Jamaica - Telecommunications Development Project

RESTRICTED RSTU" 'To Report No. TO- 567b This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not, be published nor may it be qupted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE 1967-1971 DEVELOPMENT PROGRAM OF THE JAMAICA TELEPHONE COMPANY ,IMITED JAMAICA January 11, 1967 Projects Department  CURRENCY EQUIVALENTS US $1 = L 0.357 (7 shillings and 2 pence Jamaican) 1 Jamaican Pound = 1 Pound Sterling 1 I US $2. 80 6 1, 000, 000 = US $2, 800, 000  TABLE OF CONTENTS Page No. SUMMARY I. INTRODUCTION 1 II. TELECOMMUNICATIONS IN JAMAICA 1 The Public Utility Commission Act, 1966 2 The Licenses 3 III. THE BORROWER 4 Organization and Management h IV. EXISTING FACILITIES OF JTC 5 Local Telephone Facilities 5 Long Distance Telecommunication System - National 6 Telex Service 6 International Telecommunication Services 6 V. THE PROJECT 7 General 7 Telephone Exchange Equipment and Outside Telephone Plant 7 Long Distance Telephone Service 8 Telex 9 Other Works 9 Cost Estimates 9 Engineering and Procurement 9 VI. JUSTIFICATION OF THE PROJECT 10 VII. FINANCIAL ASPECTS 10 Tariffs 10 Present Financial Position 11 Past Earnings 1h Insurance 1h Depreciation 14 Dividends 15 Financing Plan 15 Accounts and Audits 16 Financial Prospects 17 Security 18 VIII. CONCLUSIONS 18 This report is based on the findings of a mission May 23 - June 4, 1966 composed of Messrs. F.S. Elofson and M.V. Scoffier of the Bank and on a feasibility study prepared by the Jamaica Telephone Company  ANNEXES 1. Situation Data and Progress Record about JTC (1956-1965) 2. General Organization Chart and Headquarters Structure 3. Waiting List, Telephone Station Gain, Total Demands and Forecast (1961-1975) 4. Development Proposals and Estimated Construction Costs (1967-1971) 5. Company Taxation 6. Summary of Tariffs 7. Actual and Forecast Balance Sheets 8. Actual and Forecast Operating Statements 9. Forecast Sources and Applications of Funds 10. Financial Ratios Map  JAMAICA APPRAISAL OF THE DEVELOPIENT PROGRAM OF TIIE JAMAICA TELEPHONE COMPANY LIMITED SUMMARY i. This report covers the appraisal of a project consisting of a development program for the Jamaica Telephone Company Limited (JTC), to expand and improve the telephone, telex and telegraph services in Jamaica. A Bank loan of US$ 11.2 million equivalent has been requested to cover the foreign exchange cost of the project, the total cost of which is estimated to be the equivalent of US$ 18.3 million. Interest during construction is not to be included in the requested loan. ii. The borrower would be the Jamaica Telephone Company Limited and the loan would be guaranteed by the Government of Jamaica. JTC is a private corporation which has been operating the telephone service in Kingston since 1892, and the island wide telephone system since 1945. In 1964, the Company was authorized to operate telex and teleprinter services throughout the island of Jamaica. For these services, the Company holds Government licenses issued under the Telephone Law and under the Telegraph Control Law. iii. In accordance with the Public Utility Commission Act passed by Parliament on May 27, 1966, the Company will in the future be regulated by a Public Utility Commission. The provisions of the Act have been reviewed by the Bank and found generally satisfactory. After extended negotiations new licenses have been granted to the Company by the Government. They will extend over a 25-year period with provision for ten year extensions. iv. The new licensing agreement provides that JTC should carry out a five year development and improvement program satisfactory to the Government. The loan is required for this 1967-1971 program, which includes: a) installation of automatic telephone equipment for about 26,000 new exchange lines and 700 new trunk circuits with provision for long distance dialing facilities and subscribers' special services throughout the island; b) extension of outside line plant including underground cables and open wire lines for connecting new subscribers and for extending existing networks; c) provision for the addition of interurban toll facilities consisting of radio and transmission equipment for new microwave and cable routes and for the extension of the existing ones. These are all required to increase the number of long distance circuits between the main centers of population and to connect the newly serviced areas; d) provision for subscribers' stations and public pay stations, as well as private automatic branch exchange installations;  - ii - e) extension of telegraph, private wire and telex services; and f) construction of new buildings, building extensions and land acquisition to meet space requirements for additional equipment. v. The program is technically sound. The planned modernization and expansion of the local exchanges and trunk systems will permit connecting new subscribers and improvement of the telecommunication services throughout the island. A number of areas now without service are included in the extension of the telephone system. The estimated cost is reasonable and construction schedules based on Company experience are realistic. vi. Equipment and materials to be financed under the proposed Bank loan would be purchased on the basis of international competitive bidding. Telephone sets are being manufactured locally and would be eligible for Bank financing provided the local producer submits the best evaluated bid. vii. The Company has a history of satisfactory financial results. The new licenses will allow maintaining JTC's sound financial position. Assurances were obtained from the Government that, during the period of construction, telephone rates would be maintained at levels sufficient to provide to the Company such a return on its rate base as will enable it to achieve the financing of the project, after meeting payment of dividends at present levels and meeting its debt service. viii. The Company has outstanding four issues of prior secured long- term debt, totalling f 1.6 million (US$ 4.5 million). All four issues carry a charge on the assets of the Company but the first three issues rank ahead of the fourth and are pari passu with one another. The first issue (E 200,000) matures in 1968, the second (t 200,000) in 1970, the third (E 400,000) in 1978 and the fourth (t 800,000) in 1982. In view of the difficulty in changing the provisions concerning the parity of the security and the relative small amounts and early maturities of the first three issues, the Bank has agreed to accept a security position junior to them but equal to the fourth issue. The Trust Deed for this fourth issue is therefore being amended to grant the Bank a pari passu security position with the existing stockholders. ix. The financing plan for the project is satisfactory. It is based on a 39% contribution from net cash earnings and the proposed Bank loan. x. The Company is well managed and operated. Its organization is sound and capable of constructing and operating the project. xi. The project would be suitable for a Bank loan of US$ 11.2 million for a term of 15 years including a grace period of 5 years.  -1 - JAMAICA APPRAISAL OF THE DEVELOPMENT PROGRAM OF THE JAMAICA TELEPHONE. COi4PANY LIMITED I. INTRODUCTION 1. Thin report covers the appraisal of a project of the Jamaica Telephone Company Limited (JTC), consisting of a five year development program (1967-1971) to expand and improve the telephone, telex and telegraph service in Jamaica. 2. The estimated cost of the project is