Guatemala - First Telecommunications Project

Z1O4 82- 6 0 41I~~~~~~~~~~ E RICy RESTRICTED Report'No. PU-76a This report is for offical us only by the Bank Group and peificay authorized arpnizations or persons. It nay not be published, quoted or cited without Bank Group authoriztion. The Dank Group does not accept responabfity for the acurcy or competeneu of the report. INTERNATIONAL BANK FOR RECONSTRUCnION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE FIRST TELECOMMUNICATIONS PROJECT OF THE EMPRESA GUATEMALTECA DE TELECOMUNICACIONES (GUATEL) GUATEMALA November 12, 1971 Public Utilities Projects Department  CURREENY EQUIVALENTS Currency Unit = Quetsal US$1.00 Q l1.00 MEASURES EQUIVALENTS 1 kilometer (km) = 0.621 statute mile FISCAL YEAR Calendar Year ABBREVIITIONS. ACRONYMS AND IEFINITIONS Carrier - A system of providing several channels through one transmission mode Channel - Frequency band of a carrier system carrying telephone, telegraph or data signals CCITT - Telephone and Telegraph DInternational Consultative Committee CaOTELCA - Central American Telecommunications Commission CONAPLAN - National Planning Council DDT - Direccion General de Telecomunicaciones DOCT - Direccion General de Correos y Telegrafos GUATEL - Empresa Guatemalteca de Telecomunicaciones GUATEL INT - Empresa Guatemalteca de Telecomunicaciones Internacionales ITU - International Telecommunication Union KHz - Kilohertz MHz - Megahertz TELEX - Teleprinter Exchange Service HF - High frequency (3 - 30 MH) VHF - Very high frequency (30 - 300 MHz) UHF - Ultra high frequency (300 - 3000 MHz) VF - Voice frequency (300 - 3I00 Hz)  GUATE11ALA EKPRESA GUATEtALTECA DE TELECOMUNICACIONES (GUATEL) APPRAISAL OF THE FIST TELECC4MIUNICATIONS PROJECT TABLE OF CONTENTS Page No. SUlA1Y AND CONCLUSIONS i-i 1. TNTRODUCTION 1 2. THE ECONCf AND THE TELECYTJNICATMNS SECTOR 2 The Economy 2 The Telecommunications Sector 2 Existing Facilities 4 3. THE PROGRLM AND THE PROJECT 6 The Program 6 The Project 6 Cost of the Project 7 Proposed Bank Loan 8 Procurement 8 Disbursement 8 Project Execution 8 4. JUSTIFICATION 9 Demand for Local Service 9 Demand for Long Distance Service 9 Least-Cost Solution 10 ?Internal Rate of Return 10 5. THE BORROWER ll Organization and Management 11 Staff and Training 11 Accounting and Auditing 12 Tariffs 12 6. FIXANCES 14 General 14 Past Finances - DGT 14 Past Finances - GUATEL INT 15 Transitional Financial Arrangements 16 Financing Plan 16 Future Finances 18 7. AG(3MENTS REACHED AND RECOMMENDATION 20 This report is based on the f ings of a mission composed of Messrs. P. Bassole, J. G. Davis, N. Delma, A. Engvall and B. Holmgren, who visited Guatemala in April/May 1971.   LIST OF _ 7'-i'1 1. Important Features of the Law Establishing GUATEL 2. xisting Teleconmmunications Facilities 3. Central American Microwave Network 4. International Traffic Statistics 5. The Project 6. Construction Schedule of the Project 7. Estimated Schedule of Disbursements 8. Telephone Growth - Demand and Supply 9. Internal Financial Rate of Return 10. Organization Chart 11. Staff Details 12. DGT - lNotional Incone Statements 13. DGT - Notional Balance Sheets 14. DGT - Notional Sources and Applications of Funds Statements 15. GUATI1L INT - Actual and Forecast Income Statements 16. GUATEL IT - Balance Sheets 17. GU.&T'L ZiT - Sources and Applications of Funds Statements 13. GUATEL - Forecast Income Statements 19. GKIATEL - Forecast Baiance Sheets 20. GUATEL - Forecast Sources and Applications ol' Funds Statements 21. Kotes and Ass-ump,tions on Finaacial Statements 22. S-nmazy of Tariffs 'r-_eco.~-:-ca_tions ?-ogr, 1971-75 - L? 347LR1  I  GUATEMALA EMPRESA GUATEMALTECA DE TELECOMUNICACIONES (GUATEL) APPRAISAL OF THE FIRST TELECOMWUNICATIONS PROJECT SUMMARY AND CONCLUSIONS i This report covers the appraisal of a project that forms part of the 1971-75 expansion program of Empresa Guatemalteca de Telecomunicaciones (GUATEL), the entity responsible for all public telecommunication services in Guatemala except the domestic telegraph service. A Bank loan of US$16 million equivalent has been requested to cover the foreign exchange cost of the project, the total cost of which is estimated at US$21.2 million. ii. The expansion program, estimated to cost US$23.9 million equivalent, comprises ongoing works carried over from an earlier expansion plan and new works to be undertaken in the 1971-75 period. The new works constitute the project appraised in this report. iii. The existing facilities are inadequate, as shown by the large number of pending applications for telephone connections and the substantial unsatisfied demand for long distance service. The project would meet part of the demand for telephone connections by increasing the capacity of local exchanges by 35,700 lines and would alleviate congestion and delays in the national long distance traffic by expanding and modernizing the long distance network. The internal financial rate of return of the project is estimated to be 17%. iv. This would be the Bank's first telecommunications project in Guatemala. GUATEL would be the borrower and would carry out the project. v. In 1967 when the Government first expressed interest in Bank financing, public telecommunications services were the respon- sibility of two entities--one for national and the other for inter- national services. The former was a government department with its functions handled by a nrmber of other governmental agencies. Part of the national long distance routes and the telex service were the responsiblity of the agency responsible for international services. The Bank recognized the need for considerable reorganization and helped draft the terms of referenae of the consultants engaged, un- der USAID auspices, to prepare the project and to suggest steps to properly organize the sector. Following these recommendations, in April 1971 the Government in consultation with the Bank merged the existing entities into GUATEL. While a satisfactory basic framework has been established, as in all mergers, there inevitably will be a number of problems to be solved before the new organization will be fully effective. GUATEL has the capacity to resolve these matters.  - ii - vi. All Bank-financed items in the project would be inported and procured through international conpetitive bidding, except for part of the switching equipment (about US$1 million) to extend the existing exchanges; this would be procured from existing suppliers for reason of compatibility. vii. With the assurances obtained during negotiations, see Section 7, the proposed project is suitable for a Bank loan of US$16 million, for a term of 20 years including a five-year grace period.  GUATEYMAI EMPRESA GUATEMALTECA DE TELECOMNICACIONES (GUATEL) APPRAISAL OF THE FIRST TELECOMMUNICATIONS PROJECT 1. INTRODUCTION 1.01 The Government of Guatemala has asked the Bank to help finance a project forming part of the 1971-75 expansion program to be undertaken by Empresa Guatemalteca de Telecomunicaciones (GUATEL), a corporation responsible for all telecormunications in the country except the domestic telegraph service. The expansion program is estimated to cost US$ 23.9 million equivalent. Its main objectives are to provide additions to the local telephone and long distance commumication facilities to help them meet the demand. 1-.02 The project proposed for Bank financing provides for the addition of 35,700 lines to the capacity of local exchanges and for the expansion of long distance facilities. The estimated project cost of US$21.2 million equivalent includes a foreign exchange comiponent of about US$16 million, which would be financed by the proposed loan. 1.03 This would be the Bank's first loan for telecommunications in Guatemala. Application was received in November 1970, based on a feasi- bility study by PAGE Communications Engineers, Inc., under a contract financed by USAID. The Bank assisted in drawing up the terms of reference for this study and was consulted during the project preparation. 1.04 An appraisal mission, cormposed of Messrs. M. V. Scoffier and J. G. Davis, visited Guatemala in December 1970 but could not complete its work because the Government had not come to a decision on the extent of the final program. A second mission corrposed of Messrs. M. DeLima, P. Bassole, J. G. Davis, B. Ho_1mgren and A. Engvall visited Guatemala in April/May 1971 and completed the project appraisal.  -2- 2. THE ECONOMY AND THE TELECOMMUNICATIONS SECTOR The Econony 2.01 Guatemala, over 100,000 km in area and bordered on the north and west by Mexico and on the east by Honduras and E1 Salvador, has more than five million inhabitants, making it the most populous of the Central American countries. The population, presently growing annually at 3.1%, is concentrated in the central highlands and the Pacific lowlands. Nearly one million people live in Guatemala City, the administrative and commercial center, situated in the central highlands. Puerto Barrios and Santo Tomas on Guatemala's Caribbean coast and San Jose on the Pacific coast are the main ports. The main tourist centers--Lake Atitlan and Chichi- castenango--are also in the highlands, about 150 km west of Guatemala City. 2.02 The GDP is estimated to be US$1.8 billion and is growing annually at about 6%. The GDP per capita is about US$330. The main components of the GDP are agriculture (27%) and manufacturing (16%), the latter essentially for processing agricultural products. In agriculture, livestock is the most important sub-sector, followed by coffee, cotton and forestry. Of the total GDP about 18% is exported, with manufactured goods, coffee, cotton and bananas the most important items. 2.03 Adequate communications in and between the main centers of production, trade and services are necessary to fully realize the benefits from investment in other sectors of the economy and thus are essential for overall economic development. Moreover, satisfactory telecommunications to serve Guatemala's tourist centers are a pre- condition for developing the tourism sector, which has a large but scarcely developed potential. At present, Guatemala lacks such a satisfactory basic communications network. The Telecommunications Sector 2.04 Prior to April 1971 the resoonsibility for providing telecommuni- cations services was basically divided between two entities: Direccion General de Telecomanicaciones (DGT) and Empresa Guatemalteca de Telecomuni- cac-lones Lnternacionales (GUATEL INT). 2.05 DGT was nominally responsible for the local telephone service, most- of the domestic long distance telephone service, and for the domestic telegraph service. However, its role was largely limited to technical supervision and operation of those services. Planning and development acti-+t