Sri Lanka - Second Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY C)t~Z ZZV - Report No. 9095-CE STAFF APPRAISAL REPORT SRI LANKA SECOND TELECOMMUNICATIONS PROJECT APRIL 26, 1991 Industry and Energy Operations Country Department I Asia Region 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.  CURRENCY EQUIVALENTS (October 1990) Currency Unit - Rupee (Rs) US$1 - Rs 40.25 Rs 1 - US$0.0248 Rs 1 million - US$24,845 Fiscal Year January 1 - December 31 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ADB - Asian Development Bank AGSL - Auditor General of Sri Lanka C&L - Coopers and Lybrand DANIDA - Danish International Development Agency EPL - Ewbank and Preece limited FDM - Frequency Division Multiplex FINNIDA - Finnish International Development Agency GHz - Gigahertz GOSL - Government of Sri Lanka IDA - International Development Association IDD - Iaternational Direct Dialing ITU - International Telecommunications Union Mb/s - Megabit/second MHz - Megahertz MOFP - Ministry of Finance and Planning MOPT - Ministry of Posts and Telecommunications NSC - National Switching Center OECF - Overseas Economic Cooperation Fund of Japan OTS - Overseas Telecommunications Services PCM - Pulse Code Modulation PT&T - Post, Telegraph and Telecommunications PPF - Project Preparation Facility RSU - Remote Subscriber Unit SIDA - Swedish International Development Agency SLT - Sri Lanka Telecom SLTD - Sri Lanka Telecommunications Department STD - Subscriber Trunk Dialing TBSL - Sri Lanka Telecommunications Board UNDP - United Nations Development Programme  FOR OMCIAL USE ONLY SRI LANKA SECOND TELECOMMUNICATIONS PROJECT Table of Contents Pae I. THE TELECOMMUNICATIONS SECTOR . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . I.................................. Sectoral Overview . . . . . . . . . . . . . . . . . . . . . . . 1 Recent Telecommunications Developments in Sri Lanka . . . . . 2 Sector Objectives and Strategies . . . . .. . . . . . . . . . 3 Sector Institutions .... . . . ... . . . . . . .. ... 3 Sector Regulation . . . . . . . . . . . .. . . . . . . . . . 3 Existing Telecommunications Facilities . . . . . . . . 4 The Role of the Private Sector . . . . ........ .. 5 IDA's Role and Past Experience. . . . . . 6 II. THE BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . .. . . . . 7 SLT's Organization and Management . . . . . . . . . . . . . . . 8 Staffing and Benefits . . . ........ ... .8 Training.. . . . . . . . . . . . . . . 9 Operating Performance ............... . 10 Tariffs.. . . . . . . . .*...... 10 Accounts and Audit ntsandAudit* ... 11 Billing and Collection ndC .lle . ..o .... .12 Technical Assistance for SLT ........... .. 13 III. THE PROJECT . . ... . . . . . ... . . . 15 Project Concept and Design . . . . . . . . . . . . . . . . 15 SLT's 1990-95 Investment Program . . . . . . . . . . . . . . . . 16 Project Objectives . . . . . . . . . . . . . . . . . . . . . . . 16 Project Description . . . . . . . . . . . . . . . . . . . 16 This report was prepared by Messrs. M. Sergo (Sr. Financial Analyst) and D. Delgado (Telecommunications Engineer) on the basis of an appraisal in May 1990 and a post appraisal review in December 1990. Mr. R. Khan (consultant) assisted in computer work and Mrs. M. Keane-Golis and Word P-:.-assors assisted in typing. The report has been endorsed by Messrs. D.K. 6=-e--, Acting Director AS1, and F. Temple, Chief ASlIE. The peer reviewers were Messrs. B. Wellenins (ASTIF), A. Shanmugarajah (ASTIF) and A. Heron (CODOP), who reviewed economic, technical and financial aspects of the Project, respectively. 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.  - i - SRI LANKA SECOND TELECOMMUNICATIONS PROJECT Credit and Project Summary Borrower : Democratic Socialist Republic of Sri Lanka Beneficiary : Sri Lanka Telecom (SLT) Amount : SDR 39.7 - (US$57.0 million equivalent) Lending Terms t Standard IDA Terms (40 years maturity) Onlendina Terms : Fifteen years, including five years of grace, at 1lO interest p.a. with SLT assuming the foreign exchange risk. Proiect Description: The project objectives are tot improve the efficiency and service quality of the telecommunications sector in Sri Lanka; provide technical assistance to the recently incorporated SLT during its initial years of operation; and expand access to telephone service, replace obsolete equipment and reduce unsatisfied demand for service. The project consists of: (i) international facilities, trunk transmission, information systems and technical assistance (funded by ADB); (ii) a national switching center (funded under French protocol); (iii) external cable plant in Colombo (funded by OECF); (iv) local transmission links and subscriber apparatus (funded by GOSL/SLT and the subscribers); and (v) 35,600 exchange lines in Colombo, 17,000 exchange lines and outside plant in the provinces, telegrapb equipment and technical assistance (funded by IDA). Pro3ect Benefits t The project will improve and expand telecommunications services needed to support economic growth; reduce the current high unsatisfied demand for service and provide technical support for the new operator (SLT) to improve operating and project implementing efficiency. The project will also promote coordination of sector development and technical assistance to be funded from various sources. Proiect Risks s It may take longer than expected to make SLT and the sector regulation operationally effective; a technical assistance package and suitable project conditionalities have been designed to minimize this risk. Project implementation may be delayed due to SLT's limited capabilities, especially during its initial years of operation; this risk will be minimized by extensive use  - 1ii- of turnkey ctatracts, subcontractors and private sector participation in supply, installation and maintenance of subscriber equipment. A delay in project implementation would not have a material impact on the economic rate of return, as costs and beneflts would be postponed in roughly the same proportion. Estimated Project Cost: Local Foreign Total