Burundi - Telecommunications Project

Document of The World Bank l1JJ 2 ' FOR OFFICIAL USE ONLY Report No. 2886-BU STAFF APPRAISAL REPORT BURUND I TELECOMMUNICATIONS PROJECT July 7, 1980 Eastern Africa Regional Office Transportation, Water and Telecommunications Department 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 US$1 = FBu 90 BF 1 - US$1.11 BF 1.0 million = US$11,111 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS TPT Ministry of Transport, Posts and Communications ONATEL: National Office for Telecommunications  FOR OFFICIAL USE ONLY BURUNDI NATIONAL OFFICE FOR TELECOMMUNICATIONS (ONATEL) FIRST TELECOMMUNICATIONS PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE TELECOMMUNICATIONS SECTOR ........................ 1 Background and Organization .......................... 1 Access to and Usage of Service ....................i.. 1 Quality of Service and Existing Facilities ........... 2 Demand for Service ................................... 3 Sector Goals ......................................... 4 Sector Constraints ................................... 4 IDA's Role ........................................... 5 Il. THE PROGRAM AND THE PROJECT .......................... 6 The Plan and the Program ........................., 6 Project Concept ........................., 6 The Project ............ . . 6 Project Costs ......... ............................... 7 Contingencies .............. 8 Project Financing .................................... 8 Procurement ......... , ,.,........ 8 Disbursements ......... ............................... 9 Project Implementation ............................... 9 Performance Indicators ............................... 10 III. ECONOMIC ANALYSIS .......................,1il Telecommunications and Economic Development .... ...... il Distribution of Benefits ............................. 12 Tariff Policies ......... ............................. 12 Least Cost Solution ....................,.,..... 13 Return on Investment ....................,.,.,., 13 Risk ......,,,,. 13 Environmental and Health Aspects ..................... 14 This report is based on the findings of a Bank appraisal mission which visited Burundi in December 1979, comprising Messrs. H. Richardot and D. Lomax, TWTTL; C. Protogerellis and Ms. H. Hudson, (Consultants). The report has been written by Mr. D. Lomax with assistance from. Messrs. H. Richardot and H. Ruud, TWTTL. This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. lts contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (continued) Page No. IV. THE IMPLEMENTING AGENCY ............................. 15 Organization and Management ......................... 15 Management and Control .............................. 15 Staff and Training .................................. 16 Accounting and Budgeting System ..................... 16 Billing and Collection .............................. 16 Audit ... 17 V. FINANCIAL ANALYSIS .................................. 18 Past Financial Performance .......................... 18 Present Financial Position .......................... 18 Valuation of Assets ................................. 19 Financing Plan ...................................... 19 Future Financing Performance ........................ 20 VI. RECOMMENDATIONS ..................................... 21 I- BRD 14297R  LIST OF ANNEXES Page No. 1. International Telephone Statistics . . 23 2. Existing Facilities at December 31, 1979 . . .24 3. Description of Works in ONATEL's Program, 1980-1984 25 4. Program and Project Costs ..28 5. Schedule of Disbursements ..29 6. Draft Job Description for Managerial, Engineering and Financial Services .30 7. Implementation Schedule .32 8. Performance Indicators ............................... 33 9. Schedule of Telecommunications Tariffs and Charges 34 10. Study of Tariff Structure - Draft Terms of Reference .36 11. Return on Investment .39 12. Organization Chart .41 13. Estimated Profit and Loss Accounts .42 14. Estimated Source and Application of Funds .43 15. Estimated Balance Sheets .44 16. Documents and Data Available in Project File .47  e  I. THE TELECOMMUNICATIONS SECTOR Background and Organization 1.01 The Republic of Burundi, a small country of only 27,000 km , is situated astride the Zaire-Nile divide in the center of Africa. One of the most densely populated countries in Africa with 4.1 million inhabitants it is, at the same time, one of the poorest with a per capita GDP of only about US$140 equivalent. The major economic activity is agriculture with 95% of the population dispersed throughout the rural areas as small farmers. Coffee and, to a lesser extent, cotton and tea are the principle sources of foreign exchange. Bujumbura, the capital and commercial center, is the only town of significant size with a population of about 140,000; situated on Lake Tanganyika, it provides the principal outlet, through the lake shipping services and the railway through Tanzania, to the country's trading markets. 1.02 Up to the end of 1979 telecommunications services in Burundi were the responsibility of the Telecommunications Department of the Ministry of Posts and Telecommunications (P&T). In January 1980 the Govern- ment established the National Office for Telecommunications (ONATEL), a Government-owned parastatal entity, to operate and manage the telecommuni- cations sector of Burundi. ONATEL (Chapter 4), has a board of directors and its management is headed by a general manager. 1.03 Since existing public telecommunications facilities are highly inadequate in both quality and quantity (paragraph 1.04), several private companies also operate (Government licensed) relatively high cost point- to-point radio links. The army operates at least one radio link with each of the 20 counties in the country. There is no manufacturing of telecom- munications equipment in the country, and nearly all the material require- ments for the sector must be imported. Most of the installation works are contracted to international companies, leaving ONATEL's staff with operation and maintenance activities, and subscribers' lead in and tele- phone instrument installation. Accees to and Usage of Service 1.04 The number of telephones per 100 population in Burundi at about 0.1, is amongst the lowest in the world. This compares with the average for sub-Saharan Africa of about 0.4; Asia excluding Japan about 0.6, Latin America about 4.5; and North America about 70.0. Almost 90% of all tele- phone subscribers are located in the capital city of Bujumbura. The seven provinces outside of Bujumbura have minimal access to service; there are only 378 subscribers outside the capital with the number of subscribers in each province ranging from between 10 and 175. 1.05 Countrywide, 48% of all subscribers are government offices, outside Bujumbura, 70% of all subscribers are government. Small telephone exchanges and public call offices are available in 14 small towns outside of Bujumbura  - 2- and are working part-time and, when open, are mainly used by government officials and merchants. In most small towns and rural settlements in the country, there is no access to rapid two-way communication facilities. 1.06 T},z telex network is automatic with about 60 subscribers; the unsatisfied demand is not known precisely, but is estimated to be at least this figure. Outside Bujumbura, there is only one telex for public use in each of 14 small towns. Quality of Service and Existing Facilities 1.07 The quality of communication in and among most of those towns with some access to telephone service is poor. Within Bujumbura and the other 14 towns which have exchanges, telephone service is frequently interrupted by faults on the lines, which are particularly common during the rainy season, due to the types of cable used and the inadequate methods of laying them. There is also a high failure rate on the intarurban network. 1.08 The local telephone service is 100% automatic. For 1979 the capacity of switching equipment and numbers of subscribers is shown in the following table: Name Number of Number of of Locality Lines Capacity Subscribers Bujumbura 5,000 3,007 Gitega 300 176 Ngozi 200 70 Bururi 100 50 Ruyigi 50 10 Kazanza 50 2 Muyinga 50 17 Makamba 50 2 Camkuzo 30 2 Kirumdo 30 2 Myamza 30 1 Rutana 30 2 Muramyva 30 17 Bubamza 30 19 Cibitoke 30 12 6,010 3,389 1.09 All these exchanges are step-by-step. They are in reasonably good condition, and ONATEL's staff has no particular problem in maintain- ing them. Although fairly new (the oldest one was installed in 1972), they are of an outdated technology. These exchanges do not have automatic  - 3 - number identification, and it would be too expensive to provide them with the additional equipment necessary for Centralized Automatic Message Account- ing (CAMA). Therefore, they can provide international service only through manual operation, and automatic switching with pulse metering in the case of the Bujumbura exchange. 1.10 In Bujumbura the external plant is nearly all made of underground cables and defaults are frequent during the rainy season. In provincial areas, the lack of cable, for which financing up to now has not been avail- able, has prevented a number of exchanges from connecting subscribers. Due to cable related inadequacies, the network is presently saturated, although the exchanges themselves operate at only slightly more than 50% capacity. 1.11 All interurban telephone traffic is automatic and all of the 14 towns are equipped with at least a teleprinter which allows transmission of telegrams. In Bujumbura, telex service is available; the telex exchange is on old style 100 outlet, step-by-step. 1.12 All telephone and telex international links are operated manually. International telephone and telex links are operated on UHF routes from Bujumbura to Kigali (Rwanda) and Kampala (Uganda). The service is reported as reasonable with Kigali; service with Kampala has been interrupted. A new HF route has been cut over between Bujumbura and Bukami (Zaire), at the end of 1979. Furthermore, an HF radio link will provide a direct link to Dar-Es-Salaam (Tanzania), and through it to other East African countries, in 1980. The international HF link to Kinshasa (Zaire), has been interrupted as Kinshasa reportedly does not answer. The HF liaison with Brussels, (two- voice channels, two telex, one telegram), gives an unreliable, saturated access to the rest of the world. Demand for Service 1.13 No comprehensive study of the existing and potential subscriber demand has been undertaken to date. As of December 1979, there were only 4,888 telephones in Burundi. There was also a waiting list for telephones which contained 379 names. Given the facts that the waiting list is some- what erratically kept, new telephones were not being awarded, applications were not being invited, and vast areas of the country had little hope of receiving telephone access in the foreseeable future, the official waiting list bears little relation to actual or potential demand for telephone access and usage in Burundi. Since 1975 the annual growth in number of subscribers has averaged only 5.5% per annum. 1.14 It is difficult to predict growth outside Bujumbura because of the very limited telephone service to date. However, the existence of more than 50 independent licensed HF systems for domestic communications show a major need not met by the public system. These networks are owned primarily by commercial, industrial and religious organizations, many of which provide schools and health service in rural Burundi. As part of planning for extension of communication systems to the interior, the Ministry of Communications contacted the Governors of the 8 provinces. Responses from 6 of them listed 64 sites of which most were business and  - 4 - commercial centers. These were augmented to form a list of 200 potential sites for service, of which the Ministry has initially selected 31. These include locations of 11 communes, 14 commercial centers, 21 schools and 10 missions. In addition, they encompass a wide variety of economic develop- ment activity including coffee and tea plantations, forestr- 'rojects, hydroelectric projects, etc. It is estimated that approximately 80% of the traffic from these rural telephones will be interurban and 20% local. The amount of international traffic (telephone and telex), is expected to increase with the installation of a new earth station (paragraph 2.01). Sector Goals 1.15 Telecommunications sector goals are in line with those of the National Development Plan, which gives priority to the need to overcome Burundi's geographical isolation vis-a-vis other countries and also the enclavement of areas within the country. Communications is seen as an important means of achieving this goal. 1.16 The goals established for telecommunications in the current five-year plan include: - improvement and extension of the telecommunications system to the interior in order to promote rural, industrial and commercial development; - integrate into the communication network the new economic centers planned for agricultural and industrial projects; and - increase external telecommunications capacity. Sector Constraints 1.17 The primary constraints which have impeded the establishment of more efficient development-oriented national telecommunications services are a lack of continuous long term financing, inadequate sector organiza- tion and management, and a lack of trained manpower. The Telecommunications Department lacked adequate autonomy for efficient management and financial and technical planning. No separate financial statement had ever been established for telecommunications, and as a result the Department had no clear yardstick to measure its efficiency nor an incentive to improve its efficiency. With the establishment of a separate financially autonomous entity, ONATEL (paragraph 1.02), it is anticipated that sector management will improve. 1.18 With regard to the lack of trained manpower, the recently opened training school (paragraph 4.06), together with the assistance provided within the proposed project for funding of management courses and seminars should begin to improve the situation.  -5 IDA's Role 1.19 IDA first became associated with the telecommunications sector in Burundi through a sector mission carried out in March, 1979. IDA's role in the telecommunications sector is focused on institution building, providing independent technical and economic advice and providing a stable base for long-term financing which will allow better planning and resource utilization.  - 6 - II. THE PROGRAM AND THE PROJECT The Plan and the Program 2.01 The telecommunications investment program covers the period 1980- 84. The program is designed to be in harmony with the telecommunications objectives of the National Plan (see paragraph 1.16). Details of the pro- gram are set out in Annex 3 and include the following: (a) Ongoing works, which include: (i) domestic network: some rehabilitation and expansion of the Bujumbura network and some expansion of the pro- vincial network; work is expected to be completed in 1982; (ii) international network: a type B earth satellite station (cutover end 1980); an international switching center (cutover 1982); (b) the proposed first project (see paragraph 2.03); and (c) preliminary works needed for expansion of facilities from 1985 onwards. This program is estimated to cost FBu 1.1 billion (US$12.5 million) with a foreign exchange component of about FBu 0.9 billion (US$11 million)(Annex 4). The program is designed to meet the highest priority needs for improvement and expansion of telecommunications services within the anticipated resources and the physical and managerial capability of ONATEL. Project Concept 2.02 The project is designed to help the sector program towards its goals described in paragraph 1.16. In order to achieve sound development of the total network while spreading the service equitably, the project is designed to foster institutional and training improvements and to foster expansion of the domestic telephone and telex network. The telex network expansion is a necessity for the economic development of Burundi, as the present telex facilities will be saturated during the program period. The expansion of the domestic telephone network is also essential to the develop- ment of Burundi and the expansion included in the project aims principally at bringing service to areas which are not or are insufficiently served at present. The Project 2.03 The project provides for: (a) the installation of junction cables in Bujumbura and the improve- ment and expansion of the urban cable networks in Bujumbura and in the provincial towns. A total of 1,050 new main lines will be made available for connection of subscribers;  - 7 - (b) the installation of a new exchange at Ngagara in the Bujumbura area, equipped for 1200 lines, and of three new provincial exchanges, of together 150 lines initial capacity; the rehabilitation of various provincial exchanges and the increase of their capacity by a total of 300 lines; (c) the connection to the national telephone network of about 40 currently unserved villages and production centers, by public call office installations; (d) the improvement and expansion of the long distance trans- mission network by: - installation of three new UHF links; - replacement of three UHF links with facilities of higher capacity; and - overhaul of all other UHF links. A total of 70 new channels will be equipped. (e) the replacement of the telex exchange at Bujumbura and the provision of teleprinters, for 50 additional telex sub- scribers; (f) miscellaneous (bills processor, vehicles, tools, instruments, etc.); (g) construction of a warehouse and of other buildings; and (h) technical assistance and training services. Project Costs 2.04 The estimated cost of the project is about FBu 819 million (US$9.1 million), with a foreign exchange component of about FBu 693 million (US$7.7 million). The cost details are given in Annex 4 and summarized below: FBu million US$ million _______ Local Foreign Total Local Foreign Total Local Network - External Plant 36 117 153 0.4 1.3 1.7 - Switching 9 117 126 0.1 1.3 1.4 Interurban Network 9 144 153 0.1 1.6 1.7 Telex 9 27 36 0.1 .3 .4 Miscellaneous - 18 18 - .2 .2 Civil Works 9 9 18 0.1 .1 .2 Technical Assistance 18 63 81 .2 .7 .9 Total 90 495 585 1,0 37 - 6.5 Physical Contingencies 9 18 27 .1 .2 .3 Price Contingencies 27 180 207 .3 2.0 2.3 Total 126 693 819 1.4 7.7 9.1  - 8 - 2.05 The cost estimates are based on prices experienced in other similar countries for similar types of equipment. Furthermore, previous procurement shows that, Burundi being a small landlocked market, suppliers' quotations tend to be on the high side. This has been taken into account in the estimated costs. The local costs are based on prevalent costs of civil works, or costs of small equipment and services avai