India - Ninth Telecommunications Project

Document of The World Bank FOR OFICIAL USE ONLY Report No. 14722 PROJECT COMPLETION REPORT INDIA NINTH TELECOMMUNICATIONS PROJECT (LOAN 2813-IN) JIUNE 30, 1995 Infrastructure Operations Division Country Department II South Asia Regional Office 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 Bankl authorization.  PROJECT COMPLETION REPORT INDIA NINTH TELECOMMUNICATIONS PROJECT (LOAN 2813-IN) FISCAL YEAR (FY) April 1 to March 31 Currency Equivalents $1.00 = Indian Rupee 13.0 (at appraisal) $1.00 = Indian Rupee 31.4 (in 1993) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED DEL - Direct exchange (telephone) lines DOE - Department of Electronics DOT - Department of Telecommunications GDP - Gross Domestic Product GOI - Government of India HCL - Hindustan Cables Ltd. HTL - Hindustan Teleprinters Ltd. ICB - International Competitive Bidding ITI - Indian Telephone Industries, Ltd. LIB - Limited International Bidding MOC - Ministry of Communications MTNL - Mahanagar Telephone Nigam Limited (Bombay/Delhi Telephone Corporation) OECF - Overseas Export Credit Fund of Japan PABX - Private Automatic Branch Exchange PCM - Pulse Code Modulation PCO - Public Call Office PSE - Public Sector Enterprise R&D - Research and Development STD - Subscriber Trunk Dialing TAX - Trunk Automatic Exchange VSN - Videsh Sanchar Nigam (corporation created April 1, 1986 to operate overseas service; formerly Overseas Communications Service)  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 30, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on India Ninth Telecommunications Proiect (Loan 2813-IN) Attached is the Project Completion Report (PCR) on the India: Ninth Telecommunications project (Loan 2813-IN, approved in FY87) prepared by the South Asia Regional Office and the Industry and Energy Department, with Part II prepared by the Borrower. The project aimed at supporting: (i) the modernization and network expansion of four metropolitan areas (Bombay, Delhi, Calcutta and Madras) and the interconnecting networks; and (ii) limited institution-building measures in the Department of Telecommunications (DoT) and in the government-owned Delhi/Bombay telecommunication corporation (MTNL). The project achieved its physical objectives, albeit with an eighteen-month delay caused in large part by procurement bottlenecks; indeed, the government's decision to procure locally some major project components led to the cancellation of more than half of the US$345 million Bank loan and its substitution by local funds. Key institution-building components (including training, improvements in planning and budgeting systems) were also completed under alternative funding arrangements. Although productivity and quality of service targets were essentially achieved, the sector remained unable to meet a growing demand, pointing to both the benefits and the limits of the traditional public utility model (even under a corporatized framework as in MTNL's case), and the need to consider alternative (particularly private) funding sources for future sector development. The project outcome is rated as marginally satisfactory, its institutional development as modest and its sustainability as likely. The PCR is thorough and informative and no audit is planned. Attachment 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT INDIA NINTH TELECOMMUNICATIONS PROJECT (LOAN 2813.IN) Table of Contents PREFACE ................................ i EVALUATION SUMMARY ...... ........... .................... ii PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE ............ 1 1. Project Identity .......................... 1 2. Background .......................... 1 3. Project Objectives and Description ........................... 1 4. Proiect Design and Organization ........................... 3 5. Project Implementation .......................... 3 6. Project Results ........................... 6 7. Project Sustainability ........................... 8 8. Bank Performance .......................... 9 9. Borrower/Implementer's Performance ........................... 9 10. Project Relationship ........................................ 9 11. Consulting Services ........................................ 9 12. Project Documentation and Data ................................ 9 PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE .... ...... 10 PART III - STATISTICAL INFORMATION ........................... 11 This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.   i PROJECT COMPLETION REPORT INDIA NINTH TELECOMMUNICATIONS PROJECT (LOAN 2813-IN) PREFACE This is the Project Completion Report (PCR) for the Ninth Telecommunications Project in India for which a loan of US$345.0 million was approved on May 14, 1987. The amount of the loan was revised in stages and ultimately reduced to $163.17 million. The loan was closed on December 31, 1993. The last disbursement was made on March 18, 1994 and the undisbursed balance of $4.833 million was canceled. The PCR was jointly prepared by the Infrastructure Operations Division Department 11 of South Asia Region and Telecommunications and Informatics Division of the Industry and Energy Department of Finance and Private Sector Development. Preparation of the PCR was based inter alia on the President and Staff Appraisal Reports, the Loan Agreement, supervision reports and correspondence between the Bank and the Borrower and internal Bank memoranda.   ii PROJECT COMPLETION REPOR l INDIA NINTH TELECOMMUNICATIONS PROJECT (LOAN 2813-IN) EVALUATION SUMMARY 1. Objectives: The project was designed to address a number of broad institutional issues including improvements in the delegation of authority, planning and budgeting, and procurement in the Department of Telecommunications (DoT) while at the same time supporting the modernization and network expansion of the four metropolitan telecommunication areas of Bombay, Delhi, Calcutta and Madras and the interconnecting networks. The basic objectives of the project were to: (a) help meet the demand for telecommunication services in the four metro districts by adding 715,0Q0 subscribers. (b) improve the quality of local and long distance telephone service and billing. (c) improve the efficiency and profitability of the network especially in high traffic density areas. (d) meet training requirements in the new optical fiber and digital technologies; and (e) support institutional improvement efforts of DoT and its corporation, Mahanager Telephone Nigam Limited (MTNL) which provided telecommunications services in Delhi and Bombay. The project was an integral part of DoT's Seventh Plan for expansion of telecommunications services throughout India. The Bank funded components included imported cables and transmission equipment. Counterpart funding from DoT was used to procure locally produced telephone sets and some switching equipment; the remainder of the switching equipment came from Japan using OECF funds. 2. Implementation Experience The procurement of underground cables and local and long distance transmission facilities suffered delays of up to one and one-half years behind the original schedule. These delays were mainly due to the lengthy procedures which were not conducive to quick decision making. The need for DoT to obtain approval from the Department of Electronics as well as other inter-governmental clearances before award of contract contributed significantly to the delays. The decision to maximize indigenous procurement as a result of the policy of the new Telecom Commission (est. 1989), resulted in cancellation of parts of the loan in various stages of procurement, eliminating the domestic satellite earth station equipment, the Automatic Message accounting system and ultimately the packet switching equipment.  iii This resulted in the cancellation of $177 million in the original loan amount of $345 million. The implementation of some of these components was delayed by this cancellation, and some had not been completed by project closing. It is expected however, that all components will be completed within two years as DoT/MTNL has arranged financing in each case. On the institutional side, the training and manpower development program was implemented with little use of loan funds mainly with the assistance of UNDP/ITU. DoT itself introduced arrangements for increasing delegation of authority to its field units, and managed the development of its own system for streamlining it planning and budget process. 3. Results The project achieved its major objectives although its financing from the Bank loan was substantially reduced. The financial and economic rate of return on the project is estimated in excess of 23%. The number of additional subscribers connected between 1987 and 1992 was 675,000 in the four metro districts, close to the target of 715,000. During the same period, DoT exceeded its target for connection of nationwide lines. Despite this good result, the total expressed unsatisfied demand for telephone service nationwide increased by 100% to 2.3 million lines, indicating the need to further accelerate supply to meet demand. The quality of service overall improved between 1987 to 1992 with respect to all the relevant performance indicators although it remains not very acceptable by international standards. Complaints decreased from about 37 to 25 per month for 100 subscribers; failure of local calls decreased from 37 to 25% and long distance calls from 49 to 28%. Bill collection rates remained very good but newspaper reports suggest that a serious problem remains with respect to the accuracy of DoT/MTNL's bills. The revenue per direct exchange lines has shown considerable increase from about IRs 3893 (US $130) in 1987 to IRs 5431 (US$180) in 1992. The productivity as measured by the number of staff improved from 100 to 64 per 1000 lines between 1987 and 1992. Progress was also achieved in institutional improvements in the delegation of authority to the DoT's regions and with their planning and budgeting processes. With regards to procurement, DoT did not meet the Bank's minimum standards on timeliness and, as a result of this and a change in funding of some project items at loan closing, some of the key project components were still in the process of being completed---e.g. packet switching, modernization of earth stations, and network management. 4. Sustainabilitv The sustainability of the project is assured. DoT/MTNL have a stable technical and commercial base and are expected to perform well financially as in the past given their monopoly status. Even if DoT is subjected to competition, there position of pre-eminence is likely to remain and the project would therefore be sustained. Under a competitive scenario, DoT/MTNL are likely to continue as the main operator for a long time because of their huge operational base, the overwhelming demand for services, and the Governmnent's stated position that it would protect the jobs of existing DoT staff. Tariffs under a competitive environment are likely to remain at or around the existing level and network usage levels are likely to increase thereby improving the returns on the project investments. 5. Findings and Lessons The project was successful in that most of the objectives were met. However, there were two major problems during implementation of the loan: the long procurement delays and the cancellation of  iv a large portion of the loan which delayed project implementation. The procurement delays and the cancellations suggest that DoT could have given much greater and much more appropriate priority to the project and to servicing the needs of its customers. Also, while institutional improvements were made, these too were delayed. It is difficult to assess the effect of the loan on institutional development issues. As planned, DoT increased the delegation of responsibility to field units and developed an important new planning and budgeting system; but neither of these jobs were completed using loan funds as intended. Also, DoT took a long time to begin implementing these arrangements which had been agreed during project appraisal. The first lesson to be drawn is that where past experience suggests the likelihood of implementation delays on procurement and consultancies, then contracting arrangements need to be much further advanced in the project cycle than they were in this case. At the time of this project, advancing procurement to the stage of the Bank's no objection to contract awards as a condition of Board presentation, was quite innovative. However, it was not good enough and long delays continued until the awards were actually made. To reduce the remaining delay, it may be necessary to have the supply and consultant contracts signed prior to Board presentation; such contracts to become effective on the Bank's approval and effectiveness of the loan. Arrangements of this nature should be relatively easily accommodated in the case where the Bank has an ongoing presence in the sector from previous investment projects. The second lesson is that institutional development of large monopoly organizations is inherently very difficult. A monopoly position removes or limits any externalities which would otherwise induce change. Once the Bank's loan is awarded, there is little incentive for the monopoly organization to carry out institutional development actions which it is not committed to. This is made more difficult if precise mechanisms for carrying out those actions are not agreed to prior to Board approval (as in this case). There are at least three approaches which could be taken to overcome this problem: (a) advance the hiring of consultants by finalizing the terms of reference and selecting the consultants prior to Board presentation. Alternatively, (b) address the sector structure issues. The modern approach for telecommunications is to privatize and or introduce competition into the sector. Even if competition is not feasible, breaking up large monopolies can bring significant improvements through benchmark competition and increased executive accountability for performance. Or (c), if experience shows that major structural reforms are needed but the government is not prepared to take appropriate actions, as a last resort the Bank should consider withdrawing its support for investment lending in the sector, or limit lending with a much greater focus on institutional development. In the case of this loan, the government had begun sector reform by corporatizing part of the DOT structure through the creation of the MTNL (for providing services in Delhi and Bombay), and the VSNL for providing international services. During the project the Bank concluded that further project lending to DoT would not bring about the major institutional improvements needed. It therefore decided that no further loans to the sector should be given without major structural change first being implemented'. Subsequent to the project, the Bank has provided support to the Governnent of India on overall sector reform through a Japanese Grant for telecommunications technical assistance. Under the project, Indian consultants have developed guidelines for creation of a regulator and conditions of entry for private operators. On May 13, 1994 the government of India announced a National Telecom Policy 1994 which breaks the monopoly of the DoT by permitting private operators to assist DoT in providing value added and basic service.  l  PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Name Ninth Telecommunications Project Loan Number 2813-IN RVP Unit : South Asia Country India Sector : Infrastructure 2. Background The Department of Telecommunications (DoT) within the Ministry of Communications (MOC) provides public telecommunications services in India and with neighboring countries. In an important institutional reform, DoT was separated from the Department of Posts in January 1985. The Mahanagar Telephone Nigam Limited (MTNL) under MOC, a public corporation established April 1, 1986, operates the Bombay and Delhi networks. The Videsh Sanchar Nigam (VSN--overseas communications service) was also established April 1, 1986 as a public corporation under MOC to operate telecommunications services with the rest of the world. At that time, telecommunications equipment was mostly manufactured locally by three public sector enterprises (PSEs): (a) Indian Telephone Industries Ltd. (ITI) under MOC; (b) Hindustan Teleprinters Ltd. (HTL), under MOC; and (c) Hindustan Cables Ltd. (HCL), under the Ministry of Industry. A vast array of private and joint venture public/private companies are now involved in the local manufacture of virtually all telecommunications equipment including exchanges, transmission systems and subscriber equipment and cables. Prior to this project, the Bank Group had made eight loans and credits (totalling $800 million) for telecommunications since 1962. These provided most of the foreign exchange for India's telecommunications development. During this period, the number of working telephone lines increased from 373,000 in 1962 to more than 5.8 million by 1992, the trunk network was expanded and modernized, and an automatic telex network of about 48,600 subscribers established. The Bank Group also assisted DoT to modernize its organization and management structure, including establishing an Economics Cell for analyzing pricing, demand, and investment issues in the sector. The main implementing agency has been the Telecommunications Branch of the Posts and Telegraph Department (now DoT); however, in the Seventh and Eighth Projects (Loan 1592-IN and Credit 1112-IN), the Bank also financed investment in ITI, HCL and HTL. Project performance audits have been conducted on the first six projects. These audits have found the projects to be generally successful in terms of expansion and financial performance. The Seventh and Eighth projects, which were closed in December 1984 and December 1985 respectively, had a largely similar impact. However, like their predecessors, both projects suffered lengthy procurement delays and had little institutional development impact. 3. Project Objectives and Description 3.1 Project Objectives The basic project objectives were to: (a) help meet the demand for telecommunications services in the four metro districts, by connecting an additional 715,000 subscribers;  2 (b) improve the quality of telephone service and billing in the metro districts, through the introduction of modem technology, network rehabilitation, and replacement of substandard equipment; (c) provide good quality subscriber trunk dialing (STD) service between the metro districts, and to other major cities; (d) improve the efficiency and profitability of the network, especially in areas with high traffic density; (e) meet the training requirements in the new digital and optical fiber technologies; and (f) support DoT/MTNL's institutional improvement efforts. The project also had a general objective to increase the effectiveness of domestic procurement through the expanded use of competitive bidding for domestic procurement and the introduction of commercial contracts for sole source procurement between DoT and government manufacturers. 3.2 Proiect Description The project included all the investments in the four metro cities during the Seventh Plan, plus the new long distance links between them, a long distance network management system, a training component and consultancy services. The main project components were: Part A. Installation of local and long distance transmission facilities (including optical fiber and digital microwave systems), within and between the four metropolitan networks of Bombay, Calcutta, Delhi and Madras, together with local and long distance telephone and telex switching facilities and buildings, to increase the telephone exchange capacity in the four metropolitan areas by about 1,000,000 local lines and 50,000 long distance trunks, and the telex exchange capacity by about 14,000 local lines. Most of the transmission and equipment and some of the cables to be imported were to be financed from the proposed Bank loan. With the exception of 195,000 lines to be imported from Japan, the telephone switching equipment was to be manufactured in India. Part B. (i) Modernization and expansion of domestic satellite earth station networks; (ii) Establishment of a packet switched data network between the four metropolitan cities and other major cities and industrial areas; (iii) Establishment of a long distance network management system, including appropriate facilities to improve traffic flows by locating and bypassing or eliminating bottlenecks; and (iv) Introduction of automatic message accounting facilities in the four metropolitan networks, to permit detailed billing of STD calls. Part C. Support, to the UNDP funded training program for upgrading five regional telecommunications training centers and manpower development, including 99 staff- months of ITU experts, 125 fellowships, and training and laboratory equipment.  3 Part D. Provision of consultants' services for institutional improvements in DoT and for design of B (iii) above. 4. Proiect Design and Organization The project was designed to help implement that part of the Seventh Plan (1985-90) which focused on high priority telecommunications investments in the key metropolitan networks of Bombay, Delhi, Calcutta and Madras and the long distance backbone transmission routes between them. The rational was to support the use of modern digital and optical fibre technologies which required foreign exchange resources for the direct import of equipment not manufactured in India. The project was also designed to support the components generating the network's greatest profits, thus easing the sector's overall constraints in the medium and long term and also providing relief to the areas with the longest waiting time for new connections. The project size was contained within DoT's capacity to grow and to match the availability of local counterpart funds. The other part of the project was designed to bring institutional improvements to increase operations efficiency, reduce staffing ratios, streamline project sanctioning procedures, and retrain staff displaced by new technology. However, this part of the project was not adequately developed and there were no terms of reference prepared and agreed with the DoT on what to address and how to proceed. The investment part of the project was organized to overcome the long procurement delays experienced by earlier projects by requiring Bank clearance of contract award on at least 40 % by value of procurement items. Overall the project design was very good and took into account previous lending experience. 5. Proiect Implementation 5.1 Loan Effectiveness and Proiect Start-Up: The loan was approved on June 29, 1987 with a target effectiveness date of September 28, 1987. The loan became effective on that date when the Subsidiary Loan Agreement was executed by GOI and MTNL, which was a condition of effectiveness. 5.2 Implementation Experience: The project was originally scheduled to be completed by December 31, 1991. However, the loan closing date was extended from December 31, 1992 to December 31, 1993 to allow time for project completion. Part A components for basic infrastructure had been procured and about 95 % installed by March 1992. Targets for connection of telephone lines in Delhi, Bombay and Madras were met by March 1991, whereas targets for Calcutta were not met until March 1993. Overall, the main part of the project was about 1 'h years late, although some items remained uncompleted at loan closing. These were the Part B items of packet switching, network management, modernization of earth stations, and automatic message accounting (see Table 2, Section 6). The main reason for the project delay was the time taken to complete procurement. The implementation schedule provided for procurement action on the major components for the metropolitan networks and long distance systems to be completed by the first quarter of 1987. However, DoT was only able to complete procurement action by mid-1988. The project underwent a major change in 1989 with the creation of the new Telecom Commission. The Commission established a policy of maximizing indigenous procurement and as a result decided not to proceed with the use of Bank funds to buy the remaining Part B items. The Commission instead sought Bank agreement to use the funds to buy components for local  4 The Commission instead sought Bank agreement to use the funds to buy components for local manufacturers. When the Bank was unable to accede to this request, GOI agreed to cancel $135 million of the loan reducing it to $193 million (See Table 6C, Part III). Once the procurement action was completed, equipment implementation was completed quickly and without major problems. S.3 Procurement: Special action was taken in an attempt to prevent a repeat of the poor procurement performance in the seventh and eighth projects. The main requirement was for DoT to issue bid invitations and present evaluation reports to the Bank for eight major items before Board presentation in May 1987. These items had a value of about 56% of the loan amount. Except for an item of relatively small value, this requirement was met. However, inordinate delays began thereafter. By early 1988, about a year after the Bank's clearance, DoT had placed orders for only three out of the eight items amounting to a value of about $66.5 million, or about 20% of the loan amount. On average, DoT took about 10 to 13 months from Bank clearance of the bid evaluation to placement of purchase orders. A large part of the delay was due to lengthy inter- Government clearances. Delays also occurred in the clearance of the DoT's evaluation reports by the Bank. These were mainly due to numerous clarifications required by the Bank on the content of the evaluation reports. The Bank supervision missions repeatedly discussed the procurement delays and sought remedies. The serious nature of the problem resulted in a DoT delegation visiting the Bank in October 1988. A bidding irregularity involving changes in bid prices on cables, which was discovered by DoT, exacerbated the problem. The funds associated with this incident were eventually cancelled on the basis of misprocurement. In March, 1989, the Bank again expressed its concern regarding the protracted and apparent unnecessary delays with procurement. The main concerns at that time were the extensive delays in contracting for underground cable; and the lack of a bid evaluation for the packet switching a year after bid opening. The Bank sought from DoT an undertaking to carry out an urgent and comprehensive review of its procurement procedures. Following that review, DoT did take some actions to streamline its procurement decisions, although the new procedures had little effect on speeding up procurement of the remaining items. The effect of the Telecom Commission's decision to cancel most of the remaining procurement is shown in Table 6C at Part III of the report. Although it was decided by the Telecom Commission not to proceed with procurement of the Packet Switching Data Systems but to design and produce an indigenous system, the decision was later reversed. The Bank agreed to the issue of a new bid document in early 1992, but its issue was so delayed that procurement and installation of the item could not be completed within the two year extension of the loan closing date. The Bank informed DoT it could not fund the item because of the delay and DoT agreed to procure this equipment using its own funds. At project close, India remained one of the few countries without a comprehensive packet switch network which is so critical for business services. Procurement of the final items of test equipment for optical fibre and transmission systems were finally completed by December 1993.  5 5.4 Proiect Costs: The project's estimated cost at appraisal was $2,050 million with a foreign cost of $418 million. Table 5A in Part IlI gives an estimate of the cost of the project on completion assuming the remaining items will be completed as planned. The estimated actual cost of the project was $1,655 million with a direct foreign cost of $224 million. There was saving of about 20% on total project cost with a saving in local cost of about 13% and direct foreign cost of about 47%. The lower costs were attributed to a general fall in telecommunications prices during the project period. Contingency allowances were not used. The savings in direct foreign cost was due to the substantial reduction in foreign procurement and funding which resulted in cancellation of about $135 million (see para 5.3). 5.5 Disbursements: DISBURSEMENTS The disbursement performance on Planned vs. Actual ($ mil) Loan 2813-IN is shown in Figure I and 1 given in Part III, Table 3A. Disburse- 100 ments against commitments were made 80 - . X-- until March 18, 1994 when the outstand- _ 60 . . - ing balance of $4.83 million was can- . celed. After a slow start in 1987/88, dis- 40 - -- - - i bursements picked up in 1988/89 and 20 were comparable to appraisal projections trend. The limited disbursements FY91 o FY88 FY89 FY ) FY90 FY92 FY93 FY94 through FY94 reflect the loan *PlannedlActual cancellations and additional delays in the ________________| procurement packet switching data Figure 1: Disbursement Loan system. 5.6 Loan Allocation: Cancellation History The original and final allocations Date Amount Reason and actual disbursements of the Loan 2813-IN are shown in Part m, Table 3B. May 1989 $18m Misprocurement The original allocation was revised each Dec. 1989 S134m Policy to buy only local time loan cancellations were made except goods. for the $16.5 million canceled in Jan. 1992 $8.5m Savings canceled. December 1992. The cancellation Dec. 1992 $16.5m DoT unable to fmnalize history is summarized in Table 1. The packet switch bid loan amount was reduced overall by $177 documents or award million to $168 million. At loan closing cable contract by loan an unused $4.833 million was canceled leaving a final loan arnount of $163.17 Me million. Table 1: Cancellations  6 6. Project Results 6.1 Proiect Objectives Despite the cancellation of $177 million, to a large extent the project objectives were met. Table 1 summarizes the project objectives, how they were to be met, and the actual results. The major work of providing telephone service and improving the long distance network was complet- ed successfully. Although the lines provided for the four major cities were just below the targets Implementation Results Objectives Planned Implementation Means Results Sector Obiectives 1. Increase the a) Expand competition in domestic a) There is now competitive supply in India of effectiveness of procurement, cables, exchanges, customer equipment and some domestic procurement transmission equipment. b) introduce commercial contracts for b) Commercial contracts were introduced in 1988. single source purchases Specific Proiect Obiectives I . Help meet demand a) Increase local exchange capacity in a) Essentially completed as planned. Although for telecommunicat- the four major cities by about 1 growth in telephone lines in the four major cities ions services in the million lines (about 750,000 was 6% below target, overall plan targets were four Metro Districts subscribers); and telex capacity by exceeded. Telex capacity was increased by only about 14,000 lines. 8000 lines partly because of reduced demand due to use of fax. b) Establish a national packet switch b) Not done; DoT provided some limited switched network. data services but did not provide the planned national packet switched network. 2. Improve the quality a) Reduce the subscriber fault rate, a) Mostly done; the national subscriber fault rate of telephone service improve call completion rates. (faults/100 stations/Mth) was reduced from 30 in and billing. 1986 to 17 in 1993 and good improvements were achieved in the four major cities. Call completion rates for national long distance and local calls improved markedly. b) Install automatic message account- b) Partially done; MTNL equipped some exchanges ing (AMA) facilities in older with AMA facilities. DoT opted instead to exchanges progressively replace obsolete exchanges with modem digital systems. 3. Provide good quality a) Upgrade and provide new modern a) Completed as planned with significant national direct long distance transmission improvement in quality dialling service. networks. b) Provide small earth stations for b) Completed as planned, funded locally. remote access to the national network 4. Improve the a) Modernize the satellite earth a) Only part completed during the project period; efficiency and stations. OECF is now funding. profitability of the b) Establish a long distance network b) Not completed, but DoT has contracted out part network. management system. of this work to be funded by AIDAB. c) Reduce the number of staff per c) Staff efficiency improved from 100 to 64 staff 1000 working lines. per 1000 lines 5. Meet the new a) Support DoT's UNDP funded a) Apart from a few items (transmission training technology training training program to provide and optic fiber test equipment) DoT separately requirements. training on modem technology. bought equipment for this item. 6. Support a) Streamline DoT's planning and a) Done; computerized annual planning and DoT/MTNL's instit- budgeting processes. budgeting system developed by DoT with some utional improvement software contractor support. Loan funds not efforts. used. b) Increase delegation of authority b) Done; Regions set up as formal profit centers throughout DoT. with increased perfbrmance and delegation responsibilities. Loan funds not used. Table 2. A Summary of Proiect Implementation Results  7 for the period. DoT did meet its major national objectives for the seventh plan period of which the project formed a part. As expected however, national expressed unsatisfied demand grew during the project period from 1.1 million to 2.3 million lines. Estimates at 1994 place the actual unsatisfied demand for telephone service somewhere between 20 and 40 million lines in 1994. Quality of telephone calls improved substantial during the project as a result of using more reliable digital exchanges and the digital transmission systems provided under the project. There was mixed success with the other physical network components (Part B items). Small earth stations were provided using DoT's own funding, and there was a conflict in funding over the upgrading of earth stations which was eventually resolved by having the item funded by OECF. Considerable supervision effort was spent with DoT on preparing terms of reference for the network management system; these had not been prepared during appraisal. Although the TOR were eventually finalized, DoT then chose to use Australian consultants funding by AIDAB. The network management work was not completed by loan closing. Finally, the Automatic Message Accounting systems, which were to provide improved customer billing, were only partially provided--DoT chose instead a policy of replacement of obsolete exchanges. The history of packet switching was described in the procurement section above. Table 6B of Part III gives the actual performance of key indicators against targets set at the beginning of the project. 6.2 Physical Results: The major physical components of the project have been completed and commissioned. The most important long distance links of 140 MB/s microwave digital systems between Bombay/ Madras/Calcutta/Sambalpur and DhulialNagpur and the new optical fiber systems 140 MB/s were completed between Delhi/Bombay and Delhi/Agra. In addition, the local systems in the metro area were strengthened by the installation of optical fiber and 1722 PCM systems. A description of the physical results of the project is given in Table 6A of Part III. 6.3 Technical Assistance: The project proposed hiring consultants to help with institutional development and planning and budgeting and network management. DoT hired local consultants for some planning and budgeting, but are now hiring network mnanagement consultants using bilateral funds. The training development program included assistance from UNDP/ITU. The contracts for the digital microwave and optical fiber systems provided for technical assistance in training. 6.4 Financial Performance: The consolidated DoT/MTNL financial performance significantly exceeded projections (See Table 6D of Section HI). As an example, for 1989/90, operating revenues were 33% above appraisal projections (IRs35.3 billion compared to IRs26.5 billion), whereas operating expenses were only 11% above projections (IRs 19.0 billion compared with IRs17. 1 billion). Net income after tax was IRs 13.3 billion, more than 100% greater than projected. DoT/ MTNL met all of its financial covenants. The main reason for the good financial performance was a significant increase in tariffs which raised the revenue per line from about $130 in 1987 to $180 equivalent  8 in 1992. As an example', between 1986 and 1990, installation fees increased by 166%, bi- monthly rents increased between 30% and 60%, and manual call charges were significantly increased. 6.5 Economic Analysis The SAR calculated the internal rate of return on the entire DoT/MTNL investment program during FY86-90. This was done because the Bank financed project was an integral component of the Seventh plan and any separation would have been arbitrary and difficult to determine. A similar approach was taken in calculating the actual rate of return. The benefit period was the same, although some investment carry over was estimated for FY 1991 to account for the delay of the project. The financial IRR was calculated to be 23%, well above the 15% estimate in the SAR (see Table 6E of Section III). The increase is commensurate with the higher rate of return on assets than expected which in turn reflects higher tariffs and lower investment costs than originally projected. The calculated value is likely to be conservative as there is no allowance for future increases in tariffs or calls per line which could be expected. The economic rate of return (estimated at 20% in the SAR) would be expected to be higher than the 23% FIRR after taking into account consumer surplus and other unquantifiable benefits that come with improved access to telecommunication facilities. 6.6 Institutional Impact DoT has achieved satisfactory results in the project's institutional action plan except in the procurement area. From 1985 to 1992 the staffing ratio was reduced from 100 staff to about 64 staff per 1000 lines. The overall maintenance of equipment improved as demonstrated by the decrease in faults from an average of about 33 to about 20 per 100 subscribers/month. The effects of greater "delegation of authority" and the new strategic "Planning and Budgeting" system, which were part of the project, are difficult to quantify, but will have a positive effect in preparing DOT for corporatization. The quality of billing is difficult to measure, but newspaper reports suggest that many billing errors continue to occur. 7. Project Sustainability The sustainability of the operations and benefits of the project are expected to be excellent. The project is a part of DoT and MTNL's expansion program and forms a core component of their raison d'etre. DoT/MTNL have a stable technical and commercial base and are expected to perform well financially as in the past given their monopoly status. Even if DoT is subjected to competition, their position of pre-eminence is likely to remain and the project would therefore be sustained. Under a competitive scenario, DoT/MTNL are likely to continue as the main operator for a long time because of their huge operational base, the overwhelming demand for services, and the Government's stated position that it would protect the jobs of existing DoT staff. Tariffs under a competitive environment are likely to remain at or around the existing level and usage levels are likely to increase thereby improving the returns on the project investments. I The India tariff structure is complex, therefore sample rate increases only can be given.  9 8. Bank Performance The Bank, in implementation of the project, devoted considerable effort to get the procurement process on track with limited success. After being successful in getting the bid preparation for the major items, the Bank assisted in the resolution of the issues that came up in the evaluation and in the eventual placing of contracts. The Bank had little option but to accept the Borrower's stand to go for indigenous procurement and accept cancellation of a large piece of the loan. In the case of the packet switching network, when the Borrower reversed its decision to develop and buy indigenously, the Bank agreed to fund ICB procurement of the item. However, after further delays in issuing the bid, DoT agreed to fund the item from its own resources. The Bank also maintained a continuous dialogue with the Borrower and its agencies on the restructuring of the sector and carried out a sector study and workshops to discuss the principal issues and options for the development of the sector. The Bank's supervision was adequate and its overall performance in this project was satisfactory. 9. Borrower/Implementer's Performance Except for the procurement delays, and component cancellations, the Borrower's performance has also been satisfactory. The DoT was helpful and constructive in the preparation of the bid documents, showed a commitment to installing and commissioning equipment quickly, and displayed an interest in discussing with the Bank institutional development, finance, and sector reform issues. However, DoT was unable to accelerate its own procurement processes or influence governrnent to speed up intra-governmental clearances. On the institutional side, the Borrower showed a commitment for improvement and supported measures for improved delegation of authority and planning and budgeting. However, DoT was reluctant to hire experts to help introduce improvements quickly. The performance of MTNL which was created as a pilot for the introduction of more commercially oriented management proved quite successful (Attachment 3). 10. Proiect Relationship The project relationship between the Bank and Borrower and its agencies the DoT, MTNL has been quite good. The cooperation extended to Bank missions and the response to concerns expressed by the Bank in correspondence and personal meetings relating to the project and in general, have been very satisfactory to both parties. 11. Consulting Services DoT performed most of the work in improving delegation of authority and developing its improved planning and budgeting systems without the use of consultants. DoT was reluctant to use Bank funds to hire international consultants and funded local consultants where necessary. 12. Proiect Documentation and Data The Loan Agreement in the case of Loan 2813-IN was quite adequate for monitoring and achieving project objectives in the key investment organizational and funancial areas. The appraisal report of the project provided a useful framework for both Bank and DoT/MTNL for review of project implementation. DoT submitted quarterly progress reports on progress of the reports and special reports when required.  10 PART 11 - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. World Bank loan for the IXth Telecommunications Project 2813-IND for an amount of 345 million US Dollars was sanctioned in September 1987. In November 1989 the loan amount was reviewed and reduced to 184.5 million US$. A further reduction of 16.5 million US$ was made in 1992 on PSPDN and cables. Loan closing date is 31-12-1993. The main components under the loan are: (a) 140 Mbit digital microwave system between Bombay-Madras-Calcutta-Sambalpur and Dhulia-Nagpur. (b) 140 MBIT OFC system between Delhi-Madras, Trichur-Trivandrum and Delhi-Agra. (c) 140 Mbit OFC system and 34 MBIT 13 GHZ microwave systems for junction networking at Madras, Bombay Delhi and Calcutta. 2. In addition to the above, more than 1700 PCM systems, some digital co-axial systems and cables and measuring instruments also formed part of the loan. 3. Bombay-Madras, 140 Mbit digital microwave and Trichur-Trivandrum 140 Mbit OFC were commissioned in March 1990. Most of the other systems were commissioned during the period December 1990 to March 1992. It is to be noted that along with commissioning of these systems these stations were provided with ElOB digital exchanges and/or TAXs. During the project period, the number of DELs in Bombay, Delhi, Calcutta and Madras increased by 12.34% from 16.53 lakhs to 18.59 lakhs. Furthermore, as a result of the proper provision of local and long distance facilities the call success rate of both local and STD in Metro Districts as well as on all India basis have shown substantial improvement and the per direct exchange line revenue has increased in all the centers covered by the above system. These systems were very much an integral part of the overall development plans of the VIlth Five Year Plan of DoT. 4. A part of the loan was canceled due to: (i) policy changes in relation to procurement during the period; (ii) indigenous manufacture; (iii) reduction in prices of certain items; and (iv) some procurement problems. Despite the best efforts of DoT, some problems were encountered in the speedy procurement. The installation and commissioning of the procured equipment, however, was completed very quickly.  11 PART III - STATISTICAL INFORMATION 1. Related Bank Loans/Credits Loan/Credit Amount in Year of US$ million Loan/Credit Title Purpose Approval or SDR Status million 1. Credit - Ist Telecom. To finance part of P&T 1963 $42 million Project investment program. 2. Credit - 2nd To finance part of P&T's 1965 $33 million Telecom. Project investment program 3. Credit - 3rd To finance P&T's 1969-72 1969 $27.5 Telecom Project investment program million 4. Credit - 4th To finance P&T's 1969-74 1971 $78 milion Telecom. Project investment program. 5. Credit - 5th To finance the P&T's 1974- 1973 $80 million Telecom. Project 76 investment program. 6. Credit - 6th To finance 1976-78 P&T's 1977 $80 million Telecom. Project investment program 7. Loan 1592-in 7th To finance P&T's 1978-81 1978 $120 million Project was Telecom. Project investment program and completed in governments telecom 1984 about three manufacturing units. years behind schedule 8. Credit 1112-IN 8th To finance P&T's 1981-83 1981 SDR 252-4 Project was Telecom. Project invest. program; to finance million completed in modernization of the gov't. 1985 about two owned Telecom years behind manufacturing units. schedule.  12 2. Proiect Timetable Date Planned Date Actual Identification and 4/85 4/85 preparation Appraisal Mission 2/86 11/85 Loan Negotiation 12/86 12/86 Board Approval 5/14/87 5/14/87 Loan Signature 6/29/87 6/29/87 Loan Effectiveness 9/28/87 9/28/87 Loan Closing 12131/92 12131/93 Project Completion 12/31/91 6/30/93 3A Loan Disbursements Accumulated Disbursements (in US $ millions) EBRD FY and Semester Ending Actual Appraisal Est. FY 87 December 31, 1986 0 June 30, 1987 0 0 FY 88 December 31, 1987 0 32.0 June 30, 1988 0 69.0 FY 89 December 31, 1988 16.69 117.0 June 30, 1989 94.80 169.0 FY 90 December 31, 1989 149.28 220.0 June 30, 1990 150.65 262.0 FY 91 December 31, 1990 157.38 296.0 June 30, 1991 157.59 321.0 FY 92 December 31, 1991 157.59 337.0 June 30, 1992 159.17 345.0 FY 93 December 31, 1992 159.17 June 30, 1993 159.17 FY 94 December 31, 1993 159.17 June 30, 1994 163.17 Very little disbursement since December 31, 1989. See Table 1, Part 1, and Table 3B Part III for details of cancellations.  13 3B Loan Allocation (in U.S. $ thousands) Category Original Allocation Final Allocation 1) Cables, and local long distance transmission equipment 239,000 162,673 2) Satellite earth stations; computer and data network management equipment 407 78,000 3) Training Equipment 5,000 144 4) Consultants Services 2,000 6 5) Non-allocated 21,000 - 63* TOTAL 345,000 163,167 Cancelled as of May 16, 1989 $18,000,000 Cancelled as of December 5, 1989 $134,000,000 Cancelled as of January 20, 1992 $8,500,000 Cancelled as of December 1992 $16.500.000 Cancelled unused funds March 18, 1994 $4,833,000 Total Cancelled $163,167,000 ' Difference due to cross exchange rates on special account. 4. Completion Dates Components Appraisal Actual Local Networks July 1991 March 1992 Long Distance A. Microwave July 1990 September 1992 Trunks B. Optical Fiber July 1991 March 1992 Systems Satellite Services December 1991 Part completed October 1992 Data Network December 1991 Not completed Network Management December 1991 Not completed System Message Accounting December 1991 Part completed System December 1992  14 5. Proiect Costs and Financing SA. Proiect Costs (in US $ million) Appraisal Estimate Completion Estimate Local Foreign Total Local Foreign Total A. Local Switching 509 50 559 700 37 737 Cable Networks 339 70 409 420 54 474 Telex 91 91 50 - 50 Local Trans- mission 66 80 146 71 61 132 Long Distance 99 99 26 - 26 Switching Transmission 86 90 176 53 43 96 Sub Total 1,190 290 1,480 1320 195 1515 B. Satellite Services 29 23 52 73 - 73 Data Network 16 15 31 - 12 12 Network Manage- ment System 5 10 15 5 10 15 Automatic Mes- sage Acctg. 10 30 40 5 - 5 Sub Total 60 78 138 83 22 105 C. Training 58 8 66 28 7 35 D. Consultants 1 2 3 _ TOTAL BASE COST 1308 378 1686 1431 224 1655 Physical Contingency 65 19 84 Price Contingency 259 21 280 - - Total Cost 1,632a 418 2,050 1431 224 1655 al Includes $411 million in indirect foreign costs.  15 5B. Proiect Financina (in US $ million) Appraisal Actual IBRD 345.0 163.2 OECF 60.0 60.0 UNDP 2.5 1.0 GOI/DoT/MTNL 1,642.5 1,327.0 2,050.0 1,551.2 6. Proiect Results 6A Overview Appraisal Estimate Actual Actual April 1990 April 1990 April 1992 1. Exchange Capacity (,000) 5,407 5,266 7,107 2. Direct Exchange Lines (,000) 4,506 4,593 6,187 3. Tunk Automatic Switching Capacity 196,820 140,870 195,750 4. Telex Connections 56,620 44,500 48,600