Tanzania - Second Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4552-TA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 17.9 MILLION TO THE UNITED REPUBLIC OF TANZAAIA FOR A SECOND TELECOMMUNICATIONS PROJECT May 7, 1987 I This document has a restricted distribution and may be used by recpients only in the performance of their offcida duies. Its eotents may not ohedrwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of April 1987) Currency Unit - Tanzanian Shilling (TSh) $1.0 - TSh 55 TSh 1.0 = $0.018 $1 = SDR 0.7782 FISCAL YEAR Government: July 1 - June 30 TPTC: January 1 - December 31 WEIGHTS AND MEASURES Metric System PRINCIPAL ABBREVIATIONS AND ACRONYMS AFDB - African Development Bank BOT - Bank of Tanzania ERP - Economic Recovery Program MCW - Ministry of Communications and Works TPTC - Tanzania Posts and Telecommunications Corporation  FOR OFIIAL USE ONLY TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT CREDIT AND PROJECT SUMMARY Borrower: United Republic of Tanzania Beneficiary: Tanzania Posts and Telecommunications Corporation (TPTC) Amount: SDR 17.9 Million ($23.0 Million equivalent) Terms: Standard Onlending Terms: The Government will onlend the credit proceeds to TPTC at the IBRD rate, for 20 years including 4 years of grace. TPTC would bear the foreign exchange risk for the period of the onlending agreement. Financing Plan: TPTC $11.0 million AFDB $ 5.0 million Italy $10.0 million SIDA $11.0 million IDA $23.0 million Total $60.0 million Economic Rate of Return: 40% Staff Appralsal Report: No. 6728-TA IBRD 20127 This document has a restricted distribution and nu v be used by recipients only in the performance of their official duties. Its contents may not other - disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A SECOND TELECOMMUNICATIONS PROJECT 1. This report on a proposed Credit to the United Republic of Tanzania for SDR 17.9 million ($23.0 million equivalent) is submitted for approval. The Credit would be on standard IDA terms and would help finance rehabilitation, and maintain and maximize the capacity of the existing network. It would also support selected and high priority investments to alleviate critical system bottlenecks. The Government would onlend the credit proceeds to TPTC at the IBRD rate, for 20 years including 4 years of grace. TPTC would bear the foreign exchange risk for the period of the onlending agreement. The African Development Bank, the Governments of Italy and Sweden are also assisting the project with parallel-financing of US$5 million equivalent, US$10 million equivalent and US$11 million equivalent, respectively. 2. Background. Tanzania Posts and Telecommunications Corporation (TPTC), established in 1977, is a Government-owned parastatal entity which provides all domestic and international postal and telecommunications services in Tanzania. The Ministry of Communications and Works (MCW) is the regulatory authority for the sector. TPTC is administered by a Board of Directors, whose Chairman and Director General are appointed by the President of Tanzania; MCW appoints the other six members. In 1986, TPTC had 173 telephone exchanges with an installed capacity of 73,000 lines and with 54,000 direct exchange lines connected. This is equivalent to 0.2 telephones per 100 population, one of the lowest telephone densities in the world. Satellite international telecommunications are provided by an earth station at Dar-es-Salaam (operating at full capacity since 1983), and by leased satellite circuits on an earth station at Nairobi. In Dar-es-Salaam, about 60% of telephones are connected to commercial, 30% to government and 10% to residential subscribers. Local telephone service in Dar-es-Salaam is poor and repairs are slow. The first project (Credit 1173-TA) has provided for limited rehabilitation and network expansion, initial institutional support for procurement activity and training in technical, managerial and financial disciplines. However, the full benefits of the investments have not been realized due to the persistent lack of foreign exchange to finance essential spare parts and maintenance. These problems have been compounded by organizational, management and staffing deficiencies. A severe network deterioration has been the result. The quality of service has deteriorated, as exemplified by the drop in call completion rates from 40% in 1980 to 24% in 1986, and the increase in fault repair time from four days in 1980 to 10 days in 1986. Reflecting these problems, TPTC's financial performance was mixed during 1980-85. However, corrective actions on tariff adjustments were taken when necessary and TPTC is currently fully compliant with the financial covenants under the previous credit. The Government gives priority to  -2- communications a8 a vital element in its 1986-90 Economic Recovery Program, with emphasis on rehabilitation and maintenance of existing facilities rather than expansion of the network. 3. Pro 0ect objectives. The objectives of the Second Telecommunica- tions project are to (a) rehabilitate key parts of the telecommunications network and maximize capacity utilization by removitig bottlenecks and imbalances; and (b) strengthen TPTC's operational, organizational, financial msnagement and planning capacity. 4. Project Description. The proposed project comprises TPTC's 1986-1990 Investment Program including: (a) rehabilitation of local cable networks and subscriber equipment; (b) marginal expansion and replacement of worn out or obsolete switching and transmission equipment; (c) installation of transit exchanges and a satellite earthstation to improve long distance and international services; (d) upgrading maintenance facilities by introducing modern testing methods and tools; (e) upgrading computer facilities to introduce management information systems; and (f) strenthening TPTC's organizational structure and management systems through technical assistance (about 240 man-months) and foreign training (about 40 fellowsnips). The project would provide funds for telecommunications equipment, spare parts, vehicles, training and technical assistance. Total project cost is estimated at $60.0 million equivalent, with a foreign expenditure component of $49.0 million (82X). Estimated costs and financing plan are shown in Schedule A. Amounts and methods of procurement, disbursement categories, and the disbursement schedule are shown in Schedule B. Key project-processing events and the status of Bank Group operations in Tanzania are in Schedules C and D, respectively. A map is also attached. A Staff Appraisal Report No. 6728-TA dated May 5, 1987 is being distributed separately. 5. Rationale for IDA Involvement. The project is in line with the Bank's development assistance strategy for Tanzania which gives priority to removing bottlenecks constraining the productive sectors. Since bilateral funding typically finances equipment, without IDA's presence, the sector would receive inadequate assistance for improving management, strengthening the technical and financial systems, maintenance, and manpower development. IDA also plays an important role in aid coordination for the sector, and has worked closely with AFDB and the Governments of Italy and Sweden in financing arrangements based on IDA's appraisal of this project. IDA's efforts in the sector complement the initiatives currently undertaken by the Government (and supported by IDA's Multisector Rehabilitation Credit) in other priotity parastatals in Tanzania. 6. Actions hgreed. It has been agreed, inter alia, that TPTC would: (a) not later than October 1 each year, and based on the agreed five-year investment program, review and agree with IDA its annual development budget, technical assistance and training, and performance against set targets; (b) consult with IDA before making any investments additional to the agreed program in an aggregate amount greater than $2 million equivalent in any financial year (disbursement of the specified IDA share of the annual financing plan for TPTC's agreed five-year investment program  - 3 - would be conditional upon agreement on the annual expenditure outlays and provision of the agreed TPTC/Government local funding. If the TPTC's contribution is reduced below the levels indicated in the agreed five-year investment program, the IDA share of financing may be reduced pro rata); (c) review ai.d amend its sectoral organization and structure in tandem with improvements and innovations in technology, and promote efficiency by contracting out certain activities to other agencies; (d) review its manpower plan and by December 31, 1988, prepare a computerized data base incorporating its requirements, targets and recruitment strategy; (e) prepare a staff incentive scheme to be reviewed with IDA by January 1, 1988 and implemented by June 30, 1988; (f) submit a revised tariff policy by January 31, 1988 allowing it to adjust its tariffs automatically, taking into account efficiency improvements which will have been made; (g) earn a 12% rate of return on net revalued assets; (h) ensure that its net internal cash generation for the current year would not be less than 50% of the two year moving average of its total investment requirement for the current year and the following year; (i) by December 31, 1987, prepare a timetable for reducing outstanding subscriber receivables to two months of revenues by end FY90; (j) ensure that from the end of FY87 onward, its financial accounts reflect the revaluation of assets and liabilities; (k) recruit the necessary technical assistance by no later than December 31, 1987; and (1) by December 31, 1988, prepare and implement a policy for transferring surplus revenues to the Government. Conditions of effectiveness are: (a) signing of a subsidiary loan agreement between the Government and TPTC; and (b) appointment of a project coordinator. 7. Justification. The project would help develop an essential infrastructure, remove bottlenecks and improve productivity in other sectors, particularly transportation and agricultural marketing. TPTC would also generate significant revenue surpluses for the Government. The project's rate of return is estimated at 40%. 8. Risks. Although the project faces no unusual risks, TPTC may implement management improvements more slowly than anticipated. The provision of technical assistance in line positions would minimize this risk. The impact of this assistance would be reviewed annually with IDA, and TPTC would be required to agree to implementation objectives for the following year. Annual project performance reviews would identify technical and financial problems and determine measures to resolve them. Advanced procurement activity would minimize technical implementation delays. 9. Recommendation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend that the Executiv- Directors approve the proposed Credit. Barber B. Conable President Attachments Washington, D.C. May 7, 1987  -4- SCHEDULE A Page 1 of 2 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT ESTIMATED PROJECT COSTS Item --t$ million equivalent)-- Local a/ Foreign Total Local cable network 2.0 6.3 8.3 Switching equipment and spares 0.4 13.7 14.1 Radio and transmission equipment and spares . 0.4 5.5 5.9 Telephones, teleprinters, switchboards and coinboxes 0.6 3.2 3.8 Earthetation 0.4 9.2 9.6 Vehicles, power plant, air conditioning, repair center, work shop equipment, civil works materials, office aids training equipment and spares 3.5 3.2 6.7 Technical assistance and training 0.3 3.4 b/ 3.7 TOTAL BASE COST 7.6 44.5 52.1 Physical Contingencies 0.4 2.2 2.6 Price Contirgencies 3.0 2.3 5.3 Total Contingencies 3.4 4.5 7.9 Total Project Cost 11.0 49.0 c/ 60.0 a/ Excludes customs duties and taxes from which TPTC is exempt. b/ Including repayment of PPF advance ($600,000). ~/ Including $1.4 million estimated indirect foreign exchange.  -5- SCHEDULE A Page 2 of 2 PROJECT FINANCING Project Financing Plan: Source Local Foreign Total - -------$ million Equivalent IDA - 23.0 a/ 23.0 AFDB - 5.0 5.0 Italy - 10.0 10.0 Sweden (SIDA) - 11.0 11.0 TPTC 11.01 - 11.0 TOTAL 11.0 49.0 60.0 a TIncluding PPF funds of $600,000 disbursed prior to July 1, 1987 and including an estimated $1.4 million in indirect foreign exchange.  6- SCHEDULE B Page 1 of 2 PROCUREMENT ARRANGEMENTS ($ uzillion 8/) Negotiated LCB & ITEM ICB Purchase LIB b/ Others Total Local cable networks 3.4 (3.4) - 0.3 (0.3) 6.1 c/ 9.8 (3.7) Switching equipment 6. 3d/(3.7) 1.4 (1.4) 0.4 (0.4) 8.0 c/ 16.1 (5.5) Trandission equipment 5.4d/(3.1) 0.5 (0.5) 0.4 (0.4) 0.4 c/ 6.7 (4.0) Telephones and switchboards 2.7 (2.7) 0.7 (0.7) - 0.9 4.3 (3.4) Earth station 10.6 c/ 10.6 Vehicles, power plant, air conditioning, workshop and equipment, conputer equip- ment, civil works, materials, spares 2.7 (2.7) 0.7 (0.7) - 4.9 8.3 (3.4) Technical assistance - - 2.4 (2.4)e/1.8 (0.6)f/ 4.2 (3.0) TOTAL 20.5 (15.6) 3.3(3.3) 3.5 (3.5) 32.7 (0.6) 60.0(23.0) Percent of Total 35 5 5 55 100 Percentage of IDA Credit 70 14 14 2 100 Note: Figures in parentheses represent the amounts financed by the proposed IDA credit. a/ Including contingencies 1F/ Limited international bidding c/ Ita.L'an and Swedish Government guidelines. t/ Includes AFDB funds. e/ Bank guidelines for the use of consultants (includes $600,000 for PPF) T'/ Fellowships  -7- SCHEDULE B Page 2 of 2 DISBURSEMENT CATEGORIES '.4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Cate- Amount % Financed by gory Item ($ 1,000) IDA 1. Telecommunications equipment, 15.0 100% of foreign materials and spare parts expenditures 2. Vehicles, power plant, air conditioning, 3.2 100% of foreign repair center, workshop equipment, civil expenditures works materials, and training school equipment, computer equipment, tools & spares 3. Training, consultancies and 2.2 100% of foreign fellowships expenditures 4. Refinancing of PPF 0.6 Amount disbursed and outstanding 5. Unallocated 2.0 Total 23.0 ESTIMATED DISBURSEMENTS: a/ IDA FY: 1988 1989 1990 1991 1992 1993 1994 1995 -