Niger - Telecommunications Project

1l Pt l;ur 1Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-1856-NIR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF NIGER FOR A TELECOMMUNICATIONS PROJECT May 20, 1976 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 225 CFAF 1 million = US$4,444. Fiscal year: October 1 - September 30 System of Weights and Measures: Metric 1 meter (m) 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilometer(km2)= 0.386 square mile (sq mi) 1 metric ton (m ton) = 2,204 (lb) Abbreviations, Acrononyms and Definitions AfDB African Development Bank CAPTEAO Conference Administrative des Postes et Telecommunications de l'Afrique de l'Ouest (Wlest Africa Post and Telecommunications Organization) Carrier A system providing several telephone or telegraph circuits through one transmission mode CCCE Caisse Centrale de Cooperation Economique (French lending agency) CCITT International Telegraph and Telephone Consultative Committee (an ITU committee) CIDA Canadian International Development Agency DEL's Direct Exchange Lines (connected) Exchange fill Percentage of installed capacity of a telephone exchange in use FAC Fonds d'Aide et de Cooperation (French Cooperation Services) FCR Compagnie France Cable et Radio HF High frequency radio (3,000 - 30,000 khz) ITU International Telecommunications Union Khz Kiloherz Mhz Megaherz Microwave Radio system working at frequencies above 1,000 mhz OPTN Office des Postes et Telecommunications du Niger Telex Teleprinter Exchange Service UAINIPT Union Africaine et Malgache des Postes et Tele- communications (African and Madagascan Post and Telecommunications Union) UNDP United Nations Development Program VHF Very high frequency radio (30 - 300 mhz)  FOR OFFICIAL USE ON INTERNATIONAL DEVELOPKENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF NIGER FOR A TELECOMMUNICATIONS PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Niger for the equivalent of US$5.2 million on standard IDA terms to help finance a telecommunications project. The proceeas of the Credit would be relent to OPTN at 8.5% annual interest rate for 20 years including a 4-year grace period. PART I: THE ECONOMY 2. The problems of economic development in Niger were set out in a report entitled "Economic Position and Prospects of Niger" dated May 1972 (AW-36a). An economic mission visited Niger in October/November 1973, but its report was overtaken by the change of government that occurred in April 1974. An economic updating mission visited the country in November 1975. A Country Economic Memorandum is being circulated. Annex I contains country data. Background 3. Niger has been classified by the United Nations as one of the 25 "least developed". Like its Sahelian neighbors, it suffers from a number of serious growth constraints: high transport costs; a small domestic market and limited marketing facilities; poor soils and unfavorable climatic conditions; lack of water; extremely high energy costs; and a low level of education, particularly in rural areas. 4. The economy is particularly vulnerable to the vagaries of the weather. Agriculture and livestock together account for nearly half of GDP and provide the bulk of export earnings. The rapid development of uranium mining in the desert is contributing to economic diversification, increased net foreign exchange earnings and a most welcome broadening of the tax base. The contribution of uranium mining to GNP is expected to increased from around 3 percent at present to 7 percent by 1985. Manufacturing accounts for a little over 10 percent of GNP. Consumption as a percentage of GNP has traditionally been high (around 95 percent) and domestic savings are very modest. During the past 5 years an estimated 85 percent of investment in the monetized economy has been financed by external capital inflows. r This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Recent Economic Development 5. GNP increased moderately up to 1971. As a result of the drought in the Sahel, national income and capital assets (livestock) suffered a sharp decline in 1973 and the first part of 1974. Recovery thereafter has been slow. The drought in the 1973/74 crop year severely affected agricul- ture and livestock: Production of basic food grains declined to about 750,000 tons, or 60 percent of what is considered a normal crop. Export crops (ground- nuts, cotton) also suffered because of reduced yields, and as a result of a shift of land and labor to food crops. The production of groundnuts for example, traditionally the largest export crop, declined by 70 percent. Livestock surveys conducted in early 1974 confirm that the size of the pre- drought cattle herd was probably almost halved. Accordingly, the income of many pastoralists has been sharply reduced, and the southward migration of the population accelerated, adding new dimensions to an already difficult economic situation. 6. In 1974/75, rainfall was more favorable and crop production re- covered, benefitting also from the Government's timely decision to raise producer prices for several agricultural commodities. Groundnut production, however, suffered another severe set back, this time due to insect attacks and disease problems. Recovery in livestock was understandably very slow. Altogether, value added in the agricultural sector is still estimated to be substantially below its 1972 level. 7. The overall balance of payments has been in surplus since 1969 -- except in 1974 when falling agricultural exports and skyrocketing import prices resulted in a more than 100 percent increase in the trade deficit, and an overall deficit of US$16.8 million. The overall surpluses have been made possible by the increasing inflow of foreign aid (largely grants). Net foreign assets, which had doubled between 1969 and 1973, dropped to about US$45 million in late 1975, equivalent to three months of imports. Most uranium mining development has been financed by private foreign capital inflows. The Govern- ment has a one-third interest in the equity of the first mine which started production in 1971. A second mine is expected to commence production in 1978. At current uranium prices this new industry in Niger is highly profitable both from a private and a social point of view. 8. In contrast with a rather depressed real economy, the Government's financial situation has been relatively healthy in the last five to six years. Control of current spending and rising revenue, mainly from taxes on the "modern" sector, enabled the Government to generate increasing budgetary savings. Sharply increased revenues from uranium (CFAF3-4 billion in 1975/76) are expected following an agreement on higher uranium export prices with the French Atomatic Energy Commission. Whilst some of the major public sector enterprises are currently experiencing serious financial problems, the liqui- dity position of the public sector as a whole remains strong. Treasury deposits with the banking system reached CFAF 8.5 billion in September 1975, equivalent to about one third of current revenues expected in FY1975/1976.  -3- Foreign Aid 9. During 1968-1973, Niger obtained commitments of an average US$40 million a year from its major traditional sources of aid: France, FED, Canada, the U.S.A., Germany, I.D.A. and the U.N. About 90 percent of total aid in the last few years has been made available in the form of grants; most of the remainder consisted of loans on concessionary terms. Aid in the drought years 1972/73 and 1973/74, including emergency food shipments, was about double the annual average level of 1968/73. 10. At the end of 1973, the total amount of external debt outstanding was US$116.7 million, of which US$71.3 million was disbursed. IDA's share of total debt outstanding was 16.1 percent. The ratio of debt service to exports of goods and non-factor services was 3.5 percent in 1973 and about 5 percent in 1974 (estimate), mainly due to the decline in exports. No exter- nal debt servicing problems are foreseen. Government Policies and Development Prospects 11. At the time of the military take-over (April 1974), the previous government was preparing a ten-year "perspective" program. This has been abandoned, and the new regime has prepared a three-year interim development program. It calls for annual public sector investments of over CFAF 25 billion (US$120 million) which is more than double the highest level ever achieved (1973/74). The investment target may be regarded as overly ambi- tious in terms of both resources and absorbtive capacity. Highest priority is attached to the development of agriculture and animal husbandry. Industry will continue to be import-substitution oriented. Mining development is to gain momentum thanks to uranium. An earlier announced discovery of oil in the desert north of Lake Chad turned out to be of no economic significance. Further exploratory drilling is continuing. As far as telecommlnications are concerned the plan gives priority to improving the quality and capacity of the existing system in the southern belt of the country and to linking remote agricultural production areas to the main urban centers. 12. Shortcomings in project identification, preparation and implemen- tation have been felt to be major obstacles to timely achievement of plan targets. Now that the Government faces the problem of how best to use sub- stantially greater resources than in the past from uranium exploitation, appropriate project selection must receive increased attention. To meet this urgent need, the Government recently created a National Development Council in which all ministries concerned are represented. 13. Barring major new mineral discoveries, Niger's long-run develop- ment potential lies mainly in agriculture and livestock. Self-sufficiency in food, development of export crops and modernization of the livestock sector is unlikely to be achieved without major increases in irrigation and the application of improved technologies. Arable land is becoming increas- ingly scarce and thus growth through extension of the area cultivated increasingly difficult. In the livestock sector, the Government's intention of reconstituting the herd to 65 percent of its pre-drought size seems to be  appropriate in view of the limited pasture capacity. The Government also intends to, and should, take full advantage of the present situation to change the life pattern of nomadic livestock raisers, i.e. to induce them to settle by introducing suitable credit and pasture management policies. 14. The Government will continue to promote mineral prospecting and exploitation. Besides uranium, interesting indications of large phosphate deposits have been identified. It is impossible at this stage, however, to say to what extent phosphate exploitation can contribute to development, especially in view of the high transport costs involved. Even under favor- able assumptions regarding the mineral sector, the long-run prospects of the economy cannot be depicted as bright considering the constraints described in para. 3. Foreign aid (including technical assistance) will be needed for years to come and should continue to flow, for some time at least, on highly concessionary terms. 15. The Government's contribution to the financing of public invest- ment projects can be expected to increase somewhat in the future, thanks to the revenues contributed by uranium and assuming that policies of strict budgetary control will be continued. Nevertheless, in view of Niger's desperate poverty it will be appropriate for external lending agencies to finance an exceptionally high proportion of project costs, including a substantial amount of local costs. PART II: BANK GROUP OPERATIONS IN NIGER 16. The proposed Credit would be IDA's ninth operation in Niger, bring- ing the total of funds committed to US$53.7 million. Of the presently out- standing amount (US$48.5 million), US$17.5 million had been disbursed as at March 31, 1976. Annex II contains a summary statement of these Credits as at March 31, 1976, as well as notes on the execution of on-going projects. 17. Recognizing the magnitude of the constraint of inadequate transport and communications on the development of Niger the Bank Group's strategy in the country has been so far concentrated mainly on the development of the internal transportation infrastructure, primarily roads. Bank Group opera- tions to date for highway development have been directed to up-grading trunk roads, reviewing and reorganizing routine maintenance procedures and to training of staff of the Directorate of Public Works and Urban Affairs (DPW). The projects have all been satisfactorily executed, and the second highway project is virtually completed. 18. The Third Highway Project approved by the Executive Directors on February 17, 1976, together with the proposed telecommunications project will continue the Bank Group's assistance in the development of the tran- sportation and communications sectors. The proposed project would improve the reliability and the quality of telecommunications services and, provide for additional facilities to meet demand in the regions where the Government has important development schemes. The project would also enhance the efficiency of industry, commerce and transport and improve coordination and integration of administrative, health and social services.  - 5 - 19. Future IDA lending, will be increasingly channelled directly to the two main productive sectors, agriculture and livestock, with a view to raising the income of the rural population. An integrated rural development project was approved by the Executive Directors on December 11, 1975. This project covers the whole department of Maradi and is designed to provide benefits to about 70,000 families, involving some 500,000 people. Its primary aim is to raise productivity in agriculture and animal husbandry through improved ex- tension services, agriculture credit, road development, soil conservation, health care and functional literacy. Operations currently under preparation for future IDA lending to Niger include two further projects in the agricul- ture and livestock sectors and a project for the development of future roads. At least one of these projects should be submitted to the Executive Directors in FY 1977. 20. The Bank Group, which ranks sixth in terms of volume of aid com- mitted, behind France, the Fonds Europeen de Developpement (FED), Canada, USA and Germany, and roughly on a par with the UNDP, has been a relatively small lender to date, providing only about 7 percent of total foreign aid committed to Niger during the six years ending 1973. PART III: THE TELECOMMUNICATIONS SECTOR Sector History and Organization 21. Under the former Federation of French West Africa, Niger's telecom- munications were operated as a government service under the authority of the High Commissioner of French West Africa and the Governors of the various territories. In 1959, when the French colonies of Western Africa became in- dependent, the West African Posts and Telecommunications Office, with Head- quarters in Dakar, was dissolved, and the postal and telecommunications services for Niger were transformed into a branch of the Government, with the Ministry of Posts and Telecommunications responsible for operations and de- velopment, and the Ministry of Finance for finances. In 1970, following the pattern previously adopted in other West African countries (Mali, Senegal, Upper Volta), the Government created as autonomous entity, Office des Postes et Tllecommunications du Niger (OPTN), which took over responsibility for domestic and regional telecommunications, postal services, a nationwide public checking account service and a savings bank. France Cable et Radio (FCR), which operates international HF radio links, provides the main inter- national telephone, telegraph and telex services under a concession agreement. As usual in most countries, the military establishment and civil aviation have their own telecommunication networks. 22. As one of the largest landlocked countries in Africa satisfactory internal and external communications are essential for the effective adminis- tration of the country and development. Existing telecommunications facilities, however, are inadequate in terms of coverage and quality of service; this was dramatically demonstrated during the recent emergency drought relief opera- tions. Even in the southern part of the country, where 90 percent of the popu- lation live and economic activities are concentrated, administration, trade,  and production are hampered by deficiencies in the internal telecommunica- tions network. Elsewhere the situation is worse and successful development of the mid-western region of the country (north of Agadez) which is currently gaining some momentum as a result of increased uranium mining, is dependent upon the installation of a more reliable telecommunications system linking Agadez with administrative and business centers in the South. Access to Service 23. The telephone density in Niger is about 1.4 per 1000 inhabitants, among the lowest in the world, although over the last ten years the number of telephone subscribers increased on average about 12% per year. By October 1975, Niger had some 6,200 telephone stations connected to 3,750 direct exchange lines. Of these, 2,440 connected lines, or 65 percent of the total, are in Niamey, the balance of 1,310 connected lines being in eight provin- cial towns and twenty small communities mainly in the southern part of the country. Subscribers are principally from the business sector, Government and administrative services. Outside Niamey, the present number, spread, and quality of telephone services is very thin and inadequate (see also paras. 27-29). Niamey itself is presently underprovided with telephones and the exchange fill 1/ of 85 percent is near the technical limit to which new lines can be connected to an exchange. Therefore, OPTN can connect only few new subscribers in Niger's capital before commissioning an extension to existing exchanges (included in the proposed project). Total installed capacity of the provincial exchanges is 1,240 automatic lines with an ex- change fill 1/ of 70 percent and 1,767 manual lines. With an expected 12 percent annual growth rate in new subscriber connections, there will be unsatisfied demand in some areas before project completion. 24. OPTN has a long-distance network of about 24,200 circuit-kilometers consisting mainly of open-wire lines; the main transmission line Niamey-Zinder has some carrier equipment. OPTN serves the most important centers in the north through HF radio links which operate only on a part-time basis. Most of the remoter areas, especially those in the north, have no telecommunica- tions facilities. Subscribers connected either to automatic or manual ex- changes have manual long-distance service; however, long-distance dialling is presently being tested between Niamey and Maradi. 25. OPTN provides domestic telegraph service through its network of open-wire lines and HF links. It also operates a 200-line automatic telex exchange in Niamey. This is used mainly for international services through FCR's international HF links. As of October 31, 1975, OPTN had 90 telex sub- scribers of whom 70 were in Niamey. The lack of sufficient reliable long- distance circuits precludes extension of telex facilites in the provinces, and especially in the mining areas of the north. 26. Through the domestic local and long-distance facilities, OPTN's subscribers have access to international telephone, telegraph and telex transmission services provided by FCR, which operates HF radio links to 1/ Percentage of installed capacity of a telephone exchange in use.  Paris, Abidjan and Dakar, and by OPTN itself, which operates HF radio links with the capitals of the neighboring countries of Benin (Cotonou) and Mali (Bamako), and open-wire carrier circuits with Upper Volta (Ouagadougou). Standard of Service 27. In the three main cities, most equipment is reasonably well maintained and in good working order. Since OPTN's equipment installa- tions have kept pace with subscriber growth, the local service provided by the existing automatic exchanges and local distribution networks in these cities is satisfactory. In other areas, however, local service is unsatisfactory; the main reasons for this are the limitations inherent in the use of manual magneto exchanges, which, apart from being obsolete, are old and worn out. Moreover, local distribution networks in the smaller towns and communities are exclusively open-wire lines, which are fault prone. 28. Due to inadequate and overloaded transmission routes, long- distance service is generally poor; manual connection of long-distance calls involves long delays, and transmission quality is low. Long-distance dialling between Niamey and Maradi suffers from lack of sufficient reliable circuits. During the frequent interruptions on the main open-wire line routes, emergency calls have to be transmitted over standby HF radio links. 29. International telecommunications services using FCR facilities are fair in Niamey. However, due to the deficiencies of the domestic long- distance network, international telephone service is poor for the main pro- vincial towns, and virtually impossible from more remote sections of the national network. Sector Objectives 30. A countrywide development plan for local and long distance tele- communications services was evolved in 1970; however, between 1972 and 1975, because of limited resources, investment has been mainly concentrated in the field of local telephone service and particularly the local services in the Niamey area. During that period OPTN was assisted by a small loan from African Development Bank (AfDB); now, with the promise of wider assistance, the objectives for the period 1976-80 have been set as follows: (a) establish a sound basis for further development of the domestic long-distance network by improving, as a first step, the quality and reliability of telecommunications between the main cities along the backbone route Niamey- Zinder; (b) as far as possible, keep pace with expected growth in demand for subscriber lines in the main cities as well as in rural areas;  - 8 - (c) rehabilitate, improve and expand secondary long distance routes and extend telecommunications services in rural areas to help integrate remote areas into the economy; (d) extend and improve domestic and international telecom- munications services including services to other parts of Africa; and (e) improve OPTN's organization, management and accounting and provide a base for sound and adequate future devel- opment and operation of the telecommunications services. OPTN's 1976-79 program is consistent with the achievement of these objec- tives; it is designed to improve the quality of long-distance services and meet anticipated demand for new telephone connections in the principal areas of service through 1981. The proposed program gives emphasis to the development of the long distance services which are of vital importance to the country's development process, and particularly to rural development. However, the program also provides for a 65 percent expansion in local sys- tems; when this expansion is complete telephone d-ensity should show a modest improvement from the present 1.4 per 1000 inhabitants to about 2.0 by the end of 1980. The proposed IDA project, which forms an integral part of the program, includes measures for expanding both the local and long-distance facilities and also important proposals for achieving institutional objec- tive (e), which in turn will enable OPTN to deal with the problem of pro- viding adequate telecommunications facilities throughout Niger in the future years. Sector Investment and Constraints 31. The telecommunications services in Niger have been developing with a minimum of Government assistance and consequently have been mainly tied to OPTN's capacity to generate funds from internal resources and to borrow externally. Over the past four years (1972-75), a little over US$4 million has been invested in the services; of this amount about US$2 million or 50 percent was financed from OPTN's own resources, the balance coming from local or external loans. However, for the period 1976-79 in- vestment will increase fivefold to US$20 million; of this sum about US$5 million will be provided by grants, US$13 million from external borrowings and US$2 million from OPTN's own resources. In terms of average annual investment as a percentage of GDP the program represents about 1 percent of Niger's GDP. The program will have a significant impact on OPTN's revenues after 1979, since large increases in revenue are to be expected from the lucrative long distance services, once the quality of service is improved; these additional revenues should enable OPTN to finance a higher proportion of its future development. Future Plans 32. During the 1980s, after completion of the current program, it is expected that the higher level of internal cash generation will provide  - 9 - OPTN with a solid financial basis, which will permit further extension and improvement of the services in provincial and rural areas. As an in- dication of the magnitude of future internal cash generation, it is esti- mated that net internal cash generation should be about CFAF 500 million in 1982 as compared with about CFAF 84 million in 1979, the last year of the current program. 33. To improve upon the definition of sector objectives and the quality of investment decisions, OPTN with guidance from IDA will undertake, as part of a tariff review, a study of the economics of tele- communications in Niger. The study will define the nature of telecom- munications usage and the incidence of its benefits, and examine the possibilities for cross-subsidization among user categories, with parti- cular attention to providing access to new subscribers. Through a more scientific assessment of the development impact of telecommunications in the country, OPTN will be better able to give a more purposeful direction to its future development activities and investments. PART IV: THE PROJECT 34. A report entitled "Appraisal of a Telecommunications Project" (NO. 1016 NIR) is being circulated separately. A Credit and project summary, is contained in Annex III. In mid-1974, an IDA mission identified the present project, and field appraisal took place in October 1975. Negotiations were held in Washington on April 12, 1976. The delegation from Niger was led by the Ambassador of Niger in Washington. The Program 35. OPTN's 1976-79 development program comprises: the proposed project; the construction of the Dosso-Zinder link of a Niamey-Zinder microwave route which is expected to be financed by the Government, French FAC/CCCE and suppliers; the construction of microwave links to Benin and Upper Volta as part of the Sahelian route of the Pan-African telecommunications network, which are to be financed by Canadian aid; and ongoing works mainly for the construction of the Niamey-Dosso link of the Niamey-Zinder microwave route. The total estimated cost of the program is US$20 million. Assurances, satis- factory to IDA, of the availability of financing for the construction of the Dosso-Zinder microwave link, would be a condition of effectiveness (See Section 6.01 (c) of draft Development Credit Agreement). 36. The Niamey-Dosso link of the Niamey-Zinder microwave route, which is being commissioned, includes facilities for television (initially for education) and broadcasting; the Dosso-Zinder link will also be designed to accommodate similar facilities. The costs of these two links will there- fore be considerably more than if they had been designed exclusively for OPTN's use. However the use of one system to take care of both OPTN and broadcasting/television requirements results in economies for the country as a whole. The Government has already approved a formula satisfactory to  - 10 - IDA for sharing the investment and future operating costs of the Niamey-Zinder microwave route by the user agencies and will ensure the implementation of these arrangements. (see Section 4.02 of draft Development Credit Agreement). Project Description 37. The project proposed for IDA financing includes (i) installation of 3,800 lines of automatic switching equipment with cable and subscriber dis- tribution networks; (ii) improvement of long-distance services through pro- vision of trunk switching equipment, three VHF links and one HF radio link, overhead line and carrier equipment; (iii) civil works; (iv) miscellaneous equipment, vehicles and tools; and (v) 30 man-months of engineering consult- ants services; 18 man-months of financial consultants services; both at about US$5,400-US$5,500 per man-month and a total cost of US$260,000 (see paras 39 and 40). Project Entity and Organization 38. OPTN is managed by a Board of Directors, with a Director General as its chief executive. Under its charter, OPTN has been given legal and finan- cial autonomy and operates on a commercial basis. It employs 1,200 persons. 39. OPTN's accounting, billing and collection procedures require im- provement; an efficient medium and long-term planning system also needs to be established, and staffing and tariffs require review. OPTN requires assistance from experts or consultants to review, make recommendations and assist in implementing the required institutional and managerial improvements of OPTN. (see Section 3.03 of draft Project Agreement). OPTN expects to obtain assistance for some of these services from the International Telecom- munications Union (ITU) and bilateral sources. An amount of US$100,000 has, however, been included in the Credit to cover the eventuality that such assistance may not be forthcoming, the amount of the Credit will be reduced to the extent that IDA financing becomes unnecessary. Project Execution 40. OPTN requires assistance in (i) detailed engineering, (ii) prepara- tion of specifications and bidding documents, (iii) bid evaluation, (iv) inspection services, and (v) supervision services for the main installations of the project. OPTN expects to obtain assistance for these services from the ITU. An amount of US$160,000 has, however, been included in the credit to cover the eventuality that ITU may not be able to provide this assistance and OPTN may have to employ engineering consultants. Should ITU eventually be able to help OPTN, this amount would be cancelled from the credit. The suppliers would install the telephone exchanges and the VHF and HF radio links under supervision of OPTN's staff and of the consultants or experts. The suppliers' contracts, which would also cover one year's maintenance of the equipment, would specifically provide for OPTN's staff to take part in these  - 11 - activities, so as to give them experience in installation, testing and mainte- nance. Construction of open-wire lines and ducts, cable-laying and subscriber installation would be carried out by OPTN's staff. The envisaged arrangements for project execution are satisfactory . The installation and commissioning of all new plants is expected to be completed by the end of December 1979. During negotations, OPTN agreed to appoint qualified experts or consultants in accordance with terms of reference acceptable to IDA for the detailed engineer- ing, procurement and supervision of the installations involved under the project (see Section 2.02 of draft Project Agreement). Project Costs and Financing 41. The project is estimated to cost US$6.5 million, excluding taxes and duties, with a foreign exchange component of US$5.2 million. Estimated costs for project equipment are based on prices recently obtained under international competitive bidding for similar quantities of similar equipment in Upper Volta, Senegal and Mali. Civil works costs are based on the most recent contracting experience of OPTN. Project costs include US$1.0 million contingencies to cover price escalation and US$0.3 million for unexpected changes in design and specifications. The Government has confirmed that it relieves OPTN from paying all taxes and duties on equipment imported for the project. 42. The proposed IDA credit of US$5.2 million, all for foreign costs, would cover about 80 percent of total project costs. The credit would be made to the Government of Niger, which would relend the proceeds of the credit to OPTN at 8-1/2 percent annual interest rate for 20 years, including a 4-year grace period (see Section 3.01 (b) draft Development Credit Agreement). The balance of the project costs of US$1.3 million, all local costs, would be financed from OPTN's own resources. Procurement and Disbursement 43. The items financed by IDA would be procured through international competitive bidding except for US$1.5 million (representing 30% of the credit) of switching equipment for extensions and signalling conversion to existing exchanges which would be purchased from existing suppliers; and small groups of miscellaneous equipment, tools and vehicles not exceeding US$20,000 per group and US$150,000 in total which would be procured after local competition in accordance with the Government's tendering procedures; the latter are satisfactory. It is recommended that the equipment for the extensions to existing exchanges in Niamey and Maradi and for signalling system conversion be procured from the original supplier, L. M. Ericsson (France), provided the prices offered are reasonably in line with international prices for similar equipment. The original equipment was procured under international competi- tive bidding, and procurement from the original suppliers would facilitate standardization, training and deployment of personnel and organization of maintenance and spare parts.  - 12 - 44. The credit would be disbursed against 100 percent of the foreign cost of imported equipment and materials, and the foreign exchange cost of consulting services. Finances 45. Overall operating results from OPTN's postal and telecommunica- tions operations are presently satisfactory; OPTN's financial position is sound. Revenue from existing telecommunications tariffs should be sufficient to enable OPTN to generate a sufficient cash flow to support its investment program during the construction period of 1976-79. Although there would be a significant reduction in telecommunications cash balance in the last year, 1979, this would not present a problem. After 1979, however, OPTN would have to meet heavy debt service charges, higher operating expenses (particularly depreciation), and the costs of a further phase of development which would start towards the end of 1979. The forecasts indicate that, even with the additional revenue from the plant installed in 1976-79, OPTN would run into cash difficulties in 1980 and subsequent years unles a 20 percent increase in total tariff revenue could be achieved. 46. On the basis of present tariffs the rate of return on telecommuni- cations net fixed assets would be about 12% in 1976 through 1978; however, it is inevitable for the reasons mentioned above that after 1978 the rate of return will fall unless additional telecommunications revenue is obtained. With a 20% increase in revenues, a rate of return of about 8% should be feasible in 1979 and this should increase to 12% in 1982. Given the present high tariff levels it would be important that tariff levels be carefully tailored to meet OPTN's requirements and not so high as to jeopardize tele- communications development which is in its early stages. For these reasons, during negotiations, OPTN agreed to undertake a tariff study with the assis- tance of consultants or experts. OPTN also agreed to adjust its telecommuni- cations tariffs in such a way as to enable telecommunications operations to earn a rate of return of not less than 8% in 1980 and 10% thereafter (see Section 4.04 (a) and (c) of draft Project Agreement). With the additional revenue from the tariff adjustment, the present satisfactory financial posi- tion of the telecommunications service should continue. Justification 47. The present lack of reliable, good quality telecommunications facil- ities in Niger, especially in the case of the long-distance network is causing acute communications problems; the inadequacy of the facilities was clearly demonstrated during the relief operations consequent upon the Sahelian drought. The economic costs of such inadequate telecommunications between the major centers of a landlocked country as large as Niger cannot be quantified but clearly must be very substantial, and the improvement of telecommunica- tions is recognized by Government as a key element in the development process and in the better integration of the country. OPTN's 1976-79 development program addresses itself to these issues and aims at bringing about a quick and substantial improvement in the quality of the country's telecommunications services.  - 13 - 48. The program lays stress on the improvement of the long-distance services and is designed to improve the quality of service in the economic- ally more important areas of Niger. These areas include the regions of Maradi and Zinder, (both of which are subjects of externally financed regional development efforts, the former by IDA), the fertile areas of the Niger Valley, and the important departments of Niamey, Dosso and Tahoua. The demand in remote areas of Niger is expected to grow in direct relation to the availa- bility of long-distance facilities. This is based on past experience in large countries with low population and telephone density like Niger, where outside the capital and a few provincial towns, the demand is almost exclusively for long-distance services. Modern local and long-distance facilities will improve the quality of service available to the producers, merchants, ex- porters, consumers and carriers, and to the regional and local government services of these areas. In addition to the installation of new equipment in the southern and basically agricultural belt, new facilities are to be provided for the mining areas of the midwest of the country, where demand for telecommunications service is developing fast. These new installations would assist the development of the areas concerned, meet an urgent need and provide the basis for the future extension of service. 49. The project as designed represents the least-cost solution for the proposed development. It is an integral part of the program and is complementary to the other three components of the program. Since costs and benefits of the four components are interrelated, it is appropriate that the return be calculated on the investment in the program as a whole rather than only on the investment in the IDA-financed project; on this basis the internal financial rate of return on the program is 14 percent. This return is the discount rate which equalizes the stream of OPTN's expected revenues from the program with the related capital costs, free of taxes and duties, and related operating costs. A sensitivity analysis shows that, under unfavorable combination of the main parameters, the return on investment would be not less than 11 percent. 50. The economic return on the program is undoubtedly higher than the foregoing suggest, since (a) the benefits to the subscribers, particularly those obtaining access to service for the first time, are higher than the benefits measured by prices charged, and (b) the costs include the full costs of extending the network and providing facilities in new areas, even though the full benefits will only be obtained in the future when additional lines are connected. PART V: LEGAL INSTRUMENTS AND AUTHORITY 51. The draft Development Credit Agreement between the Republic of Niger and the Association, the Project Agreement between the Association and the Office des Postes et Tllecommunications (OPTN), the recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agree- ment of the Associatlon and the text of Resolution approving the proposed Development Credit, are being distributed to the Executive Directors separately.  - 14 - 52. The draft Development Credit and Project Agreements conform to the normal pattern for credits for telecommunications projects. Features of special interest are referred to In paragraphs 35, 36, 39, 40, 42 and46 of this report. The securing of assurances satisfactory to IDA from FAC and CCCE for the financing of the construction of the microwave link Dosso-Zinder is a special condition of credit effectiveness (see Section 6.01 of draft Develop- ment Credit Agreement). 53. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI: RECOMMENDATION 54. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President by J. Burke Knapp Attachment May 20, 1976  AIIXT( I XgTof is pages T ABLE 3A NIGER - SOClAL 11DICATUIS OATA SmuET LAND AREA (THOU EM?) --------------------- --- ; -4-L ------- ;, NIGER REfERENCE COUNTRIES (1970I TOTAL 3267.0 MOST RECENT ARABLE .- 1960 1970 ESTIMATE NALAWI SUDAN SENEGAL S'EP PER CAPITA (USE) 90.0 120.0 100.0 60.0 110.0 290.0 POPULATION ANO VITAL STATISTICS POPULATION (MID-YR. MILLION) 3.1 4.0 4.4 4.5 15.r 4.4 POPULATION KENSITY PER SQUARE RN. 2.0 3.0 .- 38.0 6.0 22.0 PEN sQUARE NM. ARAsLE LANO .. to.e .. 102.0 te.9 VITAL STAISTICS CRUDE BIRTH RATE PER THOUSAND 52.0 52.0 50.0 49.0 49.0 32.3 CRUOE DEATH RATE PER tHOUSAND 27.0 23.0 21.0 25.0 18.0 18.3 INFANT MORTALITY RATE (JTHOU) 200.0 .. .. .. .. 156.0 LIFE EXPECTANtCY AT BIRTH tERS) I3.0 41.0 440 319.0 48.0 41.0 GROSS REPRODUCt2DN RATE 3.1 3.5 3.5 1.2 3.4 3.0 POPULATION GROWTH RATE (X) TOTAL 2.5 2.8 2.T 2.6 2.9 2.7 URNAN 6.0 7.0 .. T.0 5.0 4.0 URBAN POPULATION (I OF TOTALI 6.0 8.0 .. 5.0 A 12.0 29.0 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 43.6 44.5 .. 43.9 A! 4*5.0 41.2 15 TO 64 YEARS 53.0 52.6 .. 52.1 41 52.0 54.9 6S TEARS AND OVER 5.2 2.9 .. 4&0 .. 3.0 3.9 AGE OEPENDENCY RATIO 0.9 0.9 .. 0.9 a 0.9 0.8 ECONOMIC oEPENoENCY RATIO 1.9 L 1.0 i .. 0.9 1.5 i 1.2 FAMILY PLANNING- ACCEPTORS (CtAMULATIVE. THOU) .. .. .. USERS CZ 0V MARRIED VOMEN) .. .. .. EMPLOYMENT rTOAL LABOR FORCE (THOUSAND) 0.o0 2S900.0 .. 2100.0 5100.0 1600.0 LABOR FORCE IN AGRICULTURE (x) 9T.0 91.0 .. 8s.0 60.0 73.0 UNEMPLOYED (s OF LABOR FORCE) .. .. .. .. .. 7.0 INCOME ODSTRIBUTION I OF PRIVATE INCONE REC*D BY- HIGHEST 51 OF POPULATION 23.0 .. .. 29.5 La HIGHEST 201 Of POPULATION 42.0 .. .. 52.9 ( . LOWEST 201 OF POPULATION 6.0 .. .. 5.7 . LOWEST 40o OF POPULATION 18.0 .. .. 15.0 ( . OITTR91BtOQN OF LAND OANERSHIP Is OsNET sY TOP 10S OF OWNERS .. .. .. . .. 2 OWNEO BT SMAtLEST 101 OWNERS .. .. .. HEALTM AND NUTRITION 0; . ......._ o ..... POPULATION PER PHYSICIAN 71000.0 ( 58260.0 59800.0 75250.0 4d 15940.0 14940.0 POPULATION PER NURSING PERSON t500.0 tc. 7 0o.0 553 0.0 16090.0 4 1950.0 2410.0 POPULATION PER HOSPITAL BED 1880.0 Z4 2230.0 1790.0 640.0 1040.0Lb 730.0 /b PER CAPITA SUPP..Y OFI CALORIES (I OF REQUIREMENTS) 93.0 93.0 89.0 93.0 91.0 97.0 PROTrtN (GRAMS PER DAY) 74.0 72.0 74.0 54.0 63.0 64.0 -or NHICH ANIMAL AND PULSE .. 24.0o .. 9.0 /a 24.041 26.0 /fr OEATH RATE (/THOU) AGES 1-4 .. .. ..