Ghana - Telecommunications Project

Domunent of The World Bank FOR OFFICIAL USE ONLY Report No. 6400 PROJECT PERFORMANCE AUDIT REPORT GHANA FIRST TELECOMMUNICATION PROJECT (LOAN 1122-GH) September 5, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the perfo mance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ACRONYMS AfDB - African Development Bank CIDA - Canadian International Development Agency DEL - Direct Exchange (Telephone) Line DPT - Department of Posts and Telecommunications ECOWAS - Economic Cooperation Organization of West African States EDC - Export Development Corporation of Canada ERR - Economic Rate of Return FY - Fiscal Year GOG - Government of Ghana GPT - Posts and Telecommunications Corporation of Ghana IBRD - International Bank for Reconstruction and Development IDA - International Development Association ITU - International Telecommunications Union OECF - Overseas Economic Cooperation Fund of Japan PANAFTEL - Pan-African Telecommunications Network PCR - Project Completion Report STD - Subscriber Trunk Dialing UHF - Ultra High Frequency (radio link) VFT - Voice Frequency Telegraph VHF - Very High Frequency (radio link) VRA - Volta Regional Authority of Ghana THE WORLD BANK FOR OFFICIAL USE ONLY Washington. D.C. 20433 U.S A. Office Of Oect(Wrewal Operatns Evaluatuatl September 5, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT; Project Performance Audit Report on Ghana - First Telecommunications Project (Loan 1122-GH) Attached, for information, is a copy of a report entitled "Project Performance kudit Report on Ghana - First Telecommunications Project (Loan 1122-GH)" prepared by the Operations Evaluation Department. Attachment 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT GHANA FIRST TELECCHMUNICATIONS PROJECT (LOAN 1122-GH) TABLE OF CONTENTS Page No. Preface ...................................................... i Basic Data Sheet ............................................... 111 Evaluation Summary ............................................ vi PROJECT PERFORMANCE AUDIT MEMORANDUM I. PROJECT BACKGROUND AND IMPLEMENTATION **************I***** 1 Background *************I******************************* 1 The Project and Its Objectives *****.................. 2 Project Revision and Implementation .................... 3 Procurement ......................................... 4 Project Costs ....................................... 4 Institutional Performance .............................. 5 Performance of Consultants and Contractors ............. 5 Financial and Economic Performance ***.................. 6 II. MAIN ISSUES AND SUPPLEMENTARY COMMENTS ................... 6 Project Content ................................. 6 Productivity .......................................... 7 Quality of Service ................................ 8 Internal Financial and Economic Rate of Return ..0...... 8 Delays in Completion ...........0. ............. 9 Institutional Performance .............................. 10 Supply and Demand ............. ......... 10 III. CONCLUSIONS ..................... ........... ........ 11 The Project ........ ...................0.............. 11 Implementation Experience *****............... ... 11 Benefits Resulting from the Project .********.......*** 12 Sustainability ..........********************....... 13 The Executing Agency ............................. . 13 The Bank ..00....................... ............... 14 Lessons to Be Learned from the Project ................. 14 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. TABLE OF CONTENTS (cont'd.) Page No. PROJECT COMPLETION REPORT I. Introduction 15 II. Project Preparation and Appraisal *.......*************** 15 III. Project Implementation ******************************** 17 IV. Operating Performance ********************************* 25 V. Financial Performance *********************************** 28 VI. Institutional Performance ******************************* 31 VII. Project Justification *********************************** 35 VIII. Bank Performance *********************************** 36 IX* Conclusions ************************* *** ***** 37 ANNEXES 1. Compliance with Covenants ******************************* 39 2. Schedule of Commissioning of Project Works .............. 40 3. Telecommunications Investment Program, 1975-1986 ........ 41 4. Performance Indicators .................................. 42 5. GPT Income Statements ................................... 43 6. GPT Balance Sheets ...................................... 44 7. GPT Funds Flow Statements ............................... 45 8. Telecommunications Tariffs .............................. 46 9. Return on Investment ******************************* 47 PROJECT PERFORMANCE AUDIT REPORT GRANA FIRST TELECOMMUNICATIONS PROJECT (LOAN 1122-GH) PREFACE This report presents t-.e results of a performance audit of the First Telecommunications Project in Ghana for which Loan 1122-GH of US$23.0 million was approved on June 9, 1976. The project consisted of part of the first phase of the Ghana Posts and Telecommunications Corporation (GPT) 1976 to 1980 development program. The Government of Ghana had requested Bank assistance in financing development of the telecommunications sector with IDA funding in 1970 and, after some procedural delays, appraisal was carried out in May 1972. Proces- sing was, however, suspended just before negotiations, because of the alloca- tion of available IDA funds to other sectors, regarded as having higher priorities, and the withdrawal of expected cofinancing. It was subsequently decided to proceed on the basis of a Bank loan, and reappraisal of substan- tially the same project was undertaken in December 1974. The Loan Agreement was signed in June 1975. Loan effectiveness was initially set for September 8, 1975, but because of delays in meeting the conditions agreed with the Bank, and in obtaining a satisfactory legal opin- ion, the loan only became effective on January 23, 1976. The original closing date ftr the loan was December 31, 1979. After four extensions, the loan finally closed on June 30, 1985, with disbursements continuing through the end of that year and completion of the project now only axpected by December 1987, because of flood damage in March 1986, and delays in completing some civil works. The project has yet to achieve its physical ard institutional targets, standards of service are very low, and the financial position of GPT remains difficult. The failures to meet project objectives have frequently resulted from circumstances outside of GPT's control. The main factors in unsatisfactory performance have been: conditions in the country, including in particular, the serious economic problems, failure to address poor standards of service, and the consequent reluctance of Government to establish adequate tariff levels, lack of adequately qualified and experienced, higher caliber staff, and civil works problems, including shortage of materials. Much re- mains to be done, and these would seem to be a continuing role for the Bank. - ii - The Project Performance Audit Report (PPAR) consists of an Evalua- tion Summary and a Project Performance Audit Memorandum (PPAM), prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR), prepared by the Bank's Industry Department. Preparation of the PCR was based on a visit by IBRD staff to Ghana and data supplied by GPT. OED has reviewed the PCR, the. Appraisal and President's Reports, the legal docu- ments and Board transcripts. Documents in the Bank Group files have also been reviewed. Where available, staff now dealing with the project have been interviewed. The audit finds that, in most respects, the PCR accurately describes the project experience. The PPAM ma"es some additional comments based on file and document research, on, in particular, project content, high staff levels in GPT, problems of poor standards of service, supply and demand, delays in completion and institutional performance. It also reaches conclusions on the performance of the Bank Group, and the desirability of continuing Bank Group involvement in the development of the sector. Copies of the draft PPAR were sent to the Government and GPT for comments. However, none were r?ceived. - iii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET GHANA FIRST TELEOMMUNICATIONS PROJECT (LOAN 1122-GH) KEY PROJECT DATA Appraisal Actual or Expectation Current Eqtimate Total Project Cost (US$ million) 29.5 52.8 /a overrun (%) - 79 Loan amount (USS million) Disbursed 23.0 23.0 Cancelled - - Date for Completion of Physical Components 06/79 12/86 Proportion Completed by Appraisal Target Date (%) 100 0 /b Proportion of Time Overrun (%) - 175 Economic Rate of Return (1) 18 8.5 /c Financial Performance - Unsatisfactory Institutional Performance - Unsatisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) FYs: 1976 1977 1978 1979 1980 1981 (i) Appraisal 2.80 8.00 15.00 21.00 23.00 23.00 (ii) Actual /d .30 .40 .50 3.34 7.03 9.94 (iii) Actual as % of Appraisal 11 5 3 16 31 43 FYs: 1982 1983 1984 1985 1986 (i) Appraisal 23.00 23.00 23.00 23.00 23.00 (ii) Actual 12.52 13.14 15.02 17.90 23.00 (iii) Actual as % of Appraisal 54 57 65 78 100 OTHER PROJECT DATA Actual or Original Revision Current Estimate First Mention in Files or Timetables 12/70 - Government's Application 12/70 - - Negotiations - - 4-5/75 Board Approval Date - - 06/09/75 Loan Agreement Date - - 06/10/75 Effectiveness Date 09/08/75 - 01/23/76 Closing Date 12/31/79 /e 06/30/85 Loan Fully Disbursed 12/31/80 01/07/86 Borrower Ghana Posts and Telecom. Corporation (GPT) Executing Agency Ghana Posts and Telecom. Corporation (GPT) Fiscal Year of Borrower July I - June 30 to 1982. January 1 - December 31 from 1983. /a Estimate of total project cost as of October 1985. 7- Around 16% of the loan had been disbursed by the original closing date, largely for materials, supplies and consultancy services. /c Highly tentative. 7 The slow disbursement was caused .3y delays in procurement of telephone switching equipment and in project implementation (para. 3.04). /e The loan closing date was extended on four separate occasions to: December 31, 1982 (in January 1980); December 31, 1983 (in December 1982); December 31, 1984 (in November 1983); and June 30, 1985 (in December 1984). * iv - STAFF INPUT (Staff-eeks) FYs: 1972 1973 1974 1975 1976 1977 1978 Preappralsal 14.0 - 12.6 5.3 - - - Appraieal 16.4 24.7 9.0 29.7 - - - Negotiation - .4 .2 16.8 - - - Supervision - - - .3 3.5 8-7 16.4 Other - * .3 . . . Totals 30.4 25.1 21.8 52.4 3.5 8.7 16.4 FYa: 1979 1980 1981 1982 1983 1984 1985 Preappraisal - - - - - - - Appraisal - - - - - - - Negotiation - - - - - - - Supervision 20.5 14.8 14.1 7.8 23.8 19.7 6.6 Other - .2 . . . . Totals 20.5 15.0 14.1 7.8 23.8 19.7 6.6 - - -$mammo MISSION DATA Month/ No. of No. of Staff Date of Year Das Persons Weeks Report Identification 05/71 12 2 4 07/07/71 Preappraisal 09/71 10 2 3 10/12/71 Preappraisal 01/72 10 1 2 02/16/72 Appraisal /a 05/72 21 4 12 06/21/72 Post Appraisal 09/72 5 1 1 10/25/72 Pre/Reappraisal 04/74 15 2 5 05/29/74 Reappraisal 12/74 20 3 9 05/21/75 (SAR) Supervision I 05/76 8 1 1 06/07/76 Supervision II 08/76 12 1 2 09/15/76 Supervision III 06/77 7 1 1 07/25/77 Supervision IV 03/78 10 2 3 05/19/78 Supervision V 12/78 12 2 5 01/26/79 Supervision VI 02/80 12 2 5 04/16/80 Supervision VII 01/81 7 2 2 02/27/81 Supervision VIII 06/81 7 2 2 07/29/81 Supervision IX 08/82 8 3 3 10/04/82 Supervision X 09/83 5 2 2 10/07/83 Supervision XI 03/84 5 2 2 04/06/84 Supervision XTI 04/85 5 1 1 04/17/85 Supervision XIII / 09/85 10 3 5 10/11/85 COUNTRY EXCHANGE RATES Name of Currency (1) - Cedi Years: US$1 - 1975 1.15 1976 1.15 1977 1.15 1978 1.51 1979 2,75 1980 2.75 1981 2.75 1982 2.75 1983 3.45 1984 35.34 1985 53.25 1986 57.00 (Estimate) Appraisal Year Average 1.15 Intervening Year Average 10.69 Completion Year Average 57.00 (Estimate) /a Processing of a US$10 million IDA credit was suspended before the negotiating stage. /b Project completion mission. - vi - PROJECT PERFORMANCE AUDIT REPORT GHANA FIRST TELECOMMUNICATIONS PROJECT (LOAN 1122-GH) EVALUATION SUMMARY The Project i. Telecommunications services in Ghana are provided by GPT, an auto- nomous Government-owned corporation designed to operate on a commercial basis. The p:oject which is the subject of this audit consisted of part of the first phase of GPT's development program for the 1976 to 1980 period. It included installation of 18,300 lines of telephone exchange equipment (including 9,000 replacement lines of worn-out equipment), extension of the cable distribution network to connect about 16,000 additional subscribers, expansion of telex facilities by 300 lines, expansion and extension of long distance facilities, and provision of consultancy services for detailed engineering, procurement, project supervision, accounting improvement and staff training. The first phase of GPT's program, as a whole, included provision of an earth satellite station for international communications, establishment of microwave links to Togo and the Ivory Coast as part of the Panaftel network and improvement and rehabilitation of the internal long distance microwave system. The project was expected to cost US$29.4 million with a foreign exchange component of US$23.1 million (Appraisal Report 686(a)). Objectives ii. The principal physical objectives of the project were, to rehabil- itate and expand the existing local telephone networks to more fully meet the demand for service, extend and improve some long distance services, and expand telex facilities. Institutional aims allowed for setting up a project control unit, initiation of a program for recruitment and training of manage- ment staff, improved productivity, appointment of independent auditors, introduction of an internal audit, introduction of commercial accounting and improved financial management, and improvement of the Government accounts receivable position. It was expected that the internal financial rate of return on the investment for the project would be 18%, with a much higher economic return because of consumer surplus and other benefits (Appraisal Report 686(a); PCR, para. 2.06, PPAM para. 10). Implementation Experience iii. The experience with this project has been a protracted, very diffi- cult and disappointing one. Physical targets are now only likely to be met by December 31, 1987, seven-and-a-half years behind schedule. Service stan- dards have deteriorated to a position where, for example, 47% of subscriber - vii - lines in Accra are out of order. Although some progress was made initially with institutional improvements, the position has been prejudiced by the loss of experienced and qualified staff, and much remains to be done in order to insure GPT's future financial health and viability and its ability to operate and further expand its facilities. iv. The reasons for the delay in completion of the project have been summarized in PPAM, para. 14. Although the major factors of the economic situation, poor civil works contractors, shortage of building materials and delays in obtaining local financing, were substantially outside of GPT's control, concerted action by GPT and Government could have resolved some of these issues (PCR, paras. 3.04-3.05; PPAM, paras. 14 and 46-47). Procurement v. The procurement experience is summarized in PPAM, para. 15. There were no major difficulties, although the process was complicated and delayed by the increase in project costs and the problems of Government financing part of the cost of certain items. Because of the economic situation, there were repeated delays in service payments (PCR, para. 3.06; PPAM, para. 15). Consultants and Contractors vi. The services of both the engineering and accounting consultants were reasonably satisfactory. It is difficult, due to delays in commission- ing to judge the performance of the digital exchange equipment contractor. Performance of other equipment suppliers was satisfactory. The performance of local civil works contractors was poor, partly because of shortage of materials and delays in payment (PCR, paras. 3.15-3.16; PPAM, para. 21-22). Project Costs vii. Total project costs increased from US$29.26 million to US$52.84 million--an increase of 79%. Foreign exchange costs increased from US$23.14 million to US$27.42 million or 18%. Local costs increased by about 400%. The increase in foreign exchange cost was mainly caused by the change in switching technology. Local cost increases were the result of domestic inflation over the extended period of project execution and the increase is understandable. The foreign cost increase was fully justified (PCR, paras. 3.08-3.10; PPAM, para. 16). Results viii. The expected physical benefits resulting from the project will accrue mainly in the future, as the facilities provided are orly likely to be in full use by the end of 1987. The project was expected to provide about 16,000 additional telephone connections; only about 5,000 additional tele- phone lines were actually provided during the period 1975 to 1985 (all of them in 1975), through connection to existing exchanges. Some 118 new telex subscribers were connected after 1982, against a target of 300. The addi- tional long distance facilities were commissioned in 1985. The institutional benefits of the project have, so far, been marginal, due mainly to the high staff turnover and the loss of experienced qualified personnel. The PPAM - viii - discusses the effects of overstaffing and inadequate pay scales. Pending completion of the project and fuller itilization of the main equipment installations and given the effects of inflation, and delays in tariff increases,1/ it is difficult to estimate the financial benefits of the project. The financial position of GPT has generally been unsatisfactory throughout the project (Appraisal Report 686(a); PCR, paras. 7.01 and 9.05; File Research; PPAM, paras. 23, 40 and 48). ix. The expected economic rate of return for the project has been re- calculated in Annex 9 of the PCR as 8.5%. The PPAM discusses this matter and concludes that, despite the delay in benefit stream, the internal financial return on investment will be higher and the economic return much higher (PCR, para. 7.04; Annex 9; PPAM, paras. 33 and 53). Sustainability x. The life of telecommunications equipment ranges from 5 to 50 years and averages about 20 years. In many cases, spare capacity is provided for future growth, so that physical benefits are likely to be sustained and, in fact, increase over the life of the equipment. Due to economic conditions and loss of qualified staff, institutional achievements have been marginal. Although the majority of covenants have been met, and if the institutional benefits are to be fully achieved and then sustained, the Bank should remain involved with the sector (File Research; PPAM, paras. 53 and 57). Findings and Lessons xi. The delays in project execution and failure to meet objectives were, in large part, due to country and economic factors (PPAM paras. 14, 35-39 and 47). xii. Establishment of satisfactory standards of service, with provisions to meet the growth of traffic for existing subscribers, should be the pri- ority items in any telecommunications project (PPAM, paras. 31, 32 and 52). xiii. The network concept is fundamental to project design in telecommu- nications. Projects designed to develop only parts of a network may simplify financing arrangements, but are likely to complicate coordination and con- trol, technical interconnection arrangements and may result in cost in- creases. A project which encompasses an entity's development program for a specific period may be a more efficient way to provide assistance (PPAM, paras. 25-28 and 43). xiv. In a technological age, all Government-owned technical operations have to be competitive in their wage and salp:y scales in order to attract and retain qualified staff. Conversely, overstaffing with unqualified per- sonnel is a major disadvantage (PCR, para. 9.05; PPAM, paras. 29 and 40). 11 An additional 300% tariff increase was, it is understood, authorized by Government in March 1986. - ix - xv. In the more complex projects, where parallel equipment/plant/civil. works provisions are involved, critical path diagrams should be prepared ard made subject to regular review (PPAM, para. 39). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM GHANA FIRST TELECOMMUNICATIONS PROJECT (LOAN 1122-GH) I. PROJECT BACKGROUND AND IMPLEMENTATION Background 1. The Government of Ghana first sought Bank Group assistance in improving and developing the Ghana Telecommunications Sector in 1970. Efforts to develop a project suitable for IDA financing continued through May 1972 when a project, which had been prepared with the assistance of consul- tants was appraised. This was to be jointly financed using IDA and CIDA funds to meet foreign exchange expenditures (Appraisal Report 686(a), File Research, and PCR, para. 2.01). 2. Due to the shortage of IDA funds, the priority requirements of other sectors and the withdrawal of CIDA, the credit was not processed beyond the negotiations stage. Because of the 1972 debt rescheduling, it was not considered prudent at the time, to proceed on the basis of a Bank loan. Efforts by the Bank to interest other donors were unsuccessful (File Research; PCR, para. 2.01). 3. The Bank continued to maintain an interest in the sector and, based partly on its recommendations, a fiscally and administratively autonomous Posts and Telecommunications Corporation was set up in 1974. In the absence of other financing and with the possibility of using loan instead of IDA funds an attempt was made to reappraise the project in April 1974. This attempt was abortive, as the development program had not been approved by Government, required data were not available, and key officials were out of the country. Reappraisal of the project was finally undertaken in December 1974 (File Research; PCR, paras. 2.02 and 2.03). 4. During the intervening period between the initial appraisal in May 1972 and the reappraisal in December 1974, services which were originally poor deteriorated further. One of the priorities for the development program and, in part, the project was to improve services (Board Transcript, File Research, Appraisal Report 686(a). 5. GPT was established as an autonomous Government-owned Corporation from November 1, 1974. It is designed to operate on a commercial basis with policy decisions taken by its Board of Directors. While an adequate overall management structure has been set up, a number of external factors have prevented GPT from becoming an efficient and viable public enterprise. The Board of Directors has not functioned recently. There have been frequent changes in management; poor service and the resulting public relations - 2 - problems have delayed tariff increases, and operations have, therefore, frequently been limited by available Government and outside financing. Salary and benefit levels for the qualified staff essential for successful operation have fallen significantly due to inflation and are not adequate to attract and retain these people. The economic, financial and public rela- tions problems have inevitably affected morale (PCR, paras. 6.01-6.02, 9.01- 9.02; File Research PPAM, para. 40). 6. What seems to have been lost in quality of personnel has been made up in quantity. The present staff level is given as 124 per 1,000 sub- scribers lines. After allowing for the public telegraph service commitment, this probably equates to about 100 for telephone services only. A level of 30 to 60 (which allows for use of manual telephone exchanges at the smaller centers) would be considered fairly normal. The development of excessive staff levels in the telephone industry is counter-productive, creates service problems, and contributes to loss of better qualified personnel (PCR, paras. 6.03-6.04; PPAM, paras. 30 and 40). 7. GPT has its own training school set up with UNDP/ITU assistance. The school now needs to update its facilities to keep up with the advance in technology. Equipment suppliers have also provided local and overseas train- ing. Training for accounts staff has been arranged through the British Post Office and Canadian Bell. Unfortunately, for the reaso,s already discussed, there has been major loss of qualified staff (File Research; Appraisal Report 686(a); PCR, paras. 6.02-6.05; PPAM, paras.30, 40 and 54). 8. GPT substantially bases its operations on the use of local staff. GPT employed American consultants to design the project. They have employed two different British financial consultants to design, set up and update the accounting system. They have used Japanese consultants for procurement and project execution. Two individual (Japanese) consultants were employed under OECF financing to fill seDc.or accounting positions in the establishment. The Project and Its Objectives 9. The project consisted of part of the first phase of GPT's develop- ment program for the 1976 to 1980 period. It included: a. installation of of 18,300 lines of telephone exchange equipment (including 9,000 replacement lines of worn-out equipment); b. extension of the cable distribution network to connect about 16,000 additional telephone subscribers; c. expansion of telex facilities by 300 lines; d. expansion and extension of long distance facilities; and e. and provision of consultancy services for detailed engineering, procurement, project supervision, accounting improvement and staff training. The first phase of GPT's program, as a whole, included provision of an earth satellite station, for international communications, establishment of micro- wave links to Togo and the Ivory Coast as part of the PANAFTEL network and improvement and rehabilitation of the main internal long distance microwave system (Appraisal Report 686(a); PCR, paras. 2.04-2.06). 10. The principal physical objectives of the project were to rehabili- tate and expand the existing local telephone networks to more fully meet the demand for service; extend and improve some long distance services and expand telex facilities. Institutional aims allowed for: (a) settiig up a project control unit; (b) provision for a program for recruitment and training of management staff; (c) improved productivity; (d) appointment of independent auditors; (e) introduction of internal audit; (f) introduction of commercial accounting and improved financial management; and (g) improvement of the Government accounts receivable position. It was expected that the internal financial rate of return on the investment in the project would be 18%, with a much higher economic return due to consumer surplus and added benefits being realized later (Appraisal Report 686(a); PCR, para. 2.06). 11. The project was expected to cost US$29.4 million with a foreign exchange component of US$23.1 million. The 1976-1980 program, as a whole w4th necessary working capital increases, was expected to cost US$73.6 mil- lion, of which US$23 million would be provided under the Bank loan, US$25.8 million from other borrowing and US$24.8 million from internal cash genera- tion (Appraisal Report 686(a) and PCR, para. 3.08). 12. The original implementation schedule prepared at the time of the appraisal of the project envisaged completion by June 1979 (Appraisal Report 686(a); PCR, paras. 3.04). Project Revision and Implementation 13. While the major content and quantity of the provisions to be made under the project remained substantially as proposed at appraisal, altera- tions were made to provide for expanded long distance call facilities, replace a proposed VHF system by a UHF system and extend this facility to replace an outdated open wire line; and to concentrate telex facilities in Accra rather than provide a small outstation exchange. Changes were also made as a result of technical problems and technological advances. One major change here was the replacement of elect-o-mechanical switching by modern digital technology for the new telephone exchanges. This is one case where the delay in execution of the project worked substantially to GPT's advantage (File Research and PCR, para. 3.03). 14. The start up of the project was delayed by four months due to Government's failure to meet the conditions of effectiveness. Selection of engineering consultants and setting up a project management unit had, however, gone ahead and the procurement process started almost immediately after effectiveness. The project subsequently ran into major problems, substantially due to the following factors: -4- a. the changes in Government, the economic situation and the infla- tionary conditions existing in Ghana; b. staff problems, changes and loss of staff by GPT; c. poor civil works contractors and equipment; and shortage of con- struction materials; d. the problems and delays in obtaining local financing, largely due to delays in tariff increases (partly accounted for by poor stan- dards of service); and e. the poor state of the network. Most of the equipment installations provided under the project were completed by December 1985. Unfortunately, in many cases, because of the delays in expanding and rehabilitating the local plant network, these are not being utilized. Full completion of the project and realization of its physical objectives is now expected only by December 1987, seven-and-a-half years behind schedule (PCR, paras. 3.01, 3.04-3.05; PPAM, paras. 35-38). Procurement 15. Procurement generally proceeded in a satisfactory manner, in accor- dance with the Bank's guidelines, and presented no major problems. In the case of switching equipment for the new telephone exchanges, the specifica- tion called for electromechanical equipment. In its evaluation, in mid-1977, GPT proposed to accept an alternative offer from one of the bidders for sup- ply of Space Division Electronic Equipment on the basis of the advantages of accommodation and operating cost savings and with a view to avoiding early obsolescence. The Bank rightly required retendering in order to be fair to all bidders. Award to the low bidder was finally approved in April 1979, ard then with the proviso, in view of the cost increase, that the contract would not be signed until the necessary additional financing had been obtained. Contract signing was only possible in August 1980 after Government agreed to finance the additional foreign exchange cost of the project. In August 1981, the contractor offered to supply the more technically advanced digital equipment (with further savings in accommodation and line plant costs) at no increase in price. This was accepted (PCR, para. 3.06 and File Research), and an amendment to the contract was signed in October 1981. Project Costs 16. Total project costs, based on the intervening average exchange rate calculated for the PCR, increased from US$29.26 million to US$52.84 million, an increase of 79%. Foreign exchange costs increased from US$23.14 million to US$27.42 million, an increase or 18%. The additional foreign exchange costs resulted mainly from the change in switching technology and were met by Government. Local cost increases were largely caused by local inflation over the extended period of project execution and resultant civil works cost -5 - increases. Local financing problems were a factor in project delay and, with tariffs not keeping up with inflation, they were met by local borrowing and grants from Government (PCR, paras. 3.08-3.10; File Research; PPAM, para. 48). Institutional Performance 17. The PCR indicates that GPT's performance has been less than effec- tive during the project period. It also comments on frequent changes in top and middle level management and problems in information flow and decision making. This is discussed below (PCR, paras. 6.01-6.05; PPAM, para. 56). 18. One of the main institutional aims of the project was the improve- ment of financial control and organization, based on sound commercial prac- tices. A firm of consultants was employed to assist in this work, and accounting personnel were trained locally and overseas. Some progress was made initially, but performance suffered later because of staff turnover and the consequent lack of trained and competent staff. Additional consultancy assistance was obtained in 1983 (PCR, paras. 6.07-6.09; File ReseaLch). 19. GPT was required, in connection with the project, to increase the productivity of its staff. With a 1985 staff level of 124 per 1,000 sub- scribers, the position remains unsatisfactory. This matter is commented on in greater detail elsewhere in this report (PCR, para. 6.03; PPAM, paras. 29-30 and 54). 20. The Borrower made an effort to comply with the covenants under the loan, and 12 of a total of 17 were met, with another no lunger relevant. Difficulties still exist in the prompt payment of Government accounts in that the Government advance falls far short of the billings. Auditors, reports have been consistently late. Tariffs have not been increased to meet the rate of return covenant. Short-term debt has been consistently higher than specified (PCR, Annex 1 and PPAM para. 55). Performance of Consultants and Contractors 21. The engineering consultants employed for procurement and project supervision proved adequate, although the PCR considers their performance might have been better in giving advice on coordination of civil works with equipment installation. The performance of the consultants employed to improve financial management and design the accounting system was satisfac- tory, as was the work of the firm employed to update procedures and accounts (PCR, paras. 3.15, 6.07-6.09). 22. Although the bulk of the installations have yet to be commissioned, equipment suppliers are believed to have performed satisfactorily. Perfor- mance of local civil engineering contractors has been poor, partly due to local conditions and the difficulty of obtaining building materials and spare parts for their equipment. Delays in payment by GPT have also contributed to the poor performance (PCR, para. 3.16; File Research). - 6- Financial and Economic Performance 23. GPT's financial position has been most unsatisfactory. The rate of return has been negative in five of the nine years reported on. These figures are in any case essentially meaningless due to the absence of asset revaluation since 1979. The operating ratio has averaged 103 as against an appraisal estimate of 85. The debt equity ratio reached a fairly high 67% in 1982. The debt limitation covenant was not met. This is despite some debt being absorbed by Government. Accounts receivable increased to 337 days in 1983, which is a very bad situation. (In 1982, only 50% of revenues were collected.) Because of the delays in tariff adjustment and GPT's negative internal cash generation, GPT has drawn on Government and local borrowing rather than making a positive contribution to the financing plan (PCR, paras. 5.01-5.12 and Annex 5,. 24. The estimated economic rate of return on investment has been recal- culated at 8.5% as against the appraisal estimate of 18%. (The PCR indicates that this rate could be even lower if action is not taken to improve GPT's operations.) Recent events, particularly further delays in external works completion, and the cost of replacing project equipment at Accra North damaged by flooding in March 1986, will further adversely affect the proj- ect's economic rate of return. Failure to replace the equipment, thereby reducing project benefits, could similarly affect the ERR (PCR, paras. 7.04- 7.05, Annex 7; PPAM, paras. 33-34 and 53). II. MAIN ISSUES AND SUPPLEMENTARY COMMENTS Pro lect Content 25. All the parts of a telecommunication network operate as an integ- rated whole, in handling traffic and providing satisfactory standards of service. The parts of a network have to be properly designed technically to interwork with each other. A combined development plan has advantages in establishing priorities and, in the event of financial or other constraints, adjusting overall development proposals. Costs are also likely to be lower and control and coordination easier. 26. Within this context, it is unfortunate that what was dealt with as parallel development was not fully coordinated into the project. This included provision of the Satellite Earth Station and the PANAFTEL network. It was felt at the time, that the latter had little service and economic significance. While the PANAFTEL network may not become a major revenue earner for many years, it does form part of an inter-country integrating system, improving trade and relations between adjoining countries, and was based on an ITU survey and recommendations. The earth station was an essen- tial provision if reliable, high quality international communications were to be introduced (File Research). 27. The foreign exchange cost of the earth station, short connecting microwave link, and international switching center is given in the PCR as US$14.5 million. Although full technical specifications are not available, -7 - as the item was financed outside of the project, this appears to be consider- ably higher thai. for somewhat similar facilities obtained elsewhere under ICB. Higher prices might have been acceptable under concessionary financing, but in this case the bulk of the funds were provided by Government, and the balance under an export credit.1/ It is understood that, because of track- ing problems, the earth station has not provided completely satisfactory service and the international switching center has never worked satisfacto- rily and is to be replaced. If the station and its associated switching equipment can be made to work properly, it should be an excellent revenue earner. If these two items had been included tn the project, the costs might have been lower and some of the service/interconnection problems avoided (PCR, para. 3.10; File Research). 28. The project, as appraise,, included some rehabilitation works and replacement of worn out local network plant and equipment. Additionally, rehabilitation of some long distance facilities was to be undertaken outside of the project. Slow process in execution has delayed these improvements. An expanded project covering the first phase of GPT's program, as a whole, might have more effectively coordinated the rehabilitation effort. It would also seem that greater weight should have been given to service improvements at the project design and appraisal stage. An emergency 1986-1988 rehabili- tation plan is now under consideration (Appraisal Report 686(a); File Re- search). Productivity 29. The audit is concerned at GPT's staff level which, even in 1985, remained at 124 per 1,000 subscriber lines. This compares with levels of 8 to 15 in most developed countries and 15 to 602/ in most developing coun- tries. The result of overstaffing in a telecommunications entity can have serious repercussions. Staff tend to be given, or themselves undertake, tasks which are unnecessary and frequently undesirable. This results in undue wear and tear on the equipment. Additional staff also create more dust, one of the major enemies to efficient operation of electro-mechanical, and to a lesser extent fully electronic equipment. Because of the low pay scales, manpower costs, on a per line basis, frequently do not seem excessive in countries with high staffing levels. The loss in reliability and effi- ciency is, however, very considerable (PCR, para. 6.03). 1/ A CIDA credit was orginally expected. 2/ Levels will generally be higher in administrations operating public telegraph services, or having a number of manual exchange facilities, both of which conditions apply in Ghana. They will also be higher for administrations undertaking their own construction and installation work. 30. Employment of excess staff makes it difficult to pay adequate sala- ries and wages for better qualified personnel and exacerbates the problem of attracting and keeping the higher graded managerial, accounting and technical staff needed to run a highly technological commercial operation such as GPT (PCR, para. 9.05). Quality of Service 31. In the operation and development of telecommunication facilities, first priority should be given to establishing and maintaining adequate standards of service. The economic cost to users of poor service is very high indeed, loss of revenue is significant and consequent poor public rela- tions make it difficult to increase tariffs or even collect revenue. The failure to resolve this problem was undoubtedly one of the major causes of the problems experienced in execution of this project. The failure to provide adequate tariffs, needed to facilitate the generation of funds for local expenditures, was largely related to the unwillingness of Government to raise tariffs in the presence of widespread public complaint that subscribers were not getting a standard of service which justified any increase. (Sub- scribers were stated to be taking legal action against GPT rather than paying their bills.) 32. Throughout the project, at least 20% of subscribers lines were out of order, less than 50% of call attempts were successful, and long distance and international services were frequently unreliable and of poor quality. In March 1986, 47% of lines in Accra were out of service. Even since the provision of the satellite earth station, designed to upgrade international services, it appears that there have been service problems with the station, and, additionally, the international switching facilities have failed to work properly. Damage of cable network facilities from excavation works by other parties has frequently affected service. (This is indicative of poor record- ing of plant facilities and coordination with other utilities and highway authorities) (File Research). Internal Financial and Economic Rate of Return 33. The PCR reaches the conclusion that, based on foreign capital cost being valued at the parallel exchange rate and benefits at constant real tariff levels, the economic rate of return for the project is likely to be 8.5%, and could be less. Even given the delay in the start of the benefit stream, due to the major delays in the project, this figure might seem on the low side for the return on investment. 34. The economic rate of return could be expected to be considerably higher, if consumer surplus is factored in. Revenue per subscriber's line, used in the analysis, is US$331 per annum, using the official exchange rate, or US$166 using a parallel rate. This is very low, indeed, and indicates a high consumer surplus. The fact that only 52% of telephone demand is being met also suggests a high consumer surplus. However, recent events, mentioned in para. 24 above, will affect the ERR in the other direction. -9- Delaysin completion 35. Para. 3.05 of the PCR seems to be somewhat out of context. Project design appears to have been based on a study carried out by consultants (Appraisal Report 686(a), para. 1.03). Engineering consultants for procure- ment and project supervision were appointed early in the project cycle and a project control unit eet up. The Appraisal Report (para. 3.13) indicates that civil works execution was considered by the mission and no expected difficulty was commented on at the time. When difficulties were experienced in obtaining building materials, local funding of overseas supplies was arranged under the loan (PCR para. 3.05; Appraisal Report 686a). 36. Reasons for the delay in execution of the project have been sum- marized in PPAM, para. 14. The PCR also mentions that the implementation schedule was overoptimistic, and the change in switching technology contrib- uted to the delay. 37. The period estimated at appraisal for project completion was four years, assuming start up in mid 1973. This is in line with an average lead time for procurement, manufacture, delivery, installation and commissioning of about three years for most types of telecommunications equipment. The special country conditions, including the inability to pay local contractors over a considerable period (two years in the case of the item constituting the critical path) were not envisaged. It is uncertain to what extent these problems could have been foreseen by the appraisal mission (PCR, para. 3.04; Appraisal Report 686(a)). 38. In the case of the switching equipment, delivery was finally held up pending completion of the buildings, so this was not a critical path. (Deliveries could, in fact, have been expected to start in mid 1982, but the buildings only became available from late 1984 to early 1985.) The critical event, however, to completion and utilization of the local telephone facili- ties was the external plant network which has not yet been completed (PCR, 3.04, 3.06; subsequent information supplied by staff). 39. Telephone networks involve the provision of a number of inter- related items. The appraisal report includes an implementation diagram show- ing expected periods for design, procurement, supply, installation/construc- tion and commissioning of the various items making up the project. There is, however, no evidence that program evaluation review techniques (PERT) were followed in project execution. Although normally only used by the more sophisticated administrations, the preparation of critical path diagrams might have obviated some of the project delay problems, or at least brought them to notice at an earlier date. Institutional Performance 40. The PCR (para. 3.17) indicates that the institutional performance of GPT was adequate, although project implementation was poor, and para. 6.02 that performance was less than effective. The seeming dichotomy can be - 10 - explained by the local conditions and the different areas in which difficulty had been experienced. While it is hard to make a judgement, without an on-site review of the position, it is felt that any consideration of GPT's performance should be closely related to the very difficult condicions under which it has operated. These must have adversely affected both morale and performance, altho-gh GPT cannot be absolved of all responsibillty. Factors have been: a. failure of its Bo4rd of Directors to function since 1982; b. relatively poor remuneration of the more essential staff; C. high wastage of qualified and trained staff and loss of continuity; d. poor public relations due to poor standards of service; and e. frequent shortages in local funds required for development. A review of file data shows that correspondence with the Bank was usually dealt with in an efficient and generally expeditious manner (PCR, paras. 3.17, 6.01-6.05; File Research). Supply and Demand 41. Information is given in the PCR, Table 4.1 on demand growth rates and achievements. File research shows that the appraisal for the project established total dem'nd for telephone service in 1974 as 49,000, with 29,000 working subscribers' lines and 55% of demand met. The projected growth in demand was 8% p.a., so that total demand should have reached about 107,000 by 1985. Actual demand recorded in 1985 was 72,000 with 37,600 connected lines and only 52% of demand met. The reduced growth in demand was undoubtedly due to the economic conditions in the country [PCR, Table 4.1; Appraisal Report 686(a)]. 42. The number of telex subscribers in 1974 was 192 with a total demand of 274, that is 70% of total demand was being met. An annual growth in demand of 15% p.a. was forecast so that total demand could be expected to reach 1,100 by 1985. Actual demand recorded was 990 with 316 working lines and only 32% of demand met. In this case, forecast growth rates approximated to the actual increase in demand (PCR, para. 4.03; Appraisal Report 686(a)). III. CONCLUSIONS The Project 43. The audit concludes that the project's physical design was, in most respects, sound. It considers, however, that the project should have given greater priority to improving service standards and that it would have been more efficient for the project to have consisted of the entire first phase of - 11 - the program, as a whole. From hindsight, the implementation targets turned out to be unrealistic, given the economic conditions existing in Ghana during the execution of the project (PPAM, paras. 25-28). 44. Demand for telephone service differed significantly from the fore- casts made at appraisal, but the reduced demand is accounted for by the depressed economic conditions. Telex forecasts proved realistic. Due to the delay in completion of the project, only 52% of telephone and 32% of telex demand was being met at the end of 1985 (PPAM, paras. 41-42). 45. The main changes in project content were the substitution of larger capacity UHF for VHF radio systems, with an extension to replace an open wire route, and the change from electro-mechanical to digital electronic technol- ogy for all the new telephone exchanges. These changes were fully justified in that they provided additional capacity, and service and operating cost advantages (PCR, para. 3.03; PPAM, para. 13). Implementation Experience 46. As previously indicated in the evaluation summary, the experience with this project has been extremely disappointing. Physical targets are now only likely to be met by December 31, 1987, seven-and-a-half years behind schedule. Service standards have deteriorated to a position where, in May 1986, about 47% of subscriber lines in Accra were out of order. Although some progress was made initially with institutional improvements, the posi- tion has been prejudiced by the loss of experienced and qualified staff, and much remains to be done in order to insure GPT's future financ4al health and viability and its ability to operate and further expand its facilities (PCR paras. 6.01-6.11, 9.01-9.06; PPAM para. 54). 47. While certain factors contributing to delay were country-wide in nature, it would seem in retrospect that appropriate action on the following measures by GPT and Government could have facilitated the development process and implementation of the project: a. Project content might have been extended to cover the program as a whole; b. first priority should have been given to improvement of service conditions, in order to improve public relations and making tariff adjustments more acceptable; c. a rational staff establishment should have been worked out, with adequate pay scales to attract and retain qualified staff; d. Government should have adjusted tariffs expeditiously (the exten- sive delays were partly due to the service problem); and e. GPT's Board of Directors could have operated more effectively and the Board should have continued to function after 1982 (Boards should not only provide policy direction, but can additionally help - 12 - in public relations if public and business interests are repre- sented) (PCR, paras. 3.04-3.05 and 6.02; PPAM, paras. 14, 25-28, 30-32 and 35-39). 48. As also outlined previously in this audit, both foreign and local exchange costs of the project increased, the latter substantially, by about 400%. The increase in foreign exchange cost was mainly caused by the change in switching technology and was fully justified. Local cost increases were the result of domestic inflation over the extended period of project execu- tion (PCR, para. 3.08-3.09; PPAM, para. 16). Benefits Resulting from the Project 49. The project was expected to provide about 16,000 additional tele- phone connections; only about 5,000 additional telephone lines were actually provided during the period 1975 to 1985, all through connection to existing exchanges. Some 118 new telex subscribers were connected, against a target of 300. The additional long distance facilities were commissioned in 1985 (PCR, paras. 4.02-4.03 and 7.01). 50. It has been found in most developing countries that inadequate telecommunication facilities are an obstacle to other development of the economy (including agriculture); to the provision of adequate social ser- vices, such as health and welfare; and to the development of an effective and informed administration. They also result in less effective use of trans- port, and higher transport costs (which usually include a high foreign exchange component). About 90% of Ghana's telephone lines are estimated to be used by Government and business and the telex service is used almost exclusively by business and administration. The failure to provide satisfac- tory standards of service and more expeditiously meet the physical targets, particularly when related to the smaller percentages of total demand met, has serious administrative, social, commercial and economic implications. 51. As previously indicated, the major part of the facilities provided under the project are not yet in service and it is impossible to estimate the fiscal benefits of the project (PPAM, para. 14). 52. Items which have been commented on in some detail in this audit, and which require urgent attention, are the major problems of poor standards of service and the need to improve productivity (PCR, para. 6.03; PPAM, paras. 29-32). Sustainability 53. As outlined in the Evaluation Summary, the life of telecommunica- tions equipment ranges from 5 to 50 years and averages about 20 years. In many cases, spare capacity is provided for future growth, so that physical benefits are likely to be sustained and, in fact, increase over the life of the equipment. This includes both service and financial benefits. The eco- nomic rate of return, on project completion is estimated at 8.5%. With the - 13 - inclusion of consumer surplus, given the provision of spare capacity and the future higher usage of installed facilities as the economy expands, and providing management is improved and equipment maintenance satisfactory, this return should certainly be sustained and is, in fact, likely to increase. The Executing Agency 54. GPT's performance under the project has been disappointing and the project has, so far, not achieved its aim of consolidating GPT into an effi- cient, commercially viable, enterprise. The future organizational structure, which is now under review, proposes splitting postal and telecommunications operations. Such a separation is warranted, as the association of a capital intensive high technology and potentially profitable operation with a labor intensivei/ public service presents problems in management, fully commercial operation, staff relations, pay scales, etc. It has additionally been sug- gested by the Bank that the following steps should be taken for institutional rehabilitation: a. The reciprocal obligations of GPT and Government should be reviewed as should the organizational and management requirements. b. The changes necessary to recruit and retain skilled manpower should be considered. c. Manpower levels and training requirements should be considered. d. Financial management should be improved and asset revaluation carried out in order to determine true profitability. e. Studies should be undertaken of business office procedures to insure more effective use of plant capacity. These steps are closely in line with the conclusions reached in this audit (File Research), 55. This audit concludes that urgent action should also be taken to improve the accountd receivable position. Government now makes a quarterly payment of 41.5 million and settles the balance at the end of the year. Quarterly billings have, with inflation, now increased to 48 million. It is generally accepted that Government services cannot be disconnected for non- payment, but even if the quarterly payments are increased, this will not take care of future inflation. A means of addressing this might be to charge interest on overdue government accounts and for Government to hold Government subscribers responsible for any additional charges they incur as a result (PCR, Annex 1; PPAM, para. 23). 4/ Mechanization of postal operations has significantly increased in the developed countries. - 14 - The Bank 56. Although accepting that the Bank performance was "adequate", the PCR suggests that it could have been better. The Bank at appraisal may not have been realistic in respect of the borrower's ability to carry out the project within the time frame proposed, although the worsening economic con- ditions could not have been fully foreseen. The Bank provided the borrower with sound advice and it is difficult to fault the decisions made. Problems were drawn to the attention of management, as necessary, and pressure applied to correct them, including high level attention through Bank management and Government. Assistance was given in obtaining technical and donor aid (not always successful) and arranging overseas training. Procurement issues were dealt with firmly and fairly, including help in dealing with suppliers and limiting cost increases. As the PCR indicates, supervision might have been somewhat more frequent. Project staff also had the use of the services of the resident representative, which were very effective in dealing with local issues and eliminated the need for some visits (PCR, paras. 8.01-8.04; PPAM, paras. 25-28 and 43). In fact, when the position was vacant for sometime in the early 1980s, supervision suffered. During the latter stages of the proj- ect cycle, special attention was given to reviewing problems with completing the building program. It is unfortunate that similar action was not taken, in sufficient time to resolve what became a critical path in project imple- mentation, namely the completion of the external plant network. 57. Although it is proposed to continue supervision through the end of 1986 and help is being given in trying to attract donor financing for the emergency rehabilitation project, it seems unfortunate that further Bank lending for the telecommunications sector is not envisaged. The project was obviously disappointing in its physical and institutional achievements. Nonetheless, the position could have been much worse without the Bank's participation. The Bank has made a substantial input to the sector from 1970 through 1986. It has given valued advice on the organization, financial problems, tariffs, technical matters, procurement, staffing, etc. Prices of equipment have been lower than would probably otherwise have applied. The Bank and GPT have learned to know one another's procedures and methods, and good working arrangements have been established. GPT has now reached a rather critical stage in its affairs, where continuity in advice and assis- tance is important. A review of the project correspondence and supervision reports clearly shows the value of the advice and assistance given in the past. A one-shot project of this nature usually, and in this case certainly, is likely to leave many problems unsettled. A further joint lending opera- tion, with a focus on rehabilitation, which would have high returns, might be considered (PCR, paras. 8.01-8.05 and 9.06). Lessons to Be Learned from the Project 58. A number of interesting lessons to be learned from the execution of this project have been discussed in the summary. - 15 - PROJECT COMPLETION REPORT GHANA: FIRST TELECOMMUNICATIONS PROJECT (LOAN 1122-GH) I. INTRODUCTION 1.01 The Posts and Telecommunications Corporation of Ghana (GPT), an autonomous Government-owned Corporation established in November 1974, provides all public telecommunications and postal services in Ghana. The Bank Loan 1122-GB for $23 million was the first loan to the telecommunications sector in Ghana. II. PROJECT PREPARATION AND APPRAISAL Preparation, Appraisal and Negotiations 2.01 In December 1970, the Government of Ghana (GOG) requested IDA assistance to finance the second phase (FY74-78) of its four phase FY71-90 telecommunications development program. GPT's program was largely based on a study undertaken by engineering consultants. IDA identification and preappraisal missions visited Ghana in May 1971, September 1971 and January 1972. A $24 million project with a foreign cost element of $17.8 million was initially appraised in May/June 1972, with a recommendation for a $10 million IDA credit in support of this project. Other foreign project costs were expected to be met from an $8 million grant from the Canadian International Development Agency (CIDA). This cofinancing was withdrawn because of concerns about Ghana's economic situation. At the same time IDA funds to Ghana were limited in FY73 and FY74, and Bank management decided to allocate these scarce funds to other sectors. As a result, further processing of the IDA credit was suspended at "green cover" stage. 2.02 The IDA missions of 1971 and 1972 had indicated to GOG the need for investing the telecommunications entity with adequate fiscal and administrative autonomy, implementing a commercial accounting system and streamlining procedures for civil works execution and procurement. GOG made progress in some of these areas by designating the Department of Posts and Telecommunications (DPT) a self financing entity with its own budget with effect from July 1, 1972. Some progress was also made in the accounting areas with assistance forthcoming from Britain. 2.03 Early in 1974, GOG expressed a desire to reactivate the telecommunications project. The Bank also agreed to consider a larger amount of about $22 million as a possible IBRD loan in support of the same program which had by now slipped two years to FY76-80. In May 1974, a reappraisal mission visited Ghana to review the status of telecommunication development and definition of a new project for the Bank loan. The mission was uneble to complete its work and a second reappraisal mission was sent in November 1974. In the meanwhile, GOG with effect from November 1, 1974, had created the Ghana Posts and Telecommunications Corporation (GPT). Appraisal was completed in November 1974. Negotiations for the loan were - 16 - completed in Washington on May 17, 1975. The Bank's Board approved a loan of $23 million to the newly created GPT with a Government guarantee on June 9, 1975. The Loan agreement was signed on June 10, 1975. Project Objectives 2.04 The objective of the project was to support principal objectives of GOG for the telecommunications sector for the period FY74-80, that is: (a) improvement of the quality of local, long distance and international telecommunications services; (b) extension of local and long distance services to meet about 65% of the demand for telephone connections by 1980 including, in particular, extension of service to rural communities to help integrate remote areas into the economy; (c) extension of international service to meet the demand by 1980; and (d) consolidation of the recently created GPT as an organizationally, managerially and financially sound public enterprise. The Program and Project 2.05 GPT's telecommunications development program for the period 1976-80 comprised the following components: (a) rehabilitation and expansion of domestic telecommunications services; (b) construction of an earth satellite station for international telecommunications; and (c) establishment of microwave links to Togo and Ivory Coast as a part of the Pan-African Telecommunication (PANAFTEL) network. Part (a) was to be executed in two phases, a Phase I (1976-79 period) and a Phase II (1978-80 period). 2.06 The Bank project supported only Phase I of Part (a) and included: (a) installation of automatic switching equipment of 18,300 lines (including replacement of 9,000 lines of worn out equipment) together with cable distribution networks and subscriber facilities to provide about 16,000 additional telephone connections; - 17 - (b) improvement and expansion of existing domestic long distance facililities, establishing a new Takoradi-Kumasi link, replacing the Accra-Tema link, and adding multiplex and switching equipment on the existing and new trunk routes; (c) expansion of the existing telex exchange capacity by 250 lines in Accra, with conversion to semi-automatic operation in the international telex service; and construction in Kumasi of a 50-line telex exchange and providing associated teleprinters; and (d) introduction of modern systems of commercial accounting and financial management and control for GPT, and training of GPT's staff in the application of those systems. Covenants 2.07 The status of compliance with Loan and Guarantee Agreements is at Annex 1. Performance with respect to compliance has generally been good, though poor in some aspects of the area of finance. The reasons for this are discussed in the relevant sections of this report. III. PROJECT IMPLEMENTATION Loan Effectiveness and Project Start-up 3.01 Loan effectiveness date was initially set as September 8, 1975. The special conditions for effectiveness were: (a) a full settlement by Government of payments due to GPT for services from July 1, 1974 to June 30, 1975; (b) increase in tariffs to bring about 40% increase in GPT's revenues, the tariff increase to be effective July 1, 1975; and (c) a loan of t7 million to GPT for financing its ongoing investment program. 3.02 The dates had to be extended to November 10, December 10, 1975, January 9, 1976 and February 9, 1976. The main delays were associated with obtaining a satisfactory legal opinion from Ghana and with the implementation of special condition (a). All the conditions were met and the loan was declared effective on January 23, 1976. - 18 - Project Revision 3.03 The project did not undergo any substantial revision during execution. There were, however, four changes as follows to the physical works: (a) Tertiary equipment at Accra North was determined necessary at the detailed engineering stage to replace equipment and provide for expanded manual and STD facilities; (b) under long distance service, the proposed VHF systems for Koforidua-Nkawka and Ho-Hohoe were substituted by UHF systems, giving higher final capacity; (c) the proposed reconstruction of the overhead wire route Akropang-Mampong-Akwapan was dropped and the route incorporated into the UHF systems through a link to Koforidua; (d) the 50 line telex exchange at Kumasi was dropped as the Kumasi subscribers could more feasibly be served from the main exchanges at Accra with long distance VFT connections. Financial consultancy, additional to that originally envisaged under the project, was undertaken in 1983 and 1984 and was financed out of the project. Implementation Schedule 3.04 The original schedule for construction of the various component works of the project provided for project completion by June 30, 1979. However, the project is now expected to be completed by December 31, 1986, six and one half years behind the original schedule. The schedule appears in retrospect to have been highly optimistic. The schedule of actual completion as compared to appraisal for the equipment installation in given in Annex 2. The enormous delay in project execution was caused by several factors which affected the main components of the project. These are dealt with briefly and in order of importance below. (a) Civil Works-Buildings: The critical delay that affected project execution leading to repeated revision of the project implementation schedule was the enormous delay that occurred in the construction of the three new exchange buildings in Accra (North, Central and Cantonnents) and of buildings for transmission equipment to be procured under the project. Delays first occurred in the preparation of architectural plans and designs and in the - 19 - award of contracts; and subsequently in construction due to severe shortage of cement and steel, starting from 1978 and due to OPT's inability to pay contractors on time. The Bank agreed to finance out of the civil works component of the loan the import of steel and cement to overcome this bottleneck. The cost of building construction escalated tremendously and GPT, due to its liquidity problems, was unable to pay contractors on time. It was only possible by Spring 1985 to start installation of the telephone switching equipment in the Accra buildings on the floors made suitable for such installation. The installation of the equipment was completed by December 1985 though full building completion is expected to take a further year. (b) Civil Works - External Plant Construction: After good initial progress in the procurement of supplies, construction work was delayed due to poor management and lack of funds. The civil works for construction of manholes and laying of ducts for the Teshie 3ungua area was carried out on time. GPT delayed however considerably the decision for the construction of the external plant in Accra Central and the Cantonments exchange areas. The contractor for Teshie Nungua, who was associated with an expatriate firm, pulled out of Ghana and GPT entrusted completion of the Accra works to contractors without any previous experience of this type of work. The civil works on external plant almost came to a complete stop from 1981 to 1983 due to GPT's inability to meet payments to the contractors. GPT had also utilized about $2 million of cables received for the Bank project for urgent maintenance and is arranging to recoup these stocks through GOG financing. The completion of the external plant works in the projects is now expected by December 1986. 3.05 The delays in project implementation have highlighted the need to ensure that the plans, detailed engineering, cost estimates and execution arrangements for civil works are prepared as early as possible in the project cycle and subjected to a very detailed scrutiny in the appraisal process. If need be, funding for civil works and their design and engineering could be provided as part of the Bank loan. The delays in civil works were to a great measure contributory to the delays in the implementation of telephone switching and transmission equipment, whose installation in most cases was delayed until end December 1985. Procurement 3.06 Procurement of the Bank financed items, except for the telephone switching equipment, presented no major problems. As regards the telephone - 20 - switching equipment, the original specifications were for an electromechanical system on which basis bids were invited in 1976. When the bids were evaluated, GPT recommended acceptance of an alternative offering electronic equipment. The Bank advised that fresh bids be called specifying electronic equipment only. Award was made for electronic equipment with analogue technology in April 1979. A contract was however signed only in August 1980 after GOG agreed to finance the additional foreign exchange costs of the electronic equipment. In October 1981 and taking into account the development of newer technology, the contractor offered to substitute the analogue by the digital equipment. GPT recommended this action to the Bank. After negotiations in consultation with the Bank, who advised on conditions for acceptance especially with regard to provenness and expanded operation support by the manufacturer and a guarantee of spares over an extended period, the digital equipment offer was accepted at the same cost as that per contract signed in August 1980. Cofinancing Arrangements 3.07 At appraisal, the total foreign costs of the project to the extent of $23 million were to be financed by the Bank and local costs were to be financed by GPT. However, the foreign cost estimate was exceeded for the telephone switching equipment and the Government agreed to meet the balance of $6.4 million (see para 3.12) as no other external financing sources were forthcoming. As regards tte program outside of the Bank project, the African Development Bank (ADB) supported the PANAFTEL project with a loan of 5 million units of account (Part (c)] (see para 2.05) and the satellite station [Part (b)] (see para 2.05) was financed by GOG from its own resources except for $5.74 million which was financed by the Export Development Corporation (EDC) of Canada. Delays in securing financing led to significant implementation delays of these components. Phase II o Part(a) of the program was never fully implemented. The OECF of Japan agreed in 1982 to finance the long distance transmission component in an expanded form. Project Costs 3.08 A comparison of the original appraisal and actual project costs is given below: - 21 - Table 3.1: PROJECT COST Apprainl Estimate1l/ Revised Estimate2/ Description Local Foreiga Total Local ForeilM Total (Im ) (sm) (Fm) a4m) ($ ) ($ ) - Civil works, buildings including air conditioning 1.68 2.14 3.60 273.33 1.79 20.39 - Automatic exchange equip. for local exchanges and for long distance facilities 0.38 5.05 5.38 3.14 11.79 11.95 - Local networks including subscribers plant 1.91 6.85 8.51 120.40 8.28 13.79 - Long distance radio and openwire carrier systems 1.43 2.23 3.47 6.47 3.62 3.79 - Telex 0.10 1.04 1.13 - 0.76 0.76 - Vehicles - 0.43 0.43 - 0.18 0.18 - Miscellaneous 0.29 1.01 1.26 - - - - Consultants & training 0.25 0.73 0.95 14.52 1.00 1.98 - Contingencies 1.24 3.66 4.73 - - - Total Project Cost 7.28 23.14 29.46 417.86 27.42 52.84 1/ The exchange rate used at appraisal was $1 + 1.15. 2/ The exchange rate used as on page V. The investment program year-wise as executed including the Bank project is given in Annex 3. The estimated cost overrun on the project of $23.4 million equivalent is 79%. 3.09 The local costs on completion are expected to be about f418 million as against f7.3 million at appraisal. The increase was mainly caused by very high local inflation and the resultant higher cost of civil works during the prolonged construction period. The increase in foreign costs amounting to $4.28 million (18.5%) is due almost wholly to an increase of 118% in the telephone switching equipment costs. 3.10 Apart from the Bank financed project, GPT undertook, inter alia, also to carry out (a) the satellite earth station; and (b) the PANAFTEL projects (see Annex 3). The Satellite Earth station was inaugurated in August 1981 and the PANAPTEL link from Ghana to Ivory Coast is expected to be completed in 1986. GPT experienced cost overruns on the satellite project particularly on the foreign cost reaching about $14.7 million against an initial estimate in 1974 of $5 million, some of which was due to the expanded scope of the project. The foreign cost of the PANAFTEL link - 22 - is expected to be about $4.6 million as against an initial estimate of $1.6 million in 1974, partly due to the increase in scope during execution. Disbursement 3.11 The estimated and actual annual cumulative disbursement of the loan is as follows: Table 3.2: CUMULATIVE DISBURSEMENT ($ Million) Appraisal Actual as percent Bank Fiscal Year Estimate Actuall/ of appraisal estimate 1976 2.800 0.300 11 1977 8.000 0.400 5 1978 15.000 0.500 3 1979 21.000 3.340 16 1980 23.000 7.030 31 1981 9.940 43 1982 12.520 54 1983 13.140 57 1984 15.020 65 1985 17.900 75 1986 23.0002/ 100 1/ The slow disbursement was caused by delays in procurement of telephone switching equipment and in project implementation (para 3.04). 2/ Final disbursement effected on January 9, 1986. Loan Allocation 3.12 Original revised and final allocation of the loan are: - 23 - Table 3.4: MAN AffTM ($ Million) loan Forein Revised Forein Revised 1bre* Final Fore:i Allocation Financ- Alocation Finan- Allocation Fianc- Alloc- Finandg Categry Original kg (%) 10/3/79 irg (%) 12/7/83 irg (%) ation (%) 1) Air conditionIrg 1,140,000 100 1,140,000 76 950,000 100 885,137 100 2) Civil works for bAldigs 1,000,000 401/ 1,000,000 401/ 846,000 100 845,872 100 3) Autoatic exhadw equipoent local exiharges and lag distance 5,050,000 100 7,985,700 63 7,985,700 63 8,315,292 1(0/ 4) local ani junctIon cables nebiork materials ald subscriber apparatus 6,850,000 100 8,407,800 100 8,400,000 100 8,286,826 100 5) Microwm and VHF radio ani opend.re carrier systaw ith copper wire 2,230,000 100 -,230,000 63 2,200,000 632/ 2,425,475 1003/ 700,000 1 631,148 100 6) Telex exu equipoem. ani teleprinters 1,040,000 100 787,100 100 693,000 100 692,619 100 7) Miscellaneous (vebicles, training, billig madilne, etc.) 1,440,000 100 29,000 100 88,000 100 76,814 100 8) Cisultant services ard accounting trainig 730,000 100 760,000 100 1,000,000 100 840,817 100 9) Ukaiocated 3,520,000 - 660,400 - 137,300 - - - Total 23,000,000 23,000,000 23,000,000 23,000,000 / This 409 is of total expenditures on civil works. 2/ The Bank agreed to 100M finan of expenditares contracte after Atgust 1, 1982. She Bank agrea only to finance 63% of expenditures contractal before this date. 3/ The Ba* agreed to 100 financhg of expemitures undr categry 3 and SA, by telex of February 15, 1985. 3.13 In October 1979, the Bank agreed to amend the loan allocation to take account of the values of contracted amounts under various categories and to reduce the percentage of disbursements by the Bank for exchange and transmission equipment due to aforementioned cost overruns (see para 3.09). The Government requested in July 1983 further reallocation of loan proceeds primarily to increase the percentage of disbursement from the loan amount for air conditioning equipment and for consultants. The Bank agreed - 24 - with a slight modification to the proposed and the revised allocation in December 7, 1983 as shown in the table. The final allocation after full disbursement of the loan on January 9, 1986, is indicated also in the table. Operations 3.14 Telephone switching and transmission equipment under the project was brought into service only in December 1985 and as such the review of operations will have to await another year. The electromechanical telex equipment which was installed in October 1980 was not brought into full use, a fact that was not brought to the attention of the Bank until the September 1985 mission. When the new electronic telex exchange was installed in June 1983 as part of the satellite project, the existing subscribers on the electromechanical exchange were transferred. About 35% of the electromechanical equipment costing a total of about $278,000 has been used as maintenance spares for other existing electromechanical exchanges in Ghana. GPT has also diverted some telephone cables funded out of the project and costing about $2 million for urgent maintenance, again without adequate prior consultation with the Bank. GPT is ordering telephone cables for the replenishment of its stock to ensure the project can be completed by December 1986. Finance for the replenishment is available through a Government escrow account. Performance of Consultants, Contractors, Suppliers and Borrower 3.15 At appraisal of the initial project in 1972, it was agreed that consultants would be employed for the engiaeering, preparation of bid documents, specifications, evaluation of bids and supervision of the project items. Uncertainty and delays of funding contributed to delays in selecting consultants and the contract was entered into only in July 1976. The performance of the engineering consultants overall was adequate. However, the consultants could reasonably have been expected to provide more advice and assistance to GPT which might have mitigated the delays in the engineering and construction of buildings and external plant. This matter should have been subject to closer Bank supervision. 3.16 The switching and transmission equipment contractors performed satisfactorily in supply and installation. The final test results and equipment performance after acceptance under actual operational conditions are awaited. The performance of the local civil engineering contractors for buildings and for external plant with some exceptions has been poor. Shortages of material and lack of timely payments contributed tc weakness in performance though it appears the contractors anyhow lacked the organization and skills to construct relatively large buildings and telephone external plant construction on time. Given that the employment of more experienced contractors was not possible (see para 3.04), GPT and their consultants could have provided more assistance. 3.17 The overall performance of GPT was adequate, though in aspects of project implementation it was poor. There was at times a lack of energetic - 25 - commitment to the project at the level of the principal managers. The project management unit did not prove as effective as had been hoped (see pars 6.01). The poor economic situation in Ghana and GPT's poor financial position contributed to the lack of management dynamism and effective supervision of project implementation. IV. OPERATING PERFORMANCE 4.01 Operating and financial performance indicators of GPT during the project period are at Annex 4. At the inception of the project in 1975, the total telephone capacity was 42,000 direct exchange lines (DELs) with 30,600 lines connected. At completion of the project in 1980, the increase in capacity was expected to 'se 13,699 with exchange fill increasing from 77% to 86%. The project was expected to meet 65% of the registered demand. By the end of 1980, actual increase in capacity was only 2,500 DELS, 8,900 less than estimated. DELs in operation were 36,931, only 4,300 more than in 1975. The exchange fill stood at 83%. 4.02 At the end of 1985, the exchange capacity was 46,919 and the increase in DELs, still short of appraisal estimates, was 8,455. The unfulfilled demand for telephones in 1986 is estimated at 33,629, a 66% increase over 1975.1/ 1/ Unfulfilled demand is taken to be the number of subscribers on the registered waiting list. It is recognized that there exists a substantial amount of latent demand in the system, i.e., potential subscribers not on the official waiting list and those desirous of services in areas with no existing telephone service. - 26 - TABLE 4.1: GROWTH IN CONNECTED DELSA DEMAND FOR TELEPHONES, 1985-86 (Percentage) ------------CONNECTED DELs- --- -DEMAND FOR TELEPHONES- Years Number Annual % Change Demand % of Demand Met Appraisal Actual Appraisal Actual Actual Actual 1975 30,600 32,631 - - 51,000 64 1976 32,400 36,791 6 13 na na 1977 35,175 36,008 9 -2 na na 1978 39,170 37,008 11 3 na na 1979 43,600 37,475 11 1 Ua na 1980 46,330 36,931 6 -1 na na 1981 - 38,129 - 3 51,525 74 1982 - 37,360 - -2 56,606 66 1983 - 36,100 - -3 61,186 59 1984 - 37,485 - 4 70,726 53 1985 - 37,600 - 0 72,000 52 1986 - 41,360 - 6 74,989 55 4.03 At appraisal, telex capacity was 200 lines. By completion of the project in 1980, it was expected to increase to 600 lines with 450 lines in operation. By 1980, however, actual telex capacity remained at 200 lines with only 198 lines in operation. By 1985, telex capacity was 570 with 316 lines connected. The waiting list for telex subscribers in 1985 stood at 674. 4.04 Delays in procurement and civil works have been contributory factors to the less than satisfactory operating performance of the project. Construction work on buildings was in the final stages of completion in 1985 and exchanges are expected to be in operation by mid-1986, which factors should contribute to improved future performance. 4.05 The quality of telephone and telex services has been steadily declining over the periid 1975-85. Lack of foreign exchange for critically needed spare parts to maintain the system has been a major factor in the rapid service deterioration. By 1985, on average, 50% of all telephone lines did not work at any given point in time, largely because there were no funds for maintenance. Delays in the project and the poor financial performance of GPT contributed to this problem. The following table compares Ghana's performance with XCOWAS averages and target performance in 1984: - 27 - TABLE 4.2: QUALITY OF SERVICE INDICATORS (1984) GHANA ECOWAS GPT TARGET 1. Call completion rate (%) - Automatic 50 60 70 - Manual 40 60 80 2. Dial tone delay (% within 3 seconds) 42 80 95 3. Delay in operator response (% within 10 seconds) 48 65 90 4. Faults per line per year 10 1.4-6 1 5. Fault clearance (% within same day) 3 10-35 65 Source: GPT - 28 - V. FINANCIAL PERFORMANCE Financial Results 5.01 GPT's Income Statements are given at Annex 5. The following table gives a summary of GPT's key income statement indicators: Table 5.1: KEY INCOME STATEMENT FINANCIAL INDICATORS 19751/1976 1977 19781/19791/1980 19811/1982 19831/1984 Operating Revenue ( mil.) - Appraisal 14.5 21.3 22.9 25.6 32.5 35.8 - - - - - Actual 12.8 22.2 23.0 26.7 26.7 60.0 82.7 67.7 159.1 184.0 Operating Ratio - Appraisal 106 82 85 85 75 78 - - - - - Actual 125 84 95 133 110 94 103 131 73 85 Rate of Return % - Appraisal neg. 8.7 7.2 7.6 12.1 9.9 - - - - - Actual'/ neg. 11.2 3.5 neg. neg. 13.2 neg. neg. 272 n.a. 1/ Increases in actual tariffs took place in these years. 2/ Actual rate of return figures are essentially meaningless in years after 1979 due to absence of asset revaluation by GPT. 5.02 Operating revenues show substantial increases in the years 1980, 1981 and 1983 due largely to tariff increases. However on the basis of constant 1974 tariffs, actual domestic telephone revenue per DEL was by 1983 only half of its value in 1975 indicating probable significant declines in traffic per DEL (see Annex 4). 5.03 The actual operating ratio has in general been higher than expected at appraisal . Operating costs have tended to increase rapidly due to high inflation that was not until 1983 even partly compensated by adequate levels of tariff increase. Reliable real operating cost per DEL figures are not available in the absence of a sector specific price index. These figures might have given some indication of system efficiency. 5.04 The covenanted rate of return on the project was really only met in 1976 (Section 5.05 Loan Agreement). 1980 and 1983 figures can be considered largely meaningless. Despite recognition by both the Bank and the management of the need to reassess the total value of GPT's plant, the actual work done on reviewing asset registers in all the nine regions in - 29 - the country was very slow. To date, a full revaluation of assets has not taken place. Financial Position 5.05 GPT's balance sheets are given at Annex 6. GPT's appraised and actual balance sheet indicators 1975-83 appear below: Table 5.2: BALANCE SHEET INDICATORS 1975 1976 1977 1978 1979 1980 1981 1982 1983 1. Average Net Fixed Assets/DELW() a) Appraisal 1,316 1,369 1,356 1,298 1,536 1,709 - - - b) Actual 1,062 883 856 770 721 684 600 560 496 2. Cirrent Ratio (times) a) Appraisal 3.3:1 4.9:1 5.5:1 5.6:1 6.5:1 6.4:1 - - - b) Actual 3.5:1 5.1:1 6.4:1 2.3:1 1.4:1 1.5:1 1.7:1 1.1:1 1.2:1 3. Net Long Term Debt/ Debt and Equity (%) a) Appraisal - 17 31 40 46 49 - - - b) Actual - 5 5 22 38 42 54 67 56 4. Accounts Receivable (In No. of days revenue) a) Appraisal 78 91 92 89 96 57 - - - b) Actual 99 63 77 102 194 171 207 275 337 5.06 GPT's financial position has been unsatisfactory. Average net fixed assets/DEL in operation have been consistently declining partly due to very slow new asset accumulation. Appraisal estimates for average net fixed assets/DEL at project completion were t1,709. Actual estimates for the same at end 1983 was t496 per DEL. The value of assets/DEL will increase however once project assets are in commission in 1986 and once a full revaluation is undertaken. 5.07 The current ratio has not only been less than expected at appraisal, it has been steadily falling. In 1982 and 1983 current liabilities almost equalled current assets. At the same time accounts receivable rose to equivalent of 337 days revenue. GPT's collection ratio has been consistently declining due to inefficiency in accounting procedures and delays and errors in billing. In 1983 and 1984 GPT was, on average, one year behind its expected billing schedule. Frequent changes in staff compounded the problem creating volumes of work, and often duplication, that GPT was ill equipped to handle effectively and quickly. - 30 - In 1984 only 50% of the total operating revenue was collected. GOG lagged behind in settling its account to GPT but the problem is not now a major one (Section 3.03 of Guarantee Agreement). The problem however, remains for private subscribers who have been slow to pay for a poor quality of service. Action is now in hand through OECF funded financial technical assistance (see para 6.06) to reduce this problem. Financial Plan 5.08 GPT's funds flow statements are given at Annex 7. GPT's appraisal and actual financing plans are given below in summarized form: Table 5.3: FINANCING PLAN Cedis 000 Appraisal Actual Actual 1975-80 1975-80 1975-83 I. Applications a) Capital program 81,226 53,967 169,409 II. Sources a) Internal cash generation 26,244 -7,345 21,220 Less: debt service 13,899 7,594 68,162 Net internal cash generation 12,345 -14,939 -46,942 b) Government (net) 8,120 22,900 61,600 c) Borrowings 56,186 46,598 139,930 TOTAL (sources) 76,651 54t559 154$588 III.Inc. (Dec.) in Working Capital 4,575 592 (14,621) 5.09 Under the project GOG agreed that no transfers should be made from GPT's resources to GOG unless adequate provision had bwen made for GPT's investments (section 3.04 of Guarantee Agreement). In actuality, GOG's net contribution to GPT has been far higher than anticipated, because GPT has had no capacity to transfer surpluses. Indeed its net internal cash generation has been negative. 5.10 At negotiations, GPT agreed not to incur additional long term debt, without prior Bank approval, unless the debt-service coverage ratio was more than 1.5 times (Section 5.07 of Loan Agreement). Moreover, short term obligations would be assumed by GPT only for financing the normal working capital and would not in any case exceed three months telecommunications cash operating expenses for the previous 12 months (Section 5.08 of Loan Agreement). 5.11 The long term debt covenant was met after 1980 at which time GPT issued t50 million of development stocks to finance project cost overruns. - 31 - This pushed the debt service coverage below 1.5 times, so GOG undertook further to Bank insistence that it pay interest on the debt until the project had been brought to completion. The short term debt covenant was not met as GPT's short term obligations built up substantially in the 1980s. GPT was not generating sufficient cash from its own operations at times even to cover its cash operating costs. At the same time, debt service obligations in local currency built up to a level of 179 million in arrears to the Bank of Ghana in 1985. Compliance with the short term debt covenant appears not to have been followed by supervision missions. 5.12 GPT undertook to make no new capital expenditures outside of the project and in excess of $600,000 without prior Bank approval (Section 5.09 of Loan Agreement). The Bank was informed late in negotiations of GPT's intention in 1978 to contract long term debt with AfDB for the PANAFTEL project (about 5 million units of account) and with the EDC for the satellite project, both integral parts of the FY76-80 investment program. CPT, however, had clearly no capacity to handle this debt, and to contract it would not have been a responsible financial decision. Accordingly, Government agreed to assume all the obligations for these loans and to provide complementary foreign exchange finance for the satellite project. VI. INSTITUTIONAL PERFORMANCE Organization and Management 6.01 GPT evolved out of DPT department in July 1974 with autonomous powers vested in the Board of Directors. Suitably qualified candidates for Director General and Deputy Director General were recruited. GPT was expected to be run along commercial lines. A separate IBRD project unit was to be created, to be supervised by a project manager acceptable to the Bank [Section 3.01(b) of Loan Agreement]. The effectiveness of this unit was somewhat reduced in implementation by the number of changes of manager, and unclear lines of reporting to the Director General. 6.02 GPT's performance has been less than effective during the project period. GPT's autonomy has been eroded due to the fact that its Board has ceased to function since 1982 and that it has largely depended on Government subsidy to continue operations. Frequent changes in top and middle level management, especially in recent years, have further weakened the institution's capacity. Weaknesses in the organization structure have co,itributed to problems with information flows and decision making capabilities and thus to an ineffective management. The organization is currently under review as part of an exercise to restructure the posts and telecommunications functions of GPT into separate entities. Staffing, Recruitment and Training 6.03 It was agreed under the project that efforts should be made to reduce the ratio of staff per 1,000 telephone substantially below 100 by the end of the project, though no set of targets was indicated [section 4.01(e) of the Loan Ag,eementl. This statistic was to be used to measure - 32 - GPT's performance on the covenant [section 4.01(d) of the Loan Agreement] to review its telecommunications staff structure and to formulate measures to improve staff productivity. A better productivity measure in the case of Ghana would have been staff per 1,000 DELs, as the number of telephones per DEL can increase independent of considerations of efficiency. The GPT ratio of staff per 1,000 DELs was 133 in 1975, but had risen to 177 by 1980. It has subsequently steadily fallen to 124 by 1985, during which period the telecommunications operating divisions have lost 1,500 staff. This is, however, not really a consequence of the earlier review of staff structure, but to the loss of skilled manpower, particularly in the engineering cadres (only 19 out of 76 graduate engineer positions are filled), due largely to relatively poor remuneration and the poor morale in GPT. For example, comparable pay scales for the Volta Regional Authority (VRA) are estimated at 1.75 times those of GPT. As a result, staff structure and remuneration have now to be reviewed again. 6.04 Whilst recruitment and training of middle level telecommunications staff and management was reviewed early in the project [Section 4.01(c) of Loan Agreement], the results have been largely dissipated, and training strategy and program need to be reviewed. The technical training school at Accra was not wholly effective in training engineering staff due to lack of modern training equipment, supplies and materials. The problem has been further compounded by the reluctance of the staff to remain with GPT for a prolonged period. Loss of staff in GPT has contributed to project delays especially in recent years. 6.05 To improve their financial management, GPT initiated a vigorous program of middle level management training. By the end of 1970's, 190 accounting personnel were trained. Over the years, though, relatively more attractive opportunities in other public sector corporations, the private sector and abroad have created vacancies in key positions in GPT. The position of the Financial Controller fell vacant in 1981 and remained unfilled till the Internal Auditor serving at that post in an acting capacity was designated as the Financial Coatroller in 1984. A Deputy Chief Accountant continues to serve at the post of the Acting Chief Accountant which first fell vacant in 1981. 6.06 The financial performance in the project years has suffered due to lack of trained and competent staff. Recently though, the management, at the Bank's insistence, agreed to invite expatriate financial consultants to fill the positions of the Financial Controller/Advisor and the Chief Accountant and undertake a broad based financial reorganization and strengthening. With financing from OECF, the consultants arrived in September 1985 in Ghana and work is in progress. Accounting System 6.07 At the beginning of the project, an accounting firm was undertaking a study of the accounting methods and policies of GPT firstly under British, then under Bank financing. Their recommendations were subsequently implemented mainly in the form of separation of the postal and - 33 - telecommunications accounts (Section 5.01 of Loan Agreement), new methods for billing and collection, and improved administrative procedures. 6.08 Over the years, however, the accounting system was allowed to lapse into being less than effective, a fact that is related both to lack of staff and low staff morale, and lack of equipment and materials. Billing has been regionalized and bills are prepared on a quarterly basis until such time as the back log is eliminated (see para 5.07). Billing and collection problems remain one of the primary sources of liquidity problems of the GPT. Computerization of billing since 1981 has not mitigated the problem. 6.09 In order to rehabilitate the Finance Department, the Bank agreed to finance a financial consultancy input in 1983 to, inter alia, update billing and update final accounts which at that date were only available to the year ending June 1980. The results of this input were positive though the view of GPT and the Bank was that the improvements would not be sustained in the absence of long term technical assistance to the department (see para 6.06). Audit 6.10 With approval of the Bank as agreed upon during negotiations, a local accounting firm have been auditing GPT's accounts since 1975/76. The audited accounts have consistently been submitted later than the covenanted time of six months after the end of each fiscal year (Section 5.02 of Loan Agreement). This has been due mostly to lateness in the preparation of provisional accounts for each fiscal year. The October 1985 supervision mission declared that the scope and context of the audit report should be upgraded in order that GPT be given consistent advice as to how accounting systems and accounts presentation could be improved. 6.11 GPT established an internal audit system as required under the project (Section 5.03 of Loan Agreement). A fully qualified, competent internal auditor was appointed in 1977, though he had subsequently to be switched to acting Financial Controller (see para 6.05) because of shortages in senior financial staff. His replacement, though not fully qualified, is competent. The system works well though improvements are being implemented further to recommendations made by the financial consultants. Tariffs 6.12 Details on GPT's tariffs for the period 1975-85 are at Annex 8. A summary of real tariffs2/ appears below: 2/ Actual tariffs expressed in index form divided by the National CPI in index form. - 34 - TABLE 6.1: REAL TARIFF INDICES: 1975/85 Domestic Tariff Index Price Index3/ Years Appraisal Actual Appraisal Actual 19751/ 100 100 100 100 1976 85 56 118 177 1977 72 26 138 385 19781/ 64 150 157 665 67 97 175 1,027 1980 59 65 197 1,542 19811/ 2/ - 42 - 3,342 1982 - - 34 - 4,085 19831/ - 47 - 9,104 1984 - 34 - 12,708 1985 - 28 - 15,250 1/ Actual Tariff Increase Years. 2/ 1981 increase was built into 1979 increase. 3/ Price Index constructed from National CPI series in the "Quarterly Digest of Statistics, Ghana. June 1984, p. 45. 6.13 Despite repeated Bank requests, GPT was not generally able to raise its tariffs sufficiently to cover rising costs. Whilst GPT was generally diligent in preparing an annual review of tariffs as required [Section 5.05(f) of Loan Agreement], it was largely unable to persuade Government to approve the recommendations of this review in a timely fashion. Tariffs in real terms had fallen by 1985 to les than one third of their 1975 value. In the most critical period 1979 to 1983 when no new tariff increases were approved, general prices rose by 5902. GPT's inability to cover its costs at the 1979 tariff levels (which were legally contested by subscribers leading to a significant decline in collection performance from which GPT has yet to recover) contrituted seriously to the decline in the network. This matter was brought repeatedly to Government's attention by the Bank. 6.14 Tariffs were actually increased on average 40% in July 1975, 80% in February 1978, 200% in May 1979, 35% in March 1981 and 350Z in June 1983. External tariffs have generally been adjusted more frequently, especially since 1983, to ensure cedi devaluation against the gold franc is reflected in charges to consumers. A new tariff was published in March 1986, providing for an average increases in internal tariffs of 400%. 6.15 A tariff study, to the economic aspects of which the Bank intended to contribute, was expected to be undertaken during the project. - 35 - No such study was undertaken. It is recommended that a full review of tariff structure and levels in relation to the costs of providing services be undertaken as soon as possible. VII. PROJECT JUSTIFICATION Project Achievement 7.01 The project did not achieve the objectives set out at appraisal. A further review will however be needed at end 1986 on full project completion. The expansion and improvement in services has not come about as rapidly as expected. Institutionally, GPT has not advanced since 1975, with serious deficiency still in organization, management, and financial expertise. However the project after completion will have created a physical infrastructure that will contribute substantially towards improvement of the telecommunications network. Furthermore, the project can be seen to have provided the base for improved financial and technical exercises in the future. The Bank has already helped GPT prepare in outline a 1986-88 program in two phases which is deemed essential if the assets placed into service under the project are to be fully and profitably utilized in future. Project Spin-offs 7.02 There were no major spin-offs from the project. On the contrary, when local shortages of cement led to serious delays in the construction of exchange buildings, GPT sought to purchase the needed construction materials from abroad. Thus potential benefits to the Ghana economy were lost due to the poor economic situation in the country during implementation. There was negative spin-off for residential and business consumers whose use of the project assets was frustrated by substantial delays in the project and the concurrent decline in the state of the telecommunications network. Least Cost solution 7.03 GPT in general adopted system design and components consistent with least costs under the project. The discounted cost of the decision to switch to fully automatic digital switching equipment is lower than the discounted cost of the electromechanical solution first proposed at appraisal. This choice of technology is fully consistent with current Bank practice and policy. The higher capital cost was due largely to the substantial delays in placing the eventual orders for the equipment (see para 3.06). Rate of Return 7.04 The reestimated economic rate of return of the project is extensively discussed in Annex 9. When foreign capital costs are valued - 36 - at parallel exchange rates and when benefits are valued at constant real tariffs (NetBen 4 in Anne?. 9) the best reestimate for the project rate of return is 8.5%. This is much lower than the appraisal estimate of 18% due largely to increases in capital costs and the depreciation of the cedi against the dollar. The rate of 8.5% is also lower than the prevailing real opportunity cost of capital in Ghana of around 10-11%. 7.05 The rate of return is considered subject to considerable downside risk, in that actual benefits may be less than presently anticipated if actions are not taken in the context of GPT's 1986-88 program to improve GPT as an institution and to improve the quality of the telecommunications network. In the absence of such an improvement, a 20% reduction at minimum in projected benefits is considered likely, which would result in a rate of return to the project of only 6.5%. VIII. BANK PERFORMANCE Overall and Specific Performance 8.01 The performance of the Bank in respect of the project was adequate but could have been better. In retrospect, there were some deficiencies at different stages of project appraisal and implementation. 8.02 The Bank's contribution at the stage of preparation was a positive one, and had a material impact on the decision of GOG to set up GPT as a autonomous corporation and to set up a commercial operation and accounting system for GPT. In actuality, this autonomy turned out to be such more limited than had been anticipated. At appraisal, there were three areas in which performance could have been improved. Firstly the assessment of GPT's institutional capacity to handle a large and complex program while still in an evolutionary phase in its development was apparently over optimistic. Secondly, even with a more established entity, the implementation schedule for project works appears unrealistically optimistic, such that the overrun of 6 1/2 years could with a more reasonable schedule have been cut by up to 2 years. Thirdly, efforts should have been made to ensure the 1976-80 program was fully financed before the project commenced. As it was, Phase II of the project was never fully implemented and the PANAFTEL and satellite projects were seriously delayed upsatting the balance of the program and delaying realization of benefits to the economy. 8.03 During the stage of project implementation, performance was generally acceptable. Because procurement actions were not started until after effectiveness, Implementation delays resulted. Whilst the switch of switching technology caused delays, it was essentially the right decision to make. The Bank made a major contribution through agreeing to Bank financing of imports of construction materials when these were unavailable in Ghana. The Bank was instrumental in assuring GPT was not overburdened with the responsibility of financing the satellite and PANAFTEL projects. - 37 - The Bank persistently raised with COG the serious impact that delays in implementing tariff increases were having not only on GPT finances, but on the execution of the project. The question of loan suspension was raised in 1982/83 because of the seriousness of the tariff problem. Action was eventually taken in June 1983. The Bank is prepared to continue its involvement in the sector to help GOG and GPT ensure the realization of the benefits from the investments financed out of the project. Supervision 8.04 Bank's supervision over the period 1976-85 averages less than one mission per year. There were no supervision missions in 1977 and 1979. With implementation problems in general and the first Bank sector involvement in Ghana in particular, a higher number of Bank supervisions should have been made. The losses due to infrequent supervision were probably greater at the beginning of the project. Related to this was the decision to shift responsibility for supervising the project in July 1978 from the West Africa Region to Central Projects (Telecom). Whilst supervision was also infrequent in the 1980s, it is less clear that more frequent supervision might have reduced the project's problems at this stage due to the serious political and economical difficulties in the country. This appears at times to have prevented more frequent supervision. That having been said, the seriousness of completion problems was probably underestimated by the Bank. Working Relationship 8.05 The relationships between GPT, GOG and the Bank were by and large reasonable, though this could not prevent serious delays at times in the taking of necessary actions, especially on tariffs. GPT has not always kept the Bank fully informed, as in the case of use of project materials for non project needs without prior consent (see para 3.13). There was a case for a very high level Bank representation to clear project problems with the Government in the early 1980s, on ptin of loan suspension. IX. CONCLUSIONS 9.01 The major problems encountered in this project were: (a) serious economic problems in Ghana; (b) extensive delays in project implementation; (c) lack of timely action on tariffs; (d) lack of adequate and qualified staff. 9.02 The project could not reasonably have been isolated from Ghana's serious economic problems in the late 1970s and early 1980s. The resultant - 38 - increases in domestic inflation and eventual rapid depreciation of cedi led to substantial increases in project costs and to an inability of GPT to even fund its regular operations and maintenance activities. Materials shortages made a significant contribution to the project's problems. 9.03 Nonetheless, the projects difficulties were compounded by implementation delays leading to project completion an estimated six and a half years behind schedule. These delays reflect delays in appointing consultants to design the project, which was related to uncertainty as to whether and how the Bank was to finance the project, delays in execution of civil works due to lack of experience on the part of local contractors and to delays in procuring the switching equipment for the project. 9.04 If GPT had been allowed reasonable levels of tariff increase by GOG in the early 1980s, it may have been in a better position to generate enough funds to arrest the decline in the quality of service for telecommunications. Tariff levels by 1985 had been allowed to fall to less than one third of the 1975 level in real terms causing serious financial difficulties for GPT. This real decline was however largely corrected by the March 1986 tariff increase. 9.05 GOG's reluctance to gran timely tariff increases appears related in part to institutional weaknesses that had already become manifest in the 1970s. GPT has had difficulty attracting and retaining qualified staff with its salary and benefit levels falling significantly in real terms over the project period and against comparator organizations in Ghana. GPT has suffered from frequent changes in management which have weakened its performance. 9.06 In conclusion, the project has not succeeded in its objective of consolidating GPT as an organizationally, managerially and financially viable public enterprise (see para 2.04). The outline of a program to strengthen GPT as an institution has been prepared by with the assistance of the Bank in the context of GPT's 1986-88 program. The project has not fully met its other sector objectives (see para 2.04), though the assets financed out of the project are appropriate technically and should make a significant contribution in due course to improvements in the sector. The Bank is helping GPT in the context of its 1986-88 program to launch a further project with donor cofinancing support. . 39 AN"- OttANA POSTS ANDo TELKOO0INICATIONS OltPORATION (CPT) MtST TCLEOMuNICATIONS PROJECT LOAR 1122-C1 PROJECT COMPLETION IEPORT Capl lance with Covenants Section Covenant Status Guarantee Agreement 3.03 Prompt payment of accounts on Partial. Covernment as been making regular advance payments of telecommunicat ions services by Covernment 1.5stillon per quarter tnce 1980, and settling the rest at departments and agenciea. year end or thereafter. On the beasts of 1985 billing levels of ".10 million per quarter though, the quarterly payment should be Increased, 3.04 Government to ensure that only such part of N.A. Because of weak GPT performance, no transfers have been annual profits, if any, will he transferred made to Government. In fact, substantial great and loan to Covernment from OPT after reasonable transfers to CPT have teen made during the project life. provision for GPT future capital expenditure. 3.05 Covernsent to ensure OPT opwrates postal Yee. Service is run on commercial lines, though tariffs have not servtces on commercial lines and to meet any aways been increased expeditiously to balance revenue and postal deficit to extent this cannot ta set expenditure. Government has been making transfers of l.845 out of transfers from GPT's silliton per month to cover postal capital expenditure. GPT has telecommunicattons division. been unable to transfer funds from telecommunications operations. Loef Asreement 3.01(b) OPT to establish a Project Unit headed by a Yea. Though a number of changes in the Project Manager may have suitably qualified manager, responathIs to ieduted its effectiveness In some years. the Director Ceneral. 1.02 CPT to appnint consultants to assist in feg. engineering, nrocurement and construction supervieton and for technical asesitance in accountancy. 1.03 CPT to assure the completion of ongoing works Yes. Though with some delAys, an a decision to drop the in its investment progran ongoing at time of 7xchange subprtect. appraisal, that is 1IT1P svstems Tanale- Solgatanga-Tendi-Wa. Komasl-Mampong and Sunyant-Techtman-Henchi, and the interntatsterial telephone exchange. 6.01(c) OPT to draw up and discuss with the Bank 4 Yee. But sertuns losses of skitled personnel in the 1980As, mean program of recruitment and training of a further program will have to he prepared, with particular middle-level telecomonIcattons management. emphasis on engineering and accounting staff* and then to Implement the program. 4.01(d) CPT to undertake a review of its Yes. But results largely negated by serious decline to the telecomnications staff structure and TON&s. Thus a new review is needed. requirements and foroulare measures includie traintg to Increase staff productivity. 4.01(P) CPT to reduce its telecommuntcattons staff Yes. 6n the basis of an 19A5 esetmate of 2 telephones per DEL, ratio to below 100 per ,000 telephones. ratio had fallen to 62 (but see section 6.01). S.01 GPT to maintata separate accounts for postal Yes. But acnu-nting basis for separation would nee to be and telectuantct ions servicra. eviewel. 5.02 GPT to suWmt to the Bank auditors reports of No. Reports have been persistently late, and jodged i Actober acceptable scope and detail within 6 monthe 3985 to he Insufficient In scope and detail. of the close of the fiscal year. 5.03 CPT to introduce and maintain an internal Yes. audit system. 5.05(a) CPT to estaish and maintain tariffs to at No. UPT made losses in PYa 78, 79. 81, 82 and 84. Positive least generate rates of return on average rates of return In other Years do not reflect curreat asset curreat net value of fixed asets in values, as CPT has not undertaken any asset revaluation exercise. operation of 7% In PY76-A, and 9t in VY79 and thereafter. 5.05(b) OPT to review before April 1, each year the fe, Reviews undertaken, hot action thereon delayed because of adequacy of its tariff levels, and fuatias a Government relctance to increase tariffs. qubstastial 400S copy of the review to the Bank. coverage increase agreed to in March 1986 however. $.07 Rxcept no otherwise agreed with Bank and Tea. CPT last directly incurred debt in 1980 when tin million of Government, CPT not to incur debt other then development stock was issued. Covernment is however to pay for financing the project, unless net Interest on this until the protect is completed. revenues in any year are not les than 1.5 times the maxtaum debt service on all debt in the auceeding year. S.08 Except am otherwise Agreed with Rank and No. Aqgregate short ters debt has been cansistentlv higher than Covernment, CPT not to incur any short term targeted. debt on account of teleostnications service except where the aggregate amount outstanding is less than one fourth of cash operating and administrative expenses of the service to the proceeding year. %A9 Except as otherwise agreed with the Bank and Yea. hank had to insist that Government relieves OPT of until project completion. (PT to wake no responsibility of financina the PANATL. (4I8) and satelitte teleconAtnications capital expenditures (KDC) projects. 0ECP project is .teaently directly funded by exceeding $600,00 equivalent in any one Government. year. ANNEX 2 - 40 - GHANA POSTS AND TELECOMMUNICATIONS CORPORATION (GPT) FIRST TELECOMMUNICATIONS PROJECT LOAN 1122-GH PROJECT COMPLETION REPORT Schedule of Commissioning of Project Works Appraisal Location Installation Estimate of Actual Capacity Completion Completion (a) Telephone Exchanges (lines) - Accra Tertiary I8 - 1985 - Accra Central 8,000 1978 1985 - Accra Cantonments 6,000 1978 1985 - Teshie/Nungua 1,000 1978 1985 - Tarkwa 600 1977 1985 - Dunkwa 400 1977 1985 - Denu/Aflao 200 1977 1985 - Bekwai 200 1977 1985 Obuasi 200 1977 1985 - Ho 400 1979 1984 - Sunyani 400 1977 1984 - Takoradi 1,000 1978 1984 (b) Transmission Links 300 channel microwave system Takoradi-Kumasi 1979 1985 - Addition multiplex and STD equipment 1979 1985 - Addition 2 VHF 2/ radio systems-Koforidua- Mpraeso-Nkawaka and Ho-Hohoe 1979 1985 - Reconstruction overhead 3/ route Akropang-Mampong Akwapan 1978 NA I/ The tertiary equipment at Accra North with 2,061 trunk terminations to replace the existing equipment and expand manual and STD facilities was determined at the detailed engineering stage. 2/ This was changed to URF instead of VHF to provide for higher initial capacity and Nkawaka was connected to Mpraeso with the OECF financed main microwave system. 31 This proposal which was a minor extension was dropped. Akropang-Mampong is being connected by UHF link with Koforidua. ANNEX 3 - 41- - GRANA POSTS AND TELECOMUNICATIONS CORPORATION (GPT) FIRST TELECOMMUNICATIONS PROJECT LOAN 1122-Gl PROJECT COMPLBTION REPORT Telecommuticatione Investment Program, 1975-1986 (00o) Bankt/ ORCF Financed Financed PANAFTEL Satellite Project Project Project Project TOTAL ( Local 513 - - - 513 1976 ( Foreign2/ 513 - - 13 ( Total? 1,026 - - - 1,026 ( Local - * - - - 1977 ( Foreign - - * - - ( Total - -- ( Local 207 - - 2,238 2,445 1978 ( Foreign 699 - - 12,082 12,781 ( Total 906 - - 14,320 15,226 ( Local 4,117 - 15 1,304 5,436 1979 ( Foreign 12,786 - 121 2,165 15,072 ( Total 16,903 - 136 3,469 20,508 ( Local 8,171 - 21 1,840 10,032 1980 ( Foreign 5,153 - 208 16,072 21,433 ( Total 13,324 - 229 17,912 31,465 ( Local 12,974 - 6,879 - 19,853 1981 ( Foreign 11,077 - 2,969 - 14,046 ( Total 24,051 - 9,848 - 33,899 ( Local 13,769 - 1,119 617 15,505 1982 ( Foreign 5,940 - 4,068 136 10,144 ( Total 19,709 - 5,187 753 25,649 ( Local 30,090 - - - 30,090 1983 ( Foreign 5,567 - - - 5,567 ( Total 35,657 - - - 35,657 ( Local 45,009 282 6,808 - 52,099 1984 ( Foreign 87,197 128,322 - - 215,519 ( Total 132,206 128,604 6,808 - 267,618 ( Local 209,028 146,159 10,441 6,792 372,600 19853/ ( Foreign 397,742 852,000 36,705 - 1,286,447 ( Total 606,770 998,159 47,146 6,972 1,659,047 ( Local 133,015 8,559 19,500 - 161,074 19863/ ( Foreign - 207,424 72,278 - 279,702 ( Total 133,015 215,983 91,778 - 440,776 TOTAL ( Local 456,894 155,000 44,785 12,973 669,652 1975- ( Pareign 526,674 1,187,746 116,349 30,455 1,861,224 1986 ( Total 983,568 1,342,746 161,134 43,428 2,530,876 I/ The original project envisaged a Phase II which eventually emerged in part s the OECF financed project. 2/ Foreign costs expressed in cedIs have throughout this table been calculated using average annual dollar/cedi exchange rates given in the basic data sheets of the PCR. 3/ The investments for the years 1985 and 1986 are estimates made in October 1985. POSTS AND TELECM8MUICATIONS C~PATON (GPT FIRST TELECOMNICATIGMS PROJECT (LOAN 1122-GH) PROJECT COOPLETION RORT Performamce ndlcators At July 1 (Dece~ber 31 frm 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1983 for finoneal) APR ACT APR ACT APR ACT APR ACT APR ACT APR ACT ACT ACT ACT ACT FOR INPlemenational Telephone - copecIty (mld-year) 42,200 42,200 44,700 44,400 47,000 44,700 48,200 44,700 53,600 44,700 53,600 44,700 44,700 44,700 44,863 46,663 46,919 - DELs (mld-year)* 30,600 32,631 32,400 36,791 3,175 36,008 39,170 37,008 43,600 37,475 46,330 36.931 38,129 37,360 36,100 37,405 37,600 Telex - capacity (mid-year) 200 200 200 200 500 200 500 200 500 200 600 200 500 500 570 570 570 - Itnes <mld-ye)* 192 192 193 193 267 193 327 190 40B 190 450 196 197 198 256 306 316 I nstItuttonal Stoff (No.),/ 5,200 NA NA NA NA HA 6,530 6,300 5,448 4,730 4,761 4,652 Staff/,1 000 DELs 170 NA NA MA NA NA n7 165 147 131 127 124 Financial DomstIc telephono revenuc/ DEL 4)* 243 265 340 382 336 455 335 533 390 847 389 1,214 1,479 1,22B 3,342 - at constant 1974 tarlffs 243 265 243 318 241 352 240 272 245 126 245 112 115 83 126 Oporatteg cost/DEL ttl 503 495 540 504 552 609 546 961 562 1,317 nu> 1,536 2,228 2,428 2,851 - at constant 1974 prlces/ 457 450 450 304 388 181 331 153 299 133 237 129 -R 57 87 Opera ng rato*%> 106 125 82 84 85 95 85 133 75 110 78 94 103 134 72 Rate of reurn ()* NE NEM 9 11 7 4 8 NE 12 NED 9 13 NE NE 272 curre* ratlo (Mons) 3.3 3.5 4.9 5.2 5.5 6.4 5.6 2.3 6.5 1.5 6.4 1.5 1.7 1.1 1.2 Debt/e~jty ratio -/100 -/100 17/83 5/95 31/69 5/95 40/60 22/78 46/54 38/52 49/51 42/58 54/46 67/33 56/44 Dobt sörvi1c cowerage (ttms) - - 12.9 82 4.9 26 3.2 -25 3.2 0 2.4 1 1 -2 1 A/Cs rocelvåblo (days bllIlng> 78 106 65 63 65 81 64 102 59 194 57 171 207 275 337 Indlces (Nmmorandum) Domstic TarIffs (1974 - 100) 140 140 140 140 140 140 140 252 164 1,092 164 1,092 1,473 1,473 3,850 4,787 4,787 ometlc Prim (1974 m 100) 120 120 142 212 165 460 188 795 210 1,194 236 1,792 3,884 4,747 10,579 14,767 17,721 Real Tariffs (1974 0 100) 17 117 99 66 85 30 75 32 78 92 70 61 40 31 36 32 27 n8: Only thos markd with * wr suggested at pprelsal a performance Indlcators. 1/ Includm 60% of - n mervices staff. 2/ NatIonal Pl. The ratlo Is tas not a ro tale Indicator of system offcon~y or the period. S"I FIRST TELECMIMICATIONS PROMECT (Loan 1122-l) Posts and Telecomuakcations Corporation Incose Statesents - Telecommsnications Division (Coc0) Project Completion Report 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 ACT APR ACT APR ACT APR ACT APR ACT APR ACT APR ACT ACT ACT ACT OPERATIS REYE Telephones -1ational 709 9146 8667 9664 14164 10356 16817 11331 19579 12445 31746 13472 44817 56431 45877 94500 -International 603 680 511 680 777 715 903 750 1072 785 1624 1155 1758 2158 5191 18800 -Sb Total 9312 9926 9179 10344 14941 11071 17620 12081 20650 13230 33370 14627 46575 58589 51068 11!300 Telex 1381 1676 1623 1733 2579 2031 1976 2563 1583 3119 2796 3611 3695 3536 3135 11300 Telegraph 2243 2365 1969 2465 3891 2490 2601 2555 3682 2630 7537 2645 7429 19968 11780 34000 Leased Circuits 189 189 216 200 799 200 529 220 697 230 1022 240 1912 1227 1390 1300 Other 339 450 0 493 2 546 272 600 152 665 191 728 434 403 326 520 Total Revenue 13463 14506 12985 15235 22212 16328 22997 18019 26764 19974 44916 2185t 60045 82723 67699 160420 Tariff Increase - FY76 0 0 0 6095 0 6530 0 7210 0 7950 0 8740 0 0 0 0 Tariff Increase - FY79 0 0 0 0 0 0 0 0 0 4730 0 5200 0 0 a a Total Operating Revenue 13463 14506 12995 21330 22212 22958 22997 25229 26764 32554 44916 35791 60045 82723 67699 16420 OPERATIAS EIPENSES Salaries % 1ages 4722 9000 7966 9200 8447 10580 9397 12170 19226 13995 22518 16095 29451 38020 46431 5680 tter Operating 3822 4016 5025 4433 4792 4563 7531 4566 7153 4776 14911 4976 14841 29729 21804 31200 General & Admisistrative 470 635 389 695 2694 765 2342 945 6517 925 8922 1015 9256 15015 19288 2470) Depreciation 2472 27 1 2755 3159 2631 3500 2652 3904 2670 4786 3009 5894 3165 3226 3297 M00 Total Operating Expenses 11486 15382 16135 17497 19554 19408 21912 21385 35566 24482 49360 27980 56713 05009 90820 11620( Operating Incose/tLoss) 1977 -976 -3250 3843 3659 3450 1085 3844 -9802 9072 -4444 7811 3332 -2286 -23121 44220 LesstInterest 0 0 0 542 77 1405 151 2360 242 3443 1531 4426 3022 4232 4416 23422 Lesstw=-- 0 0 0 0 -21 0 -264 0 -54 0 -696 0 -41 -7181 -1295 -1286 Net Incae/ (Loss) 1977 -976 -3250 3301 3602 2045 1198 1484 -990 4629 -5279 3385 351 663 -26252 22094 LesstTrasfer to overaseat 0 0 0 0 0 650 0 450 0 3145 0 1600 0 0 6 0 Net urplus/fOeficit) 1977 -876 -3250 3301 3602 2395 1198 1034 -8990 1484 -5279 1785 351 663 -26252 22084 Operativg Ratio ft) 5 106 125 82 84 85 95 8l 133 75 110 78 94 103 134 72 Rate of trn (I 5 -2 -to 8 it 7 4 7 -32 10 -17 9 14 -10 -118 272 Average kat Plant 36512 40281 32822 48430 32172 46930 29490 54726 27555 79230 26504 91406 23525 22289 19532 16274 FIST TELECO88MilCATIM16 9~03ECT (Loan 1122-UH> Posts and Telecouications Crporation Dalaca 5ets • Telecoammications Division (CO0O) Project Completion kpot 1974 1975 1976 1977 1978 1979 1980 1981 1992 1%3 ACT APR ACT A ACT APR ACT R ACT AP ACT APR ACT ACT ACT ACT om Fimed st 53655 60155 51903 71463 54052 73463 52679 8563 53495 113145 55309 131215 55448 55% 59160 6%27 Less: reciation 17143 19874 19081 23033 2180 26533 23209 30337 25930 33915 2905 3909 31923 36307 39600 44353 met Fixed Assts 36512 40281 32822 48430 32172 4930 29470 54726 27555 79230 26504 91406 23525 22299 19560 16274 rt-in-Progrss 6068 4241 5771 7111 8070 21563 4865 27261 1206 13183 27346 9528 51615 106929 159595 161878 Cerret Assets: -laventeries 4720 1600 0 2000 0 2250 12009 2700 14158 3000 12694 3300 13447 20027 23239 26083 -Accats ectivable 2784 3111 3729 3810 3846 4110 5094 4395 7507 5235 23900 5615 29096 46953 50969 119845 -Dtbar Rceivables 1530 940 52 945 3004 1020 1717 1102 3199 1190 413 1285 2062 730 1481 1401 -Cauh 5 Bats 250 345 4884 2446 6348 3474 3206 3397 9249 4728 6601 4337 13177 14336 17193 20993 Total Cerraft Ansets 9284 5996 8665 9201 13198 10854 22015 11584 34111 14153 43608 14537 56782 82046 92981 168392 Total A916ts 51864 50518 47258 64742 53440 79347 56350 93571 73732 10566 97458 114471 131922 211264 271036 346544 LIABIIT1E8 c*tta a hmers 39500 49035 46058 49303 46236 48655 4687 48205 51531 45060 52535 43460 65257 84494 97745 102965 Bataed Earatogs 0 0 1977 -584 -1273 2717 2329 4762 3527 6246 -5463 10875 -10742 -10391 -9728 -35980 Year's Profit/~)Loss 1977 -314 -3250 3301 3602 2045 1198 1484 -990 4629 -5279 3395 351 663 -26252 22084 - - --------------------- ---- --- Total Equity 41477 48721 44785 52020 49565 53417 50414 54451 460 55935 41793 57720 54866 74766 61765 89069 P&T bvlopmot Stocks 0 0 0 0 0 0 0 0 0 0 0 0 0 32567 41286 47000 kt Log-Tera fåbt 0 0 0 10840 2311 23960 2513 37054 12982 4840 25364 54466 39337 55372 94575 66935 Total Current Liabilities 10397 1797 2473 1882 2564 1970 3423 2066 14682 2171 30301 2285 37719 48559 83410 143620 Total Liabilitifs 51864 50518 47258 64742 53440 79347 56350 93571 73732 10566 97458 114471 131922 211264 271036 346544 Cerrant Rötio 0.89 3.34 3.50 4.89 5.15 5.51 6.43 5.61 2.32 6.52 1.44 6.36 1.51 1.69 1.11 1.17 Dett~tt+quity 0.00 0.00 0.00 0.17 0.05 0.31 0.05 0.40 0.22 0.46 0.38 0.49 0.42 0.54 0.67 0.56 Accouts ectivablt ~days 75 78 106 65 63 66 91 64 102 59 194 57 171 207 275 273 FIRST TELECOMICATIMS PRWJECT (Loan 1122-64) Posts and Teleccanicatiom Corporation Fonds Flow Statements - Telecoiauncations Diusion (C000) project Completion Report 1975 1976 1977 1979 1979 1990 1991 1982 1983 APR ACT APR ACT APR ACT APR ACT APR ACT APR Act ACT ACT ACT Intral Cas Dneation -M las bfoer* Interst -o76 -3250 3843 3679 3450 1349 3844 -8749 9072 -3749 7911 3373 4995 -21836 45506 -kpreciation 2731 2755 3159 2631 3500 2652 3804 2670 4796 3009 5994 3165 3226 3297 3500 -Mub Total 1855 -495 7002 6310 6950 4001 7648 -6079 12959 -739 13705 6538 9121 -19539 49006 sovernewt Centributioa -ubuetimn 2500 6500 0 0 0 0 0 4800 0 0 0 11600 20700 13000 5000 -Addt s to Equitf 5620 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -enh Tetal 8120 6500 0 0 0 0 0 4800 0 0 0 11600 20700 13000 5000 Kl eel~pent tmcts 0 0 0 0 0 0 0 0 0 0 0 0 32567 9719 5714 Ln ter* Merroing 0 0 1M40 7000 13120 203 13094 10469 11944 12382 7191 16544 17020 29203 109 TMTAL SUIE8 9975 6005 17842 13310 20070 4204 20742 9191 24102 11643 20896 34682 78408 32393 59829 L1 iatm ComstrUctif Prras 4738 0 14115 4440 16450 0 17299 8007 15212 17104 13415 24409 58462 52230 475 Mét Service -Principal 0 0 0 0 0 0 0 0 539 0 1195 2571 3556 3556 21395 -Lerfst 0 0 542 77 1405 151 2360 242 3443 1531 4426 3022 4232 4416 23422 -så TUtal 0 0 542 77 1405 151 2360 242 3981 1531 5611 5593 7788 7972 44907 Tränsfer to kw ~rat 0 0 0 0 650 0 450 0 3145 0 1600 0 0 0 0 Chag in le1rkng Capital 5237 6005 3185 975 1565 4053 634 942 2464 -6992 270 4681 12158 -27819 10272 10TAL APLICATIM 9975 6005 17842 13310 20070 4204 20742 9191 24802 11643 20996 34682 79409 32383 59829 at Service Cör EM ER 13 2 26 3 -25 3 0 2 1 1 -2 1 hst Internal Ca komerötion as of Cstructi Prhgra 39 m 46 140 34 Im 31 -79 51 -13 60 4 1 -51 89 ANNEX 8 - 46 - GHIMA POSTS AND TELEOMMUNICATTONS CORPORATION (GPT) FIRST TELM0MNICATIONS PROJECT LOAN 1122-GR PROJECT COMPLETION REPORT Telecommunications Tariffs (Cedis) At Prom From From Prom From Appraisal July 752/ Febr. 783/4/ may 795/ June 815/ June 836/ 7/ 1. TELEPHONE A. Installation - Main line 31.25 43.75 na 500.0 835.0 2,125.0 - Extension 6.25 8.75 na 91.0 152.0 386.0 R. Rental - Manual T Business 30.00 to 42.00 to na 153.00 to 206.00 to 650.00 to 44.00 61.60 224.00 302.00 952.00 it) Residential 20.00 28.00 na 102.00 138.00 434.00 - Automatic I) Business 50.00 70.00 126.00 425.00 573.75 1,806.00 it) Residential 25.00 35.00 na 225.0 301.75 956.00 - Extension 1) Internal min 1ui.50 min 14.70 na min 108.00 mit 145.80 ala 459.00 It) External min 15.00 min 21.00 as min 154.00 min 207.90 min 654.00 C. Call Charges - Local (unltited) 0.05 0.08 0.15 0.50 0.70 2.15 - Long distance (STD)(per 3 min)l/ 1) 0-20 miles 0.10 0.14 na 0.70 0.95 1.90 I) 21-50 miles 0.225 0.315 us 1.70 2.30 5.50 it) 51-100 miles 0.450 0.630 na 1.00 4.05 11.90 iv) 100 miles and + 0.563 0.788 na 4.00 5.40 16.60 D. International calls (per 3 ain) - Africa na nA na 21.8 27.6 136.5 - Vitrope na na na 27.5 37.2 130.5 - North America na na na 36.1 47.3 145.5 - South America na na na 36.3 41.2 136.5 - Asia us na na 36.1 43.9 148.5 II. TELEX Annual rental (complete installation) 720.84 1,100.00 na 5,000.00 6,500.00 20,000.00 III.TELEGRAPH Inland Ordinary Telegrams - Pirat 12 words 0.25 0.35 us 1.50 2.30 6.40 - Each additional word 0.02 0.03 na 0.15 0.20 0.65 1/ Subject to a 502 reduction between 6 pm and 6 am. 2/ Average increase of 402. 3/ Average increase of 802. 4/ Telex and telegraph increases were effected in May 1978. 5/ May 1979 Increase was to two parts, first effective in FY80-81, the second in FY62 and beyond. 6/ May 1979 increase was officially ratified at same time. 7/ International charges have risen since June 1983 to reflect changes to cedt exchange rate against the gold franc, t.e., adjustments of 2142 in September 1984 and of 302 in January 1985. Note: A new telecommanications tariff was Issued in March 1986 providing for average increases of 400. ANNEX 9 Page of 2 GaANA POSTS AND TELECOMMUNICATIONS CORPORATION (OPT) FIRST TELECOMMUNICATIONS PROJECT LOAN 1122-GR PROJECT COMPLETION REPORT Return on Investment 1* Analysis is carried out on the capital and recurrent cost streams of the project, that is Phase I of the rehabilitation and expansion of domestic telecommunications services of the OPT 1976-80 investment program, and on the benefits to be derived from the project. 2. All cost and benefit streams have been expressed in 1975 prices for comparability with the original appraisal estimates. 3. Actual capital cost streams are based on the project as actually implemented 1975-84 and as expected to be implemented and completed in 1985-86. 4. Actual operating cost streams are calculated by multiplying the new subscribers connected or expected to be connected under the project over the period 1984-88 by the actual or expected average operating cost per subscriber. The additional cost to the network of operating the STD and improved transmission facilities at Accra, Takoradi and Kumasi are not taken into consideration. 5. Actual bunefits are calculated as the revenues from the additional subscribers connected are expected to be conliected in 1984-88 multiplied by the average actual or expected revenue per subscriber. The additional revenue earned from existing subscribers due to the aforementioned transmission improvements has not been included. 6. The expected life of the project is 20 years. 7. In the Attachment to this Annex, basic data is provided on which basis rate of return calculations have been performed on four base case net benefit streams. These are as follows: ANNEX 9 - 48 - Page 2 of 2 Case Assumptions Rate of return NETBEN 1 - Foreign capital cost valued at official exchange rate - Benefits valued at June 1983 tariff levels 13.5% NETBEN 2 - Foreign capital cost valued at parallel exchange rate - Benefits valued at June 1983 tariff levels 0% NETBEN 3 - Foreign capital cost valued at official exchange rate - Benefits valued at constant real tariff levels 29.5% NETBEN 4 - Foreign capital cost valued at parallel exchange rate - Benefits valued at constant real tariff levels 8.5% 8. Case NETBEN 4 is considered to be the most valid on economic grounds. The parallel exchange rate is a truer reflection of the scarcity value of foreign exchange during the project period than is the official exchange rate. At 1985 actual tariffs had fallen to less than 282 of their real value in 1975 and it is thus not unreasonable to value the benefit of what is a scarce service (with only 52% of registered demand met in 1985) at constant real 1975 tariffs. 9. The best estimate at October 1985 of the economic rate of return of the project is thus 8.5% which compares unfavorably with the appraisal estimate of 18%, due largely to increase in project capital costs. The rate of return compares unfavorably too with the current estimated real opportunity cost of capital of 10-11% in Ghana. 10. The rate of return of 8.5% is subject to considerable downside risk, in the event that action is not taken in time or in sufficient amount by GPT to improve the overall quality of the telecommunications network. To measure this risk, the NETBEN 5 case was developed under which project benefits are reduced 20%. Under this assumption, the rate of return of the project would fall to 6.5%. 緣 ，寥審莖粩慧饗響讓讓粩籐讓籐荔讓響藝籐讓遷華荔籐蔆讓藝藝邊百邊華荔 華望華藝望華望華華擊藝華望藝望望望擊萋奮。藝讓。。：。、，,：。馨鳥 ,,,,,:,,,,,,,:,,,,,,；。。。、呂，,,；。。i華 。，，誡斗斗斗。；:；黑i 萋。。。。。。，。，。暴｝ 審 ＿二。。：：霾 驕。尋導毛騷巷雙藝”。，。名藝攤寥邑喜華． --.09,&：召認話 ！〔！！鄰撫。添〕i〕‘蠶】’ 雜擊藝華藝委基叢萋，。藝。甚翡發豆要 耋，藝。，，。華‘。．，。‘!,i 藝蘿霎藝藝藝藝藝逕逕藝基藝藝藝萋逕藝藝藝。，：。＿。。．。…，華 華華華華粹華華華華華華華華華華華華華望望憂遺巷霽暹 警望望望響望鑒望望望望望望響望望響望望藝巷響華”畫 蒙霉蒙耋蒙蒙蒙輩藝望蒙藝藝藝耋蒙藝望華華華藝，。。。。。。。。。喜纏 華震華藝震轟轟粩轟粩頸華藝震饞發發轟轟梁藝‘：。．＿。＿＿。＿。蠶畢 乙于OT胡•d一6觔－ 工啊越必醒立 6X萬勵柑 邊 卹籷化Xg 刀蔥國亟國望 Pa粤2 ofZ 一50- 籐：”變”畢邃婪潺賽參寫絕。變發熙濫熙熙熙界熙濫熙熙濫熙熙讒擠濫熙濺擊 益各甲「，？甲，f&&&&&&”一”&&&&&&&&&&”一”暹 i:&&”。’&&&&&&&&&&&&&&&&&&&&&& 。i&”華‘箏琴華華年華華琴臼黑華緣弓緣緣寡緣緣弓弓考雜藝緣緣緣緣濫‘i 自基：”華’華實華華華手華蠶日黑釁緣藝縴藝藝緣C弓寡弓醒寡C寡緣熙緣緣惡 他界呂”蠱 藝鐵＿___________________________＿屆 薑編喜曄：一琴一華神輯”華不蠱”廷要要華要要”變要要婪要要“要要要薑 粅•屆遞‘________.__________&____________＿曰 癲震鍵屆蠹一華一鵠””輯“&&“要要，&,,,,,,,,，悲 話叢呂邊名”，。 篡蘆話遲 岳疋男渥 巒一讓：&&&&&&&“屹黑晨柴柴梁柴柴柴梁柴柴柴梁柴祟柴梁柴柴柴離 響盈呂 藪：”一’&”一”&&‘華藝盔邊邊遷蠱多遷邊夠藝邑韶龍藝錢 i,&&&&&&&&&&&&&&&&&&&&&&&&&&&& i&”蘿”&’擊‘&&&‘發”庭”&&&&&”庭”發”&&&& 藝邊藝發藝奎發呈變藝變邊響變奎藝至藝呈韭藝藝藝呈韭賽藕賽括藕黑義