Rwanda - Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9012 PROJECT COMPLETION REPORT RWANDA FIRST TELECOMMUNICATIONS PROJECT (CREDIT 1057-RW) September 19, 1990 nergy Division al Department 1 Office ; a restricted distribution and may be used by recipients only in the performance of ~s. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS AND ACRONYMS CCCE - Caisse Centrale de Cooperation Economique (Paris, France). CIDA - Canadian International Development Agency (Ottawa, Canada). DEL - Direct exchange line (connected). DGT - Directorate General of Telecommunications. Expressed Demand - Sum of working connections and waiting list. FAC - Fonds d'Ai4e et de Coop4ration (Paris, France). INTELSAT - International Telecommunication Satellite Consortium. ITU - International Telecommunication Union. km - Kilometer (1 kilometer - 0.62 mile). Microwave - Radio system working at frequencies above 1,000 Megahertz (normally). MPC - Minist6re des Postes et Communications, in charge of the Telecommunications Sector up to December 1983. MTC - Minrstbre des Transports et Communications, in charge of the Telecommunications Sector since January 1984. Multiplex - Equipment in a transmission system which shifts and stacks the different circuits in the frequency spectrum, or time, appropriate to the particular system. PPF - Project Preparation Facility. STD - Subscriber Trunk Dialing. Telex - Switched teleprinter service. Trunk - Long-distance, for interurban service. UNDP - United Nations Development Programme. UPU - Universal Postal Union.  THE WOtLD BANK FOR OFFICIAL USE ONLY W45"0on. D.C. 20433 V.S A Oftice of Otrector-Go.ral Opetattas Evaluation September 19, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Rwanda First Telecommunications ProLect (Credit 1l57-RW) Attached, for information, is a copy of a report entitled "Project Completion Report on Rwanda - First Telecommunications Project (Credit 1057- RW)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment Thu document hu a nonumed drsutbuton and May be sd by rectantg only an the pstoqmmnc of theirofmcil dueial is connts may not otherue be dscked without Word Dnk authoutuon.  FOR OFFICIAL USE ONLY RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057 RW PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. PREFACE .................... i BASIC DATA SHEETS....................... ... . .............ii HIGHLIGHTS .......................... vii I. INTRODUCTION ........................................ 1 II. PROJECT PREPARATION AND APPRAISAL ................... 1 Preparation, Appraisal and Negotiations ........... 1 Project Objectives ................................ 2 The Project ....................................... 3 Covenants ......................................... 4 III. PROJECT IMPLEMENTATION . . .5........................... Credit Effectiveness and Project Start-up ......... 5 Project Revision ... 5 Implementation Schedule . . . 6 Cofinancing ... 8 Consultants... 8 Reporting... 9 Procurement ...10 Project Costs ...11 Disbursements ...12 Credit Allocation ...12 Performance of Consultants, Contractors and Suppliers .12 IV. OPERATING PERFORMANCE .14 V. FINANCIAL PERFORMANCE ............................... 15 Financial Management .............................. 15 Financial Performance ............................. 16 Financial Plan .................................... 16 Financial Covenants ............................... 17 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.  VI. INSTITUTIONAL PERFORMANCE ........................... 17 Organization and Management ....................... 17 Staffing, Recruitment, and Training ............... 18 Accounting and Auditing ........................... 19 Tariffs ........................................... 20 VII. PROJECT JUSTIFICATION ............................... 21 Project Achievements .............................. 21 Project Spin-Off .................................. 21 Least Cost Solution ............................... 21 Rate of Return .................................... 22 VIII. BANK PERFORMANCE .................................... 22 Overall Contribution .............................. 22 Supervision ....................................... 23 Working Relationship .............................. 23 IX. CONCLUSIONS ......................................... 23 List of Annexes 1. Compliance with Credit Conditions .............. 26 2. Completion dates, Estimated and Actual ......... 27 3. Project Costs .................................. 28 4. Cummulative Disbursements ...................... 29 5. Allocation of Disbursement Categories .......... 30 6. Performance Indicators ......................... 31 7. Income Statement ............................... 32 8. Funds Flow Statement ........................... 33 9. Balance Sheets ................................. 34 10. Rate of Return ................................. 35 11. Summary of Telecommunications Tariffs .......... 37  RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 105;-RW PROJECT COMPLETION REPORT Preface 1. This report covers the first Telecommunications Project in Rwanda, supported by Credit 1057-RW. The credit for $7.5 million to the Republic of Rwanda was approved in July 1980, became effective in July 1981, and was closed in June 1987, two years after the original closing date. 2. This Project Completion Report (PCR) was prepared in the Technical Department (Africa) of the World Bank on the basis of information available in the files and of information supplied by the Borrower's Directorate General of Telecommunications (DGT). 3. The draft PCR was sent to the Borrower and the cofinancing agencies for comments but none were received.  - ii - PWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057-RW PROJECT COMPLETION REPORT BASIC DATA SIIEET Kev Project Data Appraisal Actual or Item Expectation Current Estimate Total project cost ($ million) 17.50 32.001/ (Over (under)run (Z) - 82.90 Loan amount ($ million) 7.50 Disbursed ($ million) 7.45 Cancelled ($ million) 0.052/ Date physical components completed 12/31/84 12/31/1173/ Proportion completed by expected completion date (Z) 100 25 Proportion of time overrun (Z) 674/ Economic rate of return (Z) (12)5/ Financial performance Poor Institutional performance Poor I/ Estimate March 1987. 2/ Last disbursement took place 11/30/87 and unused $51,632.32 were cancelled at closing of the credit. 3/ Most of the project was physically completed by February 1987, when all facilities were delivered and in service, except for a small 100 lines telex exchange which was installed in November 1987. 4/ Appraisal estimate of implementation was 4-1/2 years. Actual implementation was 7-1/2 years. 5/ Figures given are financial rates of return, because economic rate of return was not calculated at appraisal and the data available is not sufficient for the calculation of ERR (see Annex 10).  - iii - RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057-RW PROJECT COMPLETION REPORT Basic Data Sheet - Other Project Data Actual Or Original Revision Current Plan Estimate First mention in files or timetable 12120/78 Sector/Identification Mission 03/79 Preparation 091796/ Government's application 10/11/79 Appraisal 11/27-12/18/79 Negotiations 05/12-05/16/80 Board approval 07/29/80 Credit Agreement Date 08/13/80 Fffectiveness Date 11/14/80 07/07/817/ Closing date 06/30/85 1) 06/30/868/ 2) 06/30/87'/ Borrower Republic of Rwanda Executing Agency MpclO/ MTC10/ Fiscal year of Executing Agency 01/01-12/31 6/ Government request/inquiry regarding preparation of a possible project for telecommunications. 7/ Three extensions of date of effectiveness were required due to delays in formalizing co-financing arrangements with French CCCE and FAC. 8/ First extension of closing date was agreed by IDA on 05/31/8_. 9/ Second extension of closing date was agreed by IDA on 07/25/87, together with revision of categories allocation under the Credit. 10/ Ministry of Posts and Communications (MPC) up to 12/31/83, Ministry of Transports and Communications (MTC) since 01/01/84.  - iv - RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057-RW PROJECT COMPLETION REPORT Basic Data Sheet - Mission Data Item Month/Year Number of Number of Manweeks;l/ Date of weeks Persons Report Identification 3/79 1.5 2 3.0 03/28-05/04/7912/ Preparation 9/79 1.5 4 24.013/ 09/04/79 Preappraisal 11/79 1.0 1 1.0 11106/79 Appraisal 11-12/179 2.0 2 3.0 12/79-01/8014/ Subtotal 17.5 31.0 Supervision I C9/80 1.5 1 1.5 12/03/80 Supervision II 04/81 1.0 1 1.0 06/11/80 Supervision III 10/81 1.4 2 2.8 12/09/81 Supervision IV 06/82 1.1 2 2.2 07/21/82 Supervision IV 06/82 1.1 2 2.2 07/21/82 supervision V15/ 12/82 1.5 2 3.0 01/18/83 Supervision VI 07/83 1.5 2 3.0 08/03/83 Supervision VII 11/83 0.5 1 0.5 12/16/83 Supervision VIII 11/84 0.7 1 0.7 11/12/84 Supervision IX 02/85 0.4 1 0.4 03/19/85 Supervision X 10/85 1.0 1 1.0 11/21/85 Supervision XI 08/86 1.0 1 1.0 09/16/86 Supervision XII 02/87 1.0 2 2.0 03/10/87 Supervision XIII16/ 10/87 0.2 1 0.2 10/23/87 Subtotal 12.8 19.3 11/ Field mission time only. 12/ Telecommurications Sector Memorandum No. 2547 of 05/04/79. 13/ Project was prepared with the assistance of two short term consultants in engineering and finance, for about 20 man/weeks under PPF No. P085. 14/ Issues paper and decision memorandum of 12/27/79 and 01/10/80, respectively. Final appraisal report was issued June 9, 1980. 15/ From 12/82 onwards, the missions devoted significant portions of their stay in the country to discussions on a possible second project. 16/ Summary review of implementation status only. Mission was mainly for discussions on proposed second project.  - v - RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057-RW PROJECT COMPLETION REPORT Baeic Data Sheet - Country Exchange Rates Exchange Rate Year (Rwandese Franc, RwF, per $1.00) Annual Average 1979 92.84 1980 92.84 1981 92.84 1982 92.84 1983 94.34 1984 100.17 1985 101.26 1986 87.64 1987 79.67 Appraisal year average 92.84 Intervening years average 92.70 Completion year average 79.67  - vii - RWANDA FIRST TELECOMMUNICATIONS PROJECT CaED'T 1057-RW PROJECT COMPLETION REPORT Highlights 1. The Government of the Republic of Rwand& requested Bank's assistance in financing an accelerated development in the telecommunications sector. The request led to the First Telecommunications Project. It supported the 1980-84 sector expansion program, which was commenced at the end of the Second National Five Year Plan (1977-81) and completed within the Third Plan (1982-86). 2. The Government's development objectives for the sector were to: increase the efficiency of the Telecommunications systems, their operation and management; improve and expand the services in Kigali and over the total area of the country, in order to support the efforts made under the successive development plans in breaking the isolation of rural areas and involving them in the overall economic and social development process; and expand international communications to facilitate trade and coordinate transportation. Additional financing was provided by several bilateral agencies and the UNDP. 3. The Directorate General of Telecommunications (DGT), a department of the Ministry of Posts and Communications through 1983 and of the Ministry of Transports and Communications since 1984, was responsible for the w!;ole telecommunications sector (domestic and international services) during the project period. 4. The sector benefitted from the project in terus of service improvement and expansion, although the project's initial schedule was too optimistic. Implementation was completed about three years later than originally scheduled. During the extended project period, and simultaneously, a larger expansion than initially planned was realized. Thin resulted in more integrated modernization of the facilities and of the services provided. On the other hand, virtually no institutional development occurred, although the project helped the DGT in introducing memorandum commercial accounts in its operation and the Government to recognize the weaknesses of the sector's institutions. 5. The main findings and lessons to be learned are: (a) In preparation of the project schedule, greater account should have been taken of the lead time required to conclude external co- financing arrangements for major project components. Similarly, more attention should have been given to the bureaucratic constraints which were prevailing in the administrative set-up of DGT's activities.  - viii - b) During pioject preparation, a more realistic assessment of telephone and telex demand should have been made, as both forecasts were underestimated. (c) IDA ehould have put greater emphasis upon the Borrower's compliance with the accounting and external auditing requirements, as well as upon more seriously considering the significance and outcome of the tariff study. (d) IDA should have supervised more closely the general financial status of the DGT during and at the outcome of the project. (e) DCT benefitted of extended outside technical assistance under its program, from the project and from other donors. Some of this assistance was redundant. IDA could have suggested that more efficient coordination be exercised in this field by DGT and MTC. 6. Government has requested IDA's assistance for a second project. Shortly after project completion, and as a result of project implementation, and, more generally, of IDA's insistence on public sector restructuring in Rwanda, Government has decided to set up two separate autonomous entitities for Posts and Telecommunications, to be operated on a fully commercial basis. In this context, there is a strong rationale for continued IDA involvement in the sector. The experience g&ined through the first project should be fully used by IDA and the Borrower when preparing and implementing the proposed aecond project.  RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057-RW PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 The public telecommunications services of Rwanda are curtently provided by the Ministry of Transports and Communications (MTC), through its Directorate General of Telecommunications (DGT).1 MTC ensures the regulatory, administrative, budgetary and regulatory functions for these services and is responsible for licensing of private radio installations within the country. DGT is in charge of the management, development and operation of all services, including domestic and international telecomm.unications, and is headed by a Director General. IDA Credit 1057-RW for $7.5 million was the first credit to the telecommunications sector in Rwanda. II. PROJECT PREPARATION AND APPRAISAL Preparation, Appraisal and Negotiations 2.01 The Bank was approached by the Government of Rwanda in late 1978 to finance the development of the telecommunications sector. Increased priority was being given to telecommunications within the framework of the ongoing second national five-year plan (1977-81) in light of the growing urgency to overcome the enclave problem, to raise the rate of in-estment and growth, to foster decentralization, and to encourage rural development. A Bank sector mission visited Rwanda in March 1979 and recognized the need to aesist Government in its efforts to improve and expand domestic and international telecommunications services. The sector study2 emphasized four major issues to be addressed: (a) inadequate access to, and poor quality of internal connections; (b) serious deficiencies in international connections; 1/ Until the end of 1983, the Ministry of Posts and Communications (MPC) was responsible for the postal and telecommunications services. The transfer to MTC did not change the organization and administration of the services. 2/ Telecommunications Sector Memorandum, No. 2547 of 05/04/79.  (c) poor managerial and unsatisfactory financial situation of the services; and (d) poor operation, maintenance, and investment planning. It was considered that the Bank could play a crucial role in assisting the Government in developing the sector and overcoming constraints. A potential project was identified to finance part of the increased telecommunications expansion program, together with technical assistance for reorganization, management and training activities. 2.02 The project was further defined by preparatory exchange of information and discussions among the Government, bilateral donors and the Bank. In September 1979, a Bank project preparation mission outlined with DGT an updated 1980-84 investment program for telecommunications. Meanwhile Canada and France had expressed interest in financing parts of telecommunications development in Rwanda, for long distance radio and switching facilities, respectively. Agreements were also being finalized with Japan to finance international facilities, and with Netherlands to improve local networks. Because of the need for reliable accounts and more information on DGT's investment program and its implementation schedule, an updated program as well as the design and timetable of a suitable project for IDA financing were prepared by Government and DGT with assistance of consultants financed from IDA's Project Preparation Facility (PPF No. P085 RW). Two consultants, one in engineering and one in financial management started work in October 1979. The revision of the 1980-84 program and the preparation of the project were completed in December 1979. 2.03 The December 1979 appraisal mission reviewed DGT's reviewed DGT's revised 1980-84 investment program, which included the ongoing works under the Second Plan and new works defined under the Third Plan, and appraisal for a $17.5 million project designed to improve and expand domestic facilities. The mission recommended a $7.5 million credit to cover 49Z of an estimated foreign exchange cost of $15.4 million, the remainder to be cofinanced in almost equal parts by Canada ($4.0 million) and France ($3.9 million). 2.04 Negotiations took place in Washington, from May 12 to 16, 1980 and the Government approved the outcome of negotiations on June 5, 1980. The Board approved the credit on July 29, 1980 and the Credit Agreement was signed on August 13, 1980. The credit became effective on July 7, 1981 (para 3.01). Project Objectives 2.05 The main project objectives were improvement and expansion of telecommunications services, as well as institutional development. More specifically, they were: (a) to increase the efficiency of the telecommunications services, their operation and management; (b) to expand the services over the whole country, to support Government's efforts in breaking rural isolation  - 3 - and to involve the whole country in the economic and social development process; and (c) to expand telecommunications services between Rwanda and other countries for the coordination of transportation, to facilitate trade, and to overcome the enclave problem. These project objectives are also those of DGT's revised 1980-84 investment program and were also included in the sectoral objectives of the Second and Third national five-year Plans. The Project 2.06 The project consisted of the following elements: (a) the expansion of urbar cable networks in several towns by about 1,300 main lines, and increase of the number of subscriber installations by about 3,000, in Kigali and other main towns; (b) the installation of a new exchange at Rwamagana, equipped for 200 lines and the replacement of ten existing exchanges; the added capacity was to total about 2,000 lines including installation of call charging equipment and adaptation of the installation in Kigali and other exchanges for the interface with the new trunk exchange; (c) the installation of an automatic trunk exchange, equipped for 300 circuits; (d) the replacement of ten HF and low capacity UHF radio links with facilities providing adequate reliability and extended capacity; the installation of microwave equipment for three new routes; (e) the expansion of the telex exchange at Kigali, the provision of teleprinters for 100 additional telex subscribers, and the installation of voice frequency telegraph equipment in about 12 centers; (f) miscellaneous (vehicles, tools, instruments, etc.); (g) construction of a warehouse and other technical buildings; and (h) technical assistance and training services. 2.07 During project preparation and negotiations, the Government was reluctant to implement simultaneously the proposed accelerated development in physical facilities and the thorough institutional development and sector restructuring that would have been suitable to improve sector efficiency. However, it was agreed that the internal organization of the  telecommunication services would be improved and strengthened under the proposed first project. Further reforms would be studied for later consideration. The scope and terms of reference of the engineering and financial consultancy services needed to carry out the project were defined and agreed upon in a supplemental letter (of same date) to the Credit Agreement. Covenants 2.08 Besides standard covenants on management, procurement and reporting, the Credit Agreement provides (under the relevant sections indicated) that the Borrower, through DGT, should: (a) prepare memorandum commercial accounts for telecommunications and furnish such accounts to IDA within 4 months of end of each FY (3.01(b)]; (b) engage technical and financial consultants to assist in: (i) carrying out the project, and management and operation of the systems; and (ii) preparing memorandum commercial accounts, revaluing assets, and establishing accounting and budgetary functions (3.02); (c) make adequate provision for the insurance of project imports [3.03(a)]; (d) furnish IDA with periodic progress reports on project implementation, costs and benefits derived from it (3.04(a)]; (e) maintain training facilities and appoir.t teachers in technical and financial matters (3.06); (f) enter into a contract for the construction of the warehouse before inviting tenders for the procurement of equipment (3.07); (g) appoint independent auditors [4.01(b.i)]; (h) furnish to IDA audited accounts and associated report within six months of end of FY [4.01(b.ii)]; (i) maintain DGT's tariffs at a level adequate to produce a rate of return of at least 102 on revalued assets (4.02); (j) furnish to IDA an assets revaluation plan by December 1980 and apply it thereafter (4.03); (k) carry out a tariff structure study by June 1981 and review it with IDA by December 1981 (4.04); (1) prepare and furnish to IDA every 6 months an analysis of accounts receivable (4.05(i)]; and  - 5 - (m) establish procedures for billing and collection by December 1982, to ensure that outstanding receivables would not exceed four months of DGT's annual operating revenues (4.05(ii)]. Details of compliance are in Annex 1. The Borrower complied with the five covenants in sections 3.02, 3.03(a), 3.06, 3.07 with regard to consultants and project implementation, and with section 4.01(b.i) with regard to the hiring of auditors. Compliance took place with delays ranging from two to four years. All other covenants - mostly related to accounts and financial management - were only partly complied with (seven covenants) or not at all (one covenant). The submission of progress and financial reports was irregular or insufficient throughout the project period. The Borrower did not prepare a project completion report, nor did he express his views on the benefits and lessons to be expected from the project. III. PROJECT IMPLEMENTATION Credit Effectiveness and Project Start-up 3.01 The credit agreement stipulated that the cofinancing arrangements between the Government and the French CCCE and FAC be finalized as condition of effectiveness (paras 2.02 and 2.03). This took more time than expected at negotiations; arrangements were signed on April 17 and May 27, 1981, respectively. The credit became effective on July 7, 1981, a year after Board approval. 3.02 The slippage of effectiveness affected the project start-up by delaying the engagement of engineering consultants to prepare technical specifications and tender documentation, and of financial consultants to prepare commercial accounts, assets revaluation and tariff study. Hiring of the engineering consultants (SOFRECOM/France) followed up promptly, in July 1981. The first applications for withdrawals covering the refinancing of PPF No. P085-RW and initial payments to SOFRECOM were submitted in August 1981. The initial delay affected the overall implementation schedule of the project. Project Revision 3.03 There was no change in the basic composition of the project. However, as a result of the unfolding planning process and of the rapidly evolving technology for telecommunications in the early 80's, some project components (mainly switching equipment) had to be redesigned, and others implemented using the latest appropriate technology. In particular, the initial plans proposed to add equipment and extend the main electro- mechanical exchange (of Philips UR49A type) in Kigali to interface the new trunk and international electronic exchanges of DC.T's program. Equipment at reasonable cost was not available for these works and it was decided in 1983 to use electronic digital technique for all networks throughout the country. The decision was sound, on the whole, and in line with prevailing technological evolution. Plans were modified to withdraw progressively from service and replace the Kigali main telephone exchange (with 5,000  - 6 - lines installed capacity, of which 3,500 in service), and thus the planning of the local and trunk networks was also modified. 3.04 New switching equipment under the project was entirely cofinanced by the French CCCE. Tender for the exchanges had already been issued at the time of the decision, in parallel with tenders for the other systems. Compositiun of the proposals had to be adjusted to fit the revised functions and capacities. In particular, the trunk and local functions at the Kigali main telephone exchange were combined, and the total capacity of new telephone exchanges was increased from 5,000 to about 9,000 lines. In combining trunk and local switching in more sophisticated exchanges the new technology enabled the suppliers to maintain their unit prices for equivalent capacities. This prevented re-tendering and further slippage in project implementation. The additional switching capacities to meet increased demand for telephones and telex over the extended project period were considered as supplemental works outside the project. These works were financed by CCCE under a separate financing agreement. Minor adjustments were made in the distribution and capacities of the other facilities from the project to fit the revised configuration of exchange equipment. This mainly concerned the local networks and the interfacing of long distance transmission systems. Implementation Schedule 3.05 The completion date in the Credit Agreement is December 31, 1984, four years after the anticipated effectiveness date. The implementation schedule showing planned and actual dates for the various project components is given in Annex 2. Actual implementation of this project took three years longer than anticipated, for the reasons mentioned thereafter. (a) Delayed finalization of cofinancing arrangements, by about ten months, with French CCCE and FAC, and late hiring of consultants resulted in project start-up being delayed by about one year (paras 3.01 and 3.02). (b) A contract for the construction of warehouses to store project equipment at delivery was to be entered into by Government, before inviting tenders for the procurement of equipment to he financed out of the proceeds of the credit [para 2.08(f)]. Under the current administrative set-up of government services, the Ministry of Public Works is responsible for civil works contracts and insufficient priority was given to this requirement under the project. In spite of MPC's and DGT's insistence, the construction contract was signed in September 1983, about two years later than expected. Tenders for most project equipment were issued from October to December 1983, about two years later than initially planned. (c) Changes occurred in DGT's program to meet increased demand through the extended project period and benefit from new technology. This resulted in adjustments of the program and of major project components which were  - 7 - finalized in 1984; it took about one additional year to install the new facilities. (paras. 3.03 and 3.04). (d) Construction of regional microwave radio links financed by IDA and CIDA raised unexpected problems, which resulted in changes during construction. This concerned essentially the common utilization of support infrastructures and the interworking and testing of transmission and switching equipment. However, the resulting ten month-delay in the delivery of transmission systems was absorbed in the extended delivery time for the switching systems [preceding para 3.05 (c)]. (e) Land transport of heavy cable items through Uganda during the civil war suffered extended delays and resulted in damage and replacement of some deliver4 es. (f) Finally, the late availability of technical buildings for the extension of the telex exchange, necessitated the replacement of equipment units which had suffered from inappropriate storage in Rwanda. 3.06 In spite of that delay, the complete replacement throughout the country of obsolete equipment and plant by expanded and modern telecommunication systems was successfully completed in February 1987, and service improved considerably. Subscriber trunk dialing (STD) was introduced nationwide and international trunk dialing (ITD) was also introduced with major foreign countries. Also, connections of new subscribers were implemented during the extended project period and were kept in pace with the new installations as they were provided. At the end of 1987, 6,560 DELs were in service, or about twice the number of working DELs at project start-up, in 1981. Additional installed capacity representing about 3,000 exchange lines was available for further connections pending the next investment program. 3.07 Little progress had been achieved however in terms of organizational strengthening and improvement of financial management. In spite of the employment of consultants and of efforts made to train staff for the introduction of memorandum commercial accounts and minimal financial management, credit covenants in this field have been largely ignored and proved ineffective (para 2.08 and Annex 1). Bank supervision missions repeatedly ascertained the situation but could only formulate wishes for improvement. The situation remained insufficiently documented, only partial accounts were lately available and no remedial action was taken for improvement. 3.08 Because of inadequate organization and lack of commercial accounting and accountants, financial management remained ineffective throughout the project and DGT's financial set-up is still inadequate. During project supervisions and at project completion, IDA pointed out to Government that DGT's poor financial performance and its contributing factors (accounting system, manpower, lack of management information system, and commercially oriented organization) would require fundamental  - 8 - restructuring, before a second telecommunications project for which the Government has requested IDA's assistance could be envisaged. Cofinancing 3.09 It was proposed at appraisal that the total project's foreign costs of $15.4 million would be financed by IDA ($7.5 million), the Canadian Development Aid Agency CIDA ($4.0 million) and the French CCCE and FAC ($3.9 million). Local costs of $2.1 million were to be financed by the Government. Following the revision and adjustments of the switching component for telephone and telex (paras 3.03 and 3.04), the foreign costs of these items exceeded the initial estimate. Increases in exchange capacities by about 5,000 telephones and 150 telex lines were financed under a separate agreement with CCCE, in 1985. Concerning the rest of DGT's program, OECF of Japan financed the installation of a satellite earth station and international transit exchange for about $5.0 million, and the Belgian, Canadian, Dutch and Swiss Aid Agencies financed small projects for rural telephone, subscriber outside plant, or training schemes in various parts of the country. No details on the scope and cost of these activities are available in the files. A donors' round-table organized in February 1988 in Kigali confirmed that further cofinancing for telecommunications in Rwanda would be available from various bilateral and multilateral sources. Consultants 3.10 The Credit Agreement required the Government to engage consultants to assist in designing and implementing the project and in establishing appropriate management systems and procedures for the planning, programming, operation and maintenance of the facilities to be implemented under the project systems and for DGT's financial and accounting functions. The services provided to assist in carrying out the project are summarized below. 3.11 Engineering Consultants were hired to: (a) design, prepare specifications, assist in tender evaluation and procurement contracts, follow-up of construction, supervise acceptance tests and training for switching telex and digital transmission systems: SOFRECOM, for 72 man-months; (b) same tasks as above for analog transmission and rural systems: Teleconseils/CIDA for 14 man-months; (c) same tasks as above for local networks and subscriber outside plant: NEPOSTEL, for 78 man-months; (d) prepare a master plan for telecommunications development (1982), coordinate project planning and implementation and develop courses for technicians in DGT's training institute: PNUD/ITU under project RWA 81/007, for 80 man-months; and (e) prepare technical aspects of the initial project: (in 1979 IDA/PPF No. P085-RW), 3 man-months in 1979;  elaborate specifications for the extension of the UTR49a electromechanical exchange: Phillips, two man-months; and miscellaneous high level advisory assignments in planning of switching and local network systems: ITU, one man-month; Dutch PTT, one man-month. This totals about 252 man-months, or 21 man-years of technical expert services over the seven-year project period (1980-87). 3.12 Financial consultants were hired to: (a) help frame memorandum commercial accounts and prepare the revaluation of assets: CEGIR, for 50 man-months; (b) audit the accounts: Price Waterhouse from Kinshasa (1980 through 1985 accounts), and SOGEREP from Kigali (1986 accounts); for 18 man-months; and (c) prepare financial aspects of the initial project: IDA/PPF No. P085-RW, three man-months in 1979. This totals about 71 man-months, or six man-years of financial expert services over the seven-year project period (1980-87). 3.13 DGT's program outside of the project also benefitted from external expertise, mostly for technical planning and field advice during construction, concerning the satellite earth station and international transit exchange (from Japan), rural telecommunications (from Belgium, Canada, Japan, Switzerland, and the ITU), local networks (Dutch PTT), postal services (UPU, Belgium and Swiss PTT) and training (ITU and Swiss PTT). The files contain little information on this assistance which was generally provided on a grant basis. Tentatively assessed at 25 percent of the assistance summarized in previous paras 3.11 and 3.12, it would represent approximately 6 man-years of additional expert services during the project period (1980-87). Reporting 3.14 The credit agreement stipulated that DGT should provide to IDA, at regular intervals, reports concerning the project. Promptly after completion, the Borrower was also to prepare and furnish to IDA a thorough report on the execution, initial operation and results from the project. The procedure for progress reporting was defined and agreed with MPC and DGT in October 1981. It was only partly followed during project execution as summarized below with regard to: (a) Technical Reports: Summary quarterly reports limited to operational indicators but short of details on project preparation and implementation were sent by DGT in 1982, none in 1983 and partly in 1984. More complete reports were submitted twice a year, on average, from 1985 onwards.  - 10 - (b) Financial Reports: There is no mention of CEGIR's reporting in Bank files, for the memorandum accounts and the revaluation of assets; also DGT did not report on CEGIR activities in 1981-82; only simplified income statements were produced by DGT, from 1980 to 1982; audit reports were produced in three batches: 1980-1983, together with recommendations for internal control, in March 1985, 1984-1985 accounts in December 1986, and 1986 accounts in October 1987. (c) Completion Report: No completion report was prepared by MTC or DGT. In spite of the efforts made by DGT, reporting under the project was generally insufficient and unsatisfactory. This was due to the lack of adequate internal reporting and information service within DGT and the Ministry. At the end of the project period however, DGT introduced an internal reporting system for construction and operational performance indicators, (quality of service, volume of sales, receivables). Due to the lack of reliable commercial accounting system, the monthly management reports does not include any indicators of financial performance. Procurement 3.15 DGT was the project's implementing agency. Being a government administration, DGT follows government procurement procedures. These require that procurement action be supervised and finalized through varied government agencies, other than the technical ministry in charge. Bid documents, award decision and contracts for goods and services are processed through the Government Tender Board. All contracts for building and civil works are prepared and handled by the Ministry of Public Works (MPW) before being processed through the Government Tender Board. This latter disposition caused long delays under the project. MPW could not give sufficient priority to DGT's warehouse subproject. IDA's clearance of bidding documents, invitations for bids and contract awards took place between January and September 1983, about two years later than expected at appraisal. The signing of the contract for the building was a covenanted prerequisite to the issuance of bids for the other project items [para 2.08(f)]. After procedural delays were overcome, procurement of IDA financed items presented no major problems. 3.16 Tenders for telecommunications equipment and plant were issued between October 1983 and June 1984. Actually, the delay in contracting for the warehouse building (para 3.15) provided useful lead time to resolve technical issues such as replacement or expansion of the old electromechanical exchange equipment, and the design and configuration of new digital switching and transmission systems (paras 3.03 and 3.04). Procurement was grouped in categories and lots to enable competition and timely deliveries. Site installation, training and assistance in operation and maintenance were included in the contracts for telephone and telex exchanges, and microwave links. All contracts for the IDA financed items were signed by October 1985.  - 11 - 3.17 With the exception of the 100-line telex exchange, all installations were completed by the end of 1986. Operation of the new systems started in February 1987. Telex equipment had suffered from transportation and storage and replacement of the damaged units further delayed the installation of the new telex exchange which was commissioned in December 1987. Considering the complex works involved, the procurement process from bids issuance to delivery went through rather smoothly and, in general, within the contractual delivery periods. Project Costs 3.18 The estimated project costs at the time of appraisal (1980), the revised costs oni the basis of actual contracts in October 1985, and the actual project costs are shown in Annex 3. Lacking project cost accounting, total local costs of the project only include payments in RwF disbursed out of the revolving fund (Fonds de Roulement), established by the Ministry of Finance to cover the local expenditures under the project. Salaries of DGT staff working on the project, however, are not included. Local costs represent only about 18? of the total costs. A summary is shown in table 1 below: Table 1: Estimated and Actual Project Costs Costs In Appraisal Est. (1980) Revsed Est (1986) Actual Costs (1987 Million Local Foreign Total Local Foreign Total [ocal Foreign Total RwF 194 1,430 1,624 327 1,496 1,823 371 1,746 2,117 US$ 2.12 16.38 17.60 8.22 14.78 18.00 4.70 21.90 26.60 Exchange Rate, t1.= (RwF.92.80) (RwF.101.20) (R1F.79.B7) Variation in X from Appraisal Estimate, in USS +62X -4X *3X +122X +42X +62X (currency of the credit) 3.19 The above 52Z cost overrun reflects mainly the increase in project size, but also the variations of the US$/RwF exchange rate in 1985 and 1987, compared with the initial exchange rate of 1980 (+9Z and -14? respectively.). Expressed in RwF the cost overrun is 30Z, broken down as 22? foreign cost and 40X local costs. Annex 3 shows that foreign cost increases are mainly due to the larger capacity of telephone switching equipment, external plant and technical assistance finally contracted for under DGT's 1984-89 program. The higher capacity derived from the technical adjustments which were made on the proj_ct iesign, after deciding  - 12 - to replace rather than to expand existing obsolete switching equipment (paras 3.03 and 3.04). Local cost overrun is mostly due to price escalation resulting from delay in project completion. 3.20 At the end of 1985, most IDA financed items had been contracted for at costs close to the appraisal estimates. Total foreign e. ._ange cost of these items was about US$7.6 equivalent. Most of the procurement was in European and Japanese currencies for works to be implemented in 1986-87. The depreciation by about 202 of the US dollars in relation to these currencies between contract signing and payments resulted for the government in a financing gap of about US$ 1 million at project completion. The matter is still pending and the Government is currently seeking a solution to obtain the necessary resources to complete payments which are still due on several contracts financed from the credit. Disbursements 3.21 The estimated and actual annual cumulative disbursements of the credit proceeds are given in Annex 4. The slow disbursement o. the credit was caused by the initial delay in implementation (paras 3.05 and 3.06). The original closing date was June 30, 1985, and the revised date was June 30, 1987. Committed payments continued to be made until November 30, 1987, when $7,448,378.68 had been disbursed. The remainder, $51,621.32, was cancelled on December 31, 1987. Credit Allocation 3.22 The original and final revised allocations of credit proceeds are given in Annex 5. The allocation was revised on the basis of the actual prices of most contracts to be financed by the credit which had been entered into by the end of 1985. The revised allocation was approved by IDA in our telex of July 25, 1986. The remaining unallocated category of $240,000 for price contingencies on undisbursed amounts of about $5.5 million at that time proved largely insufficient, due to the unforeseeable depreciation of the US dollars which occurred in 1986-87 (para 3.20). Performance of Consultants, Contractors and Suppliers 3.23 The technical consultants having participated in the project are listed in para 3.11. Besides individuals employed for short term tasks such as for initial project preparation (PPF) and advice on existing switching equipment, three main engineering consultant firms were engaged to assist DGT in planning and implementing specific project components, and in staff training. In addition, a UNDP/ITU team prepared a Master Plan (1982) and advised DGT and MTC on the overall coordination of development planning and implementation. Adding consultants for the program outside of the project (para. 3.13), a total of about 27 man-years of expertise were made available to DGT during the seven-year project period. On average, this represents four experts permanently present in Rwanda over the period. 3.24 Although the consultants were generally competent for the tasks involved and their contribution was useful, the coordination of several teams of specialists working on interrelated systems in bilateral,  - 13 - multilateral or independent environment was clearly insufficient. The files reflect cases of redundancy or duplication of activities, of too long studies and discuss'ons, of varied or conflicting technical solutions, which hampered efficient project execution. 3.25 Aware of the above difficulties, MTC and DGT attempted several times to improve the coordination of the project/program planning and construction activities. Meetings were organized with the concerned donors, their technical representatives and the concerned consultants. The meetings helped, but the issue of how to determine the optimal nature and duration of the technical consultancy aervices, and to adjust it to the size of the development program and the implementation capabilities of the beneficiary, could not be solved. As a whole, the technical assistance which was made available to Government from varied sources, in relation to equipment financing, and was used by DGT during the project period is excessive for an investment program of about 10,000 exchange lines and local networks in 12 locations and 12 short range microwave links. 3.26 The creation of a telecommrnications semi-private company, with a commercially oriented management, as now decided by the Government, will certainly provide a better solution to ensure coordinated development planning and project implementation (paras 6.0? and 7.02). This also would help avoid the duplication of consultancy services in the future. Government's agreement on the need for a new sector structure and organization may have been one major accomplishment of the project, and its establishment would be the main objective of the proposed second project. 3.27 The financial consultants having participated in the project are mentioned in para 3.12. The assessment of the services provided is as follows: (a) In the case of CEGIR, we question the way fixed assets prior to 1981 have been accounted for (that was one of their assignments) since the work for which we have some evidence is of poor quality: no commercial accounts and elementary revaluation of assets were the outcome of their assignment. However, it must be said that the consultant operated in a barren environment, with no accounting structure in DGT (see Chapter V). (b) In the case of Price Waterhouse (PW), they produced, rather than audited, financial statements, because of the absence of proper commercial accounting. However, it is regrettable that there was no discussion of revenues in the income statements and that funds flow and debt service statements were omitted. (c) In the case of SOGEREP, even though they recognized that DGT had no proper accounting methods and procedures, '8ey stated in the management letter that DGT's :..nancial situation is: "refletee de manitre sincbre et reguli6re, en conformite avec les methodes comptables que la DGT a retenues." ("accurately and regularly reflected in conformity with DGT's accounting procedures.").  - 14 - 3.28 Foreign contractors and equipment suppliers performed satisfactorily. The installation of the telex exchange was delayed due to litigation on the replacement of parts and units which suffered from transportation and storage. Despite its delayed start-up, the construction of stores and exchange buildings was completed satisfactorily. IV. OPERATING PERFORMANCE 4.01 The performance indicators set at appraisal and those actually achieved are compared in Annex 6. The connection of new telephone subscribers was slightly ahead of forecast from 1980 to 1983, due to the availability of line units in the existing exchanges. From 1984 on, the delay in construction of the local networks limited the number of new subscribers and the forecast number of 5200 subscribers in 1984 was only reached at the end of 1986. The availability of new digital exchanges from the project enabled the transfer of all existing lines to new facilities in early 1987. By December 31, 1987, 1,117 additional subscribers had been connected and domestic and international trunk dialing facilities were available to all subscribers througbout the country. As an indicator of potential demand, from 1980 to 1985, an average of 750 applications were satisfied. In 1986, the year preceding the commissioning of the new facilities under the project, this number increased to 2,600, demonstrating consumer interest. At the end of 1987, the number of applications dropped to 1050. Following project completion, DGT organized a survey to detect the hidden potential demand across the country. The result shows that unsatisfied demand was about equal to the number of customers (6,200 potential customers compared to 6,561 DEL's at the end of 1987). The connection of telex subscribers was implemented about one year later than the initial forecast, and all available capacity was utilized at the end of 1985. Installation of the new telex exchange was delayed until December 1987 and new subscribers could only be connected again in early 1988. 4.02 Gross operating telecommunications revenues reached RwF 806.4 million for 1987, the year of project completion. This figure is close to the forecast revenues in 1986. It is however premature to assess the real impact of the project on the overall revenue generation. 4.03 Besides the number of faults per DEL's per year, there were no performance indicators in the SAR to follow up improvements of the quality of service during the project period. Information provided by DGT since 1986, however, indicates reasonably low rates of unsuccessful call attempts in local, national trunk and international services, and a clear improvement in the number of ftults per DEL's per year, which dropped from 2 in 1980 to 0.6 at project completion. The latest achievement which is close to the results obtained in developed countries (0.25 to 0.5) is extremely satisfactory and well above the achievement of other telecommunications entities across Sub-Sahara Africa. In 1987, percentage of faults cleared in 48 hours was about 30? in KIgali and on average 35Z for the country. Although this achievement is still below DGT's objective of 80 for 1987, it also shows improvement in the maintenance of the local networks and subscriber plant. Under a possible second project, service quality indicators, traffic measurements and maintenance monitoring methods  - 15 - would be further developed and introduced, taking advantage of the operation and maintenance facilities provided by the integrated modern digital systems now in operatiot. in DGT's networks. 4.04 The delay in the preparation of bills to subscribers improved during the project period from two months to less than tw_ weeks on average. This resulted from the operation of a computer financed by the credit in 3983 and from applying methods recommended by the consultants. The situation of unpaid bills has only improved towards the end of the project period. Receivable subscriber accounts varied between six and 14 months outstanding from 1980 to 1986. Measures taken in 1987, in parallel with the introduction of the new systems, resulted in a noticeable improvement of the unpaid arrears from official, semi-official and private users. At the end of 1987, receivables had been reduced to five months which is close to the covenanted four months in the credit agreement. (para. 2.08(m)]. V. FINANCIAL PERFORMANCE Financial Management 5.01 There has been no financial management of DGT throughout the project period. What has finally been achieved is a compromise between what the Bank requires within a framework of organized accounting and what DGT was capable to implement: a sketchy recording of revenues, expenses and payments gathered in simplified income statements. They were presented in a collection of "audited" statements, from 1980 to 1986, which should more properly be termed educated guess statements. 5.02 A financial expert from CEGIR, financed by the project, was in Kigali from September 1981 to December 1982. His agreed terms of reference were to introduce: (a) the analysis of accounts receivable and billing collection; (b) a management information system; (c) the setting up of memorandum commercial accounts and registering and revaluation of fixed assets; and (d) a tariff study. We assume that the expert soon realized that he could not perform efficiently, because there was no qualified personnel, no training incentive, assets were "managed" in the Ministry of Public Works, payroll was kept in the Ministry of Civil Service, payments by customers were not mandatory and he therefore could not implement his terms of reference. DGT has kept its rudimentary accounting practices and we have received audited statements, produced in 1985, 1986 and 1987, which are practically maaningless. The lesson to be drawn is to use frequent supervision missions to correct the course of project implementation.  - 16 - Financial Performance 5.03 In this context and based un information from the files, DGT's proforma financial statements have been prepared from 1979 to 1986 and are given in Annexes 7 to 9. DGT's main financial indicators can be summarized as follows: 1980 1981 1982 1983 1984 1985 1986 1987 Gross Operating revenues (RwF million) - Appraisal 293 346 419 519 615 726 830 - Actual 321 326 412 444 573 585 556 806 Operating ratio (Z) - Appraisal 77 74 74 71 68 65 64 - Actual 86 93 76 69 75 86 94 65 Rate of return on rev.ass.(Z) - Appraisal 22 13 9 8 9 10 11 - Actual 17 4 11 14 15*/ 8*/ 4*/ 25*1 Current ratio (times) - Appraisal 2.7 2.6 1.4 1.6 1.6 1.3 1.2 - Actual 25 24 23 17 11 3.3 17 18 Subscriber accounts receivables (in months) - Appraisal 9.0 8.1 7.2 6.3 4.8 3.5 2.9 - Actual 6.1 5.9 6.1 5.1 9.7 17.0 9.9 5.2 */ Rates of return on book values. The financial performance began to lag behind forecasts in 1983, when revenues fell below 90? of forecasts, wivh a reprieve in 1984. Revenues fell more deeply in 1985 and 1986 (67? of forecasts), because tariffs were not raised to match increases in expenses (the operating ratio soared to 75? in 1984 and reached 94Z in 1986). The rate of return was well above the agreed target of 10? in 1980, and from 1982 to 1984, but it fell below 10? in 1985 and 1986, even when calculated on book valued assets. Current ratios were high because of the high level of receivables which were much higher than the agreed target of four months throughout the duration of the project, but particularly from 1984 to 1986. Financial Plan 5.04 No financial plan is available because of the absence of funds flow statements. Also no statements on debts, and debt service, are  - 17 - available. As part of the setting-up of a commercially oriented telecommunications entity with adminis_rative and financial autonomy (to be supported by a new project), a full set of financial opening statements and projections will have to be prepared. Financial Covenants 5.05 Given the financial performance reported above, compliance with financial covenants has been poor throughout the duration of the project. Even auditing, which has been performed for all financial years but 1987, was only national, as DGT has no proper accounting, in spite of its commitment to prepare a memorandum of commercial accounting: elementary double entry bookkeeping is still not used by DGT. Moreover: (a) the rate of return has been below 102 for the last two audited financial statements, in 1985 and 198, though it jumped to 252 in 1987, when calculated on book values, which is probably close to 10? on revalued fixed assets; (b) CEGIR devised a statistical indexation of assets by an arbitrary rate of 6Z, probably related to inflation, which is no substitute to proper revaluation and was abandoned by the auditors starting with the 1984 accounts, without explanation; (c) CEGIR produced a tariff study, but it was reported to be theoretical and of poor quality; and (d) the level of receivables has consistently exceeded the covenanted four month period and even exceeded twelve months, in 1985, though it was down to five months in 1987. 5.06 In retrospect, it appears that the main reason for the lack of compliance with the covenants is that they were originally set well above DGT's realistic capabilities and were not closely enough monitored. VI. INSTITUTIONAL PERFORMANCE Organization and Management 6.01 The borrower was the Government and the implementing agency of the project was DGT. As usual, under such set-up of telecommunications services as a Government department, management was highly concentrated in the hands of the Minister in charge (MPC followed by MTC). The replacement of DGT by a commercially oriented entity under appropriate statute had been discussed during project preparation. However, Government considered not to have yet enough experience in state run or autonomous enterprises for public services. Rather than immediate restructuring, it was agreed that internal organizational and management improvements would be made under the project to strengthen DGT and render it more efficient. To this effect, substantial engineering and financial technical assistance financed by IDA  - 18 - was included in the project. Most of the specific covenants of the credit agreement related to the introduction of memorandum commercial accounting and auditing procedures within DGT and the strengthening of its financial and budgeting management (para. 2.08). Further restructuring would be considered in the medium or longer term, in particular within a proposed project under DGT's next development program, for which government requested IDA assistance in 1983. 6.02 A first step in internal reorganization was undertaken in 1983, by better defining the terms of reference and tasks for the directors of operations, planning and the chief of administration and finance. Senior officers were sent abroad for specialized training. However, management improvements remained impeded by the departmental status of DGT and the bureaucratic approach prevailing in government administration. In particular, the actual control of DGT's financial and contractual matters remained with the Ministry of Finance whose main concern is to limit, reduce or delay expenses, regardless of their negative impact on revenue generation and maintenance of the systems. Also the handling of human resources and environmental activities, for civil works and buildings, remained within the responsibility of other ministries, in charge of civil service and public works, respectively. In addition, two different Ministers and three Directors General have been in charge of telecommunications during the project period, when large investments and fundamental technical and operational changes were being implemented. On the whole, from the managerial and organizational point of view, little has been accomplished. 6.03 The issue of improving the institutions and management of the sector, and its efficiency, was repeatedly discussed with Government and DGT during supervision of the current project and the preparation of a new project. The latter had to wait due to delays in completing DGT's ongoing program and in preparing further restructuring of the sector. In the meantime, a study of the posts and telecommunications restructuring requirements was undertaken in 1987 under the IDA financed Study Fund (Subproject No. 23). Based on the results of the study, the Government decided, at the end of 1987, to set up separate autonomous entities for the two activities, a "Regie des postes" for postal services and a "Soci4te d'economie mixte" for telecommunications. It became clear that Government was keen to press ahead with the restructuring. The Bank has expressed its approval to the proposed changes and is insisting on the need to prepare them thoroughly, including a dated plan of action for their implementation with adequate outside assistance. 6.04 In spite of the limited success of the first project, IDA's continued involvement in telecommunications in Rwanda would be justified in order to help implement such sectoral reform and, simultaneously, the next DGT's development program within the framework of the 4th Plan (1987-1991). Staffing, Recruitment and Training 6.05 At the time of appraisal, DGT had a permanent staff of 470 (about 140 per 1,000 DELS). This figure rose to 600 (96 per 1,000 DELs) at project completion. An actual decrease in staff ratio became noticeable only during the last years of the project, when a larger number of new lines could be connected. Further reductions remain necessary to increase  - 19 - efficiency. Throughout the project period, shortages of skilled employees and the need for training abroad constrained project implementation and institutional strengthening. Simultaneously, overstaffing at lower levels increased operating costs. Participation of the staff in construction works mitigated these effects to a certain extent. Meanwhile, civil service regulations continued to limit flexibility for hiring, tasks and performance related pay scales, and training. In particular, sufficient staff could not be recruited to establish DGT's finance and accounting division on a suitable basis. Improvement in these fields is related to institutional reform (para 6.02). 6.06 DGT's technical training school was opened in 1979, a year before project start-up. The school has been established with the assistance of the Swiss government and UNDP/ITU. The training program was designed primarily for lower level and semi-skilled employees. Outside assistance in training equipment and teachers continued through 1985, when DGT took it over. The school, however, is suffering from capacity constraints. It lacks resources in several disciplines, in particular management and accounting training, and at skilled levels. Personnel at these and higher levels must be trained outside Rwanda. The project included items to this effect which were implemented by DGT, as needed and planned. Accounting courses were held by the financial consultants but discontinued after their departure. Other teaching cycles included in the project were also completed. There is still, however, a lack of staff, training equipment and continuity in the production of the required courses. Given these constraints, it is recommended that further assistance in coordination with all concerned donors be provided under the proposed project. Accounting and Auditing 6.07 The fact that DGT has no formal double entry accounting and that only - few simple income statements were sent by DGT to the Bank, indicates th' ..he auditors, rather than DGT's accounting branch, have produced the financial statements themselves. Much remains to be done to establish and strengthen DGT's accounting procedures and, more generally, to provide the sector with adequate tools and improve its financial management. 6.08 From available information, it appears that current DGT accounting system presents the following weaknesses or deficiencies: (a) There is no register of assets and there has been no financial analysis of investments, either from the project or from other lenders' projects. Whatever CEGIR may have done to organize the register of assets was not implemented, and the amount of fixed assets before 1981, determined by them, is unreliable; (b) No funds flow statements have been produced by the auditors, which could have shed some light on the variations of net fixed assets (for instance, the variations are negative in 1985 and 1986). There has been no analysis of works in progress, the amount of which was verv large in 1985 and 1986 (63Z and 185Z respectively, of net fixed assets, with no explanation);  - 20 - (c) As a consequence of the absence of register of assets and the non production of funds flow statements, the content of the fixed assets account in the balance sheet is meaningless. While there was a RwF 2.4 billion investment between the end of 1980 and the end of 1986, the total gross fixed assets and works-in-progress were reduced by RwF 1,084 million and the total of net fixed assets by RwF 1,371 million during the period. Similarly, the contents of the equity and long term debt accounts are equally meaningless. (d) The asset revaluation proposed by CEGIR is meaningless and has been abandoned by the auditors from the 1984 accounts on, which shows that the results for rates of return are overvalued. (e) The amount of receivable accounts is underestimated, because unpaid bills from official subscribers (Government presumably) are deducted from the Government's subsidy to DGT (official unpaid bills are said to represent 572 of total receivables, but they do not appear in the audited accounts for 1986), and it is not clear whether receivables from previous years are added to current receivables. 6.09 In spite of the efforts made, DGT's accounting situation is very poor and its financial performance mediocre. The recent surge in operating revenues (total revenues in 1987 were twice the revenues of 1986) following the introduction of subscriber dialing in trunk and international services should enable to improve the situation. It is recommended however, that a thorough action plan be prepared and measures promptly taken to improve and straighten the accounting and financial system of the sector. 6.10 As regards auditing, the auditors seemed to have been obliged to perform a job of bookkeepers. However, they have not produced an analysis of the revenues and yearly funds flow statements, and an assessment of DGT's debt position. Tariffs 6.11 DGT's tariffs remained basically unchanged since 1975. International tariffs only were adjusted in 1982 and 1987, in line with changes made in agreements between most countries and the changing value of the "franc-or' used in international arrangements for telecommunications charges. A summary of the tariffs at time of appraisal and current tariffs is shown in Annex 11. 6.12 A tariff study was undertaken by CEGIR in 1982 (para 5.05) as part of the project. It was modified in several aspects at Bank suggestion during supervision. The study was submitted to Government in 1983 but no action on tariffs resulted. An updating of the study was initiated by Government in 1986, following DGT's decreasing rate of return. The updating was reportedly completed in early 1988. However, neither the results of both studies nor proposals for tariff adjustments have been  - 21 - released to the Bank. The issue of DGT's ability to adjust its tariffs regularly in response to the changing cost and economic factors has been a continued difficulty under the project. It is important that this issue be firmly addressed and resolved in the proposed project, within the context of the restructuring of the sector (para 6.03). VII. PROJECT JUSTIFICATION Project Achievements 7.01 The project achieved and in some cases went beyond its physical objectives, though this took a longer time than expected at appraisal (paras 3.05, 3.06 and 4.01). Local and long distance networks and access to international service have improved, together with the introduction of modern and expanded systems. Access to and quality of service have improved throughout the systems, in particular due to the completion of the interurban links to interconnect telephone subscribers in provincial towns and rural development centers, providing them with nation wide automatic service. Annex 6 compares performance indicators estimated at appraisal with actuals. 7.02 Institutional achievements were minor. The financial management goals set at appraisal to provide DGT with accounting tool and information systems to enable a more efficient and productive operation and development as a commercially oriented entity, were only partly met, or not at all (paras 5.01, 5.02 and 6.02). However, the Government realized the importance of this matter during the last two years of the actual project and the need to remedy such failure. As a result, an overall study of the sector status and restructuring requirements was undertaken in 1987. The Government has now indicated its intention to reorganize rapidly the telecommunications sector into a "corporation" or "Societe d'economie mixte,' combining public and private ownership and interests (para 6.03). Assisting in successfully implementing such reform and in the start-up of the new entity would be the main rationale for continued IDA involvement in the sector under a second project. It is recommended that a firm stand be taken during preparation of this second project on the organizational aspects and management factors which were not fully considered under current project (para 6.04). Project Spin-Off 7.03 There was no special spin-off from the project. Rwanda is a small land-locked country and practically all components used for telecommunication networks will continue to be imported in the foreseeable future. Local civil works and building contractors performed satisfactorily under the project and this also should continue in the future. Least Cost Solution 7.04 DGT in general adopted system design and components consistent with least costs under the project. The discounted cost of adopting fully  - 22 - automatic digital switching and transmission equipment (paras 3.03 and 3.04) 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. Furthermore, the IDA financed part of the project was procured through ICB for various types of equipment, including switching, transmission, telex and local networks. This enabled DGT to obtain competitive prices for similar goods and systenms otherwise financed. The higher capital cost was due to the provision of enlarged functions and some additional services for switching equipment in Kigali, and to delays in placing the orders for other equipment (para. 3.06). Rate of Return 7.05 The re-estimated rate of return for the project (investment program 1980-1987) was 18X, on the basis of information concerning the 1987 DGT income statement and forecast for the 1988 income statement. The methodology which was used is outlined in Annex 10. The rate estimated at appraisal was 12? attributable to the then proposed 1980-84 program. The rate of return, though a fair estimate of measureable economic benefits, does not account for all project externalities and understates the overall economic benefits of the project such as the consumer surplus. It also does not account for the effect of network and service deterioration that would have resulted had the project not been implemented. The rate of return is therefore, actually higher than 18Z. VIII. IDA PERFORMANCE Overall Contribution 8.01 IDA's performance was generally satisfactory. In retrospect, there were some weaknesses at different stages of project appraisal and implementation. However, considering the conservative approach to institutional aspects to which the Government adhered, it is not evident that more timely and better results could have been obtained, even if IDA had been more insistent. The goals targeted generally require time to be attained, in particular in the context of prevalent management and technical problems to be resolved and overcome. 8.02 The IDA's contribution at the stage of preparation was positive, clarifying the organizational, managerial and technical problems of the sector through the Project Preparation Facility, and deciding that it was justified to supplement bilateral with multilateral financing, as sought by Government. At appraisal, however, IDA could have made a more realistic assessment of the Borrower's institutional capacities with regard to : (i) the implementation of a relatively large program involving several sources of financing and complex technical aspects necessitating outside assistance and its coordination (paras 3.01 to 3.03); and (ii) the overcoming of internal bureaucratic constraints in project implementation resulting from DGT's set-up as a government department. Implementation nonetheless showed that both problems were in fact dealt with concurrently, during the three years delay in project start-up (para 3.06).  - 23 - 8.03 The proposed revisions in the technical solutions to be used in DGT's overall program and the resulting adjustments in project implementation were promptly examined and commented upon by IDA. The procurement process was smooth and prompt in accordance with Bank guidelines. IDA persistently raised with Government the importance of improving DGT's billing and collection, accounting and auditing procedures, as agreed under the credit. However, the results in these fields, as well as the tariff study and DGT's financial position were disappointing (paras 5.01 to 5.05). 8.04 During the last two years of project implementation, Government recognized the merits of IDA's insistence on the institutional and financial aspects and the need for sector reform. Thus, together with the preparation of the financing requirements for DGT's 1987-91 program, the decision was taken in 1987 to prepare and proceed rapidly with the reform (para 6.03). Supervision 8.05 IDA's supervision over the period 1980-87 averaged about two missions each year. A total of 13 supervision missions were conducted. This would be adequate under a first project in a sector confronted with both institutional and technical problems. Only about 40? of these missions included staff for both technical and financial aspects of the project. This may have reduced the thoroughness and the possible impact of supervision, in particular with regard to accounting, financial and tariff aspects of the project. The comments made on DGT's financial performance and relevant information in paras 5.01 to 5.06 above were only partly made to the Borrower during supervision. The delays and insufficiencies in the submission of DGT's financial statements (before and after audit) also made supervision difficult. This, however, may have resulted in lesser or delayed attention to IDA's expression of concern with the unsatisfactory compliance with the financial aspects of the project. Working Relationship 8.06 The relationship between Government, DGT and IDA was good. There were no major procurement or technical issues due to unfamiliarity with the Bank's procurement guidelines, as often is the case under first projects. DGT has not always kept IDA timely or fully informed, in particular with regard to financial matters, tariffs and completion report (para. 3.14). Nonetheless, Bank insistence on the need to consider seriously institutional reform, in particular as a likely prerequisite to continued sector assistance, was finally fruitful (para.6.03). In this context, the working relationship on a possible second project should be excellent. This would greatly help in the prompt achievement of most sector goals. IX. CONCLUSIONS 9.01 The main problems encountered in this project were: (a) delays in project implementation;  - 24 - (b) lack of adequate action on accounting, auditing and tariffs; (c) lack of adequate and qualified staff; and (d) overextended outside assistance and the resulting difficulties in efficient coordination of development activities. Most of the problems are related, in fact, to the belated attention given by the Government to establish DGT as an autonomous, commercially-oriented entity rather than a government department. 9.02 The project achieved its physical objectives, although with a three-year delay, and contributed to improvement and development of the Rwandese telecommunications network. The targets for institutional development were partially attained. 9.03 The principal findings and lessons learned from the project are: (a) In preparation of the project schedule, greater account should have been taken of the lead time required to conclude external cofinancing assignments for major project components. (b) Similarly, more attention should have been given to the bureaucratic constraints resulting from the administrative set-up of DGT's activities. (c) During project preparation, a more realistic assessment of telephone and telex demand should also have been made, as both forecasts were underestimated. (d) IDA should have insisted more upon the Borrower's compliance with the accounting and external auditing requirements, and should have considered more seriously the significance and outcome of the tariff study. (e) IDA should have supervised more closely the activities mentioned in the preceeding sub-paragraph, as well as DGT's general financial status during and at the outcome of the project. (f) DGT benefitted from extended outside technical assistance under its program, in the project and from other donors. Some of this assistance was redundant. IDA could have suggested that more efficient coordination be exercised in this field, for example, by establishing a supervisory group under the Ministry's or DGT's authority. (g) Similarly, DGT benefited under its development program from financial assistance by six countries and two multilateral organization. Aid coordination to sector  - 25 - development could have been improved, for example, by establishing an appropriate coordinating group to advise the concerned ministerial authorities. 9.04 The Government has requested a second IDA intervention in the sector to continue and complete the assistance initiated under the first project. An important step was made towards resolving the institutional issue of the sector when Government decided, at the end of 1987, to set-up two separate autonomous entities for posts and for telecommunications, to be operated on a fully commercial basis. In this context, there is a strong rationale for continued IDA involvement in the sector, in particular for its assistanct 'n implementing the sectoral reforms which are being prepared. The experience gained through the first project should be fully accounted for by IDA and the Borrower when preparing and implementing the proposed pro,ect, to strengthen management and organization of the new entities and to speed development of the services. Considering the observations m%de on technical assistance and external aid coordination, the employment of a limited number of high-level operational experts could usefully be envisaged to assist the two new entities in the technical and financial fields. This should facilitate the prompt establishment on the right footing and the efficient start-up of the reorganized postal and telecommunications sectors in Rwanda, and of their operation.  -26- ANNEX 1 RWANDA PROJECT COMPLETION REPORT TELECOIMMINICATIONS PROJECT CREDIT 1067-RI Cggoliance with Credit Conditions Credit Agrement Conditions Compliance Comments on Status Section 3.01(b) Preprotion of memorandum, Partial Only from 1902 accounts onward, Incomplete comercill type oecounts and furnish counte and with delsys lergely *xceeding four thm to IDA within 4 months of end FY months. 8.02 Hiring of financial and technical Yes From 1901 onwords. consultent. 8.03(a) Insurance of project Imports Yes From 1002 onwards. S.04(b) Periodic reporta Partial Partly *Inee 1982 through late 19S4, more regularly and complote since then. Financial reports insufficient. 8.08 Training Yes Through consultants, from 192 onward. 8.07 Stores construction contract Y-o But contract was signed in Sept. 1908, with before calling for equipment bid *-year delay, also delaying tener leuance for most procurement. 4.01(b.i) Nomination of auditors Yes Only from late 1084 onwords, firstly for the 1i80-58 accounts and for each year thereafter. 4.01(b.ii) Accounts and report of audit to Partial Audit reports received with delays ranging IDA within 6 months of end FY 10-18 months *Inee end 1984. 4.02 Rate of return (10X) on revalued Partial Yes until 1984, unclear since then, no tilely not fixed ooa actlon on tariffs having been taken. 4.08 Assets revoluation plan to IDA by Partiol Initial revaluation was made In 1002, but not Dec. 100 consistent policy In subsequent years. 4.04 Toriff structure study by June Partial Initial study completed by end 1902. No action 1901, to reviow with IDA by Dec. on tariffs resulted. Study was not satisfactory 1001 and roquired updating In 1900. 4.06(i) Accounts receivable analysis to No Accounting and financial enogement still very IDA every 6 months wek. Accounts recelvoble not received. 4.06(ii) By Dec. 1082 establish procedures Partial Billing and collection procedures only eatabil- for billing and collection, and shed from 1984 onwords, but arrears were not mIntain arrears at lese than four reduced or maintained at leoe than 4 months of montho of revenues revenues. Actions to reduce arrears underway only since 1987.  - 27 - ANNEX 2 RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 107-RW PROJECT COMPLETION REPORT Complotion Dates. Estimated and Actual Ref. In Financed --Complotion Dates-- Component Cred. Agr. by Appraisal Actual (Schedule 2) Estimate Local Notworks External Plant -Kigali (8000 lineo) A IDA 04/86 01/87 -Provinces (1800 lines) A IDA 06/84 01/87 Subscribere'Installa- A IDA 06/86 tione Switching Exchanges -Kigali (3000 lines) 6(111) CCCE 08/82 02/87 I/ -Provinces (1,800 lines) 9(I) B(ul) CCCE 12/83 04/87 I/ Interurban Network Trunk Exchange (Kigali, 300 circuits) C(I) CCCE 09/83 02/87 Microwave Links -10 links replaced C(II) IDA/CIDA 06/82 10/88 -18 now links C(miT) IDA 0/88 10/88 Telex Network Telex Exchange (Kigali, 100 lines) D IDA 09/88 11/87 Teleprinters (100 units) 0 IDA 12/83 11/86 Telegraph Transmission Equipmnt D IDA 12/88 10/88 Civil Works Warehouse (Kigali) E IDA/Govt 12/S2 10/86 Other Buildings A Works E IDA/Govt 03/84 06/88 Trainina F IDA 12/84 12/88 Technical Assistance F (IDA/ 12/86 12/81 CCCE/ CIDA A ITU) Complete Prolect Initial Actual Closing Date: 06/80/86 06/30/87 k/ Physical Completion 12/3L/84 12/31/87 p/ Project switching equipment capacities were lnstalled and doliverod together with additional capacitios from DOT's *xtended program for 198A-89. The outside of project additions wore financed by CCCE under a separate agreemnt with Covernment of 1986. / Lost payment was made on 11/80/87.  RWANDA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1057-W PROJECT COMPLETION REPORT Pro3ect Costs (In ReF Millions) Apmraisal Estimate Reviled Estimate (1985) a/ A tual (May 19881 item Local Foreign Total LocalJ/ Foreign Total Locol6/ For ign Total Local Telephone Facilities External Plant 67 168 226 84 216 300 163 337 500 Exchanges 19 237 266 49 350 899 4 396 399 S/Total WI 1W WI7 113 WI iI 117 7ia i Long Distance Facilities 17 444 461 33 610 643 4 624 628!/ Telex 1 56 s6 3 33 as 1 36 se Technical Assistance A 28 106 138 65 181 236 - 238 238 Training Civil Works 26 102 127 53 165 2n8 196 22 218 6