Jordan - Telecommunications Project

Document of The World Bank FOR OMCLAL USE ONLY AAd' A53-J` Repvt No. P-4800-JO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$36.0 NILLION TO THE JORDAN TELECOMNUNICATIONS CORPORATION WITH THE GUARANTEE OF THE HASHEMITE KINGDOM OF JORDAN FOR A TELECOMMUNICATIONS PROJECT May 23, 1988 This document has a restricted disbibutin and may be ued by reipiens only in the performnnce of their official duies. Its conteats may not otherwise be dilosed without World lank authoriation.  Currency Unit m Jordanian Dinar (JD) US$ 1.0 - JD 0.33 JD1.O - US$3.00 FISCAL YEAR Government and TCC: January 1 - December 31 WEIGETS AND MEASURES Metric System ABBKWIArtIO ND ACRO(2NT ARABSAT - Arab Satellite Organization DEL - Di;ect Exchange Line DGP- - Directorate General of Posts ICB - International Competitive Bidding INTELSAT - International Satellite Organization ITU - International Telecommunications Union NISC - National and International Switching Center OSP - Outside Plant PCM -' Pulse Code Modulation PIP - Project Implementation Plan PIU - Project Implementation Unit RLU - Remote Line Unit SPC - Stored Program Controlled TCC - Jordan Telecommunications Corporation UNDP - United Nations Development Program  FOR OMCLIL USE ONLY UASHEEITE KINGDOM OF JORDAN A TELECOMMUNICATIONS PROJECT LOU AND PROJECT SUMARY Borrower. Jordan Telecommunications Corporation (TCC). Amount: US$36 million equivalent. Terms: 17 years, including 5 years of grace, at standard variable interest rate. TCC will bear the foreign exchange and interest rate risks, and pay a 1% guarantee fee to the Government. Financing Plan: IBRD Loan US$ 36.0 million TCC US$153.3 million Other Financing US$148.8 million Total US$338.1 million Economic Rate of Return: 31% Staff Appraisal Report: Report No. 7216-JO of May 18, 1988 Map: I-BRD No. 20903 - JORDAN 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.  NDIORAIIDUMAND RECONMENDAION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVElOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$36 MILLION TO THE JORDAN TELEOOMMUNICATIONS CORPORATION WITH TEE GUARANTEE OF THE HASHEMITE KINGDOM OF JORDAN FOR A T1LECMMNUNICATIONS PROJECT 1. The following memorandum and recommendation on a proposed loan to the Jordan Telecommunications Corporation (TCC) for US$36.0 million equivalent is submitted for approval. The proposed loan would be guaranteed by the Hashemite Kingdom of Jordan and would carry a standard variable interest rate with a maturity of 17 years, including 5 years of grace, and would help finance a Telecommunications Project. 2. Background. The Jordanian economy, particularly the dominant services sector which accounts for about 60% of C-DP, *:' ends critically on effective communications and modern business data/information services. TCC has sustained a 19% annual growth in conuected telephone lines and has tripled its gross fixed assets while experiencing almost a full transition into new digital technology. By end 1987, TCC has attained a relatively good telephone penetration rati- of 7 lines per 100 inhabitants and had satisfied 67% of expressed demand. The recent rapid network modernization and growth of TCC, however, has not been accompanied by a comparable program for improviug sector policies, and for upgrading TCC's organization, manpower skills a;,d management systems. Most project development has been carried out through turnkey contracts with procurement tied to bilateral financing, resulting in high expansion costs. TCC is also constrained by the Government's administrative and financial procedures and lacks the autonomy to function as an efficient commercial entity. In addition, its present structure is highly centralized and lacks the management characteristics and certain basic functions of a commercial entity. Tariff levels and structure also have many discrepancies and need to be refocussed to meet socio-economic objectives, economic costs of services, and demand patterns. 3. Rationale for Bank Involvement. Through this first telecommunications lending operation in Jordan, the Bank would play a major role in assisting the Government to: (a) improve the policy and institutional framework for the efficieLnt long-term development of the telecommunications sector; (b) implement a realistic investment program consistent with resource availabilities that would improve services while expanding geographic coverage, especially to isolated rural areas; (c) mobilize competitive financing resources for the program; and (d) devise  and carry out a program for the commercializationi of the telecommunicationis sector and TCC's operatious. The Bank has already been iustrumenttal iln helping TCC to rationalize its investment program aud improve its procurement processes and their cost effectiveness. During project implementation, the Bank would continiue these efforts and would help the Goverumeut to address critical sector issues and implemeut policy actious. 4. Project Objectives. The maiu objectives of the project are to: (a) formulate and implement reforms to improve the overall policy framework for the commercialization of the telecommuuications sector and TCC; (b) expand network capacity, improve service quality, increase geographic coverage and iutroduce new value-added services; (c) strengthen TCC's capacity to devtlop and implement competitive strategies for procuremeut, financing aud syotem planning; (d) help the Goverument and TCC to revise telecommuuicatious pricing policy and tariffs to reflect chauges in cost structure resulting from growth and technological change, and to adjust for shifts in market demand due to changes in Jordan's economic conditions and prospects; and (e) support TCC in conducting a review of its organizatioual structure, upgrading its management systems using modern information technology, and implementing a human resource development program in technical, financial and management areas. 5. Project Description. The project, which covers TCC's eutire revised 1988-92 telecommunications investment program, comprises: (a) a technical assistance program for sector restructuring and institutional development, particularly in the areas of organization and management, personnel and human resource development, accounting and finance, procurement and inventory management, management information systems and tariffs; (b) switching equipment for an additional 213,000 lines; (c) associated local networks and subscriber plant for the connection of about 235,000 new subscriber lines; (d) additional microwave and cable transmission links; (e) a new national and international switching center (NISC); (f) a new satellite earth station; (g) computer systems; and (h) ongoing works still to be completed, principally 30,000 lines of switching equipment and retained consultants to assist TCC in project planning and implementatior,. By end 1992, the project is expected to satisfy 82% of expressed demand and to provide a coverage ratio of 12 lines per 100 inhabitants. 6. Actions Agreed: Duri-ng negotiations, the following assurances were obtained: (a) TCC will: (i) consult with the Bank before introducing any major changes in its investment program, which in the aggregate would involve more than 10% of the total amount of investment, 1anned for the five-year program ; and (ii) ensure that no such changes will be introduced unless TCC and the Bank have agreed that these changes are justified;  -3- (b) TCC shall finalize procurement and cofinancing agreements, in an aggregate amount of about US$80.0 million, to finanice switching, transmission and other project components to be procured unider price and terms biddiug before June 30, 1989; (c) TCC will maintain the Project Implementation Unit until project completion and will employ or assign additiotnal staffing and resources, according to agreed targets, to ensure effective project implementation; (d) TCC will present performance targets for 1990 and each subsequent fiscal year for joint review with the Bank by October 31 of previous year, review progress with the Bank not later than June 30 of each year, and take all necessary corrective actions. Agreemenit on 1989 targets was reached during negotiations; (e) TCC will furnish audited finiancial statements to the Bank, including an audit report of the Special Account, within six months after the end of each fiscal year; (f) TCC will: (i) take all measures necessary to ensure that the sector restructuring and tariff studies shall be completed and a copy thereof furnished to the Bank by July 31, 1989; (ii) carry out a mid-term review of the studies with the Government and the Bank by April 30, 1989; and (iii) following completion of the studies, the Government, the Bank and TCC will exchange views on the studies' recommendations and TCC will, on the basis of said exchange of views, carry out a Sector Reform Program approved by the Government, in accordance with the following schedule: tariff restructuring and adjustment by January 31, 1990, and sector commercialization by July 31, 1990; (g) TCC will: (i) undertake all studies on institutional development under terms of reference acceptable to the Bank, and in accordance with an agreed implementation schedule; (ii) furnish to the Bank quarterly progress reports and conduct semi-annual reviews with the Governmtnt and the Bank on interim results of the studies; and (iii) following completion of the studies' recommendations, and on the basis of such recommendations and exchange of views, prepare a Management Development Program and complete the implementation of said Program by October 31, 1991; (h) TCC will furnish to the Bank, by end December 1988, a detailed aging schedule of accounts receivable and will implement a plan, satisfactory to the Bank, to provision over the project period for all outstanding bad debt; and (i) TCC will achieve a net internal cash generation not less than 50% of investment expenditures on a moving three year average basis in any one year during the project implementation period.  -4- In addition, assurances were obtained from the Government that: (j) The Government will take all necessary measures for carrying out the Sector Reform Program and the Management Development Program, after exchanging viees with the Bank on the studies' recommendations. 7. The following is a condition of effectiveness: (a) TCC shall have secured cofinancing agreements, satisfactory to the Bank, in an aggregate amount of US$46.0 million to finance local networks. 8. Project Benefits and Risks. The proposed project has an estimated economic rate of return of 31% and its benefits would reach most sectors-of Jordan's economy. In particular, it would help the Government and TCC to: enhance the efficiency and productivity of the telecommdinications sector which should reduce investment and operating costs and increase resource trausfers to the Government; achieve sector commercialization and institution building of the operating entity; expand geographic coverage and improve service quality; spread the benefits of development to rural areas; develop the information infrastructure for the services sector; and contribute to employment creation. The main risk is the potential delay in the identification, formulation and implementation of sector and institutional reforms. The Government, the Bank and TCC have agreed on appropriate action programs and on a monitoring system to ensure effective implementation. The conviction and commitment demonstrated by the Government and TCC to the proposed sector restructuring aiid institutional development plans indicate that this risk is manageable. There is also a risk that demand aay grow slower than anticipated. The project, however, has been designed to allow for adjustments during implementation to reflect realized demand. 9. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Barber B. Conable President Attachments Washington, D.C. May 23, 1988  -5- SCHEDULE A Page 1 of 2 JORDAN JORDA TELRCONIJMICA&TIONS J'rOJcr (TCC) A TELECONICATIONS PROJECT ESTIMTtED COSTS AND FIANING PLAN Project Cost Summary: ---US$ Million Equivalent----- Project Item Local Foreign Total I. ONGOING WORKS 10.5 17.7 28.2 II. NEW WORKS Switching 5.1 48.9 54.0 Transmissiou 8.7 23.4 32.1 Local Networks -Cables & Heavy Equipment 2.7 48.0 50.7 -Construction & Installation 56.7 37.2 93.9 Buildings 6.3 1.2 7.5 Computer Systems - 2.1 2.1 Techuical Assistance - 3.0 3.0 Nat/Int Switchiug Center 0.3 2.7 3.0 Satellite Earth Station 0.6 3.0 3.6 Subscriber Installations 3.6 14.4 18.0 Total Base Cost 84.0 183.9 267.9 Coutiugencies Physical 7.5 13.5 21.0 Price 12.9 8.1 21.0 TOTAL NEW WORK COSTS 104.4 205.5 309.9 TOTAL PROJECT COSTSa/ 114.9 223.2 338.1 /uu al TCC pays no taxes or custom duties.  -6- SCHEDULE A Page 2 of 2 Finauciug Plan: ----US$ Million Equivalent--- Local Foreign Total NEW WORKS IBRD - 36.0 36.0 TCC 104.4 38.4 142.8 Export and Mixed Creditsa/ - 79.2 79.2 Credit tied to procurementb/ 5.7 5.7 Other FinanciugC/ 46.2 46.2 Subtota