 5 Page 2 of 5 pages (iv) Kasama-Mbala July 1979 (v) Kasama-Mporokoso September 1979 (vi) Kitwe-Chambi-shi December 1976 (vii) Kitwe-Kalulushi March 1978 (viii) Lusaka (earth station)-Mumbwa December 1976 (ix) Lusaka-Chisamba February 1979 (x) Mansa-Mwense-Kawambwa-Nchelenge July 1978 (xi) Mansa-Samfya March 1978 (xii) Mongu-Lukulu March 1980 (xiii) Mongu-Kalabo September 1979 (xiv) Mongu-Kaoma July 1980 (xv) Solwezi-Kasempa-Kabompo-Zambezi July 1980 (xvi) Solwezi-Mwinilunga December 1980 (c) Miscellaneous long distance facilities (rehabilitation of open wire lines, cables) December 1980 (d) Multiplex equipment Additional multiplex and carrier equipment on existing facilities and multiplex equipment on December 1978 new facilities, to provide about 2,200 additional circuits. (e) Trunk switching equipment New trunk switching centers in Ndola, Kitwe, November 1977- Lusaka and Livingstone, financed by SIDA. March 1978 3. TELEX AND TELEGRAPH Telegraph facilities (teleprinters and VF equipment) for about 25 new centers to be connected to the December 1980 gentex network.  ANNEX 5 Page 3 of 5 pages 4. INTERNATIONAL An international telephone transit center in December 1977 Lusaka, financed by SIDA. 5. MISCELLANEOUS Vehicles, accounting and technical consultants.  H H H C ; gT * e z e! | - T;gi~~-6 ge F t=TF 5TT eun Eg-vF FS ZP'5FeFe| S H H HZHC8CH ~ ~ 1IH ~ o 1 8 8~~C