Sri Lanka - Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6730-CE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A pROPOSED CREDIT IN AN AMOUNT OF SDR 10.4 MILLION (US$ 15.0 MILLION EQUIVALENT) TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT MARCH 1, 1996 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.  CURRENCY EQUIVALENTS (as of February, 1996) Currency Unit = Sri Lankan Rupee (SLR) US$1 = SLR 54.00 SLR 1 million = US$18,505 WEIGHTS AND MEASURES 1 meter = 3.28 feet 1 kilometer = 0.62 miles ABBREVIATIONS AND ACRONYMS DEM - Digitized Terrain Elevation Model FMMS - Frequency Management and Monitoring System GOSL - Govenmment of Sri Lanka ICB - Intemational Competitive Bidding LAN - Local Area Network MOPT - Ministry of Posts and Telecommunications PERC - Public Enterprise Reform Commission SLT - Sri Lanka Telecom SLTA - Sri Lanka Telecommunications Authority SOE - Statement of Expenditure VSAT - Very Small Aperture Terminal FISCAL YEAR (Sri Lanka Telecommunications Authority) (Public Enterprise Reform Commission) January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Credit and Proiect Summarv Borrower: Government of Sri Lanka (GOSL) Beneficiaries: Public Enterprise Reform Commission (PERC) Sri Lanka Telecommunications Authority (SLTA) Poverty Category: Not applicable Amount: SDR 10.4 million (US$15.0 million equivalent) Terms: Standard IDA terms, with 40 years maturity, including ten years of grace (Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing Financing Plan: See Schedule A Economic Rate of Return: NA Staff Appraisal Report: None. Technical Annex attached Map: IBRD No. 27495 Task ID No.: LK-PA-42263 Ths 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. |   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Government of Sri Lanka (GOSL) for SDR 10.4 million (US$15.0 million equivalent) to help finance a Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project. The proposed credit will be on standard IDA terms, with a maturity of 40 years including ten years of grace. The proceeds of the credit will be used to strengthen the Sri Lanka Teleconununications Authority (SLTA), for the improvement of the telecommunications sector regulation, and the Public Enterprise Reform Commission (PERC), for the privatization of public enterprises. 2. Country Background. In recent years, Sri Lanka's economy has grown at about 5.5% per annum primarily through rapid expansion of the export industry and service sectors. The economic liberalization and privatization efforts over the last two decades have shifted the economic focus from the public to the private sector. The private sector is now the principal source of investment and growth, accounting for 78% of gross national product (GDP) and 63% of aggregate investment. Private sector manufacturing output is growing at around 14% annually, while public sector output is shrinking. As a result, Sri Lanka now has the highest exports of manufactured goods (in per capita terms) among the low income countries. Income growth and the changing structure of the economy has led to a rapid growth in denand for telecommunications services and an increased emphasis on quality. 3. Sector Background. The main operator of telephone services, Sri Lanka Telecom (SLT), was created under the 1991 Telecommunications Act out of the former Telecommunications Department and has a monopoly on basic, wired voice services. The present telephone density of about 1 per 100 is at the lower end of what would be expected for a country at Sri Lanka's income per capita. Presently, SLT has about 200,000 subscribers and a waiting list of nearly as many applicants. Despite recent major network expansions and service improvements, SLT will not be able to catch up with demand on its own. Private investments and operations are expected to play an increasingly important role in the provision of telecommunications services. In 1994, IDA prepared a telecommunications sector report' which provided the framework for IDA's dialog with GOSL on further reform of the sector. The main conclusions of the sector reform study were to promote competition, strengthen regulation, and privatize SLT. 4. The 1991 Telecommunications Act opened up the market to private sector investments and operations and created SLT and SLTA under the Ministry of Posts and Telecommunications (MOPT). Sri Lanka now has one of the most liberalized telecommunications markets in Asia. The legal and regulatory framework was established as part of the preparation of the 1991 Second Telecommunications Project (Cr. 2249-CE), funded by Project Preparation Facilities, and has contributed to a unprecedented increase in private investments and operations of telecommunications services. As a result, there are now four mobile cellular operators, five paging companies, three data transmission service providers, four companies providing public card phone services and one internet service provider. There are also hundreds of private, currently unregulated, resellers of SLT services called 'telephone bureaus" providing telephone, fax, copying and other services. 1 Strategic Options for the Telecommunications Sector, Report No. 12464-CE, Green Cover dated March 16, 1994.  - 2 - 5. In 1994, the number of cellular subscribers doubled and 40% of all new telephone subscribers (SLT's wired as well as cellular) were connected to cellular services. At the end of 1995, there were about 50,000 cellular subscribers, or about 20% of all telephone subscribers in Sri Lanka (including SLT). This is one of the highest percentages in the world and partially reflects SLT's inability to satisfy all demand for service. Competition between the four licensed cellular operators has led to some of the lowest tariffs in the region, and cellular services are now increasingly seen as a credible alternative to SLT's wired services, especially by business subscribers. 6. To reduce unsatisfied demand for service more quickly, GOSL recently decided to license two additional private operators for domestic basic telecommunications services which will compete with SLT. These operators will utilize wireless technologies for the rapid and cost-efficient expansion of basic services. Proposals from potential licensees were opened at the end of November 1995 and licenses were awarded in February 1996. Competition between SLT's wired and private radio-based networks is, thus, becoming a reality. Already existing private radio based services, including existing mobile cellular telephone networks, have sharply increased the use of the radio frequency spectrum. There are also six TV channels and a number of public and private sound broadcasting stations. As a consequence, SLTA's work load as regards radio spectrum allocation, licensing, billing and enforcement activities has grown substantially. Further, the new private wireless telecommunications services will result in additional demands on the radio frequency spectrum. These developments make it necessary to strengthen SLTA, especially its radio frequency management capabilities. The increased number of operators and competition in the local as well as in long-distance services, also makes it necessary to strengthen SLTA's capabilities regarding interconnection and revenue sharing arrangements between operators. 7. While GOSL has embarked on an ambitious privatization program of state-owned enterprises, the results so far are limited. The first round of privatization under the previous government concentrated on small and medium size industrial enterprises. The impact of this program in reducing government ownership and producing fiscal benefits was marginal. In early 1995, GOSL relaunched the privatization program and expanded its scope to include large government-owned manufacturing enterprises, insurance companies, financial institutions, the airline, and public utilities (power, gas and telecommunications). 8. The recently created Public Enterprise Reform Commission (PERC) is the government agency responsible for implementing this privatization program. Its function is to coordinate and implement GOSL policy decisions to encourage the private sector to invest in public ventures where there are clear benefits to Sri Lanka in the form of additional capital, new technology and promotion of exports. GOSL completed the sales transaction of Colombo Gas for US$37.0 million in October 1995 and plans to start the privatization of banks and insurance companies, followed by Lanka Electricity Corporation and SLT. IDA support under the proposed project will enable PERC to engage the services of professional advisors to carry out the necessary studies for policy and strategy formulation, pre-reform packaging and implementation of privatization transactions. 9. Sector Issues. SLTA has not been able to keep up with the rapid expansion of the telecommunications sector over recent years. Its largely manual systems for radio frequency assignment, monitoring and billing are inadequate given the increase in radio based services. This has resulted in deficient billing and lost revenues as well as illegal use of frequencies and interference.  - 3 - 10. SLTA generates over US$3.0 million per year in license and other fees charged to the operators and its operating costs are less than US$1.0 million. However, as a GOSL department, SLTA has very little financial autonomy, its revenues go to the Treasury and its expenditures are provided for through the GOSL budget. Staff benefits are govemed by GOSL's rules for departments and are substantially below those for the private sector and SLT, which is a state owned corporation. This makes it difficult for SLTA to retain suitably qualified staff for sector regulation, which increasingly makes use of highly sophisticated equipment. Some regulatory aspects listed in the 1991 Telecommunications Act have not been fully implemented due to SLTA's limited resources, e.g., consumer protection, anti-competitive behavior and monitoring of operator performance. SLTA currently has 120 approved staff positions, based on existing manual procedures, but has filled only about 70 of them. With the computerized radio frequency management system to be installed under this project, SLTA expects to manage all its regulatory functions with less than 100 staff. 11. MOPT appoints the Director General of SLTA each year and may veto SLTA's regulatory decisions. MOPT also oversees SLT's operations. This may lead to undue political interference and conflicts of interest. For example, there have been complaints that SLT's radio based activities have been given priority over those of private operators. Further, the scope and work load of SLTA is too much for one Director General. To address the above issues, GOSL decided to amend the 1991 Act, converting SLTA into a more independent Commission thus ensuring adequate financial autonomy outside of the govenmment's budget and strengthening its regulatory authority. The Commission would be headed by five commnissioners specialized in different aspects of regulation, e.g. technical, legal and commercial. The amendment of the 1991 Telecommunications Act was drafted and reviewed by the Cabinet. On February 1, 1996, the Cabinet decided to go ahead with the amendment bill which is being prepared for Parliamentary approval. 12. PERC was established as a presidential task force in March 1995 to design and implement GOSL's privatization program. In December 1995, a bill was enacted making PERC a statutory body accountable directly to Parliament and audited by the Auditor General. Under its new status, PERC may also, in addition to its privatization responsibilities, take over management of badly run state owned ventures. PERC has a strong Board that, together with its legal status, should ensure adequate autonomy im operations. However, PERC faces budgetary constraints, lacks qualified staff and know-how and needs consultants and professional advisors to assist in carrying out the reform program. GOSL, therefore, requested IDA support to assist: (a) PERC to carry out GOSL's privatization program, and (b) SLTA to strengthen the telecommunications sector regulation. 13. Project Objectives. The primary objective for the telecommunications component of the project is to support continued reform and efficient development of the sector by strengthening sector regulation and its institutions and provide for the efficient allocation and use of the radio frequency spectrum. The project will also promote private investments, operation and competition in the provision of telecommunications services in Sri Lanka. The main objective of the PERC component is to facilitate the divestiture of government owned enterprises by providing expert advice and strengthening the technical and administrative capacity of PERC. In addition to fiscal benefits, the sale of state owned enterprises will lead to efficiency improvements. 14. Project Description. The project will have two components: The first provides assistance for the strengthening of SLTA's regulatory and institutional capabilities, comprising: (a) a frequency management and monitoring system, including hardware, software, expert assistance during the initial years of operations, and staff training (about US$15.3 million); (b) consulting services to assist SLTA in studies of tariffs, service quality, market structure, and other sector regulation issues (about US$0.9  -4 - million) and training of staff (about US$ 0.3 million). The second component will provide assistance to PERC consisting of: (a) consultants, financial advisors and experts for specific privatization transactions (about US$4.2 million); (b) marketing expenses for transactions (about US$0.8 million) and (c) training of PERC staff (about US$0.1 million). 15. Rationale for IDA Involvement. PERC was established with IDA support and continued IDA involvement would ensure its proper staffing and efficient operation. GOSL has accepted the conclusions of the 1994 telecommunications sector report (see para. 3) and the proposed project would enable GOSL to implement the recommendations of this report. IDA's prior involvement in Sri Lanka's telecommunications sector, and its experience in similar projects elsewhere, e.g., Mexico, Philippines, Venezuela, and Pakistan, makes it well suited to assist GOSL in its reform efforts. GOSL would also gain from IDA support in identifying suitable means to increase the flow of private capital, management and technology for the expansion and improvement of Sri Lanka's infrastructure. 16. Lessons Learned from Previous IDA Operations. The IDA supported Public Manufacturing Enterprises Adjustment Credit (Cr. 2185-CE) of 1990 initiated GOSL's privatization program and was successful in the privatization of the textile sector. IDA has been involved in two telecommunications project in Sri Lanka. The first project (Cr. 1020-CE closed in June 1986) was generally successful in separating the telecommunications and postal departments and supporting the expansion of the telephone network. The second project (Cr. 2249-CE) is being implemented. It is currently rated a problem project on implementation status solely because of a major delay associated with the resolution of an issue over procurement of local networks. This issue is being resolved. It should result, therefore, in an upgrading of the project and quick acceleration in disbursement. The projected development impact remains satisfactory. In addition to network expansion, telecommunications sector reforms continued under this project through the 1991 Telecommunications Act, which separated the service provider (SLT) from the sector regulator (SLTA). The telecommunications sector report (see para. 3) concluded that liberalization of the sector had progressed very well and that the new legal and regulatory framework had contributed to an impressive increase in private investments and competition in the provision of telecommunications services. However, the report also concluded that the success of sector liberalization had created new demands on SLTA that it had difficulties to cope with. Moreover, changing technology and global changes in market structure offered the opportunity for further gains through enhanced competition and privatization of SLT. By supporting the proposed project, IDA would continue to play a critical role in the telecommunications sector reform process initiated under previous projects and facilitate increased private investment and competition under suitable regulation in the provision of infrastructure services. 17. The Bank's experience with similar projects outside Sri Lanka provided a relevant lesson. In Mexico, the software did not perform properly, and this caused problems in the operation of the whole frequency management system that have yet to be solved. The lesson is that the main radio frequency management system should be procured in one package, including software, initial assistance in operations and guarantees by a reputable supplier to ensure its proper functioning. 18. A 1995 review indicates that the Bank's experience with technical assistance projects in South Asia has not been altogether positive. That review also recommended concrete measures to improve the performance of technical assistance: technical assistance should be designed as part of a broader strategy for institutional development; borrower commitment must be assessed carefully and tested through up-front action; monitoring indicators should be introduced; and so on. These measures have been incorporated into the proposed project. In particular, suitable performance benchmarks have been identified to monitor project progress and facilitate early corrective actions, if necessary.  - 5 - 19. Country Assistance Strategy. The proposed project is consistent with IDA's Country Assistance Strategy, which, inter-alia, supports the privatization of public services and the establishment of an enabling legal and regulatory framework for private investments and operations. IDA's Country Assistance Strategy was discussed by the Executive Directors on December 12, 1992 and is currently being updated for Board discussion on May 14, 1996. The public enterprise reform component will support GOSL's privatization program for state-owned enterprises. The project is also consistent with IDA's strategy in the telecommunications sector which calls for shifting the Government's role from ownership and operations to policy-making and regulation, promotion of efficiency and service quality, and increased private sector participation in investments and competitive provision of services. Improved and expanded telecommunications services will contribute to economic growth and poverty alleviation. 20. Project Implementation. The Borrower would be GOSL and the implementation agencies SLTA and PERC. A detailed design of the radio frequency management and monitoring system has been prepared by consultants with the help of a Japanese grant (TF023104). SLTA has prepared an implementation plan. An amendment to the 1991 Telecommunications Act has been drafted and terms of reference for consultants to strengthen SLTA's regulatory systems are under preparation. For the PERC component, Institutional Development Funds (IDF) have been used to prepare an operational plan and assist in the preparation of the most immediate privatization transactions (such as Air Lanka, Lanka Electric Co., Sri Lanka Telecom). PERC will also establish an effective core of staff to plan and coordinate the privatization program, and establish a small cadre of technical experts (local consultants and specialized civil servants) to provide the necessary technical expertise for implementing GOSL's privatization program. The project cost is estimated at US$21.6 million equivalent, with a foreign exchange component of US$12.6 million equivalent. IDA would finance US$15.0 million equivalent. Custom duties and taxes on imported equipment for the project have been estimated at about 40%, or about US$3.3 million equivalent. GOSL/SLTA will fund the necessary equipment housing and contribute monitoring sites and buildings, which have been included in the project at nominal cost. A breakdown of project costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and the projected disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Sri Lanka are presented in Schedules C and D, respectively. A Technical Annex is attached to provide details of the project, in lieu of a Staff Appraisal Report. 21. Project Sustainability. The 1991 Telecommunications Act provides a sound legal basis for SLTA as the regulatory institution for the telecommunications sector. Despite the constraints on SLTA's regulatory capabilities, as discussed in paras. 10 and 11, sector regulation has been reasonably effective, including a quite satisfactory licensing regime. However, to ensure SLTA's longer term operational and financial viability and administrative autonomy, the amendment of the 1991 Act and the conversion of SLTA from a GOSL department into a more independent commission will be pursued under the proposed project. A Telecommunications Sector Policy Letter confirms GOSL's commitment to amending the 1991 Telecommunications Act (see Attachment 1 of the Technical Annex). The Sector Policy Letter and the draft amendment state that expenditures incurred by SLTA will be financed through license and other operator fees. Since SLTA's annual expenses are less than US$1.0 million equivalent and its revenues, including license and other fees from the service providers, are over US$3.0 million, its financial autonomy outside of the government's budget would be ensured. Over the longer run, and with better means of control provided under the project, SLTA's license and other revenues are likely to increase substantially as existing service providers expand their operations and new operators are licensed. The importance of SLTA as a regulatory institution will increase in a complex multi-operator environment. It will be in the best interest of GOSL, the private operators and the public to maintain a strong and independent regulator to ensure adequate interconnection and revenue sharing arrangements between operators and protection of consumer interests.  - 6 - 22. PERC is fully committed to carrying out GOSL's program of divestiture of publicly owned assets and the recently enacted legislation gives it adequate authority to do so. With the approval of the Ministry of Finance, key firms like Air Lanka (airline), SLT (telecommunications), Lanka Electric Co., financial institutions, plantations and manufacturing units have already been identified by PERC for privatization. The project, therefore, supports an existing program which has the full support of GOSL. An Operational Plan for PERC (Attachment 2 of the Technical Annex) confirms GOSL's commitment to this reform program and will be monitored during project implementation. 23. Actions Agreed. A Telecommunications Sector Policy Letter and Action Plan, including GOSL's reform objectives, reform plans, and amendment of the 1991 Telecommunications Act, were conditions of negotiations and have been received by IDA (see Attachment 1 of the Technical Annex) as well as an Operational Plan for PERC (Attachment 2 of the Technical Annex). The necessary steps and time frame to implement this reform program are set out in these documents and progress on key steps will be monitored during project implementation. During negotiations in Colombo, agreements were reached on SLTA's project implementation plan, terms of reference for consultants and PERC's operational plan. GOSL also confirmed that the conditions for Board Presentation had been fulfilled, namely, Cabinet agreement to the amendment to the 1991 Telecommunications Act, and appointment of Project Managers for SLTA and PERC. There are no specific conditions for Credit Effectiveness. Failure by GOSL to implement reforms, as set out in the Policy Letter and the Operational Plan, in a manner satisfactory to IDA, may lead to remedial action. 24. Environmental Aspects. No environmental assessment is required, since the proposed project would have no adverse impact on the environment. The project has been given a "C" environmental rating. 25. Program Objective Categories. The principal objective category of the project is private sector development The project will: (a) reduce the dependence on the public budget for infrastructure by increasing private sector investments, including the privatization of state owned enterprises; and (b) improve the adequacy and efficiency of telecommunications services by promoting private operations and competition under an enabling regulatory framework. 26. Project Benefits. The project will promote economic growth by providing assistance for reforms in two key sectors, telecommunications and public enterprises, which on implementation would promote more efficient use of available resources. Higher and more broad-based economic growth, associated with improved and expanded telecommunications services, will in turn help futher reduction of poverty across Sri Lanka. The project is an attractive investment in institution building and economic management by reinforcing the Government's role as policy maker and regulator while facilitating private investment and operation of a variety of services. Telecommunications services are increasingly based on radio technologies, and the radio frequency spectrum is increasingly recognized as a valuable resource that should be efficiently managed and protected. In Sri Lanka, as in most other countries, the licenses for existing mobile cellular and other radio-based services were granted without auctions or high up-front charges. The project will provide SLTA with the licensing and monitoring tools to adjust its fees for the use of radio frequencies towards their economic value, thereby increasing the fiscal benefits as well as ensuring the efficient allocation of a scarce resources. The strengthening of SLTA and its regulatory authority would increase the interest of potential private investors in the telecommunications sector. Private operators of telecommunications services would benefit from knowing the rules for frequency assignments, tariff adjustments, interconnection, fair competition, licensing, etc., and this would encourage them to continue to invest and expand services. The consumers would benefit from increased choice and competition in the  -7 - provision of services, as has been demonstrated in the cellular market, the establishment of quality of service standards and the possibility to take their complaints to the regulator, SLTA, in case an operator does not take adequate corrective action. Sri Lanka's development policy is increasingly outward oriented and an efficient telecommunications infrastructure would support further diversification of exports, including agricultural. Sri Lanka also has great potential for expanding tourism, especially high value tourism, which also requires efficient telecommunications services. 27. The assistance to PERC would help to mobilize financial, technical and managerial resources from the private sector and reduce the strain on public sector resources. Privatizations would also bring efficiencies through a more competitive and entrepreneurial focus, the use of new technologies and modem management practices. The fiscal benefits of privatizations are also likely to be substantial, as shown by the recent sale of Colombo Gas to Shell for US$37.0 million. Further sales, e.g. of financial institutions, the airline and public utilities, are expected to bring in even higher amounts. The value of GOSL's most valuable enterprise, SLT, is estimated at around US$400.0 million. The proposed assistance to PERC is particularly timely given GOSL's strong interest in quick implementation of its privatization program. 28. Risks. The main beneficiaries, PERC and SLTA, are established on a firm legal basis and SLTA has gained valuable experience since its creation in 1991, which should facilitate efficient project implementation. However, a delay in the amendment of the 1991 Telecommunications Act and the conversion of SLTA into a Commission may restrict its ability to retain suitably qualified staff and fully carry out its regulatory functions. The availability of suitable staff for training, and benefits attractive enough to retain them once trained, are imperative for the efficient operation of the sophisticated hardware and software for radio frequency management to be provided under the project. To minimize this risk, Cabinet approval of the amendment to the 1991 Telecommunications Act was made a condition of Board presentation, which has been met. The progress of the implementation of agreed legal and other reforms will be closely monitored by IDA and, if not found satisfactory, IDA would take remedial action. 29. As illustrated by the experience in Mexico, there is a risk that the radio frequency management system will not fully function as intended. This risk will be reduced by procuring the system in one package, including software, initial assistance in operations, and guarantees from a reputable supplier for its proper functioning. Training of SLTA staff and technical assistance, during the initial years of operation will also be provided under the project, to ensure the proper functioning of the system. 30. Lack of commitment by line ministries and labor unions and political opposition to privatization may pose problems for PERC. GOSL's strong commitment and support for the project should make these risks manageable. 31. Recommendation. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments Washington, D.C. March 1, 1996  -8- Schedule A SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Estimated Costs and Financine Plan (US$ Million) A. SLTA 1. REGULATION: Consulting Services 0.10 0.70 0.80 87.5 Staff Training 0.05 0.20 0.25 80.0 2. FMMS 2: Hardware and Software 3.20 8.19 11.38 71.9 Land, Works, Power Supply 2.82 0.05 2.87 1.7 Training 0.05 0.25 0.30 83.3 Subtotal A: 6.21 9.39 15.60 60.2 B. PERC 1. Consulting Services and Marketing 2.15 2.74 4.89 56.1 2. Staff Training 0.01 0.04 0.05 80.0 3. Office Equipment 0.01 0.06 0.07 92.3 Subtotal B: 2.16 2.84 5.00 56.8 T~~TAL RASZ O.. . ........ . Physical Contingencies 0.30 0.41 0.72 58.0 Price Contingencies 0.29 0.01 0.29 1.7 Note: Totals may not be exact due to rounding. 'Custom duties and taxes are estimated at 39.75% on imported goods, or about US$3.3 million. 2 Frequency Management and Monitoring System Financing Plan (US$ Million Equivalent) ..... ~~ ~ ~ ~~~~~~~~~~~~~~.:.:: . .,,.... .. .. IDA 2.4 12.6 15.0 69.4 GOSL/SLTA/PERC 6.6 0.0 6.6 306 Total 9.0 12.6 21.6 100.0  -9 - Schedule B Page 1 of 2 SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Summary of ProDosed Procurement Arraneements and Disbursements A: Procurement (US$ Million Equivalent. Contingencies are included) _,=e.~~~~~~~~~n Equipment: Spectrum Management System and Office Equipment 8.6 0.07 8.7 (8.6) (0.07) (8.7) Land, Works, Power Supply 2 0.0 33 3.3 (0.0) (0.06) (0. 1) TA (Institutional Development) Training 0.0 0.6 0.6 (0.0) (0.6) (0.6) Consultancy3 0.0 5 7 5.7 (0.0) (5.7) (5.7) ............................................................................................................................................................................................................................ .......... Total Procurement 8.6 9.7 18.3 4 Note: Figures in parentheses are amounts financed by IDA. ' Other: Includes national competitive bidding (for office equipment) and IDA procedures for selection of consultants. 2 GOSL/SLTA will contribute existing sites and buildings. Antennas will be installed on existing SLT towers and on rooftops of existing buildings. Civil works and power supply mainly consist of adaptation of existing properties to the requirements of the frequency management system and are of a minor nature. 3 Consists of consultancies for telecom tariffs and other regulatory studies (US$0.8 million) and financial advisors and other assistance for one major and three minor privatization transactions (US$4.6 million). Potential privatization transactions are listed in Attachments 2 and 7 of the Technical Annex, e.g. SLT, Air Lanka (major) and Orient Lanka, Lanka Electric Co. and plantations (minor). 4 Taxes and duties, estimated at US$3.3 million, have been excluded.  - 10- Schedule B Page 2 of 2 B: Disbursement Categories Amount of the Credit allocated % of expenditure to be financed Category (expressed in SDR equivalent) 1. Equipment (Hardware and 6,000,000 100% of foreign expenditures Software) and 100% of local expenditures (ex-factory cost) and 70% of local expenditures for other items procured locally 2. TA (Institutional 4,100,000 100% Development) 3. Unallocated 300,000 TOTAL 10,400,000 Estimated Disbursements (US$ Million Equivalent) ,.e . .,,,............. ...... .} Annual 0.5 4.2 6.0 4.3 Cumulative 0.5 4.7 10.7 15.0  Schedule C SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Timetable of Key Proiect Processins Events (a) Time taken to prepare the project: 6 months (b) Prepared by: SLTA, PERC, and foreign consultant with IDA assistance (c) Appraisal mission departure: April, 1995 (d) Negotiations: Februaiy, 1996 (e) Planned date of effectiveness: May, 1996 (g) List of relevant PCRs: Credit No. Project PCR Date Cr. 1020-CE First Telecommunications Project December 1988 Ln. 2495-PH Telecommunications TA Project May 1991 Ln. 3223-VE Public Enterprise Reform Loan Under Preparation This report is based on the findings of an appraisal mission that visited Sri Lanka in April 1995. The project team consists of Mihkel Sergo (Task Manager, SAIEF), David Delgado (Telecommunications Engineer, IENTI), and Ritin Singh (Consultant, SAlEF). Other consultants also assisted in the preparation of the project. Ms. Mieko Nishimizu (Director, SAI) and Mr. Per Ljung (Chief, SAlEF) have endorsed the project. The peer reviewers were Messrs/Mines. Pierre Guislain (PSD), Khalid Siraj (ASTTP), Farida Mazhar (CFSPF), Philip Keefer (PRDFP) and A. Shanmugarajah (IENTI).  - 12 - THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA Schedule D A. STATEMENT OF BANK LOANS AND IDA CREDITS Page 1 of 2 (As of December 31, 1995) Amount in US$ million (less cancellations) Loan or Fiscal Undis- Credit No. Year Borrower Purpose Bank IDA bursed 12 Loans and 51 credits have been fully disbursed 131.13 961.98 Of which SECALs, SALs and Program Loans /a 111.10 Cr. 1 698-LK 1986 Sri Lanka Second Vocational Training 11.54 2.88 Cr. 1700-LK 1986 Sri Lanka Water Supply and Sanitation 37.00 4.71 Cr. 1776-LK 1987 Sri Lanka Agriculture Research 18.60 7.37 Cr. 1909-LK 1 988 Sri Lanka 2nd Smallholder Rubber Rehab 23.50 13.02 Cr. 2043-LK 1989 Sri Lanka Forestry II 13.39 6.96 Cr. 2072-LK 1990 Sri Lanka General Education 49.00 24.14 Cr. 2183-LK 1991 Sri Lanka 3rd Roads 42.50 30.01 * Cr. 2185-LK 1991 Sri Lanka Public Manuf. Enter. Adjust. 120.00 3.03 Cr. 2231 -LK 1991 Sri Lanka Poverty Alleviation 57.50 40.32 Cr. 2249-LK 1991 Sri Lanka Telecoms II 57.00 39.27 Cr. 2250-LK 1991 Sri Lanka SMI IV 45.00 16.39 Cr. 2260-LK 1991 Sri Lanka Irrigation Rehab. 29.60 26.91 Cr. 2297-LK 1992 Sri Lanka 2nd Power Distribution 50.00 45.86 Cr. 2380-LK 1992 Sri Lanka Second Agric. Extension 14.34 12.47 Cr. 2442-LK 1993 Sri Lanka Community Water Supply/Sanit. 24.30 18.82 Cr. 2484-LK 1993 Sri Lanka Private Finance Dev. 60.00 25.49 Cr. 2495-LK 1993 Sri Lanka Colombo Urban Transport. 20.00 16.12 Cr. 2757-LK 1 995 Sri Lanka Colombo Environment Improvem 39.00 36.86 Total 131.13 1674.25 /b 370.63 /b Of which has been repaid 98.38 45.14 Total now held by Bank and IDA 32.75 1629.11 Amount sold 3.59 Of which repaid 3.59 Total undisbursed 370.63 /a Approved during or after FY80. /b The principal amounts of IDA credits are shown in US Dollar equivalent at date of negotiations, as shown in the President's Report. Undisbursed amounts shown in US Dollar equivalent are valued at the exchange rate applicable on the date of this statement. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed in dollars. * Indicates SAL/SECAL or Program Loan.  - l13 - Schedule D Page 2 of 2 THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA B. STATEMENT OF IFC INVESTMENTS (As of December 31, 1995) Amount ($millions) Date Borrower Purpose Loan Equity Total 1970 Pearl Textile Mills, Ltd. Textiles 1.50 0.45 1.95 1978/80/83 Development Finance Development Financing 0.45 0.45 1978/81 Bank of Ceylon Capital Markets 7.00 7.00 1979 Mikechris Industries General Manufacturing 0.89 0.09 0.98 1979/81 Ceylon Synthetic Textile Textiles 1.88 0.54 2.42 1980/84/85 Lanka Orix Leasing Capital Markets 3.00 0.34 3.34 1981 Taj Lanka Hotels Limited Tourism 8.20 0.70 8.90 1988 Union Assurance Limited Capital Markets 0.98 0.98 1992 C.K.N. Fund Management Financial Services 0.06 0.06 1992 Pyramid Unit Trust Financial Services 0.25 0.25 1994 Lanka Cellular Services Industrial Services 2.03 2.03 Total Gross Commitments 22.47 5.89 28.36 Less Cancellations, Termination Exchanges Adjustments, Prepayments and Sales Writeoffs and Sales 22.47 1.93 24.40 Total Commitments now held by IFC 0.00 3.96 3.96 Total Undisbursed (including participants' portion) 0.00   SRI LANKA RADIO FREQUENCY MONITORING NETWORK - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SLTA' V vHr/UI1F STATIONS O Hf/MF STATIONS AL SATELLITE STATION ,CIN/TAl AW WARrSE FAC4"IIS FOR TUF SRI AtK,,A ffEICOMMLtJEATIN5 AUTHOITY I ' 0 [ g| . NORrHERN I 0 TOWNS r r~~~'OI (ii PROVINCE CAFlTALS I ~~~~~~~~~~~~~~~~~NATIONAL CAPITAL -9= >rsr - s / ~ ~ X bMAIN ROADS - -.---.-- S~~~~~~~~~~~~IAIlROADS Mc,~~~~~~~~~~~~no, I l~~~~~~~~~~~~~~~~~IVERS ----__--- c~' t IY 1 _ ----- WATER CONVEYING TUNNELS RESERVOIRS ----DISTRICT BOINDARIES -- PROIANCE BOUJNDARIES ALTITUDE IN METERS A- T H~~~~~~~~~~~~~~~~-1 ; < . . d' X * / I .l.b \ KllC>MElEFShI - OT |-/~~~T 0 1) 20 -10\ 8- 'O ( \ n A n A ki \ diNT,j I K ' 8 _.,_.- ,j, H o X , : n s Y W ES T EN ERN Nsi n t \' ~~PR6VININi 6./ ab_f**.E wes1worS711_y ~ C7 81G.__i , ,,bo/; o/ Dy to.rwr ~ r 7 r~~~~~  I -   IMAGING Report No: P- 6730 CE Type: MOP