Tanzania - Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8662 PROJECT COMPLETION REPORT TANZANIA FIRST TELECOMMUNICATIONS PROJECT (CREDIT 1173-TA) MAY 17, 1990 Industry and Energy Operations Division Africa Technical Department Africa Regional Office T document has a restricted distribution and may be used by recipients only in the performance of their offical duties. Its contents may not otherwise he disclosed without World Bank authorization.  THE W ORLD BANK washmgton.DC 20433 U.S A Clii d DwNte.C.mual May 17, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Tanzania First Telecommunications Prolect (Credit 1173-TA) Attached, for information, is a copy of a report entitled "Project Completion Report on Tanzania - First Telecommunications Project (Credit 1173- TA)" prepared by the Africa Regional Office with Part II of the report contributed by the Borrower. No audit of this pr.jject has been made by the Operations Evaluation Department at this time. J Attachment This document hu a resitne distributon and may be usd by iScipiSnit only in the eoruace of theit official duut Its evxtsnw may notthefwte be dacsebd witwut Worl Bank autbagitim  FOR OFFICIAL USE ONLY TANZANIA FIRST TELECO3MUNICATIONS PROJECT CREDIT 1173-TA PROJECT COMPLETION RIPORT TABLE OF CONTENTS Page No. PREFACE ... ........ ..... . iii EVALUATION SIUMM4Y ......... .......... .... iv PART I 1. PROJECT DMITITY ...................D E Y ....... 1 2. BACKRGOUND .............*........................... 1 3. PROJECT OBJECTIVES AND DESCRIPTION ................... 1 - Project Objectives l. .................... ... . I - Project Description ............... .............. 2 4. PROJECT DESIGN, AND ORGANIZATION ..................... 2 5. PROJECT IMPLEMENTATION .... . .... . ................. . 2 - Credit Effectiveness and Project Start Up ......... 2 - Iplementation Schedule ........................... 3 - Project Costs ........... .................... 3 - Disbursements . 3 * - Credit Allocation . 3 6. PROJECT RESULTS . 3 . *........ ...... 3 - Physical Results ............................... 3 - Financial Perfonmance . ..... .... . 4 - Institutional Impact ............................ 5 - Human Resource Development ........................ 5 7. PROJECT SUSTAINASILITY .................... . . .... 5 S. BANK PERFO RANCZ ******..... * ....*....*........5 9. BOEROm Et PERFORmANCE 6.. ... .............. ....*6 10. PROJECT RELATIONSHIP . . . .. . .. 6 11. CONSULTING SERVICES .6 ............ ...... ... 6 12. PROJECT D ocuHATION AND DATA TA 7 I This document has a resta ditdbution and may be used by ecints only in Oe peorme of their offcat duties. Its contents may not otherwise be dscod without Wodd Dank authrTizatn  TABLE OF CONTENTS (Cont.) Pasge No. PART I! Borrower's Perspective of the Design. mplementation and Development Impact of the Project ...... ......................... 8 PART III 1. Related Bank Loans/Credits . ............................... 9 2. Project Timetable ............................... 10 3. Credit Disbursements ........................................ 11 4. Project Implementation .. . . .... 12 A. Additional Facilities . . . . ..... 12 S. Completion Dates . . . . ....... 13 5. Project Cost and Financing ... . ........................... 14 A. Project Costs . . . . ....... 14 S. Project Financing . . . . ........ 15 C. Credit Allocation ........ .............................. 15 6. Project Results ....... 16 A. Direct Benefits ......... ............................... 16 B. Rate of Return . . . . ....... 17 C. Studies . ................................................ 18 7. Status of Covenants ......................................... 19 S. missions . .................................................... 20 Annexes Annex 1 Operational Performance 1983-87 ...................... 21 Annex 2(l) Income Statements .................................... 22 (2) Balance Sheets .................... ................... 23  TANZANIA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1173-TA PROJECT COMPLETION REPORT PREFACE This Project Completion Report (PCR) presents a review of the Credit 1173-TA of SDR 22.1 million for the First Telecommuications Project of the Tanzania Posts and Telecommunications Corporation (TPTC) for telecommunications development. Credit 1173-TA was approved in July 1981 and was closed in June 1987, 18 months behind schedule. This PCR was prepared by the Industry and Energy Division of the Africa Technical Department (Preface, Evaluation Summary, Parts I and III). The Borrower submitted comments on Parts I and III which are summarized in Part II of the Report. Preparation of this PCR was started during the Bank's final super- vision mission of the project in May 1988, and is based, inter alia, on the Staff Appraisal Report; the Credit, Guarantee, and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  - ii - FIRST TELECOMMUNICATIONS PROJECT CREDIT 1173-TA PROJECT COMPLETION REPORT EVALUATION UMR Obiectivess To provide physical facilities within the framwork of TPTC's 1980-84 investment program ands (a) improve and develop TPTC as an institution and increase its capacity for training staff; (b) focus on the services expansion in rural areas and expand the network to presently unserved or under served areas; and (c) establish a reasonably uncongested and reliable urban and long distance network to carry traffic smoothly. Imvlementation Experiences Substantial delays in loan signature and effectiveness were caused initially by lack of IDA funds and later by suspension of loan disbursements to Tanzania. The project was substantially completed in December 198? about two years behind the original appraisal schedule and 15 months behind the revised schedule. Delays in civil works for building housing for the radio equipment delayed completion of the microwave and UHF links. In the case of local cable networks a substantial part of cables and accessories under the project were utilized for rehabilitation, operation and maintenance due to lack of foreign exchange for this purpose. Despite these factors, ?PTC's efforts in successfully processing procurement and in executing the project components resulted in the timely implementation of the project. Results The project's physical targets were achieved as planned. The financial performance of TPTC over the project period (1980- 1986) was satisfactory with the rate of return covenant being met. The financial and economic rates of return were calculated at the time of appraisal to be 172 and 242 respectively. The revised figures are 172 and 502 respectively. Self-generated cash as a percentage of investment was acceptable through 1985, being greater than 502, but in 1986 it fell to only 13S. Control of receivables has been poor, never getting close to performance indicators and in 1986 rising to over 12 months of due revenues. (By end 1989 receivables were in line with covenant.) Accounting and financial information is now up to date with draft accounts being ready within two months of the year end. The tariff study and TPTC's subsequent action incorporating a trigger mechanism linking international tariffs to currency devaluation has helped TPTC's financial performance. Lessons Learneds In the design of the project, Bank did not foresee the full extent of support needed for operation and maintenance, but responded positively when TPTC faced severe shortages of foreign exchange during the project execution by providing increased spares for maintenance. Key to an effective dialogue on institutional issues was that, after initial delays, procurement went smoothly allowing supervision to concentrate on basic institutional issues. Upfront procurement work and related conditionality were important to this project's success.  TANZANIA FIRST TELECO1MUNICATIONS PROJECT CREDIT 1173-TA PROJECT COMPLETION REPORT PART I 1. Proiect Identity: Name - First Telecommunications Project Credit No. - 1173-TA RVP Unit - Africa Region Country - Tanzania Sector = Telecommunications 2. Background 2.01 With the breakup of the East African Community (EAC), including the East African Posts and Telecommunications Corporation (EAPTC), the Goverunent of Tanzania established in 1977 the Tanzanian Posts and Telecommunications Corporation (TPTC), which is an autonomous government- owned corporation under the Ministry of Communications and Transport. In addition to handling the postal services of the country, TPTC is responsible for the establishment, expansion, operation and maintenance of all local, national and international telecommunications services. The national development plans give priority to rural development and dispersal of the development effort. In accordance with national objectives, TPTC directed its 1980-84 investment program toward improving the poor quality of existing services and addressing the heavy demand for new telephone connections to provide access to the telecommunications network. The Bank Group has been associated with support for telecommunications development in the EAC of which Tanzania was a part, with three projects since 1967 as indicated in Table 1, Part III. IDA became associated again with telecommunications through a sector mission in 1979, followed by a project identification mission that led to the appraisal of the first telecoamunications project for TPTC supported by Credit 1173-TA. 3. Proiect Objectives and Description 3.01 Project Objectives. In addition to providing physical facilities within the framework of TPTC's 1980-84 investment program, the project had a number of broad objectives: (a) improving and developing TPTC as an institution and increasing its capacity for training staff; (b) focussing on the services expansion in rural areas and expanding the network to presently unserved or under served areas. both urban and rural; and (c) establishing a reasonably uncongested and reliable urban and long  -2- distance network to carry traffic smoothly. The project was also expected to facilitate an increase in levels of reliability and functional efficiency of the present installations. 3.02 Project Description. The project provided for: (a) construction of 550 km of overhead line routes about 12 VHF or UHF radio links and four microwave rinks; installation of power supply equipment and of 850 channels of rural carriers; of abcut 600 additional channels of multiplex equipment in broadband transmission systems; and of a digital telephone exchange in Zanzibar; (b) expansion of the local cable network of about 90 urban and rural centers; provision of drop wire and of about 700 teleprinters; (c) importation of cement and other construction materials needed for buildings and system expansion; (d) provision of air conditioning plant, vehicles, training equipment and spare parts; aitd (e) provision for studies, overseas training and fellowships. 4. Proiect Design and Organization 4.01 The project was designed within the framevork of TPTC's investment program for the 1980-84 period. It comprised works to be undertaken principally during 1981, 1982 and the first half of 1983 that were considered essential for successful implementation of the program. The project concept and design were appropriate and timeay in order to ensure that adequate priorities were given to both rural and urban telecommunications development. The scope and scale of the project were appropriate given the objectives. One of the main components of the program - the installation of automatic telephone switching equipment of about 54,000 lines - did not take place, however, as the financing for this equipment from Japan did not materialize due to the general debt situation of Tanzania. Due to the severe problems faced in 1985-86 with the availability of foreign exchange, much greater support in the shape of spares and some cables and accessories had to be provided from the project to support maintenance of installations. In retrospect, the project design should have given higher priority to maintenance and rehabilitation and technical assistance. In the design of the second project, under Credit 1810-TA approved in 1987, greater emphasis was placed on these aspects. 5. Protect Implementation 5.01 Credit Effectiveness and Proiect Start-up. Substantial delays in loan signature and effectiveness were caused initially by lack of IDA funds and later by suspension of loan disbursements to Tanzania (Table 2,  -3- Part IIS). These circumstances were not anticipated. Nevertheless initial procurement actions for preparation of bid documentation. etc., proceeded, although hesitatingly due to the uncertain situation. 5.02 Implementation Schedule. Project completion at the time of appraisal was expected by December 31, 1985. Due to delays in signing the Credit, the implementation schedule was revised in June 1982, with project cotpletion set for September 30, 1986. The project was substantially completed in December 1987 about two years behind the original appraisal schedule and 15 months behind the revised schedule. Apart from the above, the delay in civil works for building housing for the radio equipment was another factor that delayed completion of the microwave and UHF links. Despite these factors, TPTC's sustained efforts in successfully processing procurement and in executing the project components resulted in the implementation of the project within a reasonable time frame. 5.03 Prolect Costs. The estimated cost of the project at appraisal was $47.07 million, with a foreign cost of $27.0 million. The foreign cost on completion has been estimated at $24.0 million as shown in Table SA in Part III. The decrease in foreign costs of about liZ was mainly due to the devaluation of the US dollar with respect to the SDR during the draw down period. A comparison of original estimates and final actuals for local costs is not meaningful due to the high inflation during the project period. !owk.-r, it is our opinion that there has been no substantial deviation in local costs of the project in constant terms. 5.04 Disbursements. The disbursement performance jf Credit 1173-TA is given in Table 3, Part III. Disbursements were slower than expected at appraisal due to the delayed effectiveness of the project. A revised disbursement projection was prepared in 1982. Compared to the revised schedule, actual disbursements were on track until 1986. but disbursement of the final US$7 million was slow due to the need to determine final maintenance and rehabilitation needs and final paymer.ts. The original closing date of the Credit was December 31, 1985. It was extended once to June 30, 1986 and finally closed on June 30, 1987. The final disbursement of the Credit was made in January 20, 1988. Disbursement performance on this project in comparison with other projects in the same period was excellent. 5.05 Credit Allocation. The original and revised allocation and actual disbursements by categories for Credit 1173-TA are shown in Table 5C, Part III. The original allocation was revised on June 22. 1987 to reflect changes in increased financing for power equipment, spare parts and multiplex equipment, and consultancy services, and savings on the Zanzibar pilot digital exchange. 6. Proiect Results 6.01 Physical Results. The project's physical targets of rural and urban expansion were achieved substantially as planned, as indicated in Table 4A, Part III. In the case of local cable networks a substantial part of cables and accessories under the project were utilized for rehabilitation, operation and maintenance due to lack of foreign exchange  -4- for this purpose. The expansion of the automatic exchanges did not take place as planned, as Japanese financing of this equipment did not materialize, and the cable network expansion was modified accordingly. The overall increase in facilities as a result of the project is shown in Table 6A in Part III. TPTC's major operational performance on major indicators is also given in Annex 1. With the completion of the original electronic exchange in Zanzibar provided under the project, TPTC staff are also getting hands-on experience with the application ot the new digital technology to future telephone development needs. 6.02 Financial Performance. The financial performance of TPTC over the critical period of project implementation (1980-1986) was broadly satisfactory, with the rate of return covenant being essentially met. The rate of return ranged between 8? and 182 over the period with a mean of 122 being in line with the covenant. However, performance was less satisfactory in respect of fiscal management coefficients, i.e., cash flow ratios and receivables. Self-generated cash as a percentage of investment was acceptable through 1985, being greater than 502, b4t in 1986 it fell to only 13S. Control of receivables has been poor, never getting close to performance indicators and in 1986 rising to over 12 months of due revenues. (By end 1989 receivables were in line with covenant.) 6.03 Throughout most of the project period it was never easy to specifically focus on these two latter problems as any financial or accounting information was always too late to allow corrective action. This constraint was tackled in a subsequent project through employment of financial consultants. Accounting and financial information is now up to date with draft accounts being ready within two months of the year end. Regular monthly receivable reports are now prepared and delinquent customers are clearly identified. 6.04 Another constraint throughout the period particularlv in the latter two years was the rapid devaluation of the Tanzania shidling. The tariff study and TPTC's subsequent action covered some of this by incorporating a devaluation automaticity trigger linking international tariffs to currency devaluation. It was only recently recognized that some automaticity also needed to be linked to local tariffs. This is now being done. 6.05 The financial and economic rates of return were calculated at the time of appraisal to be 172 and 24? respectively. These rates of return have been recalculated using actual figures to 198. and projected figures for 1989 to 2000. The revised financial and economic rates of return, as indicated in Table 6B. Part III. are 172 and 50? respectively. The difference between the rates is due to the fact that tariffs still do not reflect the true economic value of telecommunications services. The tariff for local calls in 1980 was T Sh 0.65; by 1987 the same tariff was T Sh 1.80. In constant terms this tariff should have been around T Sh 4.0. clearly indicating that a large consumer surplus was not being gathered by TPTC. Getting consistent tariff increases that reflect both ongoing inflation and an already existing consumer surplus has been extremely difficult.  6.06 Institutional ImPact. A major impact of the project was in focussing attention on the need to link financial performance (especially given the constant currency devaluations in Tanzania) with tariff levels. The project addressed the inadequate tariff structure and the lack of policies to provide a mechanism for reviewing and adjusting tariffs (para. 6.04). An equally important institutional impact of the project was its focus on human resource development (para. 6.07). However, major skill gaps and inefficiencies still exist and will need to be addressed in future proiects. 6.07 Human Resource Development. The project, by supporting the telecommunications training institutions in Tanzania and an overseas fellowship program, contributed to considerable strengthening of the human resource support of TPTC. The overseas fellowship program provided for a total of 40 members of TPTC staff to obtain training in the areas of general management, finance and accounting, in addition to the specialized technical fields. The annual training volume in national training centers for the technical and operational staff increased from 6,000 student weeks in 1979 to about 9,600 by 1987, but is still considered inadequate to meet expanding needs, estimated at 15,000 student weeks. 7. Proiect Sustainabilit 7.01 Considering the overall importance of telecommunications to economic development and the growing demand for telecommunications services, investments in this sector have to be continuous. Apart from the Bank support given to the telecommunications sector as part of the East African Communiry (Table 1, Part III), Credit 1173-TA has provided a modest growth to the sector and contributed to some institutional improvements (para. 6.06). The need for further improvement and expansion is evident and IDA undertook to finance a second telecommunications project in 1987. A third project is also likely to follow. The TPTC has also got essential support from a tariff policy that allows it to revise tariffs periodically within reasonable limits, which should improve its financial viability. The institutional strengthening of TPTC should also enable it to be more productive and efficient in its future operations. 8. Bank Performance 8.01 Overall Bank performance has been satisfactory. With the preparation of the sector memorandum in March 1979, the stage was set for Bank's identification of the project in October 1979, and it was possible to dispense with preparation and preappraisal missions and proceed to appraisal in April/May 1980. However, delays occurred thereaf-er in Bank's processing of this project. Negotiations March 1981 Board approval July 1981 Signing of Agreement March 1982 Effectiveness of Credit November 1982  - 6 - Negotiations did not take place until March 1981, 10 months after appraisal because of the uncertainty in the status of TPTC's assets pending settlement after the breakup of the East African Community. The signing of the Credit Agreement was delayed due to lack of IDA funds, and effectiveness was delayed due to the general suspension of disbursements to Tanzania. The Bank made a positive contribution to the physical and institutional development of the sector and ensured financial viability by instituting tariff studies and implementing Improved asset revaluation techniques and tariff levels and structures. In the design of the project, Bank did not foresee the full extent of support needed for operation and maintenance, but responded positively when TPTC faced severe shortages of foreign exchange during the project execution by providing increased spares for maintenance. The Bank also did not anticipate that the expansion of automatic exchanges, as provided for under Japanese Aid and in the investment program, would not materialize. The Bank, however, did support TPTC's program for the rehabilitation of the local cable network and optimum expansion that was needed with the available exchange capacities. In the follow-up second project, rehabilitation and maintenance was given high priority. Adequate supervision was done by the Bank, and the Bank's efforts to assist TPTC with procurement, contracting and technical assistance was sustained and effective. Bank's support for this secto: has also attracted cofinancing from Italy. Belgium. Japan, and Sweden for the second telecommunications project. 9. Borrower Performance 9.01 Table 7, Part III contains a review of the performance of the Borrower, and TPTC, in complying with the covenants in the Credit and Project Agreements. Except for delays in submitting audited accounts, TPTC's performance in meeting covenants has been good. During project preparation and appraisal, TPTC provided all the support needed. TPTC also dealt with procurement and execution of the project components in a professional manner. TPTC has profited from the experience in this project and has given high priority to rehabilitation and improved maintenance and productivity in the follow-up second project. Project management was satisfactory. 10. Pro1ec. Relationship 10.01 Bank relationship with Government and TPTC in the project has been good. 11. Consultina Services 11.01 In Table 6C in Part III is an assessment of the consultant services that were utilized in the project. The impact study of telecommunications on economic development was descriptive and lacked quantification and hence was informative only but useful for demonstration. The asset revaluation and tariff studies were useful and practical.  . t - 1Z. Proiect Documentation and Data 12.01 The Credit and Project Agreements vere quite adequate and appropriate for achieving project objectives in the key organizational and financial areas. The appraisal report of the project provided a useful framework for the Bank and TSPC to review project implementation. TPTC provided regular progress reports on implementation ancl also a draft Project Completion Report for the project. Under the second project - Credit 1810-TA - expert assistance has been specifically provided to assist TPTC in establishing a Management Information System (MIS) to provide data necessary for senior management to monitor operational and financial performance.  - 8 - TANZANIA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1173-TA PROJECT COMPLETION REPORT PART II Borrower's Perspective of the Design, Implementation and Development Impact of the Project TPTC provided material for the draft completion report. Therein TPTC had no specific coments on the design and implementation of the project. TPTC highlighted the physical achievements of the project and pointed out that in addition to the additional revenue there were non-quantifiable economic benefits such as reduction in final cost and improvements in efficiency in the use of transport. IDA has not received coments on the drafts for Parts I and III prepared by Bank staff due to lack of manpower within TPTC.  TANZANIA FIRST TELECOMMUNICATIONS PROJECT CREDIT 1173-tA PROJECT COMPLETION REPORT PART III 1. RELATED BANK LOANS AND/OR CREDITS Year of Loan/Credit Title Purpose Approval Status I.-Loan 483-EAl/ To help finance 1967 Completed in Early 1,74 local and long distance facilities 2. Loan 675-EA1/ To further 1970 Completed in June 1975 extend the telecom- munications services 3. Loan 914-Ekl/ To further 1973 The Tanzanian portion extend telecom- of the project was munications completed in 1981 21 services 4. Cr. 1810-TA3/ Rehabilitation 1987 Project in progress & expansion of expected to be completed telecommunications by June 1991 networks and strengthening of TPTC's institutional framework 1J Prior to 1977 the telecommunications services in the East African Community (Tanzania, Kenya and Uganda) were managed by the East Africa Posts and Telecommunications Corporation (EAPTC). These loans were extended to EAPTC. 21 Due to problems in the East African Community leading to its breakup the works to be undertaken on the Third Project were generally delayed. 3/ This is a Second Telecommunications Project to the TPTC following up on the First Telecomunmications Project (Credit 1173-TA;.  - 10 - 2. PROJECT TIMETABLE Date Date Date Item Planned Revised Actual Identification 10/8179 10/8179 10/8/79 Preparationl/ - ^ Preappraisall/ - _ - Appraisal Mission 05/3/80 05/03/80 05103/80 Credit Negotiations 02124/81 03/11/81 03/11/81 Board Approval 05105/81 07121181 07/21/81 Credit Signature2/ 08/ /81 03104/82 03104/82 Credit Effectiveness3/ 06103/82 07,08,10/81 11/01182 E 2183 Credit Closing 12/31/85 06/30/86 06130/87 Project Completion 06130/86 12/31/88 12/31/87 41 _/ The identification mission in October 1979 was able to gather sufficient information and data and project preparation was advanced enough to proceed directly with appraisal in May 1980. 2/ The signature of the credit was delayed awaiting IDA VI commitment authority. 3/ The effectiveness of the credit was delayed due to non-receipt in the Bank of the Sudsidiary Loan Agreement and legal opinion, and to the suspension of all disbursements to Tanzania from June 14, 1982. 4/ The project was substantially completed by December 31, 1987.  - 11 - l 3. CREDIT DISBURSEMENTS Accumulated Disbursements (in Millions) Actual as a 2 of Revised Appraisal Revised IDA FY and Actual Estimates a/ Appraisal Six-Month Period SDR USS SDR USS b/ Estimate 1983 July-Dec. 1982 - - - - - Jan.-June 1983 3.03 3.27 1.2 1.5 250 1984 July-Dec. 1983 9.0 9.60 2.9 3.5 310 Jan.-June 1984 11.14 11.78 4.9 6.0 227 1985 July-Dec. 1984 14.80 15.48 8.2 10.0 180 Jan.-June 1985 16.22 16.87 13.1 16.0 123 1986 July-Dec. 1985 16.54 17.19 17.2 21.0 96 Jan.-June 1986 18.30 19.19 21.3 26.0 86 1987 July-Dec. 1986 19.42 20.56 22.1 27.0 88 Jan.-June 1987 20.92 22.49 22.1 27.0 95 1988 June-Dec. 1987 21.98 23.88 22.1 27.0 99 Jan.-June 1988 22.10 24.04 22.1 27.0 100 a/ Credit was effective only on November 1. 1982, 5 months later than the original schedule. The original appraisal disbursement projection was revised by the June 1, 1982 supervision mission. It was agreed that actual disbursements should be compared to the revised estimate. bI At the SDR conversion rate of SDR 1.00 - USS1.222.  - 12 - 4. PROJECT IMPLEMENTATION A. Additional Facilities (Main Components) Major Appraisal Actual Installations Indicators Estimate Installation (or PCR Estimate) Expansion of cable 90 centers 90 centersl/ networks Teleprinters 700 700 Pilot digital 3,000 3,000 Project Zanzibar lines Carrier Systems - Channels 24 ch line 72 72 12 ch line 216 216 3 ch line 21 21 10 ch rural 90 90 5 ch rural 25 25 Radio Systems-Channels Microwave-Songea/ Njonbe-Nyololo 150 150 60/12 ch UHF (Mbeya-Mpanda) 108 108 24 ch UHF (19) 116 116 lI A substantial part of cables and accessories from project were used for rehabilitation, operation and maintenance at these centers due to lack of foreign exchange for operation and maintenance. The expansion of automatic exchange equipment did not take place as planned due to the nonmaterialization of Japanese Aid and the cable network expansion was modified to make optimum use accordingly.  - 13 - 4.B. Completion Dates 11 Completion Dates Appraisal Major Components Estimate Actual 1. Local cable networks 09186 12/87 2. Interurban network overhead lines and carrier 03185 06/86 VHF links and rural call offices 12/85 06/86 UHF and microwave links 12185 12187 21 Multiplex equipment 10/84 06/86 3. Telex/teleprinters 10/83 10/83 4. Zanzibar Pilot Project 06/84 06/85 Complete Project SA expectation 6/85 Revised 6/87 Actual 12/87 3/ I The original implementation schedule at appraisal in April 1981 was revised in June 1982 to take account of the delays in credit signature and used for progress comparison. 2/ 6 out of the 19 systems which are delayed beyond December 1987 were scheduled for completion by end of 1988. 3/ The project was substantially completed by December 1987.  - 14 - 5.A. PROJECT COSTS (US$ Millions) Foreign Costs PCR Estimated Item Appraisal Estimate Completion Costs(l2/87) Local cable network 8.78 9.06 Interurban Network Overhead lines/carrier 1.78 1.53 VHF UHF microwave links 3.30 2.88 Multiplex equipment 1.04 1.81 Power supply equipment 0.54 1.20 Telex and Gentex Network Teleprinters 2.03 1.81 Support for Ins4tallation and Operation Cement and other materials 0.82 0.77 Spare parts 0.82 2.17 Vehicles 0.50 1.01 Pilot project 1.60 0.98 Training and Consultancy Services Training equipment and air conditioners 0.73 0.59 Fellowship, con- sultancy services 0.30 0.23 Subtotal 22.24 24.04 Physical contingencies 1.00 - Price contingencies 3.76 - Total 27.00 24.04  - 15 - 5.B. Proiect Financina (in US$ Millions) Planned Revised Final Source Local Foreign Local Foreign Local Foreign IDA - 27.0 - 27.0 - 24.04 TPTC 20.0 _ 20.0 - N/A1/ 11 All the local costs were financed by TPTC. Due to the substantive devaluation of the Tanzanian Shilling any equivalent value of these local costs in US Dollar terms is not meaningful. S.C. Credit Allocation Expenditure Original Revised 1/ Categories Allocation Allocation Final -_______------in SDR Million------------- 1. Cables and 7,360,000 7,260,000 7,355,201 accessories 2. Microwave and 2,860,000 3,300,000 3,292,271 UHF equipment 3. Teleprinters 1,630,000 1,680,000 1,671,526 4. Rural line 1,430,000 1,475,000 1,461,158 carrier equipment 5. Multiplex, VHF 820,000 1,330,000 1,433,587 and radio call equipment 6. Civil construction 820,000 705,000 703,393 materials 7. Motor Vehicles 410,000 745,000 759,334 8. Power Equipment 410,000 1,180,000 1,177,547 9. Spares for equipment 820,000 2,265,000 2,095,653 and vehicles 10.Training and research 450,000 790,000 788,102 equipment including air conditioning l1.Fellowship and 330,000 430,000 430,067 consulting service 12.Zanzibar Pilot 1,470,000 940,000 932,161 Project 13.Unallocated 3,290,000 __ __ Total 22,100,000 22,100,000 22,100,000 11 The revised allocation was made on June 22, 1987.  - 16 - 6. PROJECT RESULTS A. Direct Benefits Appraisal Estimate at 2J Estimated at 31 Indicators Estimate 11 Closing Date Full Developmet.t Additional 25.900 15,900 26,000 telephone connections Additional 600 549 600 telex connections 11 This was estimated at appraisal to be available between 1981 to 1984. 2/ At PCR completion date of December 31, 1987. This was the estimated addition between 1983 to 1987, the effective project period. 31 The estimate of full development is estimated as of December 31, 1989.  - 17 - 6.B. Rate of Return 1. TPTC's investment program for 1981-1986 includes the IDA financed project *8 an integral part. The close relationship between project and non-project investments makes any attempt of costs and benefits arbitrary. Consequently, the rate of return calculation is made on the entire investment program. The benefit period extends to 2002 when the equipment is expected to have completed its useful life. All incremental costs and benefits have been held at 1981 levels. The resultant stream of financial costs and benefits is shown belows Incremental Incremental Operating Capital Revenues Costs Costs 1981 - 169 1982 64 16 136 1983 (24) (3) 137 1984 37 20 122 1985 57 (7) 88 1986 83 49 142 1987 210 138 - 1988-2002 375 138 - The internal financial rate of return for the net benefit stream is 172. 2. This calculation does not account for the SZ sales tax which the subscribers pay to the Government and is collected by TPTC, nor for consumer surplus or indirect and external benefits due to the improved telecommunications system. A portion of the consumer surplus was estimated by assuming that new consumers are similar to the average current consumer, and that the existing and new subscribers will be willing to pay for telecommunications services at the same rate in real terms as they pay today. The 52 sales tax was added to the resulting economic benefit stream. A conversion factor of 0.40, based on an examination of what the appropriate standard conversion factor would be for the project period, was applied to all local costs and benefits to convert them into economic border prices. Based on these assumptions, the internal economic rate of return is over 502. This rate compares vith the appraisal estimate of 402, the actual increase in the rate of return is due to increased usage.  - 18 - 6.C. Studies Studies Status Impact of Study 1. Impact of telecommunications Completed Informative l/ services on economic development 2. Asset revaluation Completed Applied 2/ 3. Tariff study Completed Applied 31 1/ The results of the impact study were presented to the Government and Bank of Tanzania to demonstrate the importance of telecommunications and the need for adequate financial support for investment in the sector. 2I The asset revaluation study results have been accepted and applied to the Telecommunications Accounts. 31 The results of the tariff study were presented to the Government for consideration and approval in October 1987. As a result the TPTC Board has been given authority to increase tariffs by not more than 102 twice a year. Any further increase has to be approved by the Kiinister. I  - 19 - 7. STATUS OF COVENANTS Credit Agreement (CA) or Project Agreement (PA) Section Condition Remarks CA 5.02 Signing subsidiary agreement Complied CA 5.02 Legalization of agreements Complied CA 5.03 Cut-off date June 3, 1982 Complied PA 2.02 Hire consultants for studies Complied PA 2.03 Procurement rules Complied PA 2.04(a) Insurance of IDA-financed Complied imported only PA 2.04(b) IDA-financed goods used for Complied project only PA 2.05(a) Furnish documentation to IDA Complied PA 2.05(b)(i) Maintain project records Complied PA 2.05(b)(iii) Periodic reports Complied PA 2.07 Exchange project progress Complied views, etc. PA 3.01(a) Management and staff Complied PA 3.01(b) Plant insurance Complied PA 3.01(c) Sound engineering practice Complied PA 4.01 Accounts Complied PA 4.02(a)(i) Nomination of auditors Complied PA 4.02(a)(ii) Timely furnishing of audited Not accounts as from 1981 accounts complied but good progress PA 4.03(a) Rate of return (122) Complied for 1985, 1986, 1987 PA 4.03(b)(ii) Adapt revaluation method by Complied 9/30182 Apply method as from 1982 Complied accounts PA 4.04(a) Tariff structure study by Completed 6130183 Oct. 1986 PA 4.04(b) Impact study by 6/30183 Complied PA 4.05 Analysis of billing and Complied collection procedure  - 20 - *. Itssions Stage of Month/ .. of $1 SW I. Specialization Performance Types of Project Cycl- Y e Persons Fiold Represented Rating Status Problem Throush Appraisal Sector Mission 12/78 2 2 Eng., Fit A - identification 10/79 2 2 Eng., Fln. A Appralsl 04/80 2 Eng., fin. -A Follow up on U/ Appraisal 12/80 1 1 Ens. Sugervision Supervioion 1 04/82 2 2 Eng., Fin. A 1 Supervision 2 11/83 1 1 fin. A 2 Oelays In closing accounts. Supervitsion 8 01/85 2 4 Fin. A 2, Eng. 1 2 Manageril problepm in accounting. Supervision 4 08/86 2 2 Eng., Fin. A 2 DOlays in -tnalizs ; accounts Supervision 6 04/60 2 2 Eng.. Fin. A 2 D terloraeing as) natenan Y constrslnso_ by leck of foreign exchene. SupervIsion 6 12/80 2 4 Eng., Fin. A 2 Detertorating .sintenance constrained by l ac of foreign Supervision 7 00/87 2 4 Eng., Fin. A 2 Ftanncin perforance miged. Supervision 8 06/88 1 2 fin. A 2 Consideroble Improvement In performnce except for poor maintenance. This was a mission to assist TPTC with the preparation of documentation for procurement.  - 21 - ANNEX 1 TANZANIA FIRST TELECO*MUNICATIONS PROJECT TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION OPERATIONAL PERFORMANCE 1983-87 1983 1984 1985 1986 1987 Telephone Development Automatic lines 45,800 51,900 55.900 58,100 60,900 capacity Manual capacity lines 12,918 14.640 15,254 15,842 16.352 Telephone sets 103,754 108,569 113,902 117,301 122,609 'Working lines (DELs) 43,987 47,509 52,064 54,460 58,919 Increase in above 100 108 118 123 134 Unsatisfied Demand 47,044 48,172 59,064 66,718 74,460 (as 2 of working 107 102 113 122 126 lines) Total Telephone 91,031 95.681 1,111,128 121,178 133,379 Demand (Working + waiting lines) 100 105 122 133 146 DELs per 100 0.21 0.22 0.24 0.24 0.25 population Telephones per 100 0.51 0.51 0.51 0.52 0.53 population Telex Development Exchange capacity lines 1,650 1,650 1,650 1,650 1,633 Telex subscribers 884 1,108 1,195 1,231 1,325 Telex waiters 613 717 1,105 1.283 2,089 Telex demand 1,497 1,825 2,300 2,514 3,414 (subscribers and waiters)  - 22 - ANNEX 2 TANZANIA Page 1 of 2 FIRST TELECOMMUNICATIONS PROJECT CREDIT 1173-TA TPTC: Income Statements 1. As projected in SAR (T Sh Millions) 1980 1981 1982 1983 1984 1985 Revenues 377 461 565 692 850 979 Expenses 187 235 297 361 435 507 Net operating surplus Before interest 190 226 268 331 415 472 and tax Rate of return 13 12 13 12 12 12 on net revalued assets (Z) Accounts 40 40 35 30 25 25 receivable as _ of revenues (2) Net cash flow 41 40 43 52 124 N/A as I of program program costs '2) 2. Actual 1980 1981 1982 1983 1984 1985 1986 Revenue 386 329 528 490 834 1,193 1,353 Expenses 222 2S0 339 375 563 641 1,200 Net operating 164 79 189 115 271 552 153 surplus Rate of return on net revalued assets (2) 12 8 18 11 12 12 11 Accounts receivable as Z of revenues (Z) 80 92 54 65 69 70 > 100 Net cash flow as 2 of program costs (2) N/A 64 55 > 100 53 57 13  - 23 - ANNEX 2 PF.e 2 of 2 TPTC: Balance Sheets 1980 1981 1982 1983 1984 1985 1986 A. ASSETS Fixed Assets Fized assets 784 850 869 876 939 938 5,779 gross Accumulated (239) (286) (335) (341) (417) (447) (2579) depreciation Work in progress 52 64 130 189 246 367 632 Materials and 52 126 218 239 363 403 60 supplies Investment 139 157 165 181 213 235 567 Current Assets Stores 94 154 146 283 168 191 227 Debtors 380 405 461 587 718 1,031 2,312 Other investment 171 11 125 60 82 190 314 and cash Total Assets 1,433 1,587 1,779 2,074 2,312 2,908 7,313 B. LIABILITIES AND NET WORTH Liabilities Capital reserve 472 472 473 477 452 452 452 Rev. reserve 210 261 301 298 316 644 376 Net long term 206 263 353 573 895 943 3,489 debts Pension 140 170 186 200 211 225 477 Current 209 180 151 73 12 147 60 liabilities taxation Short term 184 240 315 453 425 497 2.459 liabilities Total Liabilities 1,433 1,587 1,779 2,074 2,312 2,908 7.313 and equity