Ghana - Second Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4768-GH MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 13.8 MILLION TO THE REPUBLIC OF GHANA FOR A SECOND TELECOMMUNICATIONS PROJECT June 6, 1988 This document has a restricted distribution and may he used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Cedi US$1 = Cedi 186 WEIGHTS AND MEASURES Metric System p.:BREVIATIONS AND ACRONYMS CCCE - Caisse Centrale de Cooperation Economique (France) CDR - Committee for the Defense of the Revolution DEL - Direct Exchange Line ERP - Economic Recovery Program GOG - Government of Ghana GPT - Ghana Posts and Telecommunications Corporation ICB - International Competitive Bidding IDA - International Development Association JCC - Joint Consultativ!. Committee LCB - Local Competitive Bidding LIB - Limited International Bidding MOTC - Ministry of Transport and Communication OECF - Overseas Economic Cooperation Fund (Japan) PABX - Private Automatic Branch Exchange PMBX - Private Manual Branch Exchange PPF - Project Preparation Facility SOE - State Owned Enterprise THS - Telecommunications Master Plan UHF - Ultra High Frequency VFT - Voice Frequency Telegraph FISCAL YEAR Government: January 1 - December 31 GPT: January 1 - December 31  FOR OFFICIAI USE ONLY GHANA SECOND TELECOMMUNICATIONS PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Ghana Beneficiary: Ghana Posts and Telecommunications Corporation (GPT) Amount: SDR 13.8 million (US$19.0 million) Terms: Standard, with 40 years maturity Onlendinft Terms: The Government of Ghana (GOG) will onlend the credit proceeds to GPT at the interest rate of 7.72Z per annum (IBRD rate at the time of negotiations) for a period of 20 years including five years of grace. GPT will assume the foreign exchange risk. US$ Million Financing Plan: GOG 11.3 GPT 8.0 France 21.8 Holland 18.8 Ireland 1.7 Japan 92.4 IDA 19.0 Total $ 173.0 Economic Rate of Return: 21Z. Staff Appraisal Report: No. 7163-GH Map: IBRD 20626 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OP THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO TEE REPUBLIC OF GHANA FOR A SECOND TELECOMMUNICATIONS PROJECT 1. The following memorandum and recommendation on a proposed development credit to Ghana for SDR 13.8 million (US$19.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and would help to finance rehabilitation of the telecommunications network. The project would be cofinanced by the Dutch government for SDR 13.7 (US$18.8 million equivalent), French Government for SDR 15.8 (US$21.8 million equivalent), Japanese Government for SDR 67.1 (US$92.4 million equivalent), and a supplier's credit of SDR 1.2 (US$1.7 million equivalent) from Ireland. 2. Background. Public telecommunicaticn services in Ghana are provided by the Ghana Posts and Telecommunications Corporation (GPT), an autonomous government-owned corporation under the Ministry of Transport and Communications (MOTC). Although Ghana has invested about $80 million in its telecommunications (TC) sector since 1980, inter alia through the $23 million First Telecommunications Project (Loan 1122-GH), the existing facilities are inadequate for the level of economic activities. The number of waiting applicants exceeds the number of connected lines (now at 38,000), and the quality of service is unacceptably low. At present the overall call completion rate is below 202, and less than 50? of subscriber lines are working at any given time due largely to poor maintenance and deterioration of local cable networks. Consequently, the present service fails to meet expressed demand and significant costs are being incurred by the economy. The Project Completion Report for the first telecommunications project identified the lack of adequate staff and management in GPT particularly in project management, operations and maintenance, and finance as a major contributory factor to poor sector performance. Due to the poor quality of service and weak financial management, GPT has failed to generate enough cash and had to rely on GOG subsidies for capital works, despite major tariff increases in 1983, and 1986. GOG recognizes the economic cost of the present poor state of TC services and the need to rehabilitate GPT if TC requirements for the targeted growth and efficiency improvements in the productive sectors under the Economic Recovery Program are to be met. A first step was GOG's request for a first PPF advance of $750,000 (approved in May 1987) to finance studies for TC master plan and a GPT corporate plan and to reorganize and strengthen GPT. A second PPF advance of $750,000 to finance the employment of a telecommunications adviser at MOTC and financial and project management consultants for GPT, was approved in May 1988. 3. Rationale for IDA Involvement. IDA is taking a leading role in the reform and rehabilitation of the state-owned enterprise (SOE) sector in Ghana through the Structural Adjustment Credit and the Public Enterprise  - 2 - Project. The expected benefits of these programs will not materialize without major and detailed improvements in individual strategica'lly important SOEs such as GPT. IDA is in a unique position to help formul e and implement such a program for GPT on account of: (a) its specific c:(As country experience in Africa on TC management and organization, financi management, investment planning and implementation, and staff training; (b) its involvement in the TC sector in Ghana since 1971 and the lesson. learnt from the first te.ecommunications project and (c) its comparative advantage to focus and coordinate the various sources of bilateral assistance. IDA's involvement in this sector has already been catalytic in attracting financing from France, Holland and Japan, and in focussing assistance on priority areas such as cable network rehabilitation. 4. Project Obiectives. The project has the following main objectives: (a) to support a program of institutional and management improvement; a major element of the program will be strengthening GPT's management capability (organization, financial and engineering) to plan, maintain and operate the network efficiently; (b) to improve the quality of service offered to telecommunications subscribers through, inter alia, rehabilitation and replacement of old obsolete and defective assets, improving maintenance and providing complementary assets to enable optimum utilization of existing assets; and (c) to improve GPT's financial performance so as to eliminate existing subsidies from GOG. 5. Project Description. The proposed project would strengthen sector management, improve the quality of service, and increase the number of subscribers from the current 38,000 to 61,000 through: (a) institutional development to include training and consultancy for reorganization and corporate planning of GPT, TC master plan, manpower planning and development, tariff policy and review, management assistance to fill existing skill gaps in GPT in network planning, project management, operations and maintenance, and financial management; and (b) rehabilitation and expansion of subscriber and exchange networks of Accra, Kumasi, Cape Coast, Tema, Takoradi, Tamale, Koforidua, Sekondi and 26 rural towns; rehabilitation of national long distance network and international networks, and provision of spare parts for existing network. The project, to be carried out over six years, provides funds for cables, exchanges, satellite earth station, telephones, PABX, PMBX, teleprirters, power plant, air-conditioning, civil works, vehicles, tools and test equipment. It also provides funds for 636 man-months of consultancy services. The total cost of the project is estimated at US$173.0 million equivalent with a foreign exchange component of US$150.3 million (87X). A breakdown of ccsts and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Ghana are given in Schedules C and D respectively. A map is also attached. The Staff Appraisal Report, No. 7163-GH dated June 6, 1988, is also attached. 6. Agreed Actions. The GOG and GPT have already taken some key actions towards strengthening the management of the telecommunications sector including appointment of a Board of Directors for GPT, appointment of a telecommunications adviscr at the MGTC and issuance of letters of  MEKORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR A SECOND TELECOMMUNICATIONS PROJECT 1. The following memorandum and recommendation on a proposed development credit to Ghana for SDR 13.8 million (US$19.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and would help to finance rehabilitation of the telecommunications network. The project would be cofinanced by the Dutch government for SDR 13.7 (US$18.8 million equivalent), French Government for SDR 15.8 (US$21.8 million equivalent), Japanese Government for SDR 67.1 (US$92.4 million equivalent), and a supplier's credit of SDR 1.2 (US$1.7 million equivalent) from Ireland. 2. Background. Public telecommunication services in Ghana are provided by the Ghana Posts and Telecommunications Corporation (GPT), an autonomous government-owned corporation under the Ministry of Transport and Communications (MOTC). Although Ghana has invested about $80 million in its telecommunications (TC) sector since 1980, inter alia through the $23 million First Telecommunications Project (Loan 1122-GH), the existing facilities are inadequate for the level of economic activities. The number of waiting applicants exceeds the number of connected lines (now at 38,000), and the quality of service is unacceptably low. At present the overall call completion rate is below 202, and less than 50? of subscriber lines are working at any given time due largely to poor maintenance and deterioration of local cable networks. Consequently, the present service fails to meet expressed demand and significant costs are being incurred by the economy. The Project Completion Report for the first telecommunications project identified the lack of adequate staff and management in GPT particularly in project management, operations and maintenance, and finance as a major contributory factor to poor sector performance. Due to the poor quality of service and weak financial management, GPT has failed to generate enough cash and had to rely on GOG subsidies for capital works, despite major tariff increases in 1983, and 1986. GOG recognizes the economic cost of the present poor state of TC services and the need to rehabilitate GPT if TC requirements for the targeted growth and efficiency improvements in the productive sectors under the Economic Recovery Program are to be met. A first step was GOG's request for a first PPF advance of $750,000 (approved in May 1987) to finance studies for TC master plan and a GPT corporate plan and to reorganize and strengthen GPT. A second PPF advance of $750,000 to finance the employment of a telecommunications adviser at MOTC and financial and project management consultants for GPT, was approved in May 1988. 3. Rationale for IDA Involvement. IDA is taking a leading role in the reform and rehabilitation of the state-owned enterprise (SOE) sector in Ghana through the Structural Adjustment Credit and the Public Enterprise  - 2 - Project. The expected benefits of these programs will not materialize without major and detailed improvements in individual strategically important SOEs such as GPT. IDA is in a unique position to help formul e and implement such a program for GPT on account of: (a) its specific c:.s country experience in Africa on TC management and organization, financi management, investment planning and implementation, and staff training; (b) its involvement in the TC sector in Ghana since 1971 and the lessor. learnt from the first telecommunications project and (c) its comparative advantage to focus and coordinate the various sources of bilateral assistanca. IDA's involvement in this sector has already been catalytic in attracting financing from France, Holland and Japan, and in focussing assistance on priority areas such as cable network rehabilitation. 4. Project Objectives. The project has the following main objectives: (a) to support a program of institutional and management improvement; a major element of the program will be strengthening GPT's management capability (organization, financial and engineering) to plan, maintain and operate the network efficiently; (b) to improve the quality of service offered to telecommunications subscribers through, inter alia, rehabilitation and replacement of old obsolete and defective assets, improving maintenance and providing complementary assets to enable optimum utilization of vxisting assets; and (c) to improve GPT's financial performance so as to eliminate existing subsidies from GOG. 5. Project Description. The proposed project would strengthen sector management, improve the quality of service, and increase the number of subscribers from the current 38,000 to 61,000 through: (a) institutional development to include training and consultancy for reorganization and corporate planning of GPT, TC master plan, manpower planning and development, tariff policy and review, management assistance to fill existing skill gaps in GPT in network planning, project management, operations ard iaantenance, and financial management; and (b) rehabilitation and expansion of subscriber and exchange networks of Accra, Kumasi, Cape Coast, Tema, Takoradi, Tamale, Koforidua, Sekondi and 26 rural towns; rehabilitation of national long distance network and international networks, and provision of spare parts for existing network. The project, to be carried out over six years, provides funds for cables, exchanges, satellite earth station, telephones, PABX, PMBX, teleprinters, power plant, air-conditioning, civil works, vehicles, tools and test equipment. It also provides funds for 636 man-months of consultancy services. The total cost of the project is estimated at US$173.0 million equivalent with a foreign exchange component of US$150.3 million (87Z). A breakdown o' ccsts and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Ghana are given in Schedules C and D respectively. A map is also attached. The Staff Appraiszl Report, No. 7163-GH dated June 6, 1988, is also attached. 6. Agreed Actions. The GOG and GPT have already taken some key actions towards strengthening the management of the telecommunications sector including appointment of a Board of Directors for GPT, appointment ot a telecommunications advisor at the MOTC and issuance of letters of  -3- *nvltaticn fcr consu'tancy services for project management and financial vs.e!ment. the following further actions were agreed during negotiations: - ts:vaI'.e fe,r o-ment ef consultants and implementation of ~;:.;tan-.ts recmme.nat. : ) identification cf counterpart personnel sach ssgr.zozt as seon as the letter of invitation for proposals tor ;,e assigrmment is issued; (c) provision by GOG of local funds required for S.-'s a-> roved -nvest:nent program through 1990; (d) formalization by GO-G of tne mortor3um on GPT's obligations to pay the interest and principal on ,G's loans until GPT's financial restructuring plan is implemented; \e Pvsical and finr.ancial targets including detailed action plans to achib-v them and timetable for reporting progress on the performance; ,f maintpnance by GPT of an annual level of net internal cash generation net of debt service not less than the local funds required for GPT's ap?roved investment program, or to cover at least 402 of total investment requirements in each year, whichever is greater from 1991 onwards; and (g) consultation with IDA before any new works outside the approved investment program exceeding in the aggregate the equivalent of one million dollars per year is undertaken. The conditions of credit effectiveness are: (i) the selection of consultants for project and financial management; (ii) submission of audited FY1986 financial statements; (iii) signing of a subsidiary loan agreement between the GOG and GPT; and (iv) effectiveness of OECF financing for the project. 7. Benefits. Compared with alternative means of communication, telecommunications are more efficient in terms of capital, energy consumption, and user time. With adequate facilities, the level and variety of productive communication can be increased considerably, and activities which would otherwise not be feasible can be realized. In terms of the specific constraints on Ghana's economic and social development, telecommunications services can be expected to play a significant role in:(a) increasing the efficient use of existing transport infrastructure to alleviate domestic and international transport bottlenecks in delivering inputs to agriculture and industry and produce to markets, both domestic and exports, and to promote energy conservation; (b) improving the operation of the market mechanism by expediting and extending access to information, encouraging more efficient marketing of agricultural products and supporting export trade; tc) improving the efficiency of government and parastatal administration, including extending the coverage of advice and supervision by scarce middle and higher level technical and management personnel and reducing administrative bottlenecks and unnecessary travel; and (d) improving the delivery of health care and emergency services. The estimated economic rate of return of the project is 21Z. 8. Risks. There are three principal risks: (a) the project may fail to satisfactorily address the sector institutional problems. This will be m nimized by up front commitment by GOG and GPT to recruit necessary management assistance from external consultants to fill in staff gaps in management and technical pcsitions in the interim period; (b) GPT's initial dependence on GOG for local funds required for the project may lead to delays in implementation due to lack of timely allocations of funds by the government; to minimize such a risk, IDA will ensure, through the Public Expenditure Review, that GOG will make timely allocation of funds for the  - 4 - project; and (c) funds for equipment comvitted by cofinanciers could be dissipated; this will be minimized by the Bank ensuring close coordination of all donors involved. 9. Recommendation. I am satisfied that the credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. June 6, 1988  Schedule A Page 1 of 2 GHANA SECOND TELECOMMUNICATIONS PROJECT ESTIMATED COSTS1/ AND FINANCING PLAN Estimated Costs Foreign as Project Item Local2/ Foreign Total Z of Total --- (US$ Million)------ Switching equipment 1.6 30.6 32.2 95.0 External cable network 10.1 52.9 63.0 84.0 Radio and multiplex equip. 1.0 14.9 15.9 94.7 Satellite Earth Station 0.1 6.6 6.7 98.5 Telephones, teleprinters PABX and PMBX 0.1 2.8 2.9 96.6 Power and aiconditioning equipment 0.1 1.7 1.8 94.4 Vehicles 0.0 1.5 1.5 100.0 Computer, tools and test equipment 0.1 1.4 1.5 93.3 Civil works 2.0 3.4 5.4 63.0 Technical assistance (consultancy and training) 0.8 18.8 19.6 95.9 Base Cost 15.9 134.6 150.5 89.4 Physical contingency 1.6 6.7 8.3 80.7 Price contingency 5.2 9.0 14.2 63.4 Total Proiect Cost 22.7 150.3 173.0 86.9 1/ Equipment costs are inclusive of spares for new and existing equipment. 2/ GPT is exempted from customs duties for equipment.  .6- Schedule A Page 2 of 2 Finc in Plan LOCAL FOREIGN TOTAL SOURCE (US$ Million) ---------- IDA 0.7 18.3 19.0 France (CCCE)1/ -- 21.8 21.8 Holland2/ -- 18.8 18.8 Japan (Grant) -- 9.2 9.2 Japan (Exim) -- 7.0 7.0 Japan (OECF)31 6.7 69.5 76.2 Ireland (Telectron)41 -- 1.7 1.7 GOG 9.8 1.5 11.3 GPT 5.5 2.5 8.0 22.7 150.3 173.0 1/ $10.7 million equivalent of CCCE loan is yet to be confirmed. 2/ Consists of 5O0 soft loans and 50? commercial credit. 3/ OECF has appraised the project. The credit amount is expected to be confirmed by the end of September 1988. 4/ Supplier's credit.  7- Schedule B Page 1 of 2 GHANA SECOND TELECOMMUNICATIONS PROJECT PROCUREMENT METHOD AND DISBURSEMENTS Procurement Method Project Item Negotiated iCe Purchase LIS LCB Other Total --------------------------(US1 MilIlon)1/