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

Document of The World Bank Report No. T-6730-CE TECHNICAL ANNEX DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT MARCH 1, 1996 Energy and Project Finance Division Country Department 1 South Asia Region   DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Technical Annex' Table of Contents Pa!e No. A. Project Description 1 Project Objectives and Components 1 Relation Between the Project and other IDA supported TA activities 1 Assistance for Institutional Development 2 Assistance for Radio Spectrum Regulation 3 Proposed Frequency Management and Monitoring System (FMMS) 4 Project Cost and Financing Plan 5 Project Timetable 6 B. Project Administration and Implementation 6 Procurement of Goods and Services 6 Disbursement Arrangements 7 Accounts and Audits 8 Monitoring, Reporting and Supervision 8 Attachments 1 Telecommunications Sector Policy Letter 9 2 PERC Operational Plan 13 3 Sector Reform Program Study 19 4 : Project Cost 21 5 : Project Implementation Plan 23 6 : Schedule of Disbursements 24 7 Performance Indicators 25 Map: IBRD 27495 ' This Technical Annex is included as part of the Memorandum and Recommendation of the President (P-6730- CE), which is a restricted document.  II  SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Technical Annex to the Memorandum and Recommendation of the President A. Project Description 1. In addition to describing the project components, this section provides details of the reform program as set out in GOSL's Sector Policy Letter and Action Plan and PERC's Operational Plan (Attachments I and 2) and describes the institutional framework of the agencies being assisted. It also elaborates on the project's institutional development and policy objectives and how they will be achieved. Proiect Obiectives and Components 2. The proposed project will: (a) assist SLTA in its transition to a more independent regulatory Commission and strengthen its regulatory authority; (b) assist SLTA in (i) improving its administrative and technical capabilities to plan and control the use of radio frequency spectrum, and (ii) establishing a computerized radio frequency management and monitoring system; and (c) facilitate the divestiture of government owned enterprises, including SLT, by strengthening the technical and administrative capacity of PERC. 3. The project consists of two components: (a) technical assistance for the strengthening of SLTA, including (i) a frequency management and monitoring system, with hardware, software, expert assistance during the initial years of operation, and staff training; (ii) consulting services to assist SLTA in selected studies on sector regulation; and (iii) staff training; and (b) assistance to PERC in financing consultants and financial advisors for specific transactions and strengthening of the PERC Secretariat (office equipment, training, travel, etc.). Relationship Between the Project and Other IDA SuDported TA Activities 4. Project Preparation Facilities (PPFs) for the Second Telecommunications Project (Credit 2249- CE)2 were used to assist in drafting the 1991 Telecommunications Act and establishing the regulatory 2 The December 22, 1995 supervision report for the Second Teleconmnunications Project ranked the project as unsatisfactory regards implementation due to delays in the procurement of local networks. The original development objectives, however, have largely been achieved satisfactoiily, despite the procurement problems with local networks. The original project objective was a total of 50,000 lines (33,000 in Colombo and 17,000 outside). Due to lower unit prices than projected for switching equipment, it was agreed to contract about 44,000  - 2 - framework. T'echnical assistance for SLTA was also provided through the recently closed Industrial Development Project (IDP III, Credit 1948-CE)3, which helped SLTA build up its regulatory functions after its creation in 1991. The assistance to SLTA under this project would support continued strengthening of SLTA's regulatory capabilities by establishing an efficient frequency management and monitoring system, and for its transition into a more independent regulatory Commission. 5. IDA is supporting the recently established PERC, through the Public Manufacturing Enterprises Adjustment Credit (Cr. 2185-CE) of 1990 and IDF financing, in designing an overall privatization program and strategy for various sectors (such as for airlines and utilities). Assistance is being provided through experienced consultants and privatization professionals to help develop PERC's work program over the short and medium term. With the help of such consultants, PERC has already drafted the terms of reference for the Financial Advisor for the privatization of SLT. Assistance for Institutional DeveloDment 6. Technical Assistance to SLTA. Consultants will be retained, under procedures satisfactory to IDA, to assist SLTA in studies of service pricing, network interconnection, quality and conditions of service, type approval of equipment, technical standards and others (Attachment 3). The findings of this study will be used to develop GOSL's longer term regulatory policies as well as to establish suitable license conditions for a privatized SLT. Upon its conversion into a Comrnission, SLTA's management will pass from one Director General to five Commissioners. This will involve a reorganization of SLTA, for which assistance will be provided for under the proposed project, but detailed TOR will be prepared only when the Commissioners and their background and experience are known. SLTA will also need assistance in setting up and starting operations of the radio frequency monitoring system. Such assistance will be included under the supply contract for the equipment for at least a year after installation to ensure proper functioning. 7. Training. For SLTA's radio frequency monitoring system, training will be provided at the suppliers' facilities and on-the-job during installation. Brief courses and seminars at local and foreign training institutes would also be arranged for concemed staff and include: system management (2 weeks), system operations (2 weeks), network operations and management (2 weeks), basic frequency management (10 weeks), monitoring and inspection (5 weeks), mobile monitoring operations (2 weeks) and equipment calibration (10 weeks). Courses will be in Sri Lanka or abroad, depending on the number of participants and the availability of suitable standard courses. 8. Technical Assistance to PERC. Two groups of consultants will be retained. The first group will be composed of mainly intemational specialists and consulting firms recruited on a short-term basis to advise on specific transactions. Their main tasks will be to (a) carry out the necessary studies for policy and strategy formulation, pre-reform packaging and implementation of privatization transactions; (b) assess lines for Colombo and 32,000 for the regions. Even discounting the regional lines, the shortfall is, therefore, only about 6,000 lines compared to the original objective. This shortfall should be seen against, inter alia, the 50,000 private mobile cellular lines and the 50,000 SLT Colombo "emergency scheme" lines, which were a consequence of the sector liberalization and legal, regulatory and institutional reforms implemented as conditions of project processing. 3 The radio frequency monitoring equipment provided under the Industrial Development Project III is fully compatible with the equipment to be provided under the proposed project and will form part of a fully integrated radio frequency monitoring system. Without the assistance already provided under IDP III, the proposed project would have been about US$2.0 million more costly.  - 3 - the past and present situation of the enterprises and identify key issues to be resolved to facilitate restructuring and privatization; (c) review the existing regulatory framework, examine all regulatory issues, and recommend changes, as necessary, to implement a successful restructuring and privatization program; and (d) assist PERC in preparing memoranda, terms of reference and bidding documents as well as in the transactions and all tasks leading to the sales closure. Local consultants and specialized staff (e.g. lawyers, financial analysts and technical experts) will be hired on a long-term basis as the core staff to plan and coordinate GOSL's privatization program. Local technical experts will act as counterparts to intemational consultants in specific transactions, while others will provide PERC with continuous advisory services based on their specialization. In addition, for specific large transactions (e.g., telecommunications) reputable investment banks will be hired to undertake the assignment. 9. PERC's planned privatization transactions and the estimated cost of transactions to be funded by IDA under this project component are given in Attachment 2 and summarized below: 1. Colombo Gas Co. Completed July 1995 November 1995 (Actual) 2. Lanka Electric Co. Ongoing September 1995 June 1996 3. Air Lanka Completed September 1995 October 1996 4. Sri Lanka Telecom Ongoing November 1995 June 1997 5. Plantations Ongoing July 1995 December 1996 6. Manufacturing Units Completed Varying 1996-97 (steel, sugar, fertilizer, etc.) 7. Financial Sector (Housing Ongoing Varying 1996-98 Finance, DEIs, etc.) 8. Lre Enterprises (Shipping, etc.) Ongoing Varying 1996-98 1. Consulting Services 1,091 2,060 3,151 2. Marketing Expenses 1,054 680 1,734 3. Sta.ff Training 10 40 50 4. Office Equipment 5 60 65 Total 2,160 2,840 5,000 10. Training of PERC staff involved in privatization transactions will be provided on general issues by IDA's technical assistance team members and consultants recruited for the project. Other training will be on an ad-hoc basis through brief courses and seminars as the need arises. Furthermore, study tours for professional staff will be arranged for visits to foreign countries with relevant experience in the privatization of public enterprises. Assistance for Radio Spectrum Regulation 11. Current Situation. SLTA currently operates three fixed monitoring sites and a mobile monitoring vehicle. A frequency management database, using dBase and containing primarily a frequency list exists, 4 B3ased on IDA funding of one large transaction (like SLT, Air Lanka, etc.) and three medium sized transactions (Lanka E:lectric Co., Plantations, Manufacturing Units, etc.). The transactions for which IDA funds will be used have not yet been identified, as the exact order of privatizations will depend on market and political considerations.  -4 - but has not been updated, and the necessary software documentation is missing. Furthermore, this software is not based on modem standards, is difficult to use and not very reliable. An existing server and local area network (LAN) are not being used. A 1:25,000 series of topographic maps are available on which a digitized terrain elevation model (DEM) can be established. 12. Proposed Frequency Management and Monitoring System (FMMS). This project component will integrate existing equipment with the proposed frequency management and monitoring system. 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 resource. Rapid processing of telecommunications licenses and strict enforcement of license conditions for the use of the radio frequency spectrum is also essential for the orderly development of domestic telecommunications facilities and increased private sector participation in the provision of services. The FMMS will be an integrated hardware and software system consisting of the following eleven subsystems: (1) headquarters computer systems and nationwide networking (2) a frequency management database (3) frequency management application modules (4) a digitized terrain elevation subsystem (5) a Geographic Information System (GIS) (6) VHF/UHF monitoring equipment and stations (7) HF/MF monitoring equipment and stations (8) monitoring software (9) mobile measurement vehicle equipment (10) a satellite monitoring station and Very Small Aperture Terminal (VSAT) hub site, and (I 1) VSAT network 13. The proposed frequency management system will use a server for about 14 client computers at its headquarters facility in Colombo. The frequency management database will contain all necessary tables to support the licensing of telecommunications services, licenses of operators (including amateur radio operators), licenses of radio communications equipment vendors, type acceptance of radio communications equipment, inspection services, monitoring services, the tracking of legal cases, and the accounting related to fees for all licenses and permits as well as the necessary data for timely billing and collection of license fees. The monitoring software will reside on client computers in the monitoring stations and will interface with the central database over a wide area network. 14. Two broad categories of software will be used for the frequency management; the first used for licensing, and the second for management of interference. The principal area where automated licensing is needed is the VHF/UHF spectrum, due to the high demand for fixed and land mobile network services. The electromagnetic compatibility analysis software will consist of programs for the various services, interference conditions and planning possibilities (broadcast station-station interference, inter-cell interference, terrain profile, cellular frequency assignment, microwave frequency planning, HF links, satellite service area coverage, etc.) 15. To improve the efficiency in analyzing communications facilities in the VHF/UHF bands, digitized terrain elevation models will be maintained in database tables. The project will provide the necessary hardware (scanner, plotter, etc.) and software (for scanning and gridding, database interface, and GIS).  - 5 - 16. VHF/UHF monitoring stations will be installed in Anuradhapura, Colombo, Galle, Kandy, Negombo, and Nuwaraeliya. The HF/MF direction finding sites will be located in Anuradhapura, Kandy, Negombo, and Galle. Equipment for two additional mobile units will also be provided. A central satellite earth station will perform the dual function of satellite monitoring and serving as the hub site for dedicated communications between the central headquarters facilities and five VSATs located at the monitoring stations. A wide area networking software will allow remote control of monitoring sites by operators at the headquarters facilities. Project Cost and Financial Plan 17. The total project cost is estimated at US$21.6 million, with a foreign cost component of US$12.6 million. Detailed costs for SLTA's frequency management and monitoring system have been estimated in US dollars by consultants, based on mid-1995 price levels. Physical contingencies are estimated at about 5% for civil works and other items. No price escalation has been considered for imported equipment due to the recent price stability/reductions experienced for this kind of equipment. Detailed project cost estimates and yearly expenditures are given in Attachment 4 and summarized in Table 1. 1. Table 1 . 1: Estimated Project Costs (US$ Million) _~~~~~~~~~~~Lcl Foei_To 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. FMMS2: HardwareandSoftware 3.20 8.19 11.38 71.9 Land, Works, Power Supply 3 2.82 0.05 2.87 1.7 T raining 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 ................... ...... ....... .. ........ ......... ................. ..... ........... . .... ... ... ..... ......... ...... ...... .. ..... ..... ..... ...... TOTAlS BASE T.. - . . .. ,.. 7 2.23 ... . .6Q Physical Contingencies 0.30 0.41 0.72 58.0 Price Contingencies 0.29 0.01 0.29 1.7 ....... ............. ..... ...... .. .. .................................... ....... %............. ............. ...... .. .. ......... .. ......... ............. .. ........ .... ............ O .. I ........... ... TOTAL.ESTIMA.TEl).PRO.JECT.COST~~~.. .S....... ...... .I 1.........i....... .... . ..... ........ ... :B .... .......... eETXX.S. .......... . .. ...... ......... .. .. ....l 2X . ....,. 2lb..,,. ........... .g d Note: Totals may not be exact due to rounding. For details see Attachment 4. lCustom duties and taxes are estimated at 39.75% on imported goods, or about US$ 3.3 million equivalent. 2 Frequency Management and Monitoring System. 3 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.  - 6 - 18. The proposed IDA Credit of US$ 15 million would finance about 69% of the total project cost and 100% of the foreign exchange costs. The remaining cost of US$6.6 million (including US$3.3 million equivalent for taxes and duties on imported equipment) would be covered by SLTA/GOSL. The design and specification of the FMMS for SLTA has been financed by a Japanese Trust Fund. The financing plan for the project is given in table below: Table 1.2: Financing Plan (US$ Million Equivalent) ;. . . , . .. S . ; :. . . . . . . . . . . . . . . . . . . . . . . . i. . . . . . . IDA 2.4 12.6 15.0 69.4 GOSLISLTA/PERC 6.6 0.0 6.6 30.6 Total 9.0 12.6 21.6 100.0 Project Timetable 19. The project is expected to be completed in about 3.5 years after Board Approval. SLTA's FMMS would be tendered by July 1996, and the necessary arrangements for technical assistance and consultancy proposals would be finalized by mid 1996. Transactions presently scheduled by PERC would proceed according to the operational plan as agreed during negotiations (Attachment 2). A Project Implementation Plan and timetable for the main project activities is in Attachment 5. The project is expected to be completed by June 30, 1999. B. Project Administration and Implementation 20. SLTA and PERC will be responsible for the implementation of their respective project components. A core of professionals within each agency, coordinated by a Project Manager, will be assigned to manage the implementation of the project (including procurement of goods and services, implementation monitoring, accounts, audits, and reporting), to work as consultants' counterparts, and to assist in staff training. Procurement of Goods and Services 21. Project TA and training will be procured in accordance with procedures acceptable to IDA. Consultants will be hired in accordance with IDA's guidelines for the use of consultants. The frequency management and monitoring system will be procured under IDA's ICB procedures in a single package, including detailed design, system integration, hardware, software, staff training, and assistance for the initial operation of the system. This will encourage bidders' interest and provide single responsibility for the proper functioning of the system. Procurement of goods costing over US$200,000 will require IDA's prior review. All other contracts will be subject to random post reviews by visiting supervision missions. Contracts for hiring consulting firms costing US$100,000 equivalent or more and contracts for hiring individuals costing US$50,000 equivalent or more will be subject to prior review by IDA. More than 90% of the value of IDA's credit would require prior review. Office equipment (upto US$70,000) will be procured through National Competitive Bidding. Table 1.3 below indicates the proposed bid packages, procurement methods, and estimated amounts.  -7 - Table 1.3: Summary of Procurement Arrangements (US$ Million Equivalent. Contingencies are included) 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 3.3 3.3 (0.0) (0.06) (0. 1) TA (Institutional Development) Training 0.0 0.6 0.6 (0.0) (0.6) (0.6) Consultancy 3 0.0 5.7 5.7 (0.0) (5.7) (5.7) Total Procurement 8.6 9.7 18.34 .,,....................................................................... ... ......... .. . .... ..... Note: Figures in parentheses are amounts financed by IDA. OthOer: 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. C onsists 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, e.g. SLT, Air Lanka (major) and Orient Lanka, Lanka Electric Co. and plantations (minor). 4~ Taxes and duties on imported equipment (US$3.3 million) have been excluded. Disbursement Arran2ements 22. The IDA credit would be disbursed against: (a) 100% of foreign expenditures for imported equipment and materials, or 100% of the ex-factory cost of locally procured goods, or 70% of other locally procured goods, and (b) 100% of expenditures for consultancy services and training. The projected disbursement schedule is given in Attachment 6. A summary of projected disbursement is shown in Table 1.4. Advanced preparation of procurement documents should facilitate early implementation and disbursement. The main procurement consists of one turn-key package and the projected disbursement period is, therefore, about three years shorter than the standard profile. Full documentation would be required for all equipment contract above US$200,000, consultant firm contracts above US$100,000, and individual consultant contracts above US$50,000. Disbursements for contracts below this amounts and all training expenditures would be made on the basis of Statement of Expenditures (SOEs). The supporting documentation for SOEs would be retained by SLTA and PERC and made available for review by IDA .. . . . . . . . . .. .. . . . .. . . supervision missions. Table 1.4: Projected Disbursements(UIM Annual 0.5 4.2 6.0 4.3 Cumulative 0.5 4.7 10.7 15.0  -8- Accounts and Audits 23. To facilitate disbursements, a Special Account will be established at a bank under terms and conditions satisfactory to IDA. This will be maintained in US dollars with an authorized allocation of US$500,000 and would be used to cover IDA's share of eligible project expenditures of less that US$100,000 under all disbursement categories. The authorized allocation shall initially be limited to US$300,000 until disbursements and outstanding commitments against the Credit equal or exceed SDR3.0 million (US$4.3 million). Applications for replenishment of the account, supported by appropriate documentation, would be submitted regularly (preferably monthly, but not less that quarterly) or when the amounts withdrawn equal 50% of the initial deposit. 24. The Ministry of Finance and Planning will have the overall responsibility for the project accounts. The audit of project accounts as well as of SLTA and PERC will be conducted by independent auditors acceptable to IDA. SLTA and PERC will maintain their accounting systems in accordance with sound international principles and practices acceptable to IDA. Each entity will provide interim and annual financial statements to reflect its financial performance and position. Audited financial statements for SLTA and PERC and audit reports on the project accounts, including the Special Accounts, and separate opinions on any SOE, will be provided to IDA within six months of the closing of the fiscal year. The audit report will include a statement of the adequacy of the accounting procedures, intemal controls, and compliance with covenants. The accounting and financial reporting should provide adequate and timely information to IDA for project supervision. Monitoring, Renortine and Supervision 25. The timely implementation of the various steps set out in the action plan of the Policy Letter will be monitored and constitutes a major indicator of the reform progress. IDA will also monitor the overall performance of SLTA and PERC during project implementation aided by performance indicators (Attachment 7). Further, as part of its supervision activities, IDA will monitor procurement and project implementation. This monitoring should assist GOSL and IDA in taking timely corrective action. 26. SLTA and PERC will submit quarterly progress reports in a format acceptable to IDA within one month of the end of each quarter. Project accounts will be maintained by each agency, so that the costs of each project component and credit disbursement can be clearly established. The format of the quarterly project progress report was discussed and agreed during negotiations. 27. Supervision of the project will focus on the following key aspects: (a) conversion and development of SLTA into a more independent regulatory Commission in accordance with the agreed timetable; (b) timely and effective procurement of goods and services; (c) implementation of the privatization transactions agreed with PERC; and (d) effective coordination by each agency of the various project components. A mid-term review is planned for June 1997 of all project activities and would be conducted jointly by the Ministry of Finance and Planning, SLTA, PERC, and IDA. Upon project completion, an Implementation Completion Report (ICR) will be prepared. The total estimated IDA input for supervision is 40 staff- weeks.  -9- Attachment I Page I of 4 fidmc)= : 3zkoez. 422591 0Om;DU1 : asuiu42492 422592 Telephones Office 422593 03... Fa o.CtD . Mtt Si! fj/CJ G;TCOQo2C}!;J0 qe5iC>tC3 u.kiv 541531 C,L, Fox No. Cnuoa; sd qtDC MINISTRY OF POSTS &TELECOMMUNICATIONS qTjJ r* LOTUS ROAD My No. J Oa g, DG. Q-%JTc!FLbt ..................... AL 0iv @'w. Colombo I Your No. 8th February, 1996. Mr. Joseph D. Wood Vice President South Asia Region The World Bank Thro' The Secretary Ministry of Finance, Colombo. Dear Mr. Wood, TELECOMMUNICATIONS SECTOR POLICY In 1995, the Government of Sri Lanka defined its policy for further development of the telecommunications sector. The purpose of this letter is to provide some details and a time frame for the implementation of this policy. 02. The Government's broad objectives in the telecommunications sector are to: (i) expand and improve the telecommunications infrastructure to better support economic, social and cultural development in Sri Lanka; (ii) to facilitate new investment and competition in the sector by strengthening the enabling legal and regulatory framework; and (iii) encourage increased private sector participation in telecommunications development, including the restructuring. 03. To achieve these objectives, the Government will undertake a sector restructuring programme which will involve the following main activities: (a) amendment of.the Tfelecommunications Act; (b) promoting competition and private participation in the provision of telecommunications services: (c) restructuring the operations of SLT  - 10 - Attachment I page 2of 4 Amendments of the Telecommunications Act: 4. The Telecommunications Act was passed by Parliament in 1991. During the past four years the 1991 Act has been effective, it has become evident that the duties placed on the regulator (Director-General) are so varied that a broader based regulatory structure would be desirable. Further, the departmental status of the Authority limits its operational and administrative autonomy (including salary structure) and is a major constraint on its ability to discharge its duties efficiently. 5. A strong and independent telecommunications sector regulator is needed to ensure fair interconnection and revenue sharing arrangements between the increasing number of service providers. Further, as more services are being provided by the private sector and Government plans to restructure SLT, it is becoming increasingly important that the consumer protection aspects of the Telecommunications Act are efficiently implemented. 6. An amendment to Act was therefore drafted with the objective to convert the "Sri Lanka Telecommunications Authority" (SLTA) into a "Commission" which would consist of five "Commissioners"who have excelled in the field of engineering, accountancy, law, economics, public administration business and commercial management. The Commission's activities would be financed through licences and other operator fees rather than through GOSL's budget and provide it with appropriate financial autonomy. On 01st February, 1996 the Cabinet decided to amend the 1991 Telecommunications Act accordingly. Promoting Competition and Private provision of Services. 7. The Government and the regulatory body for the Telecommunications sector will promote competition by adopting transparent procedures for licensing of operators, facilitating interconnection, promoting economically sound cost-based pricing principles, and providing adequate regulatory certainty to invertors. Competition will be allowed in the provision of telecommunications services (other than basic wired voice telephony). Operators will be allowed to provide telecommunications services using technology of their choice, provided the equipment has been "type" approved and an appropriate operating licence has been obtained. The number of competitors and the duration of their license has been obtained. The number of competitors and the duration of their licenses will be determined based on market and economic efficiency considerations. Transparent and expeditious procedures for licensing will be used to promote the entry of competing service providers. In particular, two licensees for radio based basic services are expected to be issued by March, 1996.  Attachment 1 Re-Structuring of SLT Page3of4 8. It is the Government's objective to transform Sri Lanka Telecom (SLT) into a commercially operatedL and fully autonomous entity. A new corporate entity is to be incorporated under he Companies Act. to which SLT's assets and liabilities will be transferred as well as its existing telephone operations. Within the next two years, SLT's administration and operation, is expected to have been restructured with additional changes to be undertaken from time to time as market conditions permit. 9. To ensure SLT's long-term financial viability, facilitate competition and create a level paying field for all sector operators, the Government will make all efforts to ensure that SLT's prices to end users and its interconnection charges to other service providers are based on financial costs. S.L.T's existing tariffs would therefore have to be rebalanced, based on a tariff study combined with realistic demand forecasts. Once adequately balanced S.L.T's tariffs will be regulated by a price cap system which will be enforced by the regulator. 10. The Government intends to implement this sector restructuring programme as per the attached action plan and keep the Bank informed regularly on the progress of implementation. Yours sincerely, K.C. Logeswaran Secretary Ministry of Posts & Telecommunications Copy to: 1. Mr. Roberto Benjerodt Resident Representative The World Bank Colombo. 2. Mr. M. Sergo The World Bank / 3. Director-General Dept. of External Resources  TELECOMMUNICATION SECTOR POLICY: ACTION PLAN Action Planned Time Frame 1.Amendment of the 1991 Telecommunications Act (a) Cabinet decided to amend the Act February, 1996 (b) preparation by the Legal Draftsman of the amendment bill .April, 1996 (c) copy of the legislation to the Attorney General and other Ministries for conmnent May, 1996 (d) translation of the bill into Sinhala and Tamil, and May, 1996 (e) Cabinet approval of the Bill and presentation to the Parliament June, 1996 2. Promotion of Competition and Private Investments . (a) granting of the first license for the March, 1996 provision of radio based basic telecom services (b) granting of the second license for the March,1996 provision of radio based basic telecom services. (c) completion of tariff/demand study and 3rd quarter 1996 (d) design and implementation of a tariff Early 1997 rebalancing plan  - 13 - Attachment 2 Page I of 6 SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT PERC Operation Plan PUBLIC ENTERPRISE REFORM COMMISSION Bank of Ceylon Building (30th Floor). No.4. Bank of Ceylon Mawatha, P E R C Colombo 1, Sri Lanka. Telephone: 94-1-338756/8. Fax: 94-1-326116 February 8, 1996 Mr. S.L. Seneviratna Director General Dept. of External Resources Ministry of Ffiance Colombo, Sri Lanka Re: Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project. Dear Mr. Seneviratna, As authorized by the Public Enterprises Reform Commission of Sri Lanka Act No. 1 of 1996, the Public Enterprises Reform Commission of Sri Lanka (PERC) plans to undertake the reform of public enterprises, as specified in the Operational Plan given in Attachment 1. The use of funds available through the Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project is specified in Attachment 2. Please convey this information to Mr. Joseph D. Wood, Vice President, South Asian Region, The World Bank. Sincerely, RN. Asirwatham Chairman - Public Enterprises Reform Commission of Sri Lanka  Attachment I PUBLIC ENTERPRISE REFORM COMMISSION OF SRI LANKA Operational Plan 1996-98 Name of State Owned Enterprise Action 96 97 98 99 1. Previously owned limited liability cos. Balance with % shares vet to be divested to be divested (%) 1.1 Bogala Graphite Ltd. Preparation ongoing 50 ++++++ 1.2 Ceylon Agro Industries Ltd. Preparation ongoing 30 ++++++ 1.3 Colombo Intemational Schools (Sri Lanka) To be prepared 35 .........+++++++++ 1.4 Lanka Canneries Ltd. Preparation ongoing 30 +++++++++ 1.5 Lanka Ceramics Ltd. Preparation ongoing 10 +++ +++ 1.6 Lanka Lubricants Ltd. Preparation ongoing 39 +++ +++ 1.7 Lanka Plywood Products Ltd. Assets being sold ... 1.8 Lanka Tractors Ltd. Preparation ongoing 30 +++++++++ 1.9 National Development Bank Divestiture 15 1.10 Ruhunu Cement Corporation Preparation ongoing 30 +++ +++ +++ 1.11 Statcon Rubber Co. Ltd Preparation completed 19 ... 1.12 Tea Smallholder Factories Ltd Preparation completed 39 +++ +++ 2. Large Enterprises 2.1 Air Lanka Ltd. Preparation completed ++++++ 2.2 Airport & Aviation Services Study undertaken ++++++ 2.3 Ceylon Electricity Board Preliminay study +++++++++ 2.4 Ceylon Petroleum Corporation To be prepared +++ +++ .. 2.5 Ceylon Shipping Corporation To be prepared ++++++ 2.6 Sri Lanka Telecom Preparation ongoing +++ +++ +++ ... 3. Manufacturing & trading units 3.1 Asbestos Cement Industries Ltd. To be prepared +++++++++ 3.2 British Ceylon Corporation To be prepared ++++++ 3.3 CCC (Fertilizer) Ltd. Under litigation  Name of State Owned Enterprise Action 96 97 98 99 3.4 Ceylon Fertillilzer Co. Preliminary study ++++++ 3.5 Ceylon Glass Co. Ltd. Preliminary study +++++++++ 3.6 Ceylon Steel Corporation Preparation completed ++++++ 3.7 Ceynor Foundation Preliminary study ++++++ 3.8 Colombo Sackmakers Ltd. To be prepared ... 3.9 Janatha Fertilizer Enterprises Ltd. Preparation completed ... 3.10 Kantale Sugar Industries Ltd. Under litigation ++++++ 3.11 Lanka Fabrics Ltd. To be prepared +++++++++ 3.12 Lanka General Trading Co. Ltd. Preliminary study +++ +++ 3.13 Lanka Machine Leasers Ltd. Preliminary study ++++++ 3.14 Lanka Mineral Sands Ltd. Preliminary study ++ 3.15 Lanka Phosphate Ltd. Preliminary study +++ +++ 3.16 Lanka Salt Ud. Divestiture ... 3.17 Lanka Textile Emporium Ltd. Preliminary study +++ +++ . 3.18 Lanka Transformers Ltd. Preliminary study +++ +++ 3.19 Lanka Walltiles Ltd. Preliminary study +++ +++ +++ +++ 3.20 National Paper Co. Ltd. Divestiture +++ +++ 3.21 Paranthan Chemicals Co. Ltd. Preliminary study ++++++ 3.22 Pelawatte Sugar Co. Ud. To be prepared +++++++++ 3.23 Rajarata Agro Fertilizer Co. Ud. Preparation completed +++ +++ 3.24 Sathosa Printers Ud. Preliminary study ... 3.25 Sevanagala Sugar Industries Ltd. Preparation completed ... 3.26 Silk & Allied Products Dev. Auth. Preliminary study +++ +++ 3.27 Sri Lanka Ayurvedic Drugs Corp. Preliminary study ++++++ 3.28 Sri Lanka Rubber Manufacturing (5 Cos.) Divestiture 3.29 State Trading Textile Corporation (Salusala To be prepared +++ +++ +++ ; 3.30 Thamankaduwa Agro Fertilizer Co. Ltd. Preliminary study ......... 4. Services , 4.1 Sri Lanka Convention Bureau Preliminary study ++++++ .  Name of State Owned Enterprise Action 96 97 98 99 5. Energy 5.1 Lanka Electricity Co. Ltd. Preparation completed ... 6. Tourism 6.1 Galadari Hotels Lanka Ltd. Preliminary study ++++++ 6.2 Hotel Developers Lanka Ltd. Preliminary study ......++++++ 6.3 Robinson Hotel Co. Ltd. & Robinson Club Preliminary study +++.+++ 6.4 Taj Lanka Hotels Ltd. To be prepared ++++++ 7. Financial Sector Banks 7.1 State Mortgage and Investment Bank Restructuring/private sector part. ++++++ Development Finance Companies 7.3 Housing Development Finance Corp. Preparation ongoing ++++++ Insurance 7.4 Agricultural Insurance Board Preliminary study ++++++ 8. Infrastructure 8.1 Building Materials Corporation Preliminary study ...... 8.2 Ceylon Port Services Preliminary study +++++++++ 8.3 Ceylon Shipping Agencies (Pvt) Ltd. Preliminary study ... 8.4 Lanka Marine Services Ltd. Preliminary study +++ . +++ 8.5 Lanka Reclamation and Development Co. Preliminary study +++ +++  Name of State Owned Enterprise Action 96 97 98 99 8.6 Road Construction & Development Co.Ltd. Preliminary study ++++++ 8.7 Sri Lanka Port Management Consultancy Preliminary study ++++++ 9. Retail 9.1 Orient Lanka Divestiture ++ 10. Agriculture 10.1 Ceylon Fisheries Corporation Preparation ongoing ++++++ 10.2 Regional Plantation Cos (14 remaining) Divestiture ++. +.+ 10.3 Sri Lanka Cashew Corporation Preliminary study +++ +++ 10.4 Sri Lanka Timber Corporation Preliminiary study ++++++ 11. Media 11.1 Independent Television Network Preparation ongoing +++ +++ 11.2 National Film Corporation Preparation ongoing ++++  Attachment 2 PUBLIC ENTERPRISE REFORM COMMISSION OF SRI LANKA Project Cost (Yearly Expenditures) USs '000 1996 1997 1998 1999 Local Foreign Total Local Foreign Total Local Forelgn Total Local Foreign Total Project Total Consulting services 369 1,960 2,329 332 60 392 294 40 334 96 0 96 3,151 Marketing expenses 1,010 200 1,210 19 250 269 20 200 220 5 30 35 1,734 Training 5 20 25 5 20 25 0 0 0 0 0 0 50 Otflce equlpment 5 50 55 0 10 10 0 0 0 0 0 0 65 Category Total 1,389 2,230 3,619 356 340 696 314 240 554 101 30 131 5,000 Assumptdons USS '000 Senior local consultant (per month) 2.5 local consultant (per month) 1.5 international consultant (per month) -- 20 Telecom consultancy assignment (block amount) 1100 Large consultancy assignment (block amount) BOO local consulting firm (block amount) 7.5 stock exchange IPO cost 200 3 senior local consults and 3 local consultants will be hired for the 1 st year, and 30 assignments will be given to local consultng firms Marketing expenses for the first year includes stock exchange IPO cost for 5 transactons 3 man-months of internabonal consultants, the telecom consultancy assignment and a large consultancy assignments will consttute foreign consultancy services for the first year 3 senior local consults and 3 local consultants will be hired for the 2nd year, and 25 assignments will be given to local consulting firms 3 man-months of international consultants will constitute foreign consultancy services for the 2nd year 3 senior local consults and 3 local consultants will be hired for the 3rd year, and 20 assignments will be given to local consulting firms 3 man-months of internabonal consultants will consttute foreign consultancy services for the 3rd year 2 senior local consults and 2 local consultants will be hired for the 4th year oi  - 19 - Attachment 3 Page I of 2 SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Sector Reform Program Study 1. To assist GOSL in its long term policy formulation and sector refoim initiatives, including the privatization of SLT and competition, a study will be undertaken by SLTA covering: (i) tariff structure and levels; (ii) demand for connections and traffic; (iii) quality of service standards; (iv) expansion into rural and less profitable areas; (v) market structure and (vi) interconnection and revenue sharing arrangements. Of special interest would be an analysis of the inter-relationship between those areas, e.g., the impact of telecommunications tariffs on demand and market structure, including SLT's privatization. A brief description of each area follows below: (a) Tariffs. SLT's local tariffs are amongst the lowest in the world. The tariffs referred to are connection fees, local call charges and monthly subscription fees. The long-distance tariffs are relatively high, especially the domestic ones. This may have encouraged uneconomic demand for connection of subscribers that make few long-distance calls, e.g. residential subscribers. Other effects of this tariff structure include: relatively low revenues per annum, declining profitability of SLT, reduced demand for other communications means, e.g. pagers, call offices, cellular facilities etc. and costly SLT investments to catch up with demand for telephone lines that may not be profitable. (b) Demand. The most recent demand study is from 1991. Since then, SLT's network has expanded, private telecommunications operators have established themselves in the market and new services have been introduced. A new demand study should, therefore, be undertaken. An important element of such a study should be to estimate the residential groups ability and willingness to pay increased tariffs, point elasticities for a basket of charges/services (monthly, local, long-distance, and international charges) , and the impact of tariff changes on the future demand for service. (c) Quality of Service. SLT's service quality is inadequate and realistic annual targets for its improvement should be established. If it is decided to rebalance SLT's local tariffs, i.e. increasing the monthly rental and/or connection fee, this may be made more acceptable to the subscribers by improving SLT's service quality (and billing), e.g. the increase in certain tariffs could be coupled to the achievement of service quality standards specified in the operating license for a future private operator. (d) Rural Areas. Suitable targets, license conditions and incentives should be built into the operating license of SLT, and cellular, pay phones and other operators to expand into rural and less profitable areas. Tariff structure, interconnection, revenue sharing and other arrangements should be studied with a view to identify such incentives. (e) Market Structure. Low SLT tariffs may reduce the demand for other services which are priced commercially, i.e. based on the cost of providing the service and market competition. Example of such services are: paging, pay phones, cellular and data transmission. Further, the price offered for SLT at its privatization by potential strategic investors is likely to be relatively  -20 - Attachment 3 Page 2 of 2 low if tariffi are not rebalanced. After an eventual exclusivity period for basic services, SLT's profitable business subscriber (who generate most of long-distance calls) could be taken over by competitors, leaving SLT with the residential subscribers (that generate few long-distance calls) and a consequent fall in SLT's profitability. (f) Interconnection and Revenue Sharing Arrangements. Given the increasing number of competitive telecommunications operators in the sector, interconnection and revenue sharing arrangements have become important issues. The current arrangements will be evaluated to ensure these arrangements between the various operators, including SLT, are equitable. 2. The data collection and initial analysis of each area of the study will be contracted with suitably qualified local consultancy firms when available. The detailed analysis and study - le inter-relation between the various elements (e.g. the impact of various tariff structures and -vels on demand, competition and SLT's value) should be carried out by a well qualified consulting firm with international experience and ability to be the responsible party for the study as a whole. 3. This study will build on relevant available information and the research of other studies already completed, e.g.: e the Telecommunications Act of 1991; * the World Bank Telecommunications Sector Report of 1994; * relevant parts of the Technical Annex for the proposed "Telecommunications Regulation and Public Enterprise Reform Technical Assistance Project", and * other relevant information available with MOPT, SLTA, SLT, and IDA. 4. The study will be initiated in mid-1996 and an interim report will be ready by end-1996. The report will be finalized by early 1997.  -21 - Attachment 4 Page I of 2 SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Project Cost (Summary) SLTA 1. REGULATION Consulting Services 100.0 700.0 800.0 Staff Training 50.0 200.0 250.0 Subtotal: 150.0 900.0 1,050.0 2. FREQUENCY MANAGEMENT AND MONITORING Hardware and Software: - Headquarters Computer and Network 225.8 568.0 793.8 - Frequency Management Database 190.0 478.0 668.0 - Frequency Management Applications Modules 703.6 1,770.0 2,473.6 - Digitized Terrain Elevation Subsystem 208.7 525.0 733.7 - Gveographic Information System (GIS) 86.7 218.0 304.7 - VHF/UHF Monitoring Station Equipment 355.8 895.0 1,250.8 - HF Monitoring Stations 155.0 390.0 545.0 - Monitoring Software 366.5 922.0 1,288.5 - Mobile Measuring Vehicle Equipment 272.3 685.0 957.3 - Satellite Monitoring Station and VSAT Hub 370.9 933.0 1,303.9 - VSAT Network 260.0 654.0 914.0 - Land, Civil Works, Power Supply (b) 2,819.9 50.0 2,869.9 - Technical Support 0.0 150.0 150.0 Subtotal: 6,015.0 8,238.0 14,253.0 Staff Training 50.0 250.0 300.0 Subtotal FM3MS: 6,065.0 8,488.0 14,553.0 Subotal SLTA: 6,215.0 9,388.0 15,603.0 PERC Consulting Services and Marketing Expenses 2,145.0 2,740.0 4,885.0 Staff Training 10.0 40.0 50.0 Office Equipment 5.0 60.0 65.0 Subtotal PERC: 2,160.0 2,840.0 5,000.0 Physical Contingencies (c) 301.0 414.9 715.9 Price Contingencies (d) 289.5 5.1 294.6 _,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.....,... .......................... . ... . l. . (a) Custom duties and taxes are estimated at 39.75% on imported goods, or about US3.3 million. (b) GOSL/SLTA will contribute existing sites and buildings. Antennas will be installed on existing SLT towers and on rooftops of existing buildings. Civils works and power supply mainly consist of adaption of existing properties to the requirements of the frequency management system and are of a minor nature. (c) 5% for civil works and equipment-related items. (d) Prices are based on estimates in US$ dollars. No price escalation has been considered for imported equipment due to the recent price stability/reductions experienced for the kind of equipment included in the project. 5% p.a. for civil works and power supply.  Sri Lanka TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASISTANCE PROJECT Project Cost (Yearly Expenditures) (US$ '000) (Calendar Years) .............~196197 . 99 1,999 oa -'::;.-'. . . :: :: ,:.8..:,:':. :::..''::..... -.M.::::777--EiW:,-:i:: .':: iidet t~mNIt oa u* oa oa oeg oa oa rrln Total Local F gore Totm oa or4j oa SLTA Regulation: Consulting Services 0.0 0.0 0.0 40.0 260.0 320.0 30.0 210.0 240.0 30.0 210.0 240.0 100.0 700.0 S00.0 TrainU 0.0 0.0 0.0 25.0 100.0 125.0 25.0 100.0 125.0 0.0 0.0 0.0 50.0 200.0 250.0 Subtotal: 0.0 0.0 0.0 65.0 380.0 445.0 55.0 310.0 365.0 30.0 210.0 240.0 150.0 900.0 1,050.0 Frequency Management and Monitoring Hardware andSoftware 0.0 0.0 0.0 319.5 8I8.& 1,13S.3 2,556.1 6,550.4 9,106.5 319.5 818.8 1,138.3 3,195.1 8,1S.0 11,3S3.1 1 L[n4d Coi Worai, Power Supply 846.0 15.0 861.0 1,409.9 25.0 1,434.9 564.0 10.0 574.0 0.0 0.0 0.0 2,S19.9 50.0 2,269.9 Training 0.0 0.0 0.0 25.0 125.0 150.0 25.0 125.0 150.0 0.0 0.0 0.0 50.0 250.0 300.0 Subotal: 846.0 15.0 861.0 1,754.4 968.8 2,723.2 3,145.1 6,685.4 9,830.5 319.5 SI8.8 1,138.3 6,065.0 8,488.0 14,553.0 Subtotal SLTA: 846.0 15.0 S61.0 1,S19.4 1,348.8 3,168.2 3,200.1 6,995.4 10,195.5 349.5 1,02S.8 1,378.3 6,215.0 9,338.0 15,603.0 PERC Conulting Service atnd Marketing Expenaes 1,379.0 2,160.0 3,539.0 351.0 310.0 661.0 314.0 240.0 554.0 101.0 30.0 131.0 2,145.0 2,740.0 4,385.0 Training 5.0 20.0 25.0 5.0 20.0 25.0 0.0 0.0 0.0 0.0 0.0 0.0 10.0 40.0 50.0 Oficc Equipnwet 5.0 50.0 55.0 0.0 10.0 10.0 0.0 0.0 0.0 0.0 0.0 0.0 5.0 60.0 65.0 Subtotal PERC: 1,339.0 2,230.0 3,619.0 356.0 340.0 696.0 314.0 240.0 554.0 101.0 30.0 131.0 2,160.0 2,840.0 5,000.0 TOTALBASECOST 2,235.0 2,245.0 4,480.0 2,175.4 1,688.8 3,364.2 3,514.1 7,235.4 10,749.5 450.5 1,053.8 1,509.3 3,375.0 12,228.0 20,603.0 Physial Cotini (a) 42.5 3.3 45.8 36.5 42.7 129.2 156.0 328.0 434.0 16.0 40.9 56.9 301.0 414.9 715.9 PriceCotingencie(b) 44.4 0.8 45.2 151.7 2.7 154.4 93.3 1.7 95.0 0.0 0.0 0.0 239.5 5.1 294.6 TOTAL ESTIMATED PROJECT COST 2,321.9 2,249.0 4,571.0 2,413.7 1,734.2 4,147.8 3,763.4 7,565.1 11,323.5 466.5 1,099.7 1,566.2 8,965.5 12,643.0 21,613.5 (a) 5% for eivl woks and eqipuatt-eed itken. (b) Pie mu bdan ormtks in US doars. No priecalation has been conidered for imported equipmernt due tk, to the rw l picahtydu iom for the knd of epmad iseuded io the projeeL 5% p.. for ei wori and power supply.  - 23 - Attachment S SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Project Implementation Plan (Calendar Years) 1995 1 1996 1997 1 1998 _ 1999 _ Project Activitv 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Loan Effectiveness SLTA I Project preparation 2 Preation of specifications, bidding documents and TOR. 3 Selection/Retention of consultants 4 Technical assistance on sector regulation _ _ _ _ _ _ _ _ _ _ _ _ S Staff trining 6 Civil Works and Power Supply 6 Equipment (FMMS) procurement 7 FMMS delivery, installation and testing 8 Options & Maintenance support PERC I SelectionlRetention of consultants 2 Technical assistance I I 3 Staff training 4 Office Equipment Project Completion Date: June 30, 1999. Credit Closing Date: December 31 1999.  - 24 - Attachment 6 SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Schedule of Disbursements (US$ Million) 1996 June 30,1996 0.5 3.3 0.5 1997 December 31, 1996 3.1 24.0 3.6 June 30, 1997 1.1 31.3 4.7 1998 December 31, 1997 1.0 38.0 5.7 June 30, 1998 5.0 71.3 10.7 1999 December31, 1998 3.0 91.3 13.7 June30, 1999 1.3 100.0 15.0 Note: The Credit closing date will be Decemnber 31, 1999.  -25 - Attachment 7 Page I of 2 SRI LANKA TELECOMMUNICATIONS REGULATION AND PUBLIC ENTERPRISE REFORM TECHNICAL ASSISTANCE PROJECT Performance Indicators 1. Proiect Implementation (Project as a whole) (a) timely completion of steps in GOSL's Telecommunications Policy Letter (Attachment 1) and PERC's Operational Plan (Attachment 2); (b) timely achievement of the implementation plans for each project component (Attachment 5); and (c) number and seriousness of observations in the project audit reports. II. The Telecommunications Rezulation Component (SLTA Implementing Agencv) I. Inputs: (a) radio frequency management system; and (b) TA and training of SLTA staff 2. Outcome: (a) radio frequency monitoring of the HF band all over Sri Lanka and the VHF and UHF bands wherever they are intensively used; and (b) adequate procedures for licensing, billing of license fees, interconnection, pricing, dispute settlements, consumer protection, monitoring of operators (including quality of service) 3. Expected Impact: (a) availability of frequencies for new services as may be widely offered in more advanced countries, e.g. USA, Sweden, and UK; (b) increased competition in the provision of services measured in number of service providers, service prices, number of new services, etc. as compared with advanced countries; (c) new operating licenses granted as necessary for (a) and (b) above, ideally without license disputes and efficient settlement of disputes if they occur; if new services are not made available or if prices are higher than in other countries, the project has not fully achieved its objectives; (d) increased SLTA revenues from license fees as compared to 1996; (e) improved quality of service, reaching international standards by the year 2000; and (f) elimination of waiting lists and satisfaction of demand at cost recovery prices, including rural and less profitable areas, by the year 2000.  - 26 - Attachment 7 Page I of 2 III. The Public Enterprise Reform Component (PERC ImPlementine Aeencv) 1. Inputs: (a) foreign and local consultants; (b) fixed retainer fees for financial advisory services for specific transactions; and (c) training of PERC staff. 2. Outcome: (a) privatization of state owned companies by the year 2000; (i) Colombo Gas (completed in November, 1995) (ii) Lanka Electric Co. (June 1996) (iii) Air Lanka (October 1996) (iv) Sri Lanka Telecom (June 1997) (v) Plantations (December 1996) (vi) Manufacturing units (steel, sugar, fertilizer, etc.) (1996-97) (vii) Insurance Cos., Banks, etc. (!996-98) (viii) Other large enterprises (Shipping, etc.) (1996-98) (The exact order of the above listed privatization transactions will depend on market and political considerations) 3. Expected Impact: (a) substantial fiscal benefits (b) improved efficiency of privatized enterprises; and (c) improved service quality and consumer orientation of privatized enterprises.  NOTES   MAP SECTION   10 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~8I 10 SRI LANKA RADIO FREQUENCY V - - " \ MONITORING NETWORK M i -- YJ \@ U SLTA' VHF/UHF STATIONS i/" SATEUIE STATION - ' ' q |@ NORTHERN 0*