Benin - Telecommunications Project

Doc.ument of The World Bank FOR OFFICIAL USE ONLY Rqpwt No. P-4850-BEN i ~ ~~~~~~~~~ ,, MEMORANDUM AND RECOMMENDATION OF THE PRESSIDENT OF THE INTERNATIONAL DEELOPMENt ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 12.5 MILLION TO THE PEOPLES' REPUBLIC OF BENIN FOR A TELECOMMUNICATIONS PROJECT October 7, 1988 Tbis document ba a rsticted distrbuton and may be used by reipient oly in the performance of their ofil dode Its conte may not otheris be dsbosed without World Ran autorization  FOR OFFICIAL USE ONLY PEOPLES' REPUBLIC OF BENIN OFFICE DES POSTES ET TELECOMMUNICATIONS DU BENIN (OPTB) TELECOMMUNICATIONS PROJECT Credit and Project Summary Borrower: Peoples' Republic of Benin (GOB). Beneficiary: Office des Postes et T4l4comunications du Benin (OPTB). Amount: SDR 12.5 million ($16.0 million). Termst Standard, 40 years maturity. Onlending Termss GOB will onlend the credit proceeds to OPTB at a rate of interest of 7.52 for a period of 20 years including five years grace with capitalization of interest. OPTB will pay the equivalent of the credit comitment and service charges during the grace period. OPTB will assume the foreign exchange risk. Financing Plan: IDA 16.0 ADB 16.0 EIB 14.0 CCCE 9.0 CIDA 3.5 FAC 0.3 OPTSB 6.5 Total 65.3 Economic Rate of Returns 281 Staff Appraisal Report: No. 7375-BEN Mapt No. IBRD 21009 This documnent has a restricted distribution and may be used by recipients only in the perfofmance. of their of5fcial duties. Its contents mnay not otherwise be discobsed without World Bank autbodzattioni.  )4305&DUK AND or O TO PSIDET OF TIM IMTERftIOEL DEVUAUFES3 ASSOCIATION TO Ta uTcw DIRTORS ON A PROPOSED CREDIT TO TIE PEOPLES' REPUSLIC 0 BENIN POR A TRRELTIOIS POJCT 1. The following memorandum aud recommendation on a proposed development credit to Benin for SDR 12.5 million ($16 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and would help to finance the rehabilitation and extension of the telecommunications network. The project would be cofinanced by the African Development Bank for SDR 12.5 million ($16.0 million equivalent), the European Investnent Bank for SDR 10.9 million ($14 million equivalent), the Caisse Centrale de Cooperation Econamique of France for SDR 7.0 million ($9.0 million equivalent), the Ponds d'Aide et de Cooperation of France for SDR 0.2 million ($0.3 million equivalent) and the Canadian International Development Agency for SDR 2.7 million ($3.5 million equivalent). 2. Background. There has been significant recent investment in the telecommunications (TC) sector in Benin, amounting to CPA? 11.1 billion in the period 1980-85 or about 3Z of total capital investment. International services have improved but the overall quality of the national TC network remains poor. Investments have in general been poorly planned and coordinated, and deficiencies in local telephone cable networks in particular create bottlenecks. The network provides service to about 13,000 subscribers, equivalent to half of the present estimated demand for service. The existing infrastructure has furthermore been deteriorating because of poor maintenance standards, and the average of 3 faults/subscriberlyear is one of the highest in the subregion. As a result, the economic and financial benefits of these investments have not been fully realized--the average subscriber revenue of CFAF 320,000 per annum is low by regional standards. The poor financial position of the sector is compounded by very low collection rates that have averaged 552 over 1982187. In net terms, OPTB has been drawing on, rather than contributing to, GOB Treasury in part to finance past investments. Sector management in the past has lacked the required flexibility and commercial orientation to remedy the situation. GOB has nonetheless recognized the potential benefit from improved sector performance and has taken a number of positive steps. Through PPF advances approved in March 1984 and June 1987, studies for local network rehabilitation and expansion have been financed. Diagnostic analyses of, and recomendations for, financial management improvement have been prepared. Master plans for long term network development and for maintenance improvement have been completed. The project will support the execution phase of these measures as well as GOB and OPTB's more recent initiatives for improved sector organization and management in the context of the public enterprise (PE) reform program. 3. Rationale for IDA Involvement. IDA is takl;eg a 'eading role in the reform of the PE sector through the ongoing PE project and through operations in a number of discrete sectors including TC. TC has potential  -3- objectives for the years 1989-91 would be included as OPTB obligations under the program contract. In addition, it was agreed that OPTB would: (i) improve billing and collection procedures adequate to reduce non-govertment telecommunications receivables to 120 days equivalent no later than December 31, 1990; (ii) ensure minimum rates of return on appropriately valued net fixed assets as follows: at least 42 for fiscal years 1988-89; at least 6Z for fiscal years 1990-91; and at least 10? for fiscal year 1992 and beyond; (iii) ensure net internal cash generation in any one year equivalent to at least 252 of the average investment requirement in that year and the succeeding two years; and (iv) undertake no new investment over $1 million equivalent during the project period without prior review by IDA. (b) that the following other conditions would apply: 'i) the audited accounts of OPTB would be submitted to IDA withir. six months of the end of the fiscal year; and (ii) IDA would participate in an annual reviews of OPTB's three year rolling investment program; of the execution of the program contract; and of the adequacy of the GOB budget for the costs of telecommunications services. (c) that before credit effectiveness the following would be achieved: (i) the adoption of the new OPTB statutes; (ii) the finalization and signature of the program contract; (iii) the award of contract for the Cotonou local network; (iv) the effectiveness of cofinancing from EIB and ADB; and (v) the signature of the agreement for onlending the IDA credit from GOB to OPTB. 7. Benefits. The proposed project has an estimated economic rate of return of 28X. The project would help rehabilitate and develop an essential infrastructure sector and improve productivity in other sectors. The project will help meet unsatisfied demand through improved service quality and efficient network expansion, especially in Cotonou and Porto Novo. The project will contribute to the realization of the SAP, inter alia, through improved investment programming and public resource management in the telecommunications sector. 8. Risks. The risk that poor investment coordination could lead to inappropriate decisions is already being minimized, inter alia, through the  SCHEDUVL A PEOPLES' REPUELIC OF BEEI OFFICE DES POSTES ET TELECOIOWRIC&TIONS DU BEEIE TELECOHMUNICATIONS PROJECT Estimated Costs and Financing Plan Estimated Costs Local,/ Foreign Total Foreign as Project Item --------$ million-------- Z total Local network 6.8 18.2 25.0 72.8 Transmission 1.7 9.9 11.6 85.0 Switching 1.9 7.1 9.0 78.9 Rural tel ephony 0.3 1.5 1.8 63.3 Institutional development 0.5 3.7 4.2 88.1 Traiuing center 0.5 1.4 1.9 73.7 Ease Cost 11.7 41.8 53.5 76.1 Physical contingency 0.9 3.0 3.9 76.9 Price contingency 2.5 5.4 7.9 68.4 Total project cost 15.1 50.2 65.3 76.9 1/ Exclusive of customs duties. Financing Plan Source Local Foreign Total --------( mllion)-------- IDA 3.5 12.5 16.0 ADB -- 16.0 16.0 CCCE 1.3 7.7 9.0 CIDA 0.7 2.8 3.5 NIB 3.1 10.9 14.0 FAC -- 0.3 0.3 OPTB 6.5 -- 6.5 15.1 50.2 65.3  SCHEDULE C PEOPLES' REPUBLIC OF BENIN OFFICE DES POSTES ?T TELECOHNUNICATIONS DU BENIN TELEGCXMOUIICATIONS PROJECT Timetable of Key Processing Events Time taken to prepare: 24 months. Prepared by: Office des Postes et Tl6coummunications du Blnin (OPTB) with assistance from ITU, IDA and consultants financed out of PPF. First IDA mission: March 6. 1986. Appraisal mission departures March 14, 1988. Negotiationst September 19, 1988. Planned date of effectiveness: April 1, 1989. List of relevant PCRs and PPARss None.  ib jtf 4141111'- LU C, - I )1 '