Guinea - Post and Telecommunications Technical Assistance Project

Document of The World Bank FOR OFFICLAL USE ONLY MICROFICHE COPY Report No. :P- 5855 GUI Type: (PM) Title: POST AND TELECOMMUNICATIONS TER Author: JEAN B0UTAN Reprt No. P-5855-GUI Ext. :374291 Room:J 4095 Dept. :ATIE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMUNT OF SDR 10.0 MILLION TO THE REPUBLIC OF GUINEA FOR A POST AND TELEC0QMMNICATIONS TECHN1CAL ASSISTANCE PROJECT OCTOBER 28, 1992 This document has a restricted distibution and may be used by recipients only in the performance of their offcial duties. Its contents may not othenvise be disclosed without World Bank authorization.  CUtRRENCY EQUIVALEM Currency Unit 5 Guinean Franc US$1.00 = GNF 923" GNF I million = US$1,083 SYSTEM OF WEIGHTS AND AEASURES 1 millimeter (mm) = 0.039 inches I meter (m) = 3.28 feet 1 square meter (mI) - 10.76 square feet 1 kilometer (km) = 0.62 mile 1 hectare (a) - 10,000 sq. meters (2.47 acres) I metric ton (ton) = 2,205 pounds 1 liter (1) = 0.264 gallons GLOSSARY OF ABBREVIATIONS DNSPF - Direction nationale des services postaux et financiers DNT - Direction nationale des telecommunications IDA - International Development Association MC - Mnistry of Communication MFAIC - Mintry of Foreign Affairs and International Cooperation MPF - Ministry of Planning and Finance OPO - Office de la poste guineenne PANAFTEL - REseau panafricain de telecommunications PESERP - Public Enterprise Sector Rationalization and Privadzation Technical Assistance Project PPF - Project Preparation Facility SG - Secr&taire g6nEral SOTELGUI - Societe des telecommunications de GuinEe TOR - Terms of Reference REPUBLIC OF GUINEA FISCAL YEAR January 1/ December 31 1/ Exchange rates as of August 1992  FOR OFMCAL USE ONLY REPUBLIC OF GUINEA POSr AND TELECOMMUICATIONS TECHNICAL ASSISrANCE PROJECT Cdit and Proffl SWm=w Borrower: Govemnent of the Republic of Guinea BeneficIaries: Ministry of Communication SocidtE des tElEcommuications de Guinde (SOTELGUI) Office de Ia post. guinlenne (OPG) Credit ArounU SDR 10l0 million (JS$14.6 million equivalent) Terms: Stxndard, with 40 years maturity =1nanng Pbn: Lecal Forign Total -(US$ Mlllon) Government 2.0 2.0 IDA 0.5 14.1 14.6 2.5 14.1 16.6 EcnomiC Rate of Retu: Not applicable Staff Appral Report: Not applicable This document has a restricted distribution and may be used by recipients only in the perforniance of their official duties Its contents may not otherwise be disclosed without World Bank autholzation.  MEMORANDUM AND RECOMMENDATON OF TH PREsiDENT OF THE INTRNATIONAL DEVELOPMENT ASSOCIATION TO 1 EXECUE DIECORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GUINEA FOR A POST AND TEECOMMUMCATIONS TCNICAL ASSISTANCE PLOJECT 1. I submit for your approval the following report and recommendation on a proposed development credit to the Republic of Guinea for SDR 10.0 million, the equivalent of US$ 14.6 million on standard IDA terms with a maturity of 40 years to help finance a Post and Telecommunications Technical Assistance Project. 2. Backgrdoun: Authority for the post and telecommunications sectors rests with the Ministry of Communication (MC) which supervises two units, the Direction nadwaale des tMconmuncadons tDNI) and the Direction nadonale des services posta et ,flawers (DNSPF). The country's existing postal and telecommunications facilities are grossly inadequate and service is extremely poor. The density of 75 postal branches (in all main and secondary provincial centers) for a country of about 7 million inhabitants is not high, but because of inefficiency and lack of transportation the traffic is very low. As the management and mantence of the teleconmunications network is very deficient, there are ony 7,600 working main telephones lines throughout the country, for a penetration of 0.11 main lines per 100 inhabitants, which is about one third the average for Western Africa and compares with an estimated sustainable demand of about 30,000 main lines. Because administraion, finances and accounting are weak and poorly managed, the recovery rates for private telecommunications subscribers (15%) and public sector users' consumption (60%) are very poor. Consultants are preparing a plan of action for substantially improving the rate of recovery of telecommunications services, with a target of 35% by mid-1993. 3. In 1991, within the framework of the Public Enterprise Law, the Government announced its intention of disengaging progressively from operation of communications services. At a donors' meeting in Paris in March 1992, the Government staed that it had decided to modernize and restructure the post and telons services, with a view to operi them on a commercial basis. It would: (a) ensure provision of telecommunications and postal services on a commerciaWly managed basis, and privatized in the case of telecommunications; and (b) reorganize the Ministry of Communication to emphasize its new role for policy and regulation of the sector. These reforms are contained in the Government's Statement of Post and Telecommunications Sector Policy. The main innovation is thus separation of regulating and operating functions, with MC to be responsible for regulation on the one hand, and two public companies, the Sodi& des Midcommunicaions (SOTELGUI) and the Office de la poste guindenne (OPG), to be responsible for operations, on the other. 4. Laws on Telecommunications and Postal services, and the Decrees authorizing the creation of SOTELGl;I and creating OPG were signed on June 2, 1992. lhese Laws grant the monopoly of public services to the new two entities, establish a regulated partership between them and the Ministry and, importantly, also encourage competition for new services in related areas, between private and public companies.  -2- 5. vro3Ica Obct: IsThe main objective is to develop progressively a modern communications sector, which is essential for the development of the country's economy. Under the project, the immediate objectives are to put in place a appropriate institutional framework, provide reliable basic postal and telecommwnications services and then open the sector to regulated competition (e.g., data transmission, mobile telephone, express mail), with adoption of policies designed to ensure efficient and reliable service standards. Such an approach will encourage participation of the private sector in telecommunications, improve basic services by buttressing SOTEL(UI's operation, as well as provide access to new fast growing services, under competition. 6. .ect esmWgf The project has two major orientations: launching SOTELGUI and OPG on a firm basis, by financing key appointments in administrative and operational positions; and reorganizing the Ministry as the policy-maker and regulator for the sector. The project includes the following components: (a) two years of assistance for institution building ($3.5 million); (b) reorganization of the Ministry of Communication ($0.3 million), particularly concerning its supervisory functions (planning, tariff and financial policies, social policy, service quality) and regulatory functions (frequency control, licenses to operate networks or to sell equipment); (c) the search for professional partners for SOTELGUI ($0.2 million), in accordance with the Public Enterprise Sector Rationalization and Privatization Technical Assistance (PESERP) project's privatization framework (Cr. 2398 -GUI); (d) engineering studies for priority telecommunications and postl investments ($2.1 million); (e) a speciaized training program for SOTELGUI and OPO ($0.5 million); (f) building renovation and provision of office equipment ($1.0 million); and (g) supply of spare parts, stores materials and support equipment for operation and rehabilitation ($4.3 million). 7. Breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Guinea are given in Schedules C and D respectively. More detailed information on the proposed project is provided in the Technical Annex. 8. rgjStI Fnancing: IDA will finance technical assistance and a priority maintenance program, for a total of about $14.6 million equivalent, including contingencies and reimbursement of the PPF: 100% of foreign osts and 80% of local costs for the building renovation and the supply of spare parts. The Government will finance local costs, estimated at about $2.0 million, including contingencies. The total project cost will be $16.6 million equivalent. In parallel, PESERP will finance $0.9 million worth of related consultancy work for SOTELGUI and OPG. 9. Iojt hnpltation: MC will be responsible for project implementation, acting through a Steering Committee, set up in May 1992. It is responsible for: (a) enforcing initia limiting measures, including new appointments in the sector with reference to June 1992 staff listings, tariff increases every six months in line with inflation rates, improvement of recovery rate to 35% in mid-93 and and a 30% reduction in consumption of telephone services by government agencies; and (b) the execution of the project, including supervision of technical assistance, reorganization of the Ministry, with the appointment of a directorate supervising the sector, engineering studies, supply of operation and maintenance components. MC will also coordinate with the other Ministries, througb an Iminial Committee for the Reform of the Sector. The scope of postal services would be limited to the main provincial cities and would not include financial services. At the agreed date of transfer of  - 3 - assets and operation to SOTELGUI and OPG, the Government will assume responsibility tor the Ministry's prior financial obligations and retain short-term financial assets. IDA would liaise regularly with SOIELGUI and the Governnxent in discussions and negotiation with prospective professional partners. Liaison will be maintaiwed with PESERP, which is setting up a comprehensive and transparent privatihation process in several sectors. No date has been set for the selection of private partners, but the Government intends to move as expeditiously as possible in the light of market responses. The Government and IDA will jointly carry aut a mid-term review of the project, one year after the management teams have started their work. 10. The management teams in SOTELGUI and OPG will develop systems and procedures to manage operations efficiently. Tbis will help improve the quality of services, restore the relationship with customers and establish an improved collection system from both private and government subscribers. The management contracts will have targets related to staffing plans, accounting systems, tariff policy, budget preparation, program contracts and other dated performance indicators. The teams will be composed of six managers in SOTELUI in line positions, one of which will be the general manager, and three managers in OPO also in line positions, one of which will be the general manager. It was agreed at negotiations that, in order to provide the management teams with autonomy and distance them from Directors who will all represent Ministries on the Boards, the Directors will delegate adequate authority to them through the management contracts, for staff management, connection policies and decision-making in current technical and administrative matters. The first task of the teams would be to develop a staffing plan, covering training and separation programs, an1 to prepare a detailed training program. I1. Prolect Sustainabllltv: The disengagement of Government from provision of tlecommunications and postal services will alleviate its administrative and financial burden. The proposed program of institutional reform will introduce commercial practices in SOTELGUI and OPG which are expected to lead to sector sustainability. Those practices will enable SOTELGUI to increase its call recovery rate from 15% to 80% within two years, set up new management tools and a new tariff policy which will improve its financial, administrative and technical operation. The rates of postal services would be kept at internationally comparable levels and would thus reduce postal losses. Furthermore, the regulatory framework will encourage competition in new services and increase the overall demand for communications services. 12. Lesons from Previous IDA Involvement: There has been no prior operation in the communications sector. The Bank's experience in the electricity, petroleum and water sectors has shown that the major cause of poor performance in public utilities comes from inept and often compromised management and political interference, which can be a serious hindrance to improving performance. It is to remedy this situation that private partnership is sought, as it is expected to have a freer hand in increasing business efficiency, within a prescribed regulatory framework, and ensure transparency, better governance and independent, professional management. 13. Rationale for IDA Involvement: IDA country strategy in Guinea is to improve the efficiency of the economy by removing obstacles to private sector development, Improving governance and building the buman resource base. The main objective of the proposed project is in line with this strategy. IDA has extensive technical, financial and economic experience in the postal and telecommunications fields in Africa, is the lead agency  -4- and is coordinting activtes with other lenders (such as France, Germany and Kuwait), to imprwove the viability of tie sector. At the same time, IDA can advise on new telecommunIcatIons services that would be open to competition. 14. &0= Alrd: The Government has esablished SOTELGUI and OPG, with statutes acceptable to IDA. Effectiveness conditions include appointmeat of Board members to SOMLGUI and OPO and approval by IDA of their utility agments, satsfactory evidence of a free in recruitment In SOTELGUI and OPG, commitment to a tariff increase linked to inflation every six monts, and evidence of 30% reduction in consumption of telecommunications services by government agencies, setting up the directorate supervising post and telecommunications within the Ministry of Communication (para. 9), and cormation of the decision to appoint the SOTELGUI and OPO management teams in line positions, with full authority (para. 10). Ihe Development Credit Agreement includes dated targets in the management teams' conracts with the endties (para. 10), which could lead to credit suspension if not met; and committments of the Governmet to sign the contracts transferring assets and responsibility for operating basic services to SaOELGUI and OPO, not later than June 30, 1993. Subscribers' arrears, debt service on equipment acquired prior to SOTELGUI's establishment and debt to foreign telecomnications dmistraons, k.wever, will remain the responsibility of the Government (par. 9). They also requie that lJLz. Directors delegate authority to the management teams (parm. 10), and that Goverment pay Its telecoications invoices quarterly. It was also agreed at negotiations that a unit would be specially set up to recover revenues and that telecommunications revenues received by the Government prior to SOTELGUI being fully operational will be put in escrow, as part of Governmens contribution to SOTELGUI's net worth. Furthermore, disbursement for the trining component will be subject to the presentation of a detailed training program aceptable to IDA, and disburement for the spare parts, store matrials and support equipment for operaion and rehabilitation component will be subject to the transfer of responsibility from DNT and DNSPF to SOTELGUI and OPO. Conditions agreed are detaid in pagaphs 36 to 38 of the Technical Annex. 1S. onment: Like other technica assistance operations, this project has no direct eionmental impact and is classified in the C category. However, the engineeing studies contain provision for a limited environmental analysis, as prescribed for telecounications projects (B category). 16. Proee Obje Cateoie As public entrprises, SOTELGUI and OPG are parts of the priority group of entities to he restructured and some of ihem privatized. 17. :roect lefts The major benefit would be in the form of better communication services, made possible by improved management and adequate recovery rates. Moreover, wider benefits are expected ffom the reform of the telecommn ications sector and its eventu privatization, as it is expected to help provide business ad residential customers with more reliable and diversified services at reasonable cost, in contrast to the current situation. 18. BEsk: A risk common to both post and telecommunications sectors is the slowness on the part of the Government in project implementation, which may jeopardize expected benefits. The main risk, on the tele uni side, is whether and when pofssionalpartuers would be inet in SOTELGUI, given the current status of operation, serices nd finance. If the partneship process is too slow, the momentum of improvement  -5 would be much impaired. This is mitigated by the strong technical assistance and the commitment of the Government and lenders* community to restructure the sector. Availability of counterpart funds may also be a bottleneck but recently approved funding procedures should resolve this problem and the risk will be e!'iminated for telecommunications when SOTELGUI begins operations. 19. cK: I am satisfied that the proposed credit would comply with the Articles of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President Attachments  -6- !A BC OF GUINE POS AND TELECOMMNICATIONS TCNCAL ASSJSTANCE PROJECT lmaled Cand nim Pa (Ib us$ MUlio) LOCL POEQB II& -UUS$ Million- ESTIMTED COSTS* Opaional Tedhnical Assistance support to SOTELGUI 0.4 2.45 2.85 SUPPOtt to OPG 0.2 1.05 1.25 Study br r n of MC 0.1 0.3 0.4 Search for professional parurs 0.1 0.2 0.3 Engeering studies 0.5 2.1 2.6 Specaized trang proam 0.2 0.5 0.7 Rhaitation of buildn and equipment 0.3 0.8 1.1 Opeaton and mainte e components 0.4 4.0 4.4 Reimbursement of PPP - 1.5 1.5 Total Poect cost wot oenes 2.2 12S 151. Contingencies 0.3 1.2 1.5 Tot Project Cost with contlgendes 2.5 14.1 16.6 Goverment 2.0 - 2.0 IDA 0.5 14.1 14.6 Total 2.5 14.1 16.6 *net of es JB_ I-'  -7- - 7-j scHm B Pa 1 qf 2 REPUBIC OF GULIN POW AND TELBCOMUICAION8 TCAL ASSISTANCE Pzojucr @1US Mlm..) PROJECf COMPWW ICK LCB 0nal 0 Total Shopping Bulgding rh bitaon 1.1 .1 (1.0) (1.0) Cal matr 2.1 2.1 (2.0) (2.0) Too1s, meaing oequpm 0.6 0.2 0.8 (0.6) (0.2) (0.8) switcbng 0.2 0.6 0.8 Transmisi and Solar (0.2) (Q6V (0.8) Power Of equipmet 0.5 0.2 0.7 (0.4) (0.2) (0.6) Vedes 03 0.2 0.5 (0.3) (0.2) (0.5) Scholarships and 0.7 0.7 Conultntsfor Trainng(05 (0.5) O0r Consulns 'i.9 9.9 (8.40 (8.4) Total 4.1 0.5 0.8 11.2 16.6 (3.9) (0.4) (0.8) (9.5) (14.6) F/igurmsin pvd arothe amuisflnanced by DA ZI Loca Competti BMd YI OtkwheInldes Bans guldellu for disuse of ostw &If Direct contrct for proritary eupkmen be/IncI4eppp lb ao  -8- SCHUMR Pdp 2 Of 2 A. DISBURSEMENT CATEGORIES ,ategory (USS M ueon) % of ExpeniUre 1. Consultant Services 6.1 100% 2. Trag 0.4 100% 3. Equipmet/Vehicles 4.3 100% of foreign expenditures 80% of local epedure 4. Building Reibabilitation 0.8 100% of frep expditures and 80% of local epdiure 5. PPF Refinancing 1.5 Amount due 6. Unallocated 1.5 rATL ad B. DISBURSEMNT SCUEDULE IDA JIca Year Estimated IMA Dis_ursements 1993 1994 199S Anmual 2.5 8.1 4.0 cuamultive 2.5 10.6 14.6  t j g I:.