Senegal - Second Telecommunications Project

Documit of The World Bank FOR OFFICLAL USIE ONLY RP"e9 No. 13623 PROJECT COMPLETION REPORT SENEGAL SECOND TELECOMMUNICATIONS PROJECT (CREDIT 1714-SE) OCTOBER 24, 1994 Industry and Energy Operations Sahelian Department Country Department V Africa Regional Office This document has a restricted distribution and may be used by recipients only in the perforrance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENU(1 = CFAF 1,000,000-USS3,634(ws USS2,778 in 1985, at appraisal) Currency Unit- CPAn Fnc (CFAP) USS 1.00- CFAF 275.2 (Jun 1993, in 1985 wu CFAF 360.0) FISCAL YEAR (FY) SONATEL: January I- Decenber 31, since 1993 (was July 1 - June 30 for Government and SONATEL unw June 30, 1991,SONATEL'SFY 992wa then extended to December 31, making it an IS months exrci) WIGHTS ANVD EA9URES AU weights an masres am in metric units ABBREVIANONS ND ACRONYMSUSED' AfDB = African Development Bank BEI = Banque Europeenne d'Investissement BOAD = Banque Ouest-Africaine de Development CCCE/CFD = Caisse Centrale de Cooperation Economiquel Caisse Francaise de Developpement CEDEAO = Communaute Economique des Etats de l'Afrique de l'Ouest (Economic Community of West African States) CIDA = Canadian International Development Agency DEL = Direct Exchange Line (telephone) in operation Expressed = The sum of the number of DELs in service and Demand = registered pending applications FAC = Fonds d'Aide et de Cooperation (France) GPC's = Guaranteed Private Credits ICB = International Competitive Bidding, as per World Bank procurement guidelines ITU = International Telecommunications Union MIT/MOC = Ministry of Information and Telecommunications/Ministry of Communication PANAFTEL = Pan-African Telecommunications Network OPCE = Office des Postes et de la Caisse d 'Epargne (Senegal) OPTS = Office des Postes et Telecommunications du Senegal SONATEL = Societe Nationale des Telecommunications du Senegal TELESENEGAL = Societe Nationale des Telecom Internationales du Senegal UNDP = United Nations Development Programme * Several acronyms and organizations' names are the French ones, as used in Senegal.  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation October 24, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Senegal Second Telecommunications Proiect (Credit 1714-SE) Attached is the Project Completion Report on Senegal - Second Telecommunications Project (Credit 1714-SE), prepared by the Africa Regional Office, with Part 11 prepared by the Borrower. The project, which was co-financed primarily by France, Canada, EIB and AfDB, was essentially successful in supporting: (i) the rehabilitation and expansion of the country's telecommunication network; (ii) the strengthening of SONATEL, the state-owned telecommunications utility, as an autonomous and financially sound entity; and (iii) the initiation of sector reform (including the separation of postal from telecommunications activities and the introduction of limited competition in the provision of terminal equipment and selected services). As a result, SONATEL is now considered one of the best-run telecommunication entities in Sub-Saharan Africa. However, the experience under this project points to both the benefits and the limits of the traditional public utility model (in as far as the sector remained unable to fully meet a growing demand), and the need to consider alternative (particularly private) funding sources for future sector development. Accordingly, the project outcome is rated as satisfactory, its institutional impact as substantial and its sustainability as likely. The PCR is thorough and informative but comments were not requested from co-financiers. No audit is planned. Attachment This docunent 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT SENEGAL SECOND TELECOMMUNICATIONS PROJECT (CREDIT 1714-SE) TABLE OF CONTENTS Page No. Preface . ........................................................ i Evaluation Summary ................................................. ii PART I - PROJECT REVIEW FROM BANK PERSPECTIVE Project Identity ................................................... I Background ................................................... 1 Sector Set-up ................................................ 1 Sector Development and Project Genesis ............................... 2 Project Objectives and Description ..................................... 3 Project Objectives ............................................. 3 Project Description ............................................ 4 Project Design and Organization ...................................... 4 Project Design ............................................... 4 Project Organization ........................................... 5 Project Implementation ............................................ 5 Credit Effectiveness and Project Start-Up .............................. 5 Procurement ................................................ 5 Project Implementation Schedule and Revision ........................... 6 Project Cost ................................................ 6 Allocations of Credit Proceeds and Disbursements ......................... 7 Project Results ................................................. 7 Project Objectives and Performance Indicators ........................... 7 Physical Results .............................................. 7 Financial Performance .......................................... 8 Key Financial Performance Indicators ................................ 8 Tariff Covenants .............................................. 9 Internal Financial Rate of Return ................................... 9 Economic Rate of Return ........................................ 9 Fiscal Impacts ............................................... 9 Institutional Impact ............................................ 9 Project Sustainability and Risks ....................................... 10 Bank's Performance .............................................. 10 This document has a restricted distribution and may be used by recipients only in tho performance of thirl I official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Cont'd.) Borrower's Performance ........................................... 10 Covenants .................................................. 10 Closing Date ................................................ 10 Project Relations ................................................ 11 Consultancy Services ............................................. 11 Technical .................................................. 11 Financial .................................................. 11 Tariff Study ................................................ 11 Project Documentation and Reporting .................................. 11 PART II - PROJECT REVIEW FROM BORROWER's PERSPECTIVE Borrower's Perspective of the Design and Implementation of the Project and its Development Impact ................................................. 12 PART m - STATISTICAL INFORMATION Table 3.1: RELATED BANK LOANS AND/OR CREDITS ..................... 20 Table 3.2: PROJECT TIMETABLE .................................... 21 Table 3.3: CREDIT ALLOCATIONS AND DISBURSEMENTS .................. 22 Table 3.3.A: Allocation of Credit Proceeds ............................ 22 Table 3.3.B: Credit Disbursements .................................. 23 Table 3.4: PROJECT IMPLEMENTATION .............................. 24 Table 3.4.A: Additional Facilities, Estimated and Actual .................... 24 Table 3.4.B: Completion Dates, Estimated and Actual ...................... 25 Table 3.5: PROJECT COST AND FINANCING ............................ 26 Table 3.5.A: Project Cost ............ ........................... 26 Table 3.5.B: Project Financing .................................... 27 Table 3.5.C: Country Exchange Rates ................................ 27 Table 3.6.B: Financial and Fiscal Impacts ............................. 29 Internal Financial Rate of Return ................................. 29 Cash Flow From the Sector to the State ............................. 29 Table 3.6: PROJECT'S RESULTS .................................... 28 Table 3.6.A: Main Operational and Financial Performance Indicators ............ 28 Table 3.6.B: Internal Financial Rate of Return .......................... 29 Table 3.6.C: Cash Flow From the Sector to the State ...................... 29 Table 3.7: STATUS OF COVENANTS ................................. 30 Table 3.8: USE OF BANK RESOURCES ............................... 33  Table of Contents (Cont'd.) Annexes ANNEX 1: Growth of Facilities and Demand A. Growth of Facilities and Connected Capacity ............................ 35 B. Evolution/Growth in Expressed Demand and Connected Lines Capacity .... ........ 36 ANNEX 2: Financial Statenents A. Income Statements . ............................................ 37 B. Funds Flow Statements . .......................................... 38 C. Balance Sheets ................................................. 39   PROJECT COMPLETION REPORT SENEGAL SECOND TELECOMMUNICATIONS PROJECT (CREDIT 1714-SE) PREFACE 1. This is the Project Completion Report (PCR) for the Second Telecommunications Project in Senegal supported by Credit 1714-SE. The IDA Credit in the amount of SDR 19.4 million (US$ 22.0 million) to the Republic of Senegal was approved on June 19, 1986 and signed on October 27, 1986. The Credit became effective on April 24, 1987 and was closed on June 30, 1993, its original closing date. The last disbursement was made on October 15, 1993. Undisbursed amounts totalling SDR 4,336,061 were cancelled, of which SDR 3.8 million were at Government's request in 1989, and SDR 536,061 at credit closing. 2. Parts I and III were prepared by Bank staff based on information available in project files and information supplied by the Societe Nationale des Telecommunications du Senegal (SONATEL), the Beneficiary and Implementing Agency under the Project. Part II was prepared by the Borrower to give its perspective of the design, implementation and development impact of the project. Comments from the Borrower on Parts I and III have not been received.   - 11 - PROJECT COMPLETION REPORT SENEGAL SECOND TELECOMMUNICATIONS PROJECT (CREDIT 1714-SE) EVALUATION SUMMARY Background 1. Credit 1714-SE of SDRs 19.4 million (US$22.0 million) was the second telecommunications operation financed by the Bank Group in Senegal. A first project, financed by Loan 866-SE of US$6.5 million to the Government, was implemented from 1973 to 1982. The beneficiary was the Office des Postes et Telecommunications du Senegal (OPTS), a state-owned monopoly provider of domestic basic telecommunications services, with very little financial autonomy. Implementation was delayed due to the insufficient experience in coordinated development and the organizational weakness of the beneficiary in commercial-like operation of the services and network development. The Project Completion and Performance Audit Reports on the first project mainly stressed that: (a) the physical and operational objectives of the project had been met, though with considerable delays, and were even exceeded due to the enlargement of OPTS's investment program made during the extended construction period with the participation of the other co-financiers; but (b) the project fell short of meeting its institution building and organizational improvement objectives, in particular in the fields of financial management, commercial type administration of the entity and relations with users, and operational efficiency. 2. At completion of the first project in 1983, the Government asked the Bank for continued assistance to the sector. IDA considered that a prerequisite to such continuation would be that Government prepare and undertake an in-depth restructuring of the sector and the organization. To this effect, a study was made in 1984 under the Second Para-public Sector Technical Assistance Project (Credit 1398-SE). Concurrently, OPTS prepared its next priority investment program for the period 1985-92 on the basis of a Master Plan study made by the ITU and with the assistance of consultants financed by the French FAC and CCCE. 3. In early 1985, the Government decided to restructure the sector by separating postal and telecommunications operations and creating a new operating company, SONATEL, incorporating the telecommunications branch of OPTS and TELESENEGAL, the entity in charge of international telecommunications. The second project was appraised in 1985 and Credit 1714-SE was approved by IDA's Board in June 1986 (Part I, Paras. 2.4 and 2.8). Project Objectives and Description 4. The project consisted of SONATEL's 1986-93 investment program, excluding the projects in progress at this point of time and some works which could be deferred for future implementation. The program aimed at increasing systems utilization and coverage through network expansion and rehabilitation/renewal of existing equipment, improving operational efficiency and maintenance, and assisting and strengthening SONATEL's organization and management toward efficient and productive commercial operation.  - iii - 5. The project included: (a) installation of about 34,600 lines of switching equipment, with associated cable networks, buildings and subscriber facilities; (b) expansion and rehabilitation of long-distance transmission links; (c) establishment of a national maintenance organization; and (d) technical assistance and training to strengthen SONATEL in the fields of financial management, accounting, tariff policy, management and operational information systems, and development planning using new technologies. Implementation Experience and Results 6. Project Implementation. The project experienced an early and prompt start-up. This was due to the fact that invitations to bid for goods and services for the project, estimated to cost at least 50% of the credit amount, had been issued before credit effectiveness. At mid-project in 1990, a project revision was undertaken on account of actual costs of equipment under ICB being lower than initially estimated, thus enabling the Borrower to acquire additional installations and enlarge the program of transmission by optical fiber cables. The remainder of the items of the revised project were also procured on time and all new installations (for which adequate technical assistance for planning and implementation had been arranged) were completed on schedule by December 1992. The credit was closed on June 30, 1993, the original closing date. 7. The physical components of the proiet were successfully implemented, including additional installations for which some external financing had also been arranged to supplement SONATEL's own resources. The total number of connected telephone lines (DELs) was increased from 26,800 to 67,100. The initial target of the SAR for end-1993 (42,800 lines) had been reached at mid-term of project (July 1990) when SONATEL's program was revised. During the seven year project period, the telecommunications infrastructure was expanded to a total exchange capacity of 87,000 line units, or about 27% more than the appraisal projection of 68,800 units. Major outside plant installations achieved in the greater Dakar and other important regional districts enabled SONATEL to increase the pace of new connections for service from about 2,000 DELs per year in 1986 to 9,000 DELs in 1992/1993. Simultaneously, new demand for service increased at the pace of the new connections installed. Parallel modernization and expansion of the long distance transmission network, and the introduction of centralized maintenance and operations control within digital installations, enabled SONATEL to increase the operational quality and performance and staff efficiency. The number of staff per 1,000 DELs decreased from 74 in 1987 to 30 in 1993, which is considerably lower and compares very favorably with the SAR forecast of 50 to be reached at project completion. 8. The estimated project cost at appraisal was CFAF 56.5 billion, (US$156.9 million at the 1985 exchange rate, or US$195.0 million at the average exchange rate over the intervening years). The actual cost of the project is estimated at CFAF 63.2 billion (US$217.9 million at average exchange rate). The foreign exchange component was estimated at CFAF 32.7 billion at appraisal, in line with its estimated cost (CFAF 33.6 billion) at completion, though about 25% more facilities were installed, providing further capabilities at full development. The difference of about 25% in local cost components (CFAF 23.8 billion at appraisal versus CFAF 29.6 billion at completion) reflects both larger works and inflation during the project period.  - iv - 9. Concerning financial matters, the overall project objectives were reached or exceeded, except for the current ratio, accumulated profits and accounts receivable. SONATEL has adopted a commercial accounting system and used computerized programs and an elaborate financial and management information system to analyze its financial performance and prepare its financial statements. The latter have been audited satisfactorily and in a timely manner each year. SONATEL's main financial performance indicators and their evolution are detailed in Part m (Table 3.6.A and B.) Appropriate tariff restructuring and revisions, made in 1989, 1991, 1993, helped to effectively optimize the utilization of the installed facilities and, as a result, boosted the average gross revenue per DEL from CFAF 740,000 in 1987 to CFAF 914,000 in 1992. The average rate of return (RR) on fixed assets over the 78 months project period was weaker than predicted in the SAR (14% vs. 20%). This was due to heavier investment (17% more than planned at appraisal) which has, however, contributed to raising the 1992 RR to 24% vs. 11 % estimated in the SAR. SONATEL was able to cover up to 47% of the increased project costs by its own internally generated funds. The estimated total cash flow from the sector to the State Treasury was 23% higher than projected, reaching a total of about CFAF 48 billion for the project period (SAR's estimate was CFAF 39 billion). Accounts receivable as a percentage of gross revenue, however, remained unsatisfactory (45% in 1992, or about 5.4 months of billed services). This was due largely to a persistent lack of provisions in the Budget to cover the actual costs of usage of SONATEL's services by the State, and a repeated recourse to debt swapping between SONATEL and the State. This practice is economically counterproductive and should be discontinued through progressive adjustments in both processes of the Government Budget and the sectoral performance contracts. Private arrears have gradually decreased, but still represented 4 months of billed revenues in 1992, or about 1 month higher than estimated at appraisal. 10. The proiect had an important institutional impact and effectively contributed to SONATEL's rapid and satisfactory establishment as an efficient autonomous operation organized along commercial lines with adequate structures for planning, development, implementation and operations, and for administrative and financial management. Through the thrust and incentives of the project from its preparation to completion, and more generally as a result of the continued assistance and contribution from the Bank to the reform of the para-public sector in Senegal (Paras. 2 and 3 above), the country's telecommunication sector was effectively restructured and organized into an autonomous corporate operation. Under the project, the sector's institutions evolved from a government service type management to the completed commercialization and corporatization of its operations. 11. Though monopolistic by statute, SONATEL favored competition on terminal services by opening the installation of fixed and mobile terminal equipment to agreed private suppliers, and the resale of services (telephone, telex, facsimile, data transmission, etc.) to the public by private operators of contractual telecommunications centers. This should further evolve in the future through the study and preparation by Government and SONATEL of suitable stages for more in-depth reform and restructuring of the telecommunications sector in Senegal, with the aim to open it to competition and permitting an increased participation of the private economic actors in its development and the provision of services, which are badly needed for the country's economic growth. Lessons Learned and Conclusions 12. The project as originally prepared and appraised in liaison with co-lenders, mainly focused on issues confronting the newly created telecommunications operating entity with regard to development of the installation capability, improvement of operational efficiency and strengthening of its internal organization and management. The main findings and lessons learned from its implementation are that:  v - (a) in the technical area, early detailed planning and start-up of procurement action, as covenanted in the Credit Agreement, contributed significantly to the satisfactory and timely implementation of the physical components at lower costs under ICB (Paras. 4.2, 5.1 to 5.5, 6.3 and 6.4); also, technical assistance and training in the fields of planning, implementation, maintenance and operation, enabled SONATEL to meet its objectives of operational efficiency (Para. 4.7, 6.1 to 6.6 and 11.4); (b) with regard to demand satisfaction, a large unmet and hidden demand existed and during the project period reached levels matching or exceeding the provision of additional services. This is often the case when continued great shortage prevails in the provision of service, and could have been anticipated in the initial preparation and phasing of the project. Project revisions enabled SONATEL to partly cope with the rapidly growing demand (Para. 5.3, Tables 3.6.A and Annex 1); (c) in the financial and economic areas, financial results, though intermittently below forecast expectations, were mostly satisfactory, enabling SONATEL to finance a large part (47%) of its development needs, and simultaneously to contribute substantially to government fiscal returns; internal financial rates of return from operations and economic rates of return from the project have been high, 20% and 25% respectively, showing the high level of resources which the sector can generate, and also reflecting the leverage that telecommunications represent in the country's economy and its development (Paras. 6.6 to 6.12); and (d) for the institutional aspects, the Bank's insistence during the lengthy project preparation period (1983 to 1985), on Government commitment to sector reform before lending, was essential to the success of the project and its effectiveness; the Bank also assisted in the related actions to restructure and commercialize the operations of the originally complex and intricate post and telecommunications sub-sectors; the project encompassed the process of moving from Government to commercial type autonomous operation, including changes in the internal and financial organization and management of the telecommunications operator. However, there are further requirements, in particular, in the areas of post-restructuring sector policy and regulatory development, which remain to be taken care of and to which Government attention should be drawn. 13. The two successive Bank/IDA telecommunications projects since 1975 in Senegal have shown that: (a) technically, expansion of existing facilities and development of new systems have taken place successfully, with adequate outside assistance, resulting in an eight-fold increase of the facilities in service (from about 8,500 DELs in 1975 to 67,000 DELs in 1993), and in a noticeable improvement of the operational efficiency and the quality of the services provided; (b) financially, the objectives of improving financial management and establishing commercial type operation for the telecommunications services and their development could only be met after the restructuring of the operating entity into an autonomous operator at inception of the second project. This led to satisfactory financial results and returns on investment, though the issue of arrears from government and parastatal usage of service remained unresolved; (c) economically, the estimated economic rates of return of both projects have been high, confirming the importance of telecommunications to economic development; on the side of demand satisfaction, the pending demand for service was steadily growing at the pace at which additional services were provided, indicating that sustained rapid development is needed; and (d) with regard to institutions, the Government's courageous  - vi - steps to restructure the sector and its organization, separating postal and telecommunications services and organizing the latter as an autonomous corporate entity were an essential ingredient to the success of the project. 14. Implementation of the above enabled SONATEL to become a more efficient, productive, better structured and organized company. Only a small number of similar successful organizational changes have as yet taken place in Africa amongst the providers of public telecommunications services, such as in Ethiopia in the 1970s and Egypt in the 1980s. Senegal was the first case of institutional restructuring of the telecommunications sector into an autonomous corporate commercial operation in Western and Central Africa. It showed that changing management culture towards a customer/market oriented commercial and business type approach in a sensitive strategic sector is a complex and lengthy process. At the same time, the need for a more indepth sector policy reform to further promote competition and increase private participation in sector operation and development remains to be taken care of, together with the establishment of adequate regulatory institutions. Further institutional evolution and building along these lines would both ensure and enhance the sustainability of the two telecommunications projects now completed in Senegal, and enable an increased mobilization of resources, within the country and externally, to better meet the demand and the country's investment requirements for telecommunications services. Experience has shown that project lending to assist in the large investments which are needed for telecommunications, is a suitable vehicle for sector reform. This could be a rationale for continued IDA involvement in the telecommunications sector in Senegal, which should be discussed with Government.   PROJECT COMPLETION REPORT SENEGAL SECOND TELECOMMUNICATIONS PROJECT (CREDIT 1714-SE) PART I PROJECT REVIEW FROM BANK PERSPECTIVE 1. Project Ident Title Second Telecommunications Project Credit No. Credit 1714-SE RVP Unit Africa Region Country Senegal, Sahelian Department (AF5) Sector Industry and Energy Operations (AFSIE) Subsector Telecommunications 2. Backgu Sector Set-up 2.1 The telecommunications sector in Senegal is under the general responsibility of the Minister of Communication (MOC) since 1988. Just before the project implementation period, sector responsibilities were divided between the Office des Postes et Telecommunications du Senegal (OPTS) which handled domestic telecommunications, and the Societe Nationale des Telecommunications Interationales du Senegal (IELESENEGAL), which was in charge of international services. During project preparation, the Government merged OPTS branch for telecommunications and TELESENEGAL into the Societe Nationale des Telecommunications (SONATEL), effective October 1, 1985. SONATEL is a state-owned autonomous enterprise, commercially operated under the company law. OPTS's postal and financial branch was re- organized into the Offlce des Postes et de la Caisse d'Epargne (OPCE). SONATEL and OPCE were initially under the general responsibility of the Minister of Information, Telecommunications and Relations with the Assemblies and, subsequently, of the Minister of Industrial and Artisanal Development and Telecommunications. 2.2 The Bank had been associated with the telecommunications sector in Senegal through a First Project. The first loan (866-SE) of US$6.95 million, for the OPTS with Government guarantee, was approved in November 1972, became effective in June 1973 and was closed on April 1, 1981. The loan supported a project at an estimated total cost of US$8.9 million, which formed a major part of OPTS's telecommunications development program for the period 1972-75. The project aimed at rehabilitating, modernizing and expanding the principal local telephone facilities in Dakar and the northern provincial cities, as well as the long distance network from Dakar to the north and along the Senegal river, including a new high capacity microwave system. The project also provided for organizational improvements in OPTS's development planning and financial management, accounting, including separation of postal and telecommunications accounts, strengthened billing arrangements and a comprehensive training program to substitute Senegalese staff to expatriate advisors.  - 2 - 2.3 Delays in the start-up of the First Project resulted in its revision as part of an updated and enlarged development program. The French Caisse Centrale de Cooperation Economique (CCCE), Government's and suppliers' credit provided the required new resources for the revised project, at a final total cost of US$23.2 million. Implementation took a further 5 years than initially estimated. A project completion report and a project performance audit report were issued on December 1981 and May 1983, respectively. Both reports stressed: (a) the technical usefulness of the project, which, though with important delays and cost overruns, provided about 35% more facilities which were badly needed and enabled replacement of more obsolete installations than earlier planned; but (b) the little progress made in the field of institutional development, in particular with regard to the proposed improvements of OPTS's organization, financial management and accounting, billing and collection procedures, commercial relations with users, and operational efficiency. Sector Development and Project Genesis 2.4 At completion of the First Project, though progress had already been made to develop facilities and initiate some improvement in its organization, the main issues in the country's public telecommunications sector were related to the need for: (a) continued rapid expansion of the systems and improvement of the services and their operation, in a context of largely unmet and growing demand (less than two thirds of the registered demand for local service and only about 50 % of the demand for international traffic were satisfied); (b) rehabilitation/replacement of obsolete installations and improvement of maintenance and operational efficiency through accelerated modernization of the networks and facilities; and (c) improvement of the sector organization and its management through in-depth structuring to overcome the existing institutional, operational and administrative constraints and organize the sector development and operation in a way suited to the commercial character of telecommunications activities. Aware of these problems, the Government of Senegal requested Bank assistance in financing a Second Telecommunications Project, in early 1983 during the implementation review of the First Project. 2.5 With regard to development continuation, the works undertaken during the revised First Project were then pursued and co-financed by CCCE, AfDB, BOAD, CEDEAO and OPTS. Planning and supervision for these works were implemented during the period 1981-84 with the assistance of consultants provided to the planning branch of OPTS by French FAC, CCCE and CIDA. In 1982, under an UNDP/ITU scheme, a Master Plan for telecommunications development through the year 1996 was prepared. By mid 1983, OPTS had prepared a phased comprehensive short term investment program for implementation under the sixth and seventh Senegalese Plans, priority parts of which were suitable for financing under a second Bank project. 2.6 With regard to sector restructuring, the Bank view based on the experience and lessons from the first project was that considering and/or undertaking an in-depth sector reform and its restructuring were a prerequisite to further assistance to sector development. The principal co-lenders in the sector shared such approach. Under the successive four-year National Plans, Government goals for state enterprises and para- public commercial type entities were also emphasizing improved management, financial autonomy, operational efficiency, self-sufficiency and agreed operating policy frameworks in the form of performance contracts. In 1983/84 a study financed at Bank incentive under the Second Parapublic Technical Assistance Project (Credit 1398-SE) made specific proposals for the reorganization of the telecommunications sector. In July 1985, the following recommendations were adopted by Government: (a) OPTS's postal/financial services  - 3 - would be reorganized into the Office des Postes et de la Caisse d'Epargne (OPCE); and (b) the telecommunications branch of OPTS would be merged with TELESENEGAL, creating SONATEL. The reorganization became effective on October 1, 1985. Such a radical and complete restructuring of the post and telecommunications subsectors, effectively separating the operation of the related public services which were historically combined under the same administration and, at same time, corporatizing the telecommunications activities, was an exemplary first in French speaking African countries. Also, the law, related decrees and the Company Statute of SONATEL were the first case of establishment of a National Corporation in Senegal. 2.7 During the continued process of project preparation and of the restructuring of the telecommunications sector, the govermment effectively liaised and worked with the various aid-agencies which were interested in sector development. The Bank assisted in the formulation of the immediate term investment program, selecting priorities and emphasizing operational and quality of service improvements, and advised on the managerial and organizational needs of the new operating entity. In December 1984, the government organized an enlarged donors' meeting to present the ongoing sector reform and to agree on a viable co-financed 1985-93 investment program for the sector, and on a feasible immediate project for implementation 1985-90 with suitable technical assistance to the new Company. 2.8 The government subsequently confirmed its decision to create SONATEL and have it operational by October 1985. In April 1985, it also renewed its request for Bank assistance to sector development and reorganization. The proposed Second Project was further defined on the basis of the agreed investment program. Appraisal took place in June 1985. A credit of SDRs 19.0 million (US$22 million) was approved by IDA's Board of Directors on June 19, 1986. The credit and project agreements were signed on October 27, 1986 and Credit 1714-SE became effective on April 24, 1987. The timetable of the extended project preparation period, from completion of the first project to the conclusion and effectiveness of Credit 1714-SE, is detailed in Tables 3.2 and 3.8 of Part III. 3. Proiect Obiectives and Descriptio 3.1 PrQiect Objectives. In accordance with the Seventh Senegalese Plan's objectives for sector development and with the general goals of the government to improve operation and management of state enterprises, SONATEL's objectives under its program and the project were to: (a) rehabilitate existing installations, conduct systematic maintenance, and make additional investments to bring system utilization to a satisfactory level; (b) expand sector facilities to meet expressed demand; (c) increase operational efficiency and quality of service through improved management, staff trairing and maintenance; (d) generate a strong cash flow to finance a major share of investments, primarily through improved efficiency; and (e) make substantial net transfers to Government, directly through income taxes and indirecly through custom duties on imported equipment.  - 4 - 3.2 The project was a part of SONATEL's program, which was described for the period of 1986-93. The company's objectives with regard to service development and improvement of its operations and management were agreed upon with government in the form of program and performance contracts (Contrats Plan). SONATEL had its own business plans (plans d'entreprise) for parallel definition and follow-up of its achievements. The sector and the company's performance under both program and enterprise contracts were monitored and periodically evaluated by designated supervisory units in government and the enterprise. The project was implemented under two successive such Contrats-Plan for the periods 1986-89 and 1989-92. 3.3 Project Description. The project consisted of SONATEL's 1986-93 investment program excluding the works in progress at this point of time and some subprojects of lesser priority which could be deferred for future implementation. It aimed at: (a) satisfying high priority demand through expanding and balancing local systems in the Cap Vert (Greater Dakar) and two important provincial regions; (b) increasing system utilization through rehabilitation of existing equipment in particular in the northern region towards and in the Senegal river basin; and (c) improving operational efficiency and maintenance. It also included a program to assist and improve SONATEL management and train its staff. The project comprised: (a) installation of about 34,600 lines of switching equipment, with associated cable networks, buildings and subscriber facilities; (b) expansion and rehabilitation of existing long-distance transmission links, in particular to and within the northern region; (c) establishment of a national maintenance organization; and (d) technical assistance and staff training in financial management, accounting, tariff policy, an development planning using new technologies. 4. Proiect Design and Organization 4.1 Project Design. SONATEL investment program and the project were designed by OPTS in 1984 on the basis of ITU's Master Plan for Telecommunications Development in Senegal through 1996. OPTS initial program was divided into 3 phases for construction from 1985 on. Phase I included the continuation for completion in 1988 of ongoing works in the Cap Vert (Greater Dakar), Djourbel, Kaolak and Ziguinchor regions which are the largest ones. Phase 2 was for construction of local systems in three main other regions and the interconnection with neighboring countries (Gambia, Guinea and Mali) by 1986. Phase 3 for the period 1986-90 included additional: (a) expansion and new works for local systems throughout Senegal; (b) modernization and expansion of interregional links between the main transit exchanges; (c) rehabilitation of the Axe Nord link and related spur routes to the Senegal river region; and (d) overall rehabilitation and maintenance improvement works to increase operational efficiency and quality of service throughout the country. At the December 1984 lenders' meeting and during the subsequent project appraisal, OPTS overall program was reorganized to separate ongoing works to be continued and new investments. Practically, phases 2 and 3 were combined, but for some works to be realized on its own by the new Company, and the project was defined for construction 1986-92, as it was later implemented. A summary financing scheme was agreed upon and later confirmed during appraisal. The principal lenders and financiers were AfDB, BOAD, CCCE, CEDEAO, CIDA, FAC, IDA and OPTS/SONATEL.  4.2 Project Organization. OPTS and later SONATEL had an organized and experienced technical branch for network development, planning and implementation. The needed consultancy services for detailed planning and staff training in construction and operation of the systems were provided through the French FAC/CCCE aid for the local/regional installations an through CIDA for the interregional and international land-based PANAFTEL systems. The planning unit had adequate experience of the ICB process under multilateral or bilateral financing. Basic project design and project organization remained unchanged throughout implementation. SONATEL's development branch very efficiently used the technical assistance that was made available for project implementation and well improved its capabilities and experience in technical and economic assessment of the works and the related operational needs. The project was revised in 1989 on the basis of actual unit costs of the installations under ICB, which proved lower than initially estimated, thus enabling to acquire additional installations. Also modem transmission technology using the rapidly emerging optical fiber systems could be introduced earlier under the enlarged program, providing higher capacity equipment to replace microwave links where appropriate, in particular for the subproject to the northern part of the country (Axe Nord). All this enabled the installation of digital switching and transmission equipment, providing more efficient systems, with enlarged subscriber and traffic capacities at almost unchanged investment cost (paras. 5.2 and 5.5). 5. Project Implementation 5.1 Credit Effectiveness and Project Start-Up. Credit 1714-SE was approved on June 19, 1986 and signed on October 17, 1986. The Credit became effective on April 24, 1987. The three months delay for credit effectiveness was related to the execution of a subsidiary relending agreement between the government and SONATEL. The ten other additional conditions to the effectiveness of the Development Credit Agreement were timely met. These conditions included that: (a) the consultants services for development planning and project engineering, and to improve and strengthen SONATEL logistic and follow-up capacities for project implementation had been contracted; and (b) invitation to bid for goods and services to be financed out of the proceeds of the Credit and estimated to cost an aggregated equivalent of at least 50 percent of the credit amount had been issued. This ensured a timely start-up of the scheduled works. During the first two years, disbursements under the initial phase of the project were about 15% higher than forecast. By mid 1988, tender had been issued for 90% of the goods and services under the credit. 5.2 Procurement. SONATEL/OPTS had acquired experience in the Bank's procurement procedures under the First Project and the result of ICB was satisfactory. Tenders for each group of equipment and works attracted a large number of bidders and active competition for sophisticated digital installations resulted in favorable prices to SONATEL. Procurement of the IDA financed items took place under 7 main contracts signed from 1987 through 1990, all entered into in accordance with Bank procedures and under Bank supervision. Based on the contracts realized, the actual costs of the IDA project components were below appraisal estimates as follows: about 15% for switching and 25% for transmission equipment. Conversely, costs and requirements for support installations such as power, air-conditioning and measuring equipment, as well as consultancy services, were higher than originally estimated. With regard to switching equipment SONATEL proposed to disregard the lowest evaluated bid for local telephone exchanges in a large regional subproject. The basic reason was standardization. The second lowest bidder was a confirmed supplier for other installations throughout the networks and had proposed, during evaluation, to match the prices of the lowest bidder. IDA did not accept the proposal. SONATEL subsequently decided to finance the item from its own resources on the basis of the advantageous cost of the negotiated proposal. Government requested that the involved amount of SDR 3.8 million be cancelled from the credit. A reallocation of the credit  - 6 - proceeds was made in July 1990 on account of the reduced credit amount and of the revision in types and quantities of several project items (para. 5.3). 5.3 Project Implementation Schedule and Revision. Overall project implementation was not delayed and the various physical project components were completed in December 1992, in accordance with original schedule. Table 3.4.B in Part m gives details of the completion dates, estimated and actual, for the main project items. Delivery delays were not significant and resulted essentially from adjustments of the quantities and types of some installations during construction. At mid-project term, a project revision took place on the basis of actual equipment costs which enabled to acquire additional installations and to take advantage of the new optical fiber transmission technology which became feasible, in particular for the large capacity long- distance links. In 1989, SONATEL planned and decided to increase local and transit exchange capacities in several regions where demand justified it and to include an optical fiber (FO) cable system in the Axe Nord subproject, replacing the microwave link which was initially to be rehabilitated and expanded. Additional financing obtained from the European Investment Bank (EIB) and increased own resources from SONATEL's operations enabled to pursue the revised scheme. IDA agreed to finance a substantial part of the FO cable link and the additional engineering consultancy services required for its planning and implementation. Credit allocations were revised accordingly in September 1990 and the revised project was satisfactorily completed in December 1992, as per the agreed revised schedule. 5.4 The implementation of the institutional component was well monitored. It was satisfactory on most aspects. SONATEL's operational and organizational targets and the obligations of the Government and SONATEL to achieve them were set up under two successive Contrats-Plan which covered the whole project period. Technical assistance was timely provided to SONATEL at the inception of its operation as a commercial/business entity taking over activities from a government department structure, and the Company and its staff well benefited from this assistance. During its eight first years of operation SONATEL could set up and adequately staff its managerial, financial, administrative, operational and developmental structures and operate as an autonomous, reasonably efficient and productive commercial entity. These aspects are detailed in the following section 6 of this Part. 5.5 Project Cost. The cost of the project was estimated at CFAF 56.5 billion (US$156.9 million) at appraisal, with a foreign exchange component of CFAF 32.7 billion (US$90.8 million). The final cost of the project at completion, as revised and implemented as a part of SONATEL's adjusted investment program for the period 1987-93, has been estimated at CFAF 63.2 billion (US$217.9 million), with a foreign exchange component of CFAF 33.6 billion (US$115.9 million). SONATEL does not have specific cost accounting for its program/project investments. Final cost estimate was based on contractual costs as reported during supervision and on account of the related estimated costs for project preparation and support, and for duties and taxes. The foreign cost component remained unchanged, although about 25% more facilities were installed and important items such as the Axe-Nord link were realized with high capacity optical fiber cable rather than through rehabilitation/expansion of an existing radio link. This reflects the generally decreasing trend of the cost of telecommunications equipment during the project period. SONATEL benefited of both such trend and the competition through ICB under the project. The difference of about 25% in local costs reflects the larger works which were realized as well as some inflation during the seven year period of implementation. The difference of almost 44% in project cost when expressed in USD mostly reflects the depreciation of the US currency. A comparison of the estimated costs of the main project components, as  estimated at appraisal and on completion, is shown in Table 3.5.A of Part m. Project financing and the country exchange rate variations during the project period are detailed in Tables 3.5.B and 3.5.C of Part In, respectively. 5.6 Allocations of Credit Proceeds and Disbursements. The original and revised allocations and final disbursements of proceeds from Credit 1714-SE are detailed in Table 3.3.A, and the estimated and actual disbursements are given in Table 3.3.B of Part m. Early disbursements were timely and occasionally exceeded forecast before project mid-term, when SDRs 3.8 million were cancelled from the credit and the project was revised. Large works for sophisticated transmission systems resulted in bulk disbursements near project completion in FY92 and 93. Undisbursed amounts totaling SDR 4,336,061 were cancelled, of which SDR 3.8 million were at request in 1989, and SDR 536,061 at credit closing. 6. Project Results 6.1 Project Objectives and Performance Indicators. Table 3.6 gives a recapitulation of SONATEL's main operational performance indicators as planned in the SAR and achieved by the company during the implementation of the project. The data included indicate that the project's physical components were successfully implemented and the set objectives met. The efficiency of management has been considerably improved as a result of gradual restructuring of the telecom sector. The staff employed per 1,000 DEL has been reduced from 75 in 1987 to 33 in 1992, which compares very favorably with the targeted SAR forecast of 55 for 1992 and is expected to reach 30 in 1993, at full project development. With regard to traffic flow performance, the call completion rate targets of the SAR for 1993 (70% for local and 60% for interurban calls) were not achieved. An improvement of the overall call completion rate for long distance services is expected after final implementation of the fiber optics component of the backbone network in 1994. As for the efficiency of local calls, the rate of 55% achieved in 1992 is also expected to improve and meet the targeted 1992 SAR figure of 65% at full developments in 1994, when the rate of digitalization of the local exchanges capacity would reach 75%. 6.2 Physical Results. Details of the physical results of the project as outlined in the SAR and achieved during implementation are given in Table 3.6.A and Annex 1 of Part III. The total number of subscriber lines in service was increased from 26,548 to 58,095 for the period 1987 - 1992 and should reach 67 100 DELs at the end of 1993, which is more than 50% higher than the SAR forecasts of 36,900 and 42,800 for 1992 and 1993, respectively. As a result of the project revision in 1990 (para. 5.3) it was possible to increase the additional switching capacity by about 25%, and to implement transmission systems of larger capacity using fiber optics technology for the link to the northern part of the country, replacing the existing micro wave system. These increases are due to the effective procurement procedures applied and the resulting better prices, as well as to the improvement of the overall design of the project and optimal utilization of other available financing sources. Also, in parallel with the rapid digitalization of the network, centralized maintenance and operations control systems were introduced, allowing more optimal traffic routing and full utilization of the newly installed modern capacities. The availability of these systems is another factor for the future improvement of the quality of the services provided by the network. With regard to demand satisfaction, the comparison of forecast and actual growth of expressed demand versus connected capacity is given in Annex 1 to Part III, which shows that at any time during the project period: (a) the growth of implemented capacity outnumbered the SAR forecast targets; and (b) the actual expressed demand appeared to grow consistently at the pace at which new lines were made available for service.  - 8 - 6.3 Financial Performance. The overall project objectives, both physical and financial, have been reached or exceeded, except for current ratio, debt ratio, accumulated profit and accounts receivable. For comparison purpose, as fiscal year 1992 was extended from 12 to 18 months, the projection for that year was adjusted accordingly to include half of 1993 (see financial statement summaries in Annex 2 to Part III). The summary Table below provides a comparison for the entire period (78 Months) of some key indicators: Key Indicators Actual SAR Actual/SAR Cumulative Borrowing 54,910 27,530 99% * Cumulative Capital Expenditure 80,972 69,049 17% Fixed Assets as of Dec 31, 1992 55,111 58,496 -6% No. DELs as of December 31, 1992 58,055 38,900 49% * Cumulative Net Profit 23,341 29,993 -22% * Reflects project's revision (paras. 5.3 to 5.5). 6.4 Key Financial Performance Indicators. Key financial performance indicators are given in Table 3.6.A of Part m, which shows that: (a) the average operating ratio is satisfactory; (b) the average rate of return on fixed assets (after tax) over the period of 78 months was 14%, as compared to 20% in the SAR. This resulted from heavier investment (17% more than planned at appraisal), which has, however, contributed to raising the 1992 rate of return to 24%, as compared to 11% in SAR; (c) current ratio is generally lower than projected, averaging only 1.2 as compared to 1.9; (d) average debt ratio [Debt/(Debt + Equity)] was slightly higher: 0.4 instead of 0.3, as a result of the additional borrowing at project revision; (e) the accounts receivable as a percentage of gross revenue was quite high, for all categories of customers. It started with 96% in 1987, remained unchanged in 1988, decreased to 25% in 1991, and swung back to 45% in 1992. The apparent improvement of the situation in 1991 and 1992 was due to the debt swapping between the State and SONATEL over the 1989-1992 period, totaling CFAF 38.9 billion, which was authorized under SONATEL's performance contracts for the periods 1886-89 and 1989-92. Private arrears have gradually decreased, from 12,175 to 8,120 CFAF million, but still represented about 4 months billing in 1992, exceeding the SAR estimates by about 27% (see Annex 2.C in Part III); (f) average debt service coverage was 3.2 as compared to 3.0;  -9- (g) average cash generation, as a percentage of capital expenditure, was substantially higher than projected, 80% instead of 62%; it was used as follows: 93.6% for capital expenditure, 5.5% to subsidize OPCE until 1990, and the remaining for reserves; one should note that self-financing and borrowing did increase in parallel; and (h) total cash flow from the sector to the State was 23% higher than projected. 6.5 Tariff Covenants. In accordance with the Project Agreement, a tariff study was made in 1988-89. The tariff structure was revised in July 1990 on the basis of the study, and the overall rates were brought down, i.e. by about 4.4% per annum in actual terms (average of seven years), including a 6% reduction in July 1990. Additional changes took place in 1991 and 1993 to reflect service costs and, at the same time, meet users' demand. The trend in both tariff changes was also to reflect the decreasing cost of SONATEL's services. 6.6 Internal Financial Rate of Return. With the following assumptions, the internal financial rate of return on investment was 20%, as compared to 13% in SAR: - Incremental operating cost per DEL of newly added DELs rises gradually to reach 2/3 of the operating cost of al DELs in 1992, and remains at this level until the end of their usefulness; - Revenue per DEL of newly added DELs is the same as that of old DELs. For detailed calculation, see Table 3.6.B. 1 in Part III. 6.7 Economic Rate of Return. For telecommunications projects, in order to take into consideration consumers' willingness to pay for services which would otherwise be unavailable, and indirect benefits received by non-users of telecommunications services, economic rate of return is generally estimated to be higher by at least 8 to 12 percent than the internal financial rate of return. Such higher estimated return reflects the actual greater value to the economy of telecommunications investments such as those from the project, for two broad groups of reasons which are not accounted for in the financial rate of return. Firstly, the project increased the quality of service through the digitalization of the facilities (para. 6.2). Secondly, important external benefits are associated with the improvement of telecommunications services, i.e. transport substitution, increased efficiency in government, enterprise management, use of available skills and expertise, distribution of goods and services, provision of health, social, educational and emergency services, economic decentralization, etc. In so doing, as was done during appraisal, the estimated ERR would be about 30%, which is much higher than estimated in SAR (19%). 6.8 Fiscal Impacts. Positive fiscal impacts were 23% higher than estimated (For details see Table 3.6.B.2 in Part III). This was due mainly to more investment and more production. 6.9 Institutional Impact. Through adequate technical assistance and training, the newly established SONATEL was able to effectively organize its structure and operations on a commercial/business like basis with suitable autonomy. The monitoring of its operation took place under two successive "Contrats-Plan", during the project period, which were timely entered into between the Government and SONATEL and closely supervised by follow up/audit units. SONATEL's performance met most of the Contrat-Plan objectives. One weak point remained the arrears for usage of services by the Government and parastatal entities which were periodically compensated against SONATEL's fiscal dues. This did not comply with the  - 10- related covenant of the Credit Agreement and is a very counterproductive practice with regard to both the production and usage of the services and the finality of the fiscal obligations. Such practice should be adequately phased out and promptly abandoned under the future Contrats-Plan, in order to ensure a thoroughly sound financial management of the sector and of its commercial operation. 7. Project Sustainability and Risks 7.1 The project was timely and satisfactorily implemented providing more facilities than initially planned. SONATEL's organization and management were strengthened, making it a viable and capable commercial operator with corporate status. The more rapidly than planned growing demand justifies continued growth of the telecom infrastructure in the near future and will ensure efficient use of the existing capacities. The benefits from the project are significant and there are no prospects that satisfactory operation would not continue. The risks concerning the sustainability of the project are only minimal due to the ability of the present organization to operate the services and implement coordinated further development. Beyond the satisfactory operational and organizational results from the project, however, the need for more in depth sector policy reform to promote competition and increase private participation in sector development and operations remains to be taken care of, together with the establishment of adequate regulatory institutions. Further evolution along these lines would both ensure and enhance the sustainability of the two telecommunications projects now completed in Senegal. These matters should be discussed with and taken up by Government. 8. Bank's Performance 8.1 Overall Bank performance has been satisfactory. The Bank maintained adequate liaison and cooperation with the co-lenders to deal with the evolving investment program of SONATEL and to insure that institutional improvement would enable the Company to meet the planned organizational and operational performance. The project was supervised as detailed in Table 3.8 of Part Ell. A total of 7 missions, i.e. once annually, were performed during he project implementation period. Some of these supervision missions were accomplished with other co-lenders (CCCE, AfDB and EIB). 9. Borrower's Performance 9.1 Covenants. The status of compliance with the major covenants and conditions of the Development Credit Agreement (DCA) and the Project Agreement (PA) is indicated in Table 3.7 of Part m. The main points of non compliance were: (a) still continuing compensation of reciprocal debts, including Government's arrears for service usage versus SONATEL fiscal dues, which is in contradiction with the conditions in DCA that all bills by public sector customers should be dully paid (according to normal commercial practice) within 45 days; and (b) no effective provisions were included in the State budget for reduction and adequate control of the telephone consumption by the Public Sector, though several attempts were made to limit service usage by Government officials. The rest of the DCA and PA covenants were complied with, some of them with slight delays (for example the last subsidy payment to OPCE was made in 1990 instead of end June, 1989, as agreed in the DCA). 9.2 Closing Date. The initial closing date of the Credit 06/30/1993 was unchanged and the last disbursement was made on October 15, 1993. Undisbursed amounts totaling SDR 4,336,061 were canceled, of which SDR 3.8 million were at request in 1989, and SDR 536,061 at credit closing.  - 11 - 10. Prject Relation 10.1 Bank's relationship with SONATEL and the government authorities responsible for the telecommunications sector has been efficient and productive. 11. Consultancy Services 11.1 Technical. The technical assistance provided for project preparation was carried out initially by ITU sponsored studies, as a continuation of the activities during the realization of the First Project (Loan 866- SE). During project implementation, about $1.4 million of the credit were used for training of operational staff and technical assistance aimed to institutional restructuring, improvement of managerial skills and detailed engineering and design of the network. IDA financed consultancy assistance covered the following activities: (a) Master plan for implementation of information systems; (b) Management of transport facilities and warehouses; and (c) Management of project implementation (covering the present project and methodology for management of any future project). The technical studies for final engineering specifications, bidding documentation and implementation supervision of the fiber optic component of the link to the north were also financed from the credit in addition to the technical assistance provided under bilateral and multilateral agreements (respectively FAC, CCCE and BOAD, AfDB). SONATEL adequately used all this assistance. 11.2 Financial. Consultancy services to assist SONATEL in the field of financial management and accounting were mainly provided under bilateral assistance from CIDA. The entity was able to establish its accounting and financial operations on a satisfactory basis during the project period. 11.3 Tariff Study. A study for optimization of tariff structures and improvement of tariff policies was carried out in 1989 and the recommendations from this study were later on applied in 1990, allowing better traffic distribution through differentiated tariffs (day and night/busy hours/seasonal fluctuations) and more cost effective tariff levels. This resulted in substantial increase of the traffic generated and better revenues for SONATEL. 11.4 One must stress the due attention given by SONATEL's management and its financial, operational and planning departments to the good organization and effective coordination of the consultancy services which were provided from several sources under the project. This ensured a prompt strengthening and mastering of the relevant qualifications and fields of responsibilities within the Company and its staff. 12. Project Documentation and Reporting 12.1 Detailed project reports were provided by SONATEL with regularity during the implementation. Additional data were made available during supervision missions in the format of annual budget forecasts, operational reports and review documents (Tableau de Bord du Directeur General, Statistiques Annuelles des Telecommunications, financial and operational Statements and Statistics etc.). The abundant information presented in these documents reflected the project achievement and the effective monitoring of its implementation, enabling a satisfactory supervision of the project.  - 12 - PROJECT COMPLETION REPORT SENEGAL SECOND TELECOMMUNICATIONS PROJECT (CREDIT 1714-SE) PART II Borrower's PersDeRive of the Design and Implementation of the Project and its Development Impact This Part was prepared by SONATEL and the Government and sent to the Bank on December 29, 1993. The following is an English translation of the original document in French. INIRODUCTION Inadequate infrastructure development, mediocre quality of service and the conviction that the country's economic development would be enhanced considerably by a reliable telecommunications system all prompted the Government of the Republic of Senegal to give the telecommunications sector priority in the Seventh Economic and Social Development Plan for 1985-89. This decision was reflected in Law No. 85-36 of July 23, 1985, which was implemented on October 1, 1985 and resulted in the grouping of domestic and external communications, previously operated by two separate companies, i.e. Office des Postes et des Telecommunications and Telestndgal, under Socitem Nationale des Telecommunications (SONATEL). Ihe broader autonomy thus given the sector was tied to the signing of a Contrat Plan, which defines the mutual obligations of the State and SONATEL. The latter's authority is limited to executing the expansion and modernization of the telecommunications network with a view to bringing about an effective revival of the sector, which is seen as tlue cornerstone of the country's economic, social and cultural development. SONATEL, therefore, has prepared an investment program in keeping with the Telecommunications Rehabilitation Plan approved by the Government. This program, which covered the period 1985-92, incorporated the Second Telecommunications Project discussed in this report, which focuses on the following: - Project content; - Project cost at appraisal; - Financing plan at appraisal; - Donors' contribution to project implementation; - Supervision of project implementation; - Benefits deriving from project; - General direction of Senegal's telecommunications policy.  - 13 - I. PROJECT CONTEN 1.1 PROJECT OBJECTIVES. The objectives of the project are threefold: (a) to improve operational efficiency and maintenance; (b) to increase telecommunications system utilization through rehabilitation of existing equipment; (c) to expand the network. 1.2 PROJECT DESCRIPTION. The project originally consisted of the following parts: Par A: Installation of approximately: 1. 15,000 lines of electronic switching and intraregional transmission equipment in the Dakar region. 2. 3,400 lines of electronic switching equipment for eight cities in the Ziguinchor, Kolda and Tambacounda regions, including construction of related buildings and installation of transmission equipment, with associated cable networks. 3. 7,200 lines of electronic switching equipment for 10 stations in the Thies, Fatick and Kaolack regions, including construction of related buildings and installation of transmission equipment, with associated cable networks. Part B: Rehabilitation of the 'Axe Nord' transmission link (Ibies-St. Louis - Richard Toll - Bakel), including branches and associated facilities. *artC: Maintenance improvement through: 1. Establishing and equipping within SONATEL of a national maintenance organization for telecommunications installations. 2. Maintenance of national telecommunications installations. Par 1): Installation of feeder links in the southern and southeastern regions. PartE: Installation of multiplex equipment and execution of other networks in all regions. EarLE: Management improvement through: 1. Strengthening of SONATEL's medium and long-term telecommunications sector planning, and improvement of its procurement and project implementation capacity; 2. Establishment of a data processing system for SONATEL's billing and collection, payroll and major accounting operations; 3. Adoption of a management information system to produce financial and technical reports;  - 14 - 4. Study of telecommunication tariff structure; 5. Improvement of SONATEL's logistics capacity in the areas of supplies, vehicles and workshop facilities. II. ESTIMATED PROJECT COST AT APPRAISAL (in USS millions) Component Local currency Foreign currency Total Thies region: switching, networks, transmission, buildings. 3.8 6.9 3.1 Ziguinchor - Cap-Skiring - Boucote: Hertzian links, local installations. 0.7 1.0 0.3 Cap Vert region: switching, local networks, junctions. 26.4 47.4 21.0 Ziguinchor, Kolda and Tamba regions: switching, networks, transmission, buildings. 12.3 21.8 9.5 Engineering and training 1.7 2.1 0.4 National Maintenance Plan 11.6 18.1 6.5 Kaolack and Fatick regions: switching, networks, transmission, buildings. 6.5 11.3 4.8 Miscellaneous works in all regions 8.8 13.8 5.0 Technical Assistance 0.5 0.5 0.0 Total base cost Technical contingency reserve 3.7 7.5 3.8 Price increase reserve 14.8 26.5 11.7 Total Project Cost 66.1* 90.8 156.9 * The local currency cost includes CFAF 12.8 billion (US$35.5 million) in customs duties and local taxes.  - 15 - m. FINANCING PLAN AT APPRAISAL (in US$ millions) Donor Local currency Foreign currency Total T % IDA 0.0 22.0 22.0 14 CCCE 0.0 20.8 20.8 13 BOAD 0.0 4.2 4.2 3 AfDB 0.0 12.6 12.6 8 CPG 0.0 5.6 5.6 4 SONATEL 66.1 25.5 91.7 58 TOTAL 66.1 90.8 156.9 100 IV. DONOR CONTRIBUTIONS TO PROJECT IMPLEMENTATION Several foreign sources of financing have contributed to the implementation of the Second Telecommunications Project, through various subprojects, viz.: - Modernization and expansion of telecommunications facilities in the Dakar region: at a cost of CFAF 16,500 million, excluding taxes, financed by: