Colombia - Fifth Telecommunications Project

Document of The World Bank FOR OMCIAL USE ONLY Repot No. 7327 PROJECT COMPLETION REPORT COLOMBIA FIFTH TELECOMMUNICATIONS PROJECT (LOAN 1825-CO) June 23, 1988 Trade, Finance and Industry Operations Division Country Department III Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by redpients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS AND ACRONYMS DEL Direct Exchange Line EDA Empresas Departamentales de Antioquia EPH Empresas Ptblicas de Medellin TELECOM Empresa Nacional de Telecomunicaciones  FOR OmcIL US ONLY THE WOtLD SANK Washington. D.C. 20433 U.S.A. Ok.e di OVtEcI4.GqwUI Opwfahm EvahItn June 23, 1988 MEHORANDUK TO ?HE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECTt Project Completion Report on Colombia Fifth Telecommunications Proiect (Loan 1825-CO) Attached, for information, is a copy of a report entitled 'Project Completion Report on Colombia Fifth Telecommunications Project (Loan 1825-CO)" prepared by the Latin AAerica and the Caribbean Regional Office. Further evaluation of this project by the Operations Evaluation Department has not been made. Yves Rovani by Ram K. Chopra Attachment I This document has a restricted distribution and may be used by recipients only in the peformance of their official duties. Its contents may not otherwise be disclosed without Word fank authibutioe.  COLOMBIA FOR OmCIuAL USE O!NLY LN. 1825-CO FIFTH TELECOMMUNICATIONS PROJECT COMPLETION REPORT Table of Contents Page No. PREFACE ........................................................... BASIC DATA SHEET ..................iI........ i HIGHLIGHTS ........................................................ iv I. INTRODUCTION ................................................ 1 II. PREPARATION AND ANALYSIS OF THE PROJECT ..................... 4 III. PROJECT IMPLEMENTATION AND COST ............................. 8 IV. OPERATIONS .................................................. 13 V. FINANCIAL ASPECTS ........................................... 16 VI. INSTITUTIONAL PERFORMANCE ................................... 19 VI. ROLE OF THE IBRD ............................................ 21 VII. CONCLUSION .................................................. 22 Annexes (Attached in English): 3 Basic Information ........................................... 23 4 Performance Indicators ...................................... 24 7 Estimated versus Actual Costs ............................... 25 9 Comparison Economic Indicators .............................. 26 10 Allocation of IBRD Loan ...................................... 27 11 Cumulative Disbursements .28 12 Calls Made and Answered .29 13 Operations Status .30 15 General Balance Sheet . 31 18 Comments from the Borrower .32 Annexes (Not Attached and Available in Spanish) 1 Construction Timetable 2 Physical Goals 5 Procurement Status 6 Estimated Project Costs 8 Annual Investment (In Millions of Colombian Pesos) 14 Source and Use of Funds (In Millions of Colombian Pesos) 15a Estimated and Actual Tariffs 15b Yearly Investments (In Millions of US$ and Colombian Pesos) 15c Yearly Income and Expenses 16 Rate of Return (In Millions of Colombian Pesos) 17 Organizational Chart IBRD Map No. 14804 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 llank authorization.  COLOMBIA LN. 1825-CO FIFTH TELECOMMUNICATIONS PROJECT PROJECT COMPLETION REPORT PREFACE This report presents the results of a performance review of the Fifth Telecommunications Project, for which Ln. 1825-CO of US$44 million was made to the Public Utilities of Hedellin (EPM). The Loan became effective in October 1981, and was closed in June 1986. The Project Completion Report was prepared by EPM in August 1986. The Division of Ptnancial Programming of EPM coordinated the writing of the report and received support from the different divisions of the Telephone Company, which participated both directly and indirectly in the development of this project. The Staff Appraisal Report, the Credit and Project Agreemente, and other reports related to project implementation were used as background materials. In accordance with the revised procedures for project performance audit reporting, this PCR was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff. Following normal procedures, OED sent copies of the draft report to the Government and the Executing Agency for comments. The comments received have been taken into account in finalizing the report and are reproduced as Annex 18.  - il - COLOMBIA LK. 1825-CO FIFTH TELECOMMUNICATIONS PROJECT BASIC DATA SHEET KEY PROJECT DATA Item Apgraisal Estimates Actual Total Project Cost (USS Millions) 110.0 102.8 Overrun (Z) (7) Loan Amount (USS Millions) 44.0 44.0 Disbursed 44.0 44.0 Date of Physical Completion Dec 1984 Jun 1986 Proportion Completed by Above Dates (Z) 100 100 Financial Performance Satisfactory Institutional Performance Excellent CUMULATIVE DISBURSEMENTS (US$ Millions) Fiscal Year Appraisal Estimate Actual 1980 3,170 1981 18,970 1982 32,070 6,831 1983 40,770 29,498 1984 43,566 37,617 1985 44,000 41,893 1986 44,000 44,000 EXCHANGE RATES Currency Unit Colombian Peso Appraisal Year Average (FY79) US$1.00 - Col Pesos 44.05 Average Over-Project-Period (FYs80-85) US$1.00 - Col Pesos 56.49 Completion Year Average (FY85) US$1.00 - Col Pesos 143.09 Average Exchange Rates: Colombian Pesos/US$1.00 Year Ending 1980 1981 1982 1983 1984 1985 December 31 47.46 55.00 64.68 79.53 101.33 143.09  - iii - OTHER PROJECT DATA Item Appraisal Estimates Actual First Mention in Timetable - Nov-Dec 19 Government Application - Feb 79 Negotiations - Feb 80 Board Approval - Mar 27, 1980 Loan Agreement Date Nov 1980 Dec 19, 1980 Effective Date Mar 1981 Oct 30, 1981 Closing Date Jun 30, 1985 Jun 30, 1986 Borrower: Empresas Publicas de Medellin (EPM) Executing Agency: Empresas Publicas de Medellin %EPM) MISSION DATA Mouth/ No. of No. of staff Date of PurPose Year Weeks Persons Weeks Report Appraisal 11/79 2 2 4 3/07/1980 Full Spvn. 1 2/81 1 2 2 3/18/1981 Full Spvn. 2 8/82 2 1 2 9/01/1982 Full Spvn. 3 3/83 1 1 1 4/04/1983 Full Spvn. 4 6184 1 1 1 6/29/1984 Total 7 7 10  - iv - COLOMBIA LN. 1825-CO FIFTH TELECOMMUNICATIONS PROJECT HIGHLIGHTS 1. The Bank has so far been involved in five telecommunications lending operations in Colombia. Four loans made to TELECOM ("Empresa Nacional de Telecomunicaciones") contributed to the rational development of this sector and to institution building, with a frequent improvement in service and reduction in operating costs, resulting from standardization and consol:dation of operations. 2. The Fifth Telecommunications Project was approved in March 1980, and completed in June 1986. The Borrower's performance in most aspects was exemplary. Despite cumbersome legal procedures in Colombia, procurement and contracting were carried out expeditiously. 3. Overall project achievements include: a) Subscriber services were improved, with the installation of 127,000 new lines in tledellin and in outlying municipalities, whereas the original project called for the installation of only 108,000 lines. Capacity increased during the period by 67Z and subscribers by 52Z. Waiting fell dramatically (see Annex 4 and para. 3.02); b) Accounts receivable decreased from 76 days in 1980, to 19 days in 1985 (see Annex 4 and para. 3.09f); C) Improved procurement procedures that adhered to Bank guidelines resulted in cost savings to EPH. The original bid invitations had to be recalled for legalistic reasons, because they were issued before loan signing, without a waiver to follow Bank guidelines, particularly with respect to local preference. Delayed loan signing was an. issue for all loans in Colombia at that time. (This problem was subsequently resolved.) The legal problems resulted in the one-year delay in project execution (see paras. 3.10-3.12); and d) EPM was able to reprogram efficiently physical requirements as circumstances dictated, installing fewer lines in communities that showed less need and reallocating the surplus lines to central exchanges where demand was greater (para. 3.0Z(a)).  COLOMBTA LN. 1825-CO FIFTH TELECOMMUNICATIONS PROJECT PROJECT COMPLETION REPORT I. INTRODUCT'ON 1.01 The Project Completion Report was prepared by the Borrower, Empresas P(blicas de Medellin (EPM), and submitted to the World Bank in August 1986. It provides a good description of the Project's origins, execution, achievements, and problems. The quality of the report is an indication of the effectiveness and efficiency of the institution which carried out the Project. Since the report accurately and fairly represents most aspects of the Project, a mission was not considered necessary; Bank staff have merely commented on a few aspects noted in or absent from the Borrower's version. 1.02 This is the fifth Telecommunications Project in Colombia supported by the Bank, but the first effort to strengthen a municipal telephone system. The objectives of prior loans for Colombian telecommunications have been to: (a) strengthen the natiL.1l company; (b) improve long-distance service; Xc) integrate wany small inefficient municipal and provincial companies into the national company; and (d) improve service at those localities. Progress in achieving each of those objectives has been made in the four previous loans. However, the task of integration, modernization, and rationalization of tele- phone service is far from complete. One of the objectives of the EPM Project was to expand the coverage of the best municipal company, with an eye to incor- porating neighbouring areas within its purview. Under the first project, only a modest effort was made to expand services to rural areas adjacent to Medellin. To broaden EPM's coveragc substantially to one or two entire Departments would be difficult to achieve politically, and would probably require a concerted Bank approach with EPH and other participants in the sector. Obviously, with the decision to discontinue telecommunications lending to Colombia, this objective could not be furthered. Performance of the Borrower 1.03 The Borrower's performance on most events was exemplary. Despite generally cumbersome legal procedures in Colombia which EPM must follow, procurement and contracting were carried out expeditiously. EPM is a well- managed organization, experienced in managing Bank projects. It has consistent- ly been cited by the Bank as an outstanding public utility (with the exception of a brief period in the early 19708, when the institution became politicized). For a period of about 10 years, EPM had the continuous benefit of a single General Manager of outstanding caliber, who died in 1986. Such continuity is rare with most Bank Borrowers, and was clearly an important factor in the Project's success. Rates of Return 1.04 Despite the efficiency of project execution, the post mortem internal financial rate of return of the Project was calculated by EPH at a very low 3.5S--the estimate at appraisal was 162. The return would remain low even if  adjustments were made in allocating benefits and costs of previous investments and if other methodological problems were taken into account, such as determining revenues for the without-project situation. The result seems particularly surprising, in view of the apparentIy exceedingly high return (between 182 and 321 for 1981-84) on revalued assets, compared to the 92 minimum covenanted. 1.05 Ths low financial rate of return for the Project results from two main factors. First, revenues were lower than anticipated in peso terms, because actual tariff increases were lower than projected and delayed. At the same time, project costs in peso terms were 35Z higher than expected, because of the more rapid rate of devaluation than anticipated and the corresponding increased peso cost of equipment purchased abroad. More rapid inflation also contributed to higher local costs. Tariff increases in Colombia were generally frozen (although some inflation correction was permitted) in 1983 and 1984.1 Medellin tele:hone tariffs were finally raised, but not to the extent needed. This occurred only after the author cf EPM's proposal became Secretary of the ?ational Tariff Board in 1984, and only then were the concepts of marginal cost pricing supported. 1.06 The apparently high rate of return on revalued assets is simply a mis- nomer. The methodology used for asset revaluation results in a gross under- statement of asset value, perhaps by nearly an order of magnitude. We believe that a more realistic valuatiocl of EPM's telephone assets would result in rates of return on revalued assets of between 12 and 5? during the 1981-85 period. Such a return would not have complied with the Loan Agreement. The issue of asset revaluation was picked up by the Bank in late 1983, highlighted in a letter to EPM, but never followed up adequately. EPM's apparent lack of concern in pursing the matter is somewhat perp; xing, since over a number of years the entity had been pushing for a significant tariff increase. It therefore would have been in in its own interest to demonstrate non-compliance with the Bank's covenant. 1.07 An economic rate of return for the Project was not calculated. If it were, it is likely that it would be high, in line vith appraisal estimates, with the consumers receiving the bulk of the large surplus. Medellin telephone tariffs were significantly lower than elsewhere in Colombia. They remain some- what lower2 and could be easily raised to capture some of the consumer surplus, if the politics could be appropriately managed. Performance of the Bank 1.08 The report notes the advantages of adopting the Bank's procurement procedures, which resulted in lower prices. The Bank's technical advice, including specifications for bidding documents, was received positively, and clearly made a difference. The Project itself was uncomplicated, and, since the Borrower was performing adequately, supervision was limited--there were only four supervision missions during the entire execution period. The Bank's major contribution was in advising the Borrower on ways to organize telephone services 1/ It is interesting that a countrywide tariff freeze was sparked in part by demonstrations over large tariff increases for Bogota telephone service, nearly simultaneously with increases in other utilities. 21 Impulse rates by 198(X were equal to the rates of other telephone companies. However, other local rates remain lower.  -3- more efficiently within .PM. The Bank's recommendations were followed, without the need for a strong covenant. An important result was that telephone opera- tions no longer remain a stepchild in this electricity-power-dominated company (electricity accoants for over three-quarters of EPM's assets). The Bank's low attention level to the Project did have serious consequences, as mentioned in the previous section. The Bank's decision to agree to EPM's proposal for use of Project savings took over one year, and, most importantly, the Bank did not play an active role in seeking tariff revisions, as it did in power and water supply, nor in dealing with the issue of asset revaluation. Lessons Learned 1.09 In contrast to standard Bank wisdom, the individual services of public utilities need not be independent. An appropriate organizational structure within each company is needed to provide the efficacy of such services. Good management can operate multiple services, and separating these services when there is ineffectual management would not necessarily result in improvements. Among the countries of Latin America and the Caribbean, the other example of successful project execution in this area is ANTEL in Costa Rica, another public utility with multiple services. In fact in countries like Colombia--with bet- ter than average management in general, but with many poorly run utilities--it may be preferable to leave a positive situation alone, rather than risk the possible deterioration of two or more services by separating them for limited financial reasons or gains, to avoid subsidizing one serviee by another. In the case of EPM, the Bank understood this intuitively from the beginning, although it did discuss initially the possibility of complete separation. 1.10 Management's continuity is critical. This view Is frequently voiced, but rarely taken seriously. As an illustration, the Fourth Telecommunications Project (IBRD Ln. 1450-CO) was negotiated with an excellent management at the end of an Administration's term in Colombia. A report will be forthcoming on this project, but the contrasts with the Project under review are impressive. Whilc many factors are important, two key ones have been the continuity ot the entire management team throughout the Project--from identification to its near completion--along with a large number of highly professional staff and managers who have come up through the ranks. (The Costa Rican company, ANTEL, is another example where continuous professional management has been the rule.) The value of such continuity and professionalism should never be underemphasized or u.Aerestimated.  -4- II. PREPARATION AND ANALYSIS OF THE PROJECT3 Backaround 2.01 In December 1978, EPM prepared a plan for the expansion of the tele- phone system for the period 1980-1990. A World Bank mission vis:ted Colombia in November-December 1979. In collaboration vith EPM staff, they completed the draft of the 19.0-84 plan, and established the basis for partial financing of the Project. The Bank's study was included in Report No. 2795-CO, dated March 7, 1980. Negotiations between EPM and the Colombian Government took place over 1979 and 1980; normally, the bureaucratic process is drawn out for Government approval of such loans in the telecommunications sector. The Bank Board approved this loan on March 27, 1980, and the loan contract was signed on December 19, 1980. 2.02 On October 31, 1979, there were over 43,400 pending requests for new installations within the areas of operation of EPM; a significant number of pending requests dated back to the mid-1970. and others to the 1960s. 2.03 The principal reasons for undertaking the Fifth Telecommunications Project were: (a) At the national level, only about 500 of 4,500 rural communities exist- ing in 1978 had access to telephone service, which attested to the need to expand these services to rural areas; (b) Even though telephone density in Colombia increased from 2.4 telephones per 100 inhabitants in 1967 to 5.6 in 1978--above the average found in other Latin American countries--a greater effort was required from EPM to meet the goal of expanding its radius of coverage which, with 17 telephones per 100 inhabitants, was the highest of Colombian cities; and (c) The need to provide large rural sectors and medium-sized urban communi- ties with public telephones, benefitting many persons at a relatively low cost. 2.03 Among the existing deficiencies was the high congestion of service in Medellin, especially during peak hours--during this time, only about 46Z of the calls were completed, sad about 20S of those calls were lost or not completed when there was a busy signal. 2.04 A major problem lay in the long time taken to repair faults. The per- centage of repaired faults in a 24-, 48-, 72- or more-than-72-hour period was cumulatively 38S, 70?, 80S, and 100l, respectively. This explains why EPM was interested in implementing adequate mechanisms to reduce both the number of faults and their repair time. 31 The remainder of this report is a translation of the Project Completion Report prepared by the Borrower, EPM.  5 PreDaration and Justification 2.05 In drafting the 1980-84 telecommunications plan, EPM took into account the development plans of the Municipal Planning Agency, the Regional Credit Institute, and other entities which have inputs into the urban development of the city of Medellin and the municipalities served by EPM. 2.06 Demand was projected until 1990, based on zoning and other deve'Dpment plans. Based on this projection, programs were elaborated for the installation of lines in the plants, and connection of new subscribers per year and per central exchange took place. Other factors were also considered important: (a) the construction program of a commercial and residential complex called Niquia, in the municipality of Bello, where the population was estimated to be about 80,000 by 1990; (b) the tendency of Medellin to develop toward neigh- bouring communities to the East, where the new airport was under construction and where new industries would hopefully be based. The methodology employed in projecting demand, based on the known block-by-block analysis and on local expe- rience, uses parameters which have proven to be precise and reliable in the past. * 2.07 Since EPM was to acquire new technology in the form of digital central exchanges, contracts for telephone lines included training courses and o-ienta- tion programs, both in Medellin and abv.oad. The Fifth Telecommunications Proj- ect was implemented directly by EPM, which de-ided it was not necessary to contract with a specialized firm to provide consulting services. Communications is a very specific technology, evolving dynamically, and only corporations which provide telecommunications equipment have the requisite knowledge of their own systems. 2.08 In summary, EPM found it advantageous to implement the Project jointly with the equipment providers and their personnel. Role of the Proiect in the Lona-Term Plan 2.09 The basic objectives of the Project may be summarized as follows: (a) Satisfy the demand for telephone service in the Metropolitan Area of Me4ellin and the adjacent eastern zone of Antioqine, with optimal quality, reasonable prices and in a timely fashion. (b) Provide efficient and timely customer service by speeding up adminis- trative procedures, requests for equipment installation, and repairing faults; I (c) Train personnel at all levels so that they will be capable of main- taining, operating, and applying technological progress to EPM's telecommunications network; (d) Make the system flexible, allowing it to adapt to unforeseen urban changes, such as expansion, rehabilitation, density changes and uses of land; and (e) Regulate, provide, and control financial, human, technical, and organi- zational resources, to guarantee self-financing for the operation, maintenance, and expansion of the Project.  -6- Proiect Description 2.10 The initial Project design included the following: (a) Acquisition and installation of approximately 108,400 units of local exchange equipment; (b) Installation of about 90,000 subscriber lines and the acquisition of cables and plants for subscribers; (c) Acquisition of subscriber cables and plants to allow installation of approximately 10,000 additional connections for which EPM has already contracted the local exchange equipment; (d) Acquisition and installation of about 3,300 public telephones to serve primarily low-income urban and rural population; and (e) Construction and expansion of buildings in which to house Project equipment. Covenants 2.11 TLe loan agreement with the Bank (Ln. 1825-CO) stipulates, among other requirements, that EPM will fulfill the following conditions: (a) The Borrower shalls (i) have audited for each fiscal year its accounts and financial statements (general balance sheets, income statements, expenses) and related statements in accordance with sound accounting principles, consistently applied by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but not later than three months after the end of each fiscal year, certified copies of its unaudited finrAnclal statements for each such year; (iii) furnish to the Bank as soon as available, but not later than 5 months after the end of each such years (a) certified copies of its financial staterjents for that year as so autited, and (b) the report of such audit by the auditors, of such scope and in such detail as the Bank shall have reasonably requested (Sec 5.02). (b) Not later than three months after the end of each calendar year, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall have reasonably requested, showing the Borrower's performance through the end of such year and projected through the following 12 months. (Section 5.03) (c) The Borrower in the carrying out of its telephone operations shall take all such steps as shall be necessary (including adjustment of tariffs) in order to generate an annual return at a rate of at least nine per cent (9Z) on the average net current value of its fixed Telephone Assets in operation calculated in accordance with the method outlined in Schedule 5 to this Agreement. (Section 5.07b) (d) The Borrower shall, within the first three months of each calendar year: (i) calculate in respect of its Telephone Department, the actual return earned in the course of the 12-month period imediately pre- ceding such years; and (ii) calculate the return which, on the basis of  -7- reas.nable estimates, is expected to be earned in the course of the 12-mouth period beginning with such year, after adding to or subtracting from the estimated operating income for such period any overrun or shortfall in the actual return for the preceding 12-month periods and (iii) furnish to the Bank the assumptions for and the results of such c&lculations. (Section 5.07c) (e) If any such calculation shall show that the Borrower cannot be expected to earn in respect of its Telephone Department the return required under paragraph (b) during the 12-month period commencing with the calendar year in which the calculation is made, the Borrower shall, not later than April 30 of such year take all action necessary or advisable on its part for adjusting its tariffs for the services provided by the Telephone Department accordingly, and the adjusted tariffs shall be brought into effect by September 1 of such year. (Section 5.07(d))"  III. PROJECT IMPLEMENTATION AND COST Effective Date of the Loan and Proiect Start-Up 3.01 The first loan disbursement took place in March 1982, i.e., 13 months after signing the Agreement. Reasons for the delays are given below, as is the framework of bid procurement financed by the World Bank. Prior to loan signing, a contract had been signed with Ericsson of Colombia on July 4, 1980 for the provisioL and financing of 43,400 lines; later, on December 9, 1981 a similar contract was signed with the C.G.C.T. of France for the provision and financing of 5,000 lines. These 48,400 lines were included in the cost of the Fifth Tele- communications Project. In addition to the earlier credits, a loan was obtained from the Royal Bank of Canada in the amount of US$12 million, signed on June 4, 1981, complementing this Project and ensuring the financing of non-Project investments for the 1980-84 EPM telephone development. Revisions/Changes 3.02 The principal changes in the physical goals of the Project and the reasons for them are stated belowt (a) Internal Plant: The following framework indicates the differences in the estimated number of lines: Category Initial Plan Contract Quantity International bidding 56.000 79.000 C.G.C.T. 9.000 5.000 Ericsson 43.400 43.400 Total 108.400 127.400 There was a real increase of 19,000 lines. Having taken into account the prices offered by the Japanese firm C. Itoh in the international bidding for 56,000 telephone lines, it was decided to accept the 25? option (14,000 lines) offered in the bids. Similarly, in view of the favorable prices and unmet demand for telephone service in the exchanges of Castilla and Bosque, an additional 9,000 lines were purchased directly, completing the 79,000 lines contracted. Installation of 4,000 lines were originally estimated for the exchange of Miraflores; however, based on the telephone demand in that area, it was necessary to install only 3,000 lines. These were taken from the additional 9,000 lines purchased from C. Itoh. As a result, it was unnecessary to purchase the remaining 4,000 lines from the C.G.C.T. :ne 5,000 lines purchased from C.G.C.T., as originally planned, were installed in the San Bernardo Exchange; (b) External Plant: Installation of 4,743 public telephones was planned for 1980-85; based on their availability in the stores at the end of 1979, 4,125 telephones were purchased. Subsequently, in 1982, a high incidence of faults in Type CNC-2100 and their high repair costs to the EPM's public telephones was noticed. For this reason, it was decided to replace 2,200 of the 4,125 CNC-2100 telephones and, to fulfill the Project's objectives, to purchase an additional 2,200 telephones.  - 9 - 3.03 To fulfill the Project's installation program in some exchanges, an additional 39,290 kilometer pairs of cables had to be purchased domestically, to avoid further delays in the works, since the third international delivery of plastic cables was delayed by six months. Implementation Schedule 3.04 Project completion had originally been foreseen for December 1984. The individual analysis of each component of the Project's framework best illustrate its time frame. 3.05 The construction diagram from Annex 1 (not attached) indicates that the estimated date for the last installation of the telephone lines was the same as had been foreseen. The three-month difference shown on the chart corresponds to the Project's additional lines. There were partial delays in the delivery of many of the exchanges due to: (a) technical problems of interconnection with present equipment; (b) delays in the construction of some of the buildings to begin the installation; and (c) manufacturer's changes of the software programs to facilitate the equipment's maintenance. The delay of nearly one year in the installation of the cables and networks reflects some setbacks in the operations section of EPM, specifically in not providing services to its users in spite of having lines available in the plants. This situation, while not corrected during the Project's duration, did oblige EPM to makt ; progress in increasing the yenrly number of new subscribers. 3.06 The above analysis also explains the delay in the installation of desk telephones, in spite of their having been received on schedule from the suppliers. Because of the high operating costs to EPM, it was necessary to replace a large number of coin-operated telephones and to purchase others. Expansion of the initial objectives was reflected in an extension of the time required to implement them. 3.07 Physical Goals. Annex 2 (not attached) shows the number of lines for each central telephone exchange, as well as the estimated and actual date of initiating service. In addition to the differences mentioned in section 3.02 of this report, the delay in the date of entry into service is due to the delay in implementing the contracts. The performance of the contractors permitted making up for lost time and meeting the goals. 3.08 Basic Data. Baqic data on installed capacity, number of subscribers, public telephones, and pulses are shown in Annex 3 (attached), and are discussed in other sections of this report. 3.09 Performance Indicators. Following are some brief comments on various indicators not mentioned previously, and which appear on Annex 4 (attached). (a) Number of Employees: As one of the conditions for improving the quali- ty of telephone service for 1980-84, the employment of about 600 per- sons was planned, so as to achieve a higher ratio between employees and installed phone lines: 4.7 per 1,000 lines. At the end of the Proj- ect, a ratio of only 2.9 (1,260/426,000) was achieved. In this regard, it should be noted that, for quite a while, it has been EPM's policy to complete certain works by contracting them out, instead of hiring the persons directly. This policy partly explains the results obtained in this analysis;  - 10 - (b) Rate of Return on Revalued Assets: The Bank was kept informed of their performance on an annual basis for the period 1980-85. EPM achieved the estimated rate of 9Z on the net revalued assets. The smaller actual value of these assets. compared to the projected figures, was instrumental in achieving the objectives; (c) Operations Ratids This is defined as the ratio between operational costs (including contributions to the Municipality of Medellin, but excluding interest on the contributions) and operational income. This ratio showed high i:adices in 1983 and 1984, reflecting higher internal inflation rates than had been estimated. Nevertheless, as of 1985, the trend toward a decrease in this relationship -ws the efforts made by EPM to reduce their costs; d) Debt Service Coverafe: This was established as the number of times that the gross internal cash generation covered the service debt. During the Project's duration, this coverage showed actual values to be higher than those projected, due to interest rates and amortization lower than estimated in the initial appraisal. Delays in the commence- ment of some of the works and favorable conditions in the signing of credit agreements produced this decrease in the Empresas de Tel6fonos' debt; (e) Current Ratio: A higher ratio than originally estimated is shown due to higher current assets, especially in the inventory entry; (f) Accounts Receivable: Defined as the relationship between customers' arrears and operational income, in days, they show substantial improve- ments, resulting from the strict control that EPM has maintained over its portfolio, particularly in the Government sector. Betwee-~ 1984 and 1985, this sector's debts remained at the same level, although the Government was billed for higher amounts. Procurement 3.10 The bidding process showed important advantages with regard to the preparation of specifications, as EPM benefitted from the Bank's expertise in the definition of terms, technical specifications, and criteria for evaluation. Most of the offers received by EPM complied with specified requirements, facili- tating their evaluation and comparison. No problems were encountered in the procurement procedures. Annex 5 (not attached) gives a detailed account of the steps taken for the adjudication of bids No. IBRD V-01 to V-07. 3.11 It is necessary to point out that EPM had to recall the bidding docu- ments which it had put on sale, since the Bank's requirements were considered contrary to Colombian law, particularly with regard to giving preference to locally manufactured goods. Consequently, it was necessary to request an exemp- tion from compliance with legislation in force regarding the protection of domestic industry from the National Council of Social and Economic Policy (CONPES). This exemption was obtained; however, this procedure resulted in an eight-month delay in the original timetable. 3.12 The Bank's approval of the Adjudication Report for the 56,000 initial lines was a far more involved process than EPM anticipated; in the end, EPM's  - 11 - choice was accepted, even though it was not the lowest bidder (Phillips quoted lower prices), since EPM's choice was found to be more adaptable to the system's technical requirements. Generally, it can be said that the Bank's guidance in the bidding process for the procurement of telephone lines was very useful. The experience of Bank personnel in this type of bidding--not only in Colombia, but in other countries--was very helpful. 3.13 Costs (a) Estimated Project Cost: The estimated project cost is about Col$6,313.7 million (US$110.0 million), which includes a foreign currency investment of US$67.7 million. These costs are shown in detail in Annex 6 (nct attached). Price contingencies included in the project costs represent 36Z of the total base costs. The estimated increase in local costs were: for 1980, 22.5Z; for 1981, 18Z; and a yearly increase of 15? for 1982-84. The estimated annual increase for costs in foreign currency were: 10.5? in 1980; 9? in 1981; 8? in 1982; and a yearly 7? for 1983 and 1984. The projection of these contigencies and of the rate of exchange be- tween the Colombian peso and the U.S. dollar were based on expectations or projects in Colombia at the time of appraisal. No physical contin- gencies were necessary, other than variations in quantities which can occur in the construction of buildings and in laying down pipes; these were estimated at about 7? of domestic costs; and (b) Actual Proiect Cost: The actual project costs, compared to estimated, appear in Annex 7 (attached); investment during the construction period is shown in Annex 8 (not attached). In Annex 7, it may be noted that the actual project cost increased by 35Z in terms of Colombian pesos and decreased by 7X in terms of U.S. dollars. This is due to the greater than expected devaluation of the peso in the 1980-85 period, as may be seen in Annex 9 (attached). 3.14 The variations in costs may be summarized as follows: (a) Telephone Lines: Savings of up to US$70/line over their estimated cost were obtained in the acquisition of 79,000 lines, because of the larger number of lines bid on and the great technological evolution in elec- tronic systems, which reduced production costs. Nevertheless, there were cost overruns on 43,400 lines, due to their delayed delivery; (b) Cabless Although some savings on their actual cost were realized, the greatest benefits were-seen in the system's decreased maintenance cost, because of the high quality of the cables acquired; (c) Subscriber Plant: Its increased cost was due primarily to the acquisi- tion of tools, connectors, and a greater number of telephone connec- tions than originally estimated, to provide service to new subscribers. At the same time, local inflation resulted in increased installation costs; and  - 12 - (d) Public Telephones: The purchase of a large number of coin-operated equipment resulted in higher costs. 3.15 Disbursements: Annex 10 (attached) shows projected and actual dis- bursements by category. The principal differences are: (a) Cateaory I - Telephone lines: Disbursements in this category increased due to the purchase of 79,000 lines, instead of the 56,000 lines con- sidered during the first appraisal. In addition, the cost of MIC equipment and subscriber single channel carriers were included; (b) CateRory II - Cables: Their actual cost decreased compared to their estimated cost, largely due to the decreased purchase cost of plastic cables from the NKF KABEL BV firm, resulting from the devaluation of the Dutch Florin (currency of the purchase order). Similarly, several negative values in the readjustment formulas reflect the lower price of copper on the international market; (c) Category III - Subscriber Plant: The estimated financing budget was very similar to the actual results; and (d) Category IV - Public Telephones: The increased allocation of resources was due to the purchase, with IBRD financing, of more telephones than planned at appraisal.  - 13 - IV. OPERATIONS 4.01 EPM was satisfied with the quality and efficiency of the equipment and the civil works contracted for. The specifications of the main equipment were in accordance with the technical specifications required in the bids, and were reviewed by the Bank. However. those operational areas where Empresas de Telefonos achieved better results in the course of the Project's implementation should be noted. 4.02 Internal Plant (a) Special attention was given to the use of the electromechanical exchanges, in order to reduce to less than 3 seconds the waiting time for dial tones. To achieve this, programs were developed to reduce congestion, transferring some high volume subscribers to new exchanges. At present the "Autrax* equipment is producing optimum results: this equipment was purchased as part of the maintenance and traffic measuring equipment for the electromechanical exchanges; The efficiency of this system is measured by the percentage of calls made and completed. Annex 12 shows the distribution of calls made between 1981 and 1985, and the noticeable improvement in the quality of subscriber calls; The coupling between the conventional electromechanical systems and the new digital exchanges shows distinct improvements in transmission quality and in fault detection; (b) The purchase of electronic exchanges was economically and technically advantageous to EPH. Economic advantages include: lower purchase cost; lower construction cost--since smaller spaces were needed; lower energy consumption; and a decrease in the personnel needed for operation and maintenance; The technical advantages include: incorporation of new services (less dialing time, secret codes, videotext, data, etc.); minimum chance of blockage in the communication; centralization of management; operation and maintenance; greater ease in modifying the redistribution of inter- connection routes; computer assistance for the operation and analysis of the central exchanges; and (c) The introduction of toll ticketing in EPH's telephone system contributed to widespread use of automatic domestic long distance service, as the subscribers could verify by their bills the number and place called, the length, and the cost of the communication. The number of complaints reg.rding the long distance service decreased significantly. 4.03 External Plant. Regarding operation of the External Plant, it is important to underline the change in policy in the management of coin-operated telephones and the purchase of subscriber carriers and humidity-resistant cable. (a) Coin-Overated Telephon-es: The policy regarding installation of public telephones was modifiel; they are again being put in stalls, rather  _ 14 - than in enclosed booths, as had been done previously. This change resulted in their increased use. In December 1985, 2,475 of 4,950 telephones were placed in st.alls; this figure represeuts about 50? of the phones. This policy will continue in the future, and hopefully will include between 75? to SOZ of the telephones. the economic benefits achieved may be seen in the collection (in mil- lions of Colombian pesos) of the following amounts: 1980/8.2, 1981/ 8.1, 1982/12.8, 1983/49.1, 1984/67.0, 1985/78.9. The creation of the Public Telephone Division and the assignment of human resources to that unit has made possible monitoring of coin- operated phones, relocating them when necessary, and defining preven- tive and corrective maintenance procedures--all resultirg in their increased use. With the purchase of 'smart' public telephones, EPM took an important step in offering new services, which now permit long distance and international calls from public telephones. Planning ahead, EPH is experimenting with public telephones which use magnetic cards instead of coins. This would reduce one of the main reasons for their faulty functioning--coins getting stuck. (b) Subscribers: Subecriber carrier equipment, purchased for the first time by EPM, allows simultaneous transmissions on the same pair of cables, while ensuring complete privacy for two telephone conversa- tions. They are used in these following circumstances: (i) the subscriber's telephone network is congested, and the alternative- -installation of a new cable--is more expensive; (ii) the service requirement is temporary, e.g., to cover special events; (iii) the telephone demand in a specific sector is such that investment in a new network is not justified. The carriers are used until growth in that sector requires the massive expansion of the subscribers' network. In most instances, the subscriber carrier is used temporarily, permit- ting prompt telephone service; even though it delays the installation of new cables, new subscribers still receive service. The principal advantages of their use include: quick and simple installation; low installation cost; decrease in manhours required for instaliation and maintenance; avoids idleness of the equipment in exchanges with lines available; allows preferred, prompt service to Government, business, or industrial subscribers where the network cannot be installed within the estimated time; they are completely reusable; in rural networks, where networks and demand is relatively low, they are used on a permanent basis. (c) Humidity-Resistant Cables: The traditional lead-covered cable for the expansion of telephone networks was replaced by a cable coated with humidity-resistant aluminum and polyethelyne. Its advantages include: (i) greater flexibility and light weight, resulting in greater laying of cable per day per team; (ii) maximum filling of the telephone ducts, going from 1,800 pairs in the lead-covered cable to 2,400 pairs in the new cable, with 0.4 diameter conductors; (iii) lighter weight of the new cable allows for winding longer lengths on spools, concomittantly  - 15 - decreasing storage and transportation costs, as the weight decrease is about 43?; (iv) decrease in the number of joints by about 70t, as com- pared to lead-covered cables; this results in technical and economic benefits and better quality of service, while decreasing the network's fault points; (v) increased capacity in the secondary aerial network, from 300 to 400 pairs. using the same infrastructure; (vi) the insulat- ing qualities of polyethylene, which give the cable higher dielectric rigidity, making it more resistant to transitory changes in high voltages. Another advantage is that it greatly reduces the number of faults due to electrical phenomena; the results obtained in the past three years in the maintenance of the system justify its use. The use of this new technology required greater training of personnel; this expense was not significant when compared to the economic benefits derived by its implementation. (d) Other Areas. Fault control: The number of faults decreased as a result of the creation of the Department for Telephone Repairs and the Department for the Preventive Haintenance of Telephone Networks (DPMTN). The DPMTN established two plans: (i) the purchase of pressu- rization equipment, thus bringing all trunk and primary cables of the system under the preventive protection of dry air. In addition, new monitoring equipment was purchased, allowing for daily detection of faults as they appear on the cable and their repair before a major fault occurs; and (ii) all sections of the lead-covered cable which appeared to be in disrepair were replaced. rTese measures, together with training courses, have contributed to a significant reduction in the faults in trunk and primary networks, and have allowed for greater effectiveness in repairing the number and duration of faults, even though the goals set forth in the initial appraisal were not achieved.  - 16 - V. FINANCIAL ASPECTS Financial Results (Estimated and Actual) 5.01 Accounting. Accounting in RPM was to be done separately by each utili- ty: water and sewerage, energy, and telephones. The consolidated financial position of EPM and of each of its utilities was reviewed and found satisfac- tory. The telephone company shows no great change in its financial position since the time of the Project's appraisal to date. 5.0 Financial Plan. The financial plan estimated for the Project's financing may be summarized as follows: (a) The US$110 million equivalent of Project investment include US$67.7 million in direct foreign costs, of which US$44 million would be financed by the Bank's loan. The external component would also be financed by other external credits (US$21.2 million), and a small share by EPM's internal resources (US$2.5 million). An additional US$50.7 million for other non-project investments would be financed from internal and external sources. Internal cash generation was to contribute about 45? of the funds required for the total investment program; and (b) Financial execution was similar to the original estimate regarding the Bank's participation (US$44 million), supplier's credits, and commer- cial bank loans. Contrary to what had been anticipated, no domestic credits were contracted for financing the non-project investments, due to restrictive Government policies. The actual internal generation amounted to 482 of the funds required for the investment program. 5.03 Financial Proiections: The projected financial situation for 1980-85, and their comparison with actual data were based on the following considerations (the year of the program's completion, 1985, is included; in the initial appraisal, its termination was foreseen for 1984): (a) Operational Status. Revenues by Service: Number of subscribers is equal to the figures in Annex 4 (Telephone Connections). An average increase of 102 annually in new subscribers was estimated. By 1985, the actual increase was between 7Z and 8Z. Generally, actual revenues were very similar to estimated ones. Contrary to what had been expected, there was no increase in average local pulses per subscriber during the Project's duration. The telephone company's income from the international and domebtic telephone service with Telecom and EDA was less than had been anticipated. This is due to the difficulty in forecasting future needs. The reverse was observed in the income from the telephone directory, where revenues were significantly higher than estimated. (b) Costs. Operation, and Management: From the base fIgures for 1979, yearly increases equal to internal inflation were estimated. plus 6 points due to the growth of EPM. At Project termination, the actual figures were much higher, due principally to higher than anticipated local inflation.  - 17 - De2reciation: Estimated depreciation was higher than the actual figures for 1982 and 1983, due to the delay in the commencement of certain works. Municipal Taxess Represent 3.42Z of total revenues, excluding revenues recovered from certain works. Interest Payments: because of delays in some of the works financed, interest payments were lower than estimated during the first years of the Project. (c) Sources and Uses of Funds: Estimated investments took into account the physical programming for 1980-84. The experience of other companies operating in Colombia was also taken into account in EPM's purchase of similar equipment. For different reasons, noted elsewhere in this report, project implementation was delayed. Investments during 1980-85, including "non-project,* totalled Col$11,062 million, i.e., Col$1.120 million more than estimated in the original appraisal. Debt Servicing: Favorable conditions in the grace periods for amortiz- ing external loans decreased the debt service obligations of the Telephone Company. Loans from commercial banks and suppliers, such as the Royal Bank of Canada and L.M. Ericsson, respectively, which were expected .o have two years' grace period, were actually obtained with a four-year grace period. Project's Economic Rate of Return 5.04 The internal rate of return (IRR) is defined as the interest rate, for which the sum of the present value of costs and of benefits attributable to the Project are zero. To calculate the IRR of the Fifth Telecommunications Project, a useful life of 30 years was assumed; investment costs and revenues were taken into account, as follows: (a) Costs included: (i) yearly capital investments in the internal and external plant related to the Project, essential to expand the network and to equip the central exchange services available to new sub- scribers--project investments were made at different times between 1979 and 1986; (ii) operation and management costs, excluding depreciation and interest payments attributable to the new lines which are put into service annually and which are part of the program: i.e., O&M costs are proportionally broken down according to the commencement of opera- tion of the Project's lines. These costs are incurred during the use- ful life. The investment and O&M costs are given in 1980 market prices. To do this, it was necessary to deflate the local share according to the average rate of inflation established by the DANE, and the external share according to the average rate of inflation in the U.S. An average rate of exchange of Col$47.10/USS1.00, the going rate in 1980, was used to convert foreign currency to pesos. (b) The Project's income is the result of what is collected as a fixed charge, the impulse and connection deposit. To determine the income, the average yearly tariffs were taken into account and converted to constant 1980 prices.  - 18 - 5.05 The internal rate of return obtained by taking into account the Fifth Telecommunications Project's income and expenses is as follows: 3.462--a figure very similar to that which would be arrived at if the same methodology were applied to the projected values (3.992). The internal rate of return, estimated at 162 by the Banks's appraisal mission, shows high yearly profits based on higher income and lower costs. It had been assumed that the 121,600 telephone lines would be in operation by the end of 1983--i.e., 33Z of EPH's total network (121,600/371.600)--and that in 1984 they would generate 712 (1,100/1,549) of all income, but would account for only 20? (74/400) of the operational and administrative costs. Rate of Profit 5.06 Between 1980-1984, EPH achieved a higher rate of return over the re- valued fixed assets than the 91 covenanted. The methodology used in revaluing assets took into account the use of revaluation indexes which combined the effects of internal and external inflation, the devaluation of the Colombian peso vis-a-vis the dollar, and decreases in costs resulting from development of new technolegies and economies of scale. In general, the operational income was s'.milar to that estimated; on the other hand, operational costs were higher than estimated, as a result of a high local inflation rate. The profit rates agreed to were achieved by the Telephone Company, as a result of lower net revalued assets.  - 19 _ VI. INSTITUTIONAL PERFORMANCE Contractins and Trainina of Personnel 6.01 For the development of the 127,400 telephone lines, EPM purchased humidity-resistant cables withi polyethylene-coated paper insulation. Picabond connectors and plastic handles were purchased for jointing material. 6 .02 Since the contractors were unfamiliar with this technology, a training program vas established, with the following componentst (a) Training aimed at the managers, engineers, and technicians of the contracting firms which were involved in drafting the bid proposals. Attendance at these training sessions was a prerequisite to participat- ing in the bids published by EPM. Managers, engineers, and technicians from 38 firms took part in these training courses; and (b) Training was aimed at staff responsible for assembling joints, includ- ing joint and subscriber line installers. Detailed theoretical and . practical training was given to all operators, regarding the procedures they were to undertake in their respective fields in order to put into service a network based on this system. 6.03 Benefits resulting from the training program includeds (i) more eco- nomically precise bid proposals by the contractors, by virtue of knowing the work to be done; (ii) avoidance of wasted materials and improvised solutions; (iii) longer useful life and lower maintenance costs, since the work was proper- ly carried out; (iv) many of the persons who worked with the contractors were subsequently hired by EPM, resulting in savings of time/training: and (v) timely completion of the works/Project, utilizing installed equipment, thereby avoiding equipment idleness /non-productivity. Institutional Results 6.04 EPM was created in 1955, to provide electricity, sewerage, water and telephone services. Prior to 1955, these services were administered directly by the Municipal authorities of Medellin. 6.05 EPM owns and controls its own resources, and mist invest its profits for the expansion and improvement of the services which it provides. Each utility uses its own resources. Therefore, each administrative and service unit of EPM has complete economic autonomy. 6.06 Based upon the Bank's recommendations, included in Chapter V, 5.03 of Report No. 2795-CO for this Loan, the Telephone Company was reorganized accord- ing to the Board of Directors' Decision No. 996, October 20, 1981. The basic objective of this reform was to centralize the management structure of the Telephone Company, by creatirg a manager exclusively in charge of the Telephone Company and responsible for the technical and operational divisions, as well as the switching department. 6.07 Subsequently, on May 24, 1983, the Board of Directors authorized the administration to reorganize the operational system of the Telephone Company, in  - 20 - order to improve the users' quality of services. This is shown in Annez 18 (not attached). The former Department for Telephone Network Maintenance was divided into the Department of Preventive Maintenance of the Telephone Network, in charge of the maintenance and pressurization of the network, and the Department of Repairs, which is in charge of the system's corrective maintenance. With the establishment of the Section for Telephone Requests and with the help of a computer network, it was possible to assign numbers to new subscribers more quickly and to process work orders more speedily. 6.08 S?ecialized staff increased the efficiency of the operations and main- tenance of EPM's new equipment. It was also decided to establish a Section for Special Equipment for the management of fault-finding equipment and telephone repair laboratories. A new administrative unit for service complaints and checks, the Section for Damage Reception, was also established. Staff knowl- edgeable in jointing was added to the Laboratory Division; this led to the establishment of the Division for Installations and Changes, which installs and delivers new service networks. 6.09 The employees of the Empresa de Teldfonos increased from 940 in 1980 to 1260 in 1985. The Training and Development Department, which is part of the Industrial Relations Division, has furthered its training programs for EPM staff. The Proiiect's administration and supervision were done directly by the regular management units of the Telephone Company.  - 21 - VII. ROLE OF THE IBRD 7.01 The Bank's assistance in the Fifth Telecommunications Project was satisfatory to EPM from a technical, economic, and organizational perspective, contributing substantially to the Project's success. The IBRD's Telecommunica- tions, Electronics, and New Technology Department provided the Project's super- vision. The Bank was kept apprised at all times of the Project's development, through correspondence with the technical and financial sections of EPM, quarterly reports, a-nual reports by external auditors, and the yearly Bank supervision missions to Medellin. 7.02 No problems occurred in the disbursement of this Loan, since EPM com- plied with the covenants in the Loan Agreement. The suppliers and contractors were paid promptly by a direct payment system. 7.09 The value of the debt owed to IBRD and the corresponding interests showed and will continue to show variations, to the extent that the different currencies' exchange rate fluctuate vis-a-vis the dollar. This is due to the freedom the Bank has in establishing the currency basket.  - 22 - VIII. CONCLUSION 8.01 The achievements of the Project surpassed most of the original goals; nevertheless, there was a delay of approximately one year in the program's implementation. 8.02 The actual foreign costs were higher by about 71 than originally estimated (72.8/67.7), primarily because more equipment was purchased than had been budgetted in the initial appraisal. The actual local costs were higher by 32 in terms of Colombian pesos: Col$2,511.9 million estimated versus Col$2,584.5 actual. However, in terms of dollars (US$42.3 million estimated versus US$31.1 million actual), the decrease of 27Z was due to the greater than anticipated devaluation of th- Colombian peso in relation to the U.S. dollar. 8.03 Governmental policies to correct the exchange between the Colombian peso and the U.S. dollar resulted in a higher devaluation than had been estimated. 8.04 The Bank's supervision and inspection during project implementation were helpful in improving efficiency during the construction pe,iod. 8.05 The Loan's financial conditions with regard to installments, grace periods, amortization, and interest rates, have been the most favorable granted to Empresa de Teiefonos to date. 8.06 The technology incorporated into the EPH system through project imple- mentation will benefit not only the users, but will also improve the quality of the telephone network's operation. 8.07 EPH proved its technical, managerial, and financial ability to carry out the Fifth Telecommunications Project, supported by the continuity of its personnel during the implementation period.  BASIC INFORMATION 1979 1980 1981 1982 1981 1984 1985 A. O4ber of llrban Telephone Fuchanges 2 1. liedellin 20 20 20 20 20 20 20 2. Other locations 9 9 9 9 9 9 9 Total 29 29 29 29 29 29 29 P. Total Installed Capacity 1. Medellin I"2 00 203200 232200 243200 248200 342200 343000 ?. Other If"actions 50800 50800 55400 60400 69400 76400 83000 Total 250000 254000 287600 303600 317600 418600 426000 C. Number of Subscribers** 1. Hedellin 172351 179526 188323 204063 210479 233706 259453 2. ohther locations 44979 46309 47610 52675 60816 62310 72097 Total 217330 225835 235933 256738 271295 296016 331550 0. Nbuber of Public Telephones 1. Nedellin 2670 2443 2436 2567 3088 3248 3659 2. Other locations 680 641 6)6 688 928 1114 1291 Total 3350 3084 3112 3255 4016 4362 4950 C. Total Number of Impulses (Thousands) Per Annum between 1979 and 1984 1. Ilcal (1) 1174.6 1226.2 1293 1324.1 1425.4 1484.2 1808.4 2. Nationwide 1171.4 1283.3 1231.3 1470.5 1807.5 1533.1 322.8 F. Average Annual Revenue Per User between 1979 and 1984 2778 4555 5734 6289 i128 9171 11606 (Actual) t. Average Annual Revenue Per loser (Col.$) between 1979 and 2713 4071 5290 6181 7239 8125 ----- 1984 (Appraisal) (I) In projecting the local impulses the number of lines in operation was taken as a base at the end of each year. * Calculated as operating Income over number of users. ** includes public and special services telephones.  PERWORNANCE INDICATORS YEAR ENDED ON DECDIE1 31 1980 1981 1982 1983 1984 1985 11/ 22/ 1 2 1 2 1 2 1 2 1 2 a. Line Capacity 266,000 254,000 292,600 287,600 332.600 303,600 371,600 317,600 407,000 418,600 - 426.000 b. Telephone Connections 224,300 225,835 238,700 235,933 262,200 256,738 292,000 271,295 326,000 296,016 - 331,550 c. No. of Employees 1013 940 1126 949 1277 10o8 1416 1158 1529 1249 - 1260 d. Rate of Return (%) on Revalued Aesets 10 22.6 12 33 10 31.9 9 22 9 18.2 - 12.6 e. Operations Ratio* 59 52 52 55 55 58 52 72 54 f- - 56 f. Debt Service Coverage 3.1 4.4 4.3 7.1 3.3 7.2 4 5.6 2.1 2.9 - 2 o. Currept Ratio 1.1 2.2 1 2.7 1.2 3 0.8 1.8 1.2 1.8 1.8 h. Accounts Receivable (days) 60 76 60 71 60 74 60 55 60 43 19 i. Yearly Paults Per 100 Connections 75 61 70 70 65 70 60 69 55 71 - 64 J. Duration of Fault (percent) : 1. Less than 24 hours 38 38 40 28 48 23 55 30 60 28 - 30 2. Less than 48 hours 70 70 72 58 74 54 76 64 80 65 - 71 3. Less than 72 hours 80 80 85 70 90 66 95 76 100 78 85 4. Nore than 72 hours 100 100 100 100 100 100 100 100 - 100 100 1/ Accordinlg to Initial Project Appraisal I/Actual Percent of operational costs/incom. Does not include public telephone faults. H  EPSIMATED YVESU9 ACTUAL CO8TS Col. Nillion- USS Killions Local Folrign Total Difference Local Foreign Total Difreeence Description E A E A E A A-S % E A E A E A A-E , Telophona Lines 789.1 978.0 2,102.9 3,367.0 2,892.0 4,345.0 1,453.0 150 12.8 13.0 36.8 44.4 49.6 57.4 7.8 116 Cablua 1,151.3 934.5 896.1 1,260.0 2,047.4 2,194.5 147.1 107 19.6 10.9 16.6 16.2 36.2 27.1 -9.1 75 Subscriber Plant 147.1 252.3 304.3 746.1 451.4 9984 547.0 221 2.3 2.5 5.4 7.8 7.7 10.3 2.6 134 Public Teleponea 20.7 61.3 107.7 544.1 128.4 605.4 477.0 471 0.3 0.5 2.1 4.0 2.4 3.5 1.1 146 Buildings 118.2 358.4 0.0 28.9 118.2 387.3 269.1 328 2.3 4.2 0-0 0-4 2.3 4.6 2.3 200 Fnright and I ance 285.5 0.0 390.8 0.0 676.3 0.0 -676.3 0 5.0 0.0 6.8 0.0 11.8 0.0 -11.8 0 Project Coat 2,511.9 2,584.5 3,801.8 5,946.1 6,313.7 8,530.6 2,216.9 135 42.3 31.1 67.7 72.8 110.0 102.9 -7.1 94 1I xD XJ  _ 26 _ Annex 9 COMPARISON ECONOMIC INDICATORS* External Internal Rate of Exchange Inflation Inflation Col.$/US$ 1.00 Avg. Devaluation Year B A E A E A B A 1980 9.00 12.40 22.50 26.50 45.44 47.46 - - 1981 8.00 8.90 18.00 26.30 49.99 55.00 10 16 1982 7.00 4.90 15.00 23.90 55.98 64.68 12 18 1983 7.00 3.20 15.00 16.60 62.70 79.53 12 23 1984 7.00 4.20 15.00 18.30 68.35 101.33 9 27 Relation between average rates of exchange. E: Estimated A: Actual  - 27 - Annex 10 ALLOCATION OF IBRD LOAN 1825-CO (US$ Thousands) Appraisal Difference Category Description Estimate Actual % I Telephone Lines 18,700 29,832 160 II Cubles 13,300 7,891 39 III Subscriber Plants 3,400 3,624 107 IV Public Telephones 1,900 2,653 140 V Unallocated 6,700 --- 100 TOTAL 44,00C 44,000 -  - 28 - Aames 11 CUMULATIVE DISBURSEMENTS (US$ Thousands) Initial Actual Difference Semester Ending Estimate Disbursement US$ % II June 30, 1980 --- -__ 0 100 IV December 31, 1980 3,170 --- 3,170 100 II June 30, 1981 10,970 --- 10,970 100 IV December 31, 1981 18,970 ___ 18,970 100 II June 30, 1982 24,970 1,524 23,446 93.9 IV December 31, 1982 32,070 6,831 25,239 78.7 II June 30, 1983 36,770 18,074 18,696 50.8 IV December 31,1983 40,770 29,498 11,272 27.6 II June 30, 1984 41,970 33,765 8,205 19.5 IV December 31, 1984 43,566 37,617 5,949 13.7 II June 30, 1985 44,000 40,004 3,996 9.1 IV December 31, 1985 44,000 41,893 2,107 4.8 I March 31, '986 44,000 44,000 0 0.0 II June 30, 1986 44,000 44,000 0 0.0  - 29 - Annex 12 CALLS WADE AND ANSWERED (In Percentages) Category 1981 1982 1983 1984 1985 Calls answered 48.1 51.2 55.3 55.0 58.3 Wrong calls 2.1 2.2 2.6 2.5 2.7 Calls not answered 9.8 10.1 9.1 8.7 9.5 Calls to busy lines (or busy signals) 20.0 17.2 16.0 15.6 14.4 Subscriber's misuse* 14.2 14.7 14.1 15.9 13.5 Technical faults 5.8 4.6 2.9 2.3 1.6 TOTAL CALLS MADE 100.0 100.0 100.0 100.0 100.0 * Includes incomplete dialing, hanging up on dial tone, or delay in dialing.  OPERMAINS STATUS (Mlions of Col Pesos) 19_ 1981 1q82 1983 A 1984 195A OPERATIONS INODSE TE I HNE Insta1iations 15.55 18.39 23.18 o.o0 . 33.60 o.00 40.64 0.00 46.00 0.00 0.00 0.00 Fixed ChargQ 209.87 243.47 246.eg 273.50 264.71 299.39 296.61 336.00 331.00 452.00 o.o0 836.0o use 454.78 52o.8g 669.01 718.98 844.79 796.96 964.44 789.00 1117.00 1121.00D .00 1975.00 Participats (Telecom, Bda) 194.23 187.99 277.9? 201.78 424.79 316.25 559.30 443.00 643.0o 603.00 0.00 745.00 Telephne )irectory 38.80 57.86 45.80 158.66 52.70 202.00 60.60 366.00 70.00 539.0o o.Lo 292.00 &Sb-Total 913.23 1028.60 1262.80 1352.92 1620.59 1614.60 1921.59 1934.00 2207.00 2715.0O o.00 3848.00 fture Tariff Inereases 0.00 0.00 0.00 0.00 0.00 0.00 192.16 o.o0 441.00 o.o0 0.00 0.00 TOTAL OPERATIONS INCONS 913.23 1028.60 1262.80 1352.92 1620.59 1614.60 2113.75 1934.00 2648.00 2715.00 0.00 3848.00 OPERATIONS ErPNDI'RNS Opertions Costs 229.55 258.55 284.64 384.15 344.42 504.30 416.74 722.00 504.00 91.4.00 o.0o 1ZS4.00 Administration 144.04 185.67 171.24 236.97 200.45 382.10 241.84 438.00 292.00 459.0O o.o0 596.CO Paymts to luniLpality 31.23 39.35 43.19 55.08 55.42 67.53 72.29 78.00 90.00 108.00 0.00 156.00 Depreciation 133.02 127.78 150.90 155.98 288.60 181.53 426.25 344.00 596.00 606.00 o.o0 656.00 TOTAL RPNDITiURES 537.e4 611.35 649.97 832.18 s88.89 1135.46 1157.12 1582.00 1482.00 2087.00 0.00 2642.0O xet Operational Income 375.39 417.25 612.83 520.74 731.70 479.14 956.63 352.00 1166.00 628.00 0.00 1206.0O Plus: Other Income 19.34 118.07 23.20 254.41 27.84 367.39 33.40 391.00 40.00 654.00 0.00 873.00 1mns: Interest 42.50 29.41 83.37 51.50 104.80 50.63 95.17 76.00 279.00 357.00 o.o0 776.00 l UTILIY 352.23 505.91 552.66 723.65 654.74 795.90 894.86 667.00 927.00 925.00 0.0f 1303.00 oPRATrow % 5.B89 59.44 51.47 61.51 54.85 70.32 54.74 81 .8D 55.97 76.87 o.0o 68.66 0  -31 - Annex 15 .U3L seL~ SH1EES' (qttl1o ft 2o1 P.ua) da~LIU1o4 -C1~L I~ 982 I191 t1 l Vtt cil btL"td cewl 4ttd. Actcusl CiteMd Act1aI Estiined Actual mt44 Ae"ua RXEt~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I tetZd Lfl apertifo 2089.66 2,112.47 4.140.93 2,597.60 5.9tS.5S 4.507104 6,351.41 S,07S.O '0.77'.00 t0.627.0r ).OD . .Ot qavaticon adjustment 267.00 263.36 278.53 23.7S 439.20 351.39 545.3? 443.00 t,4E2. t 92.00 . O.X S.X0D 3qbCat 1 2.356.68 2,375.85 4.ot9.46 2,973.3E S,355.7' 4,358.93 9.996.7f 6,521.0D '2.256.00 l.W609.00 0.ao '3,953.00 cJulativ dopmcutton 712.14 701.35 S52.73 S34.52 1,130.66 1.19.S5 1,540.67 1,343.00 2t13.00 1.925.00 O.00 2,422.00 RM 'luattoan AdJuntIMt 52.02 50.16 2.33 40.23 73.00 69.77 S9.24 34.00 113.00 109.00 0.00 271.00 SubtOtal '44.16 752.21 11-.06 96.55 '.203.66 1.09.62 t,629.91 1,427.0 2.226.00 2,032.00 O.00 2,693-0o Op.cttiot not fixe4 * asetcs 1U592.52 I.23.64 3.504.40 1,964.93 5,132.12 3,769.31 7,366.82 5.094.00 10.052.00 9.57.00 0.00 16,260.00 Wor*k AA p t6ea t.324.02 946.18 1,151.01 1,294.87 1,467.73 1.455.00 t,594.74 4,180.0o i151.00 t,131.00 0.00 4e600 ROV41%otlon adjustmente .43 0.00 165.16 10.10 289.4e 179.0D 464.61 812.00 54.00 I,a29% 0.00 410.CO * Subtotal 1,362.45 946.16 1,316.19 1t304.97 1,757.21 I.63.0 2,059.55 4,992.00 1,205.00 2,590.00 0.00 856O0 T0TAL WMPMMM AM?9 2,954-97 2569.2 4820.59 3,269.80 6.909." 5,403.31 9.426.37 10,06.00 1tt,237.00 12,67.00 0.00 t7,11SO *CURM ASS (CAet On hlWd 64.08 4.22 9f.25 12.47 148.S 23.54 141.67 16.0 162.00 76.00 0.00 202.00 Subseribert' &Ceomtt; eneiweble 152.20 214.91 210.47 262.52 2T70.10 25.74 352.29 2St.00 441.00 301.00 .00 159.00 Inventory 77.89 189.11 124.62 196.35 226.30 302.70 235.36 560.0D 430.00 667.00 0.00 6700 Other 50.00 5013.0 55.00 949.22 60.50 t.728.52 66.55 1,036.00 73.00 I,879.00 0.00 31,4M.0 TOTAL C_R1 IS 344.17 911.32 488.34 1,420.56 705.7S 2,300.50 845A.7 1.8n.00 1,106.00 2.925.00 0.00 4.514.00 Other amts 3.30 19.36 3.60 27.57 3.99 38.50 4.39 59.00 5.00 97.00 0.00 159.CO --r7L ASSR11 3,502.44 3,500.50 5,312.53 4,717.93 7.619.10 7,822.31 10o,2.63 12.04QOD 12,348.00 MIV9.0D 0.00 21.771.00 ltAUI1LtX QAplta1 23.50 79.44 23.50 120.68 23.50 216.16 23.50 10.00 24.OD 445.0D O OD TM0D Retained bRnA 1,262.3 1,427.41 1.814.99 2,077.12 2,469.73 2.r4.60 3,363.99 3.54C3.0 4,291-00 4,579.00 0.00 5,675.0 tOTAL alutsr 1,2.85 1,506.87 1i,88.49 2,t97-. 2,43.23 3,090.76 3,37.49 3,8470 4,315.00 5,024.00 0 6,79.0 tang.tes debts 1,060.13 801.O 2,254.75 89A.6 3.524.97 2,376.38 4,861.14 5.251.00 5,413.00 6.632.00 040 10t ,00 I inuu: current 153.15 64.39 319.75 129.60 371.98 207.64 841.03 3".0 750.00 8620 0.00 1,327.00 jobutiaa TOTAL tR0-D DoIS 906.98 717-45 1,935.00 769.21 3,152.99 2,16674 3.975-l1 4.862. 4,663.00 S,770.00 0.00 9,061.00 Current LabiUtei 167.58 366 14.34 W7.00 202.77 524.27 223.05 5S5.00 245.00 696.0 0.00 1,040.00 Plus: curt lorw te debts 15.1S 4.39 319.75 129.60 371.98 207.64 841.03 3694.0 750.00 862.00 0.00 1,327.00 ' TIYIAL 01TOA 331 tUM=r= 320.73 413-05 504.0 516.60 574.M5 731.91 1,064-08 9?4.00 9s5o0 1,.0o0 O.00 2,367.00 OMMR LIASI7IU ibeartber deposits 495.3 576.14 671.94 745a. 959.45 1,081.04 1,319.05 1,33.00 1,"6.00 1,836.00 0.00 ,684..00 Retirement penais 19.51 215.61 246.31 389.39 299.71 567.80 363.01 769.00 438.00 673.00 0.00 6O7.00 Co*osoLated save- pay 52.09 62.78 65.69 99.07 81.89 18.96 1ot.09 257.00 124.00 313.00 0.00 337.o0 Other 43.92 9.00 50.5, 0.00 58.0a o.0o 66.80 3.O0 77.00 11t.00 o.co 3.00 7t27L OtlER LLAULE 788.90 363.53 1014.95 1234.32 1398.13 183.90 1,849-95 2,356.00 2,375.00 2.835. 0.00 3,964.00 0TOAL LIAILItI 3,302.44 3,500.90 5,312.53 4,r17.93 7,619.10 7,S22.31 10.276.63 12,08.00 1234,500 15",19.00 0.00 21,771.oo CURR1T RATIO 1.1 2.2 1 2.7 1.2 3-3 0.8 1.9 1.1 1.9 0 1.91 Debequity -atio 41/59 32/66 51/49 26/74 56/44 0 54/46 56/i 52/48 53/47 0 59,,41 S4bscriber accnoute Mresiebl (da 60 76 60 7i 60 71 s0 53 60 40 0 15  - 32 - Annex 18 Page 1 of 2 COLOMBIA PROJECT COMPLETION REPORT FIFTH TELECOMMUNICATIONS PROJECT LOAN 1825-CO Comments from the Borrower "Vie would like to note the following observations to the subject project, in its Spanish version, forwarded with your letter No. 0161812 of May 10, 1988: Page i. Preface It should be clarified that Ln. 1825-CO for US$44 million was lent to the Public Enterprises of Medellin and not to the Government of the Republic of Colombia. Page ii. Basic Information Table Under Exchange Rates Over-Project-Period, substitute 56.49 for 54.49. Under 1984, the exchange rate was 101.33 instead of 101.53. The exchange rates at year end consist of average exchange rates, as can be seen from Annex 9 of our Report. Page iii The Loan Agreement date: please substitute 19 for December 18, 1980. Page iv, number 3(a) The subscribers increased by 522 instead of 47?. Page 5, number 2.03(b) Substitute 1967 for 1962. Page 10. number 3.09(a) Substitute 600 for 500. Page 14, number 4.02(a) Substitute Annex 12 for Annex 23 Annexes of Engllsh Version Page 24. Annex 4 At letter (b) under 1985, substitute 331,550 for 331,500.  -33 - Annex 18 Page 2 of 2 At letter (j)(1) under 1983, substitute 55 for 5. Page 27. Annex 10 Under the column "Differences' in the Total line, substitute 000 for 100. Page 30. Annex 13 Under 1983(A), substitvte 0.00 for 40.00.'  (\4JH \-r / r DON MATIAS r- EDLI SAN PEDOO COLOMBIA S AN P EDRO B P ~A /e8g B E L L 0 60 l V ' COPACAA COLOMBIA TELECOMMUNICATIONS PROJECT N Soo>}5lt 7 ;X f} XLOCAL AUTOMATIC EXCHANGE NETWORK < 3.0SO /2 IN < \ f ~~~~~~~Medellin 365il_.l t go \ ~~~~~GUARNE I 4000(C0n)SM goOluN O OM e5UE 6000 -om G U AR N E % |CtX (4 OCO( Zwa OrtA$A IA HERMOSA4.OO)oot Z.000 Z 9 100013000) 9,000SAN JAViBR0O A0_400 5,000(2.0001 IXO0O SAN UARO)29 aSAN@0i;