£~041) ;LO0-66 gt; COPY RESTRICTED Report No. PU-50a This report was prepared for use within the Bank and its affliated organizations. They do not accept repondsbility for its accuracy or completeness. The report may not be published nor may It be quoted as representing their views. INTERNATIONAL BANK FOR RE3CONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE 1970-1974 TELECOMMUNICATIONS PROGRAM VENEZUELA October 19, 1970 Public Utilities Projects Department CURRENCY WIIVALETS US$1.00 a BE4.50 US$1 million - Bs4,500,000 Bs 1.00 - US$0.22 Bs 1 million - US$222,222 MEASURES EQUIVALINTS khz. - kilohertz mhz. - megahertz 1 Kilometer (km.) - 0.621 statute mile LIST OF ABBREVIATICNS, ACRCNYMS AND DEFINI.TIOWS USED IN IlHE REPORT APO - Australian Post Office (PTT) CANTV - Compania Anonima Nacional Telefonos de Venezuela Carrier - A system of providing a number of circuits (channels) through one transmission mode (radio, cable or wire) CCITT - Comite Consultatif International Telegraphique et telephonique, Geneva (ITU) CETT - Centro de Entrenamiento de Teenicos de Telecomunica- ciones (Training Center for Telecomaunications Technicians) Channel - One circuit of a carrier system carrying speech or telegraph signals DEL - Direct Exchange Line (connected) Erlang - Measure for telephone traffic density (one Erlang=60 minutes of occupation of a line or a circuit) Eximbank - Export-Import Bank of United States of America Fill - Utilization of available capacity HF - High frequency radio 3,000-30,000 khz. INTEIS4 - International Telecommmnications Satellite Consortium ITU - International Telecommunication Union LAV ' - Linea Aeropostal Venezolana L. D. - Long Distance Microwave - Radio systems working at frequencies above 300 mhz., but normally applied to systems working at frequencies above 1,00 mhz. Multiplexing - Providing many Telecommunication channels through one transmisaion mode PABX - Private automatic branch exchange STD - Subscriber Trunk Dialing (direct long distance dialing) Telex - Teleprinter exchange service providing direct connections for any subscriber to communicate with another one Troposcatter - A system of radio communication using dispersed radio waves which are refracted by the troposphere UHF - Ultra high frequency radio 300-3,000 mhz. UNDP - United Nations Development Program VHF - Very high frequency radio 30-300 mhz. VENEZUELA COMIPANIA ANONDIA NACIONAL TELEFONOS DE VENUELA (CANTV) APPRAISAL OF THE 1970-1974 TELECC' IUNICATIONS PROGFAI4 TABLE OF CONTENTS Page No. SUM[ARY AND CONCLUSIONS i -ii 1. DITRODUCTION 1 2. THE ECONWY AND THE SECTOR 2 The Economy 2 The Telecommunications Sector 2 3. THE BORR(2ERI 3 Organization and Management 3 Staff and Training 4 Accounting and Audit 5 Past Financial Performance 5 Tariffs 7 Existing Telecommunications Facilities 7 4. THE PROJECT 10 Description 10 Local Service 10 Long Distance Service 10 International Service 11 Telex Service 11 Cost of the Program 11 Items Proposed For IBRD Financing 12 Project Execution 13 Procurement 13 Disbursement 15 5. JUSTIFICATION 16 6. FUTURE FIwANCES 19 Financing Plan 19 Future Operating Results 21 Forecast Financial Position 21 7. RECCNM4ENDATIONS 23 This report is based on the findings of a Bank mission of Messrs. F. Gheith, M.P. Kohler and H.B. IIeier, iwho visited Venezuela in March/April 1970. LIST OF ANNEXES 1. Basic Statistical Data, December 31, 1969 2. Actual and Forecast Income Statements 1967-1976 (including Notes) 3. Actual and Forecast Balance Sheets 1967-1976 (including Notes) 4. Actual and Forecast Sources and Applications of Funds Statements 1967-1976 J. Representative Tariffs as of December 31, 1969 6. Collection Procedures and Settlement of Long Outstanding Accounts 7. Labor Productivity and Costs 8. Existing Telecommunications Facilities 9. Telecommunications Program (1970-1974) 10. Estimated Schedule of Disbursements of Proposed IBRD Loan 11. Justification 12. Execution Schedules 13. Main Long Distance Network Chart 1 Western Netwqork - Chart 2 Eastern Network 14. Map - Venezuela Main Long Distance Network (Geographical) VEN1EZUELA COIPANIA ANONDIA NACIONAL TELEFONOS DE VNEZUELA (CANTV) APPRAISAL OF THE 1970-1974 TELECO1EvMNICATIONS PROGRAM SUMMARY AND CONCLUSIONS i, This report appraises a Project which consists of the Five-Year Telecommunications Ecpansion Program of Compania Anonlma Nacional Telefonos de Venezuela (CANTV)-for the period 1970-1974. The Program requires a total investment of Bs 1.35 billion (US$300 million). A Bank Loan of US$35 million is proposed and would cover 26.3% of the direct foreign currency costs. ii. The existing telecommunications facilities are inadequate as indicated by the large number of pending applications for new subscriber connections, and the substantial unsatisfied demand for long distance calls. The 1970-1974 Program will alleviate the congestion and delays in national and international long distance traffic, and will meet part of the demand for telephone connections. It will provide for the addition of 347,000 lines of capacity to the local telephone exchanges, and for the expansion of the long distance network. It includes installation of an earth satellite station to meet the requirements of international traffic. -The internal financial rate of return of the Program is estimated at 21A. iii. All equipment and materials would be procured under international competitive bidding, except for some switching equipment to be purchased from suppliers of existing equipment in Venezuela, and a portion of the cable requirements to be procured fron domestic manufacturers; these two exceptions would not be financed by the Bank Loan. Domestic manufacturers would be allowed to participate in the bidding for the portion of cables to be procured internationally, with a 15 margin of preference or customs duties, whichever is lower. iv. The proposed Loan would be a follow-up to the first Bank lending operation in Venezuela's telecommunications sector. Loan No.435-VE (US$37 million) helped set up the basic long distance microwave network, improve international connections and extend local service. Project execution has been satisfactory, but, due to delays caused by sone late equipment deliveries and by building redesigns following the 1967 earth- quake, the March 31, 1969, closing date of the Loan was postponed twice: first, to June 30, 1970 and then to October 31, 1970. The Project has been completed by the closing date. v. CANTV, the proposed borrower, has been strengthened as an institu- tion during the execution of the first Project. To prepare for the large expansion, the Company has undertaken to hire management consultants to adapt its organizational structure to present and future needs. - ii - vi. CANTV's financial position is generally satisfactory. It has managed to convert a deficit financial situation to one of accept- able profitability in the past few years, and during 1970-1974 expects to provide about one-third of its requirements of funds through internal cash generation; the return on net fixed assets would increase from 8.6% in 1970 to 144.1% in 1974. CANTV's liquidity is not fully satisfactory on account of significant receivables, outstanding mainly from Government agencies. CANTV has agreed to undertake satisfactory arrangements for the collection of present and future receivables. vii. The Project forms a suitable basis for a Loan of US$35 million for a term of 16 years, including a grace period of 5 years. VENEZUEIA COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUEIA (CANTV) APPRAISAL OF THE 1970-1974 TELECOMNUNICATIONS PROGRAM4 1. INTRODUCTION 1.01 The Government of Venezuela has requested Bank assistance in financing the Five-Year Telecommunications Expansion Program covering the period 1970-1974. The Program is aimed at meeting part of the demand for telecommunications services during this period and provides for doubling of the number of telephone connections and expanding the long distance facilities to handle the expected increases in traffic. The cost of this Program is estimated at Bs 1.35 billion (US$300 million). It would be carried out by Compania Anonima Nacional Telefonos de Venezuela (CANTV) the wholly Government owned utility that provides the country's public telephone and telex services. 1.02 The Government enquired into the possibility of Bank financing for the proposed Project in September 1969. A formal request for a Loan of about US$40 million was received along with the expansion plan at the end of February 1970. Between March 21 and April 20, an appraisal mission comprised of Messrs. F. Gheith, M.F. Kohler and H.B. Nleier visited Venezuela to evaluate the Project and identify items suitable for Bank financing. 1.03 This would be the second telecommunications Project financed by the Bank in Venezuela. The first, financed by Loan No. 435-VE of December 13, 1965, helped to establish a basic high-quality long distance network between the main cities, improve international connections, and expand local service. Project execution has been satisfactory, although there have been some delays due to late equipment deliveries and the need to redesign the CANTV administration building in Caracas following the 1967 earthquake. The Loan closing date was therefore postponed from M4arch 31, 1969, to June 30, 1970; another postponement of four months to October 31, 1970, was agreed to later. - 2 - 2. THE ECONOMY AND THE SECTOR A. Economy 2.01 Venezuela's economy is characterized by its dependency on oil, which accounts for 93% of exports, 67% of fiscal revenues and 19% of GDP. The labor force employed in agriculture decreased from 44% of the total labor force in 1950 to 29% in 1969. The highly capital-intensive oil sector employs less than 1.5% of the labor force; manuFacturing has absorbed 16%, the service sector 48% (including GoveriiLment, commerce, transport, etc.) and construction 6%. Most economic activity is con- centrated in an around Caracas and in the region between Caracas and Maracaibo. 2.02 There has been extensive migration from rural to urban areas, reducing the percentage of Venezuela's population living in rural areas from 46% in 1950 to about 25% in 1969 and requiring la7ge expenditures on public services for the immigrants to the cities. To improve employment opportunities for these people and to strengthen the economy's long term growth potential, Venezuela has made the diversification of its petroleum- based economy a fundamental principle of economic policy, in which the improvement of telecommunications facilities plays an important role. B. The Telecommunications Sector 2.03 Telecommunications are under the control of the Ministry of Communications, which is the regulatory agency. CANTV provides all public telephone services. Telegraph service for the public is provided by two entities. A Department of the Ministry of Communications provides national and international telegraph service; LineaAeropostal Venezolana (LAV), a Government-owned domestic airline, provides under a provisional arrangement international telegraph service which was previously being furnished by a private company, All America Cables and Radio, Inc. When the license granted to All America Cables expired in December 1969, its staff refused to become employees of either the Ministry or CANTV and were temporarily attached to LAV, where they are continuing to provide the same service. Proposals on the future organization of the telegraph service are presently under discussion. 2.04 The existing telecommunications facilities in Venezuela (see paragraphs 3.18 to 3.25) are inadequate quantitatively and qualitatively in meeting the demand for telecommunications. Venezuela's density of telephones--3.76 phones per 100 inhabitants--is low in comparison with other countries with similar GNP per capita (see paragraph 5.05). 2.05 Partly because of this situation, a number of enterprises and Government agencies own and operate their own radic circuits. The improve- ment of national communications as a result of the proposed 1970-1974 Expansion Program is expected to result in the closing down of many of these high-cost private telephone facilities. 3. THE BORROWER A. Organization and Management 3.01 CANTV, the proposed borrower is fully Government-owned and provides telephone and telex services under the Telecommunications Law of July 1, 1965, as amended, and statutes dated July 19, 1968; it is subject to the Corporation Law but is tax exempt. The members of the Board of Directors, including the President and the General Manager, are appointed for staggered terms by the Minister of Communications in his capacity as shareholder. The entity has good management: the President and General Manager are qualified executives, and the other management positions are likewise held by competent personnel. Even so, because of the size of expansion to be undertaken in the 1970-1974 period, it has been agreed that the Bank will be consulted before there are new appointments to the positions of President and General Manager. 3.02 The enterprise has a good record of achievement in the past few years. During the period of the first Bank Loan, some organizational improvements were undertaken. Further organizational restructuring and procedural changes are now planned to enable CANTV to handle the large expansion of the system. Emphasis would be placed on regional decentraliza- tion and on improvements in the collection system, project planning and execution, and compilation of data on personnel, stores, costs and traffic. 3.03 CANTV signed a contract on February 6, 1970, with the domestic consulting firm of Asesores Empresariales (AESA) to analyze organizational problems of the Metropolitan Zone, which accounts for over half of the Comparn's assets. WJhile designing an organizational structure for the zone, AESA has also made proposals concerning the collection system, personnel administration and stores. 3.04 For its overall reorganization, CANTV is hiring an international management consulting firm. A contract with one of the two firms, Peat, Marwick, Mitchell & Co. or Booz, Allen & Hamilton, will be concluded in November 1970, based on the agreed terms of reference. The consultants will submit periodic progress reports to the Bank. 3.05 Also, a two-year technical assistance program has been prepared in Caracas by a representative of the Australian Post Office (APO) to provide consulting services, mainly in the field of local network planning, and to offer Venezuelan engineers fellowships for training periods of at least three months in Australia. An agreement on this assistance is expected to be concluded by December 1970. -h - B. Staff and Training 3.06 Under the fir.st Loan, CANTTV agreed to reduce its staff from 19.1 persons per 1,000 telephones to 17.2 by 1969. The present level is 18.3 persons per 1,000 telephones. The reason for this shortfall in performance was due to difficulties in absorbing and putting to effective use all the persons transferred during 1967-1968 from the IMinistry of Commmnications to CANTV along with the transfer of services previously rendered by the Itinistry. CANTV has been able up to now to retrain and absorb about half of the persons transferred. Ihis process has proven to be more complex and slower than anticipated. The difficulties have arisen due to the fact that most of the manual exchanges transferred have since been converted to automatic working to improve the quality of service. CANTV has still now about 600 persons on its payroll who are redundant. The efficient utiliza- tion of staff is important in view of the high average emoluments per employee in CANTV which are now about Bs24,000 (Us-$5,300) as compared with an average of Bsl2,400 (US$2,750) for the manufacturing industry excluding the petroleum sector. The large expansion during 1970-1974 will permit CANTV to lower the level of staffing considerably. Hanagement agreedl to accomplish this by retraining personnel and introducing a careful control on hiring new staff (see paragraph 6.11 and Annex 7), 3.07 Training facilities for telecommunications staff have been expanded considerably in the past fewi years. The Training Center for Telecommunica- tions Technicians, which began operations in 1964 tdth UNDP financing and ITU as executing agency, is working satisfactorily and graduating about 40 technicians per year. Besides the full courses for technicians, the curricu- lum includes short courses for in-service technical training. 3.08 For the Project period 1970-1974, a major expansion of the Training Center is planned with similar UIDP arrangements. This includes an increase in the number of subjects offered, particularly for apprentices and in-service staff. The Center will be transferred from the ilinistry of Communications to CANTV. This move will allow the Company to shape the training to its needs more effectively. The expected output of the Training Center from 1970 to 1974 is shown in the following table: Number of Trainees 1970 1971 1972 1973 1974 1970-1974 High level technicians 40 45 45 45 45 220 Medium level technicians - 20 20 20 20 80 Apprentices - 290 310 340 390 1,330 In-service training 200 640 800 960 960 3,560 Total 240 995 1,175 1,365 1,415 5,190 - 5- C. Accounting and Audit 3.09 While its accounting system is in line with generally accepted commercial practices, CANTV is planning to improve it so as to make it a more effective tool for management control. The management consultants (see paragraph 3.04) will therefore assist CANTV in introducing depart- mentalized cost accounting and to computerize most of the data compila- tion. This will makce available more promptly to management the essential data needed for decision-making. 3.10 In addition to the Companyts own internal audit and the external audit by Price, Waterhouse & Co., CANTV's accounts are being reviewfed by the legally required Comisario on behalf of the-stockholders and by Venezuelats Auditor General on behalf of the Government. There is considerable overlap in the work performed by these auditors and a systematic exchange of infor- mation between them, along with better coordination of their duties, would eliminate duplication of effort, curtail auditing costs and reduce interfe- rence with CANTVIs administrative process. Proposals for coordinating their functions wiUl be prepared by the management consultants (paragraph 3.04). For the duration of the proposed Loan, CANTV has agreed to retain an independent auditor satisfactory to the Bank. D. Past Financial Performance 3.11 Audited income statements for the fiscal years 1967 through 1969 are shown in Annex 2. CANTV s operating results have improved considerably in the past five years, as indicated by the rate of return: 1965 1966 1967 1968 1969 Rate of return on average net fixed assets in service (L-') 2.8 4.3 6.1 8.2 8.6 The increases are due mainly to rapidly increasing revenues following construction of the high quality long distance network and introduction of subscriber trunk dialing (SID) and the increase in the number of subscribers under the first Bank Loan. INhile revenues increased by 138% during the past five years, operating expenses increased by 112%. The operating ratio, although decreasing steadily, is still high: 1965 1966 1967 1968 1969 Operating ratio (%) 93 90 87 83 82 3.12 The debt service coverage 'oy internal cash generation dropped from 3.1 times in 1967 to 2.3 times in 1969. The debt/eqllity ratio has changed from 17:83 at year end 1967 to 29:71 in 1969. The proportion of long-term debt at year end 1969 is still low for two reasons: CANTVts rate of expansion in the past was modest and the financing of this expansion was carried out with a relatively small amount of debt and a rather large amount of interest and dividend free contributions from Government and assets transferred from the v inistry of Communications, totalling Bs103.9 million (US$23.1 million). 3.13 Audited balance sheets for the fiscal years 1967 through 1969 are sho=n in Annex 3. A suimmary of the December 31, 1969 financial position is given below: Million Bs ASSETS Fixed assets: Net fixed assets in operation 680.1 Other fixed assets (mainly work in progress) 205.9 Total fixed assets 886.0 Cash 19.5 Other current assets 115.0 Past due accounts receivable (net) 34.1 Investments and other non-current assets 20.6 Total assets 1,075.2 LIABILITIES Share capital and surplus 682.7 Long term debt 241.0 Other non-current liabilities 57.4 Current Liabilities 94.1 Total liabilities 1,075.2 3.14 CANTV's financial position at December 31, 1969 is generally satisfactory except for its liquidity. The cash liquidity indicating the Companyts immediate ability to meet the current operating cash outflows is insufficient, essentially because of an unsatisfactory col- lection performance which shows an average outstanding period for current accounts of about 80 days as against an average of 50 days which would be normal on the basis of the allowed payment terms. The liquidity could - 7 - also be substantially improved by the collection of past due accounts from various federal, state and municipal governments. Accumulated gradually over the past few years, these receivables amounted to Bs 34.1 million (US$7.6 million) as of December 31, 1969 (net after Bs 4.2 million, US$0.9 million, bad debts allowance of 11% of the gross amount of past due accounts). Specific arrangements for the collection of these past due accounts following a defined timetable have been agreed to during negotiation (paragraph 6.08). E. Tariffs 3.15 Annex 5 summarizes CANTV's tariffs presently in effect. Insta- lation charges and non-refundable subscription rights which make up the initial cost for new telephone subscribers are rather high averaging Bs 500-700 (US$111-156). Such rights are levied only in a relatively few countries, but provide CANTV the necessary resources to expand telephone service; they can be paid in installments over a period of 10 months. Monthly rental and local call charges are in line with those in other similar countries. Long distance tariffs are on the high side, particularly for intermediate and long distances. 3.16 Tariffs for domestic telex service were fixed in 1969 -- before the full national telex service was introduced -- at about 50% of correspond- ing domestic long distance telephone tariffs, which is in line with CCITT recommendations and justified, in view of the much lower capital investment per telex circuit. 3.17 Tariff changes must be approved by the Minister of Communications, who reviews proposed changes with the Council of Ministers before approving them. The latest tariff change became effective in June 1967, when domestic subscriber trunk dialing was introduced. The tariffs are generally adequate to provide CANTV with the necessary revenues to produce an acceptable rate of return. Internal cash generation amounted to 46% of the funds applied for expansion during the 1967-1969 period. CANTV does not contemplate tariff changes for 1970-1974, nor have any been assumed in the financial projections. On this basis, self-financing in the 1970-1974 period would amount to about 38%, which is reasonable, considering the increased pace of expansion. However a subscribers' guarantee deposit will be introduced before the date of effec- tiveness of the proposed loan (paragraph 6.05). F. Existing Telecommunications Facilities 3.18 Telecommunication services in Venezuela are lagging behind demand. A large number of applicants are waiting for new telephone connections (see paragraph 5.04) and due to congestion a large portion of long distance calls is either not completed or subject to delays. a. Local Service 3.19 At the end of 1969, CANTV had 76 automatic exchanges with a total capacity of 331,820 lines, and 107 manual exchanges with a total capacity of - 8 - 10,615 lines. The total number of connected direct exchange lines (DEL) was 248,1661 there were 371,710 telephones, of which 65% were in Caracas (see Annex 8). 3.20 Automatic exchanges in Venezuela comprise seven different types of switching systems, putting extra demands on staff training. In Caracas, where there are five swaitching systems, difficulties are experienced in inter-working between the different systems and from congestion due to the lack of sufficient quantities of interconnecting junction circuits between exchanges. The number and duration of faults in the distribution network of Caracas are also above the average, due to lack of trained maintenance staff which is lagging behind the rapid growth of the Caracas network and poor installation of cables. The present Project is aimed at correcting these technical difficulties of the system. b. Long Distance Service 3.21 Venezuela has basically two long distance networks --one to the 'west of Caracas and one to the east. In addition, CANTV rents circuits from the Creole Oil Company on its route (300-channel capacity) to the Haracaibo area for handling traffic to various towns in that area. CANTV has reached an agreement with Creole to acquire this route in 1974a, after which Creole will rent its requirements from CANTV. 3.22 The western network consists primarily of a microwave system of 960 channels constructed under the first Loan. The eastern region is served by a basic UHF system of 72 channels. This is being replaced by a new microwave system of 960 channels which is expected to be commissioned by the end of 1970. These networks interconnect 29 switching centers and provide for subs- criber dialing of long distance traffic between these centers. Smaller towns are connected by small coaxial cables, VHF circuits and open wire routes with and without carrier systems. Details of these systems are given in Annexes 9 and 13. 3.23 With the introduction of STD service at the end of 1967, traffic on the western network increased by 35M/, as compared with the 175% forecast at the time of the previous appraisal in 1965. CANTV augmented the amount of equipnent and other facilities, but even so only 30% of the traffic originat- ing during the peak hour can be completed; 35jo of the peak hour traffic is not completed because of the shortage of long distance channels, and the balance for other reasons (mostly insufficient junctions between the local and long distance exchanges). c. Telex Service 3.24 Local telex service, which started in Venezuela in 1962 on a small scale, experienced a sizeable extension in 1966 and a full national telex service network was established toward the end of 1969. By the end of that - 9 - year, CANTV had 13 telex exchanges with a total capacity of 1,640 lines, of which 620 were in Caracas with 455 connected subscribers; installation of the remaining capacity of 1,020 lines in the other cities was not completed until October 1969 and 228 were connected at the year's end. International telex service became available in 1967. d. International Service 3.25 By the end of 1969, Venezuela's international telephone connections totalled 84 circuits: 46 submarine cable circuits to the United States (in- cluding circuits to Mexico and Europe via the USA), 6 circuits to Caribbean countries, 22 circuits to Colombia and Curagao via UHF radio systems, and 10 HF radio circuits to other Latin American countries and to Italy and Spain. The transmission via submarine cable is of high quality, but the capacity of the cable is inadequate as shown by the fact that in 1969 only 50-70% of telephone calls during the peak hour were completed. The submarine cable, UHF and HF lines also provide telex circuits for international working. - 10 - 4. THE PROJECT a. Description 4.01 The Project is CANTV's Five-Year Telecommunications Program, covering the period 1970-197h, and consists of the following main physical items: a. Installation of about 347,000 lines of local exchange equipment and cable network and associated facilities to provide an increase of about 269,000 connected direct exchange lines (DEL's). b. Installation of new microwave links and provision of multiplexing equipment for 6,000 channels on existing and new links. c. Installation of a satellite ground terminal station and associated facilities. d. Installation of about 1,300 telex sets. A brief description of these items is given below and details are given in Annex 9. In addition the Project includes the retention of management consultants (paragraph 3.04). b. Local Service 4.02 During the Project period, CANTV would increase the capacity of exchanges, existing and new ones, by about 347,000 lines (100% increase). Part of the expansion would be achieved by installation of 191 transportable exchanges with unit capacities of 20 to 200 lines (total capacity 9,940 lines) for smaller localities. CANTV would also lay additional cables and the associated facilities required to provide for 269,000 new direct connected exchange lines (DEL's) during the Project period. The size of the local service expansion in this Program,arrived at after discussions with the bank is the most realistic that can be executed *ith the physical and financial resources available to CANTV, at this stage. This will cover only 65% of the demand for new subscriber connections as estimated by CANTV. c. Long Distance Service 4.03 For long distance service, new microwave, coaxial cable, VHF links and multiplexing equipment for 6,000 channels would be provided, interconnecting the main switching centers and local exchanges to cope with presently unsatisfied demand and to meet an expected growth of traffic of 15% annually over the next few years. The capacities of the switching centers would be increased correspondingly. - 11 - D. International Service 4.04 A satellite ground terminal station is being installed to provide initially 30 new circuits; 5 to the US, 2 to Canada, 4 to Italy, 4 to Germany, 2 to Spain and 13 to Latin American coumtries. These capacities can be increased as rapidly as needed, by leasing more channels from INTELSATts space station since the initial equipment in the terminal station can meet expan- sion needs up to 300 circuits. This system will also provide telex circuits. The satellite ground terminal station has been put into service in November 1970. e. Telex Service 4.05 Total telex exchange capacities would be increased from 1,640 lines in 1969 to 2,740 in 1974; connected teleprinter machines are expected to increase from 683 to about 2,000. f. Cost of the Program 4.o6 The costs of the five-year telecommunications Program, totalling about Bs 1.35 billion (US$300.3 million), are detailed in Annex 9, Table 1, and summarized below: (in million Bolivares) (in million US$) Local Foreign Total Local Foreign Total % 1. Local service 643.5 378.1 1,021.6 143.0 84.0 227.0 75.6 2. Long distance (national) 104.7 169.4 274.1 23.3 37.6 60.9 20.3 3. International servi- e (incl-iding invest;ment in Intelsat) 2.7 39.3 42.0 o.6 8.7 9.3 3.1 4. Telex 2.1 8.8 19.9 0.5 2.0 2.5 0.8 5. Consultants* - 2.8 2.8 - 0.6 0.6 0.2 Total 758.0 598.4 1,35i.4 167.4 132.9 300.3 100.0 4.07 The above estimates are based on recent cost experience to which has been added a contingency provision of about 7.5P. The costs of telephone switching equipment constituting 28% of item 1, and of the earth satellite * Refer to paragraph 3.04 - 12 - station constituting most of item 3, are based on actual contracts. The cable costs, which form 24% of item 1 above, are based on recent purchases; copper prices and the cost of cables have since come down and are expected to remain below the estimated costs. The long distance equipment prices in item 2 are also showing a decreasing trend. The estimates thus include a built-in margin for possible price increases; the contingency provisions are intended for unforeseen design and engineering modifications. The total cost provisions are reasonable and adequate. g. Items Proposed for IBRD Financing 4.o8 The table below sets out the foreign exchange cost of the items identified for financing by the proposed Bank Loan (Annex 9, Table 1) Bs US$ Million Million 1. Local Service a. Local and junction cables and related accessories 66.2 14.7 b. Transportable exchanges for providing telephone service to small locali- ties 7.2 1.6 c. Telephone sets 12.5 2.8 2. Long Distance Service d. TTestern network extension and provision of 6,000 additional channels 35.6 7.9 e. 1Microwave link, Barquisimeto - Coro 5.4 1.2 f. Coaxial cable MAaracay - Valencia 2.2 O.5 g. Overhead carrier routes (rural) 14.0 3.1 h. Connection Venezuela - Colom- bia 1.8 0.4 3. Consultants 1.3 0*3 4. Unallocated 11.3 2.5 157.5 35.o - 13 - h. Project Execution 4.09 Execution schedules for the main items of the Project are shown in Annex 12. The engineering of the long distance system has been carried out by CANTV satisfactorily. For the local networks CANTV is obtaining the services of an Australian team (paragraph 3.05). 4.1o For all long distance equipment and for local and trunk automatic exchanges--except transportable and mobile exchanges-- CANTV will provide the installation work force, supervised by suppliers' engineers who will be responsible for the overall installation and performance. The mobile and transportable exchanges will be installed by CANTV. The commissioning of cables for local distribution comprises civil engineering works such as laying conduits and building manholes together with the laying and joint- ing of cables. The civil works will be handled by local contractors while the laying and jointing of cables will be handled partly by CANTV with its own personnel and partly through contractors. The execution time tables are reasonable. 4.11 Formerly contractors were responsible for the supply of conduits, manhole accessories and other items, and were paid only on completion of the contract. Some of the contracts were large in size. Further, in many cases cable deliveries by CANTV for these works were often delayed, placing a large financial burden on the contractors which in turn limited their capacity to undertake more work. CANTV has taken a number of steps--prompt and frequent progress payments properly defined contracts, and expeditious supply of cables and accessories to contractors--to overcome these difficul- ties. The volume of this Program would assure the contractors of the conti- nuity of this type of work, and encourage them to employ more experienced personnel for better performance. i. Procurement 4.12 Except for some cables and switching equipment, as explained below, all materials and equipment for the Project will be procured through interna- tional competitive bidding. The part of the cable requirements reserved for domestic manufacturers and the part of switching equipment to be procured from existing suppliers for standardization reasons would be financed from supplier credits or CANTV's own resources. 4.13 Cables. In the past all the cables for CANTV were purchased from domestic manufacturers in accordance with a law that requires Government agencies to purchase locally manufactured goods if their prices are less than 25% above those of imported goods. 4.14 To obtain benefits of lower prices, CANTV has secured Government approval to procure two-thirds (Bs16o million) of its total cable require- ments under international competitive bidding. Local manufacturers will be permitted to participate in this bidding with a margin of preference of 15% on CIP prices or customs duties, whichever is lower. At present, nominal - 14 - protection is about 12A, on the CIF prices. Bs66 million (US$14.7 million) of the requirements would be financed by the Bank, the remainder from CANTVts own funds. There is a possibility that CANTV may procure part of its cable requirements under supplier credit arrangements if there is a shortfall of funds from the contemplated soulrces (paragraph 6.06). 4.15 The procurement for the above Bsl6O million worth of cables will follow normal procedures except that in case wqhere cables are to be financed under supplier credits, these will be bid for separately under credit terms. 4.16 The other third of the total cable requirements i.e. Bs8O mil- lion (US$17.8 million) would be reserved to domestic manufacturers. This portion is somewhat larger than CGAOTV1s average purchases over the past 5 years, and thus the rate of production of the domestic factories will not be reduced. The prices obtained from international competitive bid- ding will enable CANTV in the future to obtain prices from domestic manu- facturers of not more than 25%, above those from foreign suppliers. 4,.17 The Government has agreed to the proposed arrangements for the procurement of cables and the issuance of import licenses, as needed. 4.18 Switching Equipment. As mentioned in paragraph 4.02, during the Project periold CANTV wouldincrease the capacity of exchanges (existing and new) by some 347,000 lines. Approximately 10,000 lines of these would be procured through international competitive bidding and represent the only portion financed by the proposed loan. 4.19 The balance of the requirements--about 337,000 lines-- is being procured as set out below and is being financed by supplier credits or with CANTV's own financing. To expand some of the existing exchanges to their full capacity, CANTV after negotiation had placed orders for 50,000 lines with manufacturers of the type of equipment currently in these exchanges. In addition CANTV placed an order in July 1970, for 121,500 lines on the lowest bidder following international competitive bidding and retained an option to place an order for a further 60,000 lines. CANTV sought with this supplier to get additional supplies required for the Program, but the supplier expressed inability to deliver additional quan- tities during this period, and has agreed that the option could be used for installations in 1975 and beyond. Following this CAINTV negotiated and placed an order with the second lowest bidder in the international bidding for a further 162,000 lines with a discount of 11% from the original bid prices. 4.20 The switching equipment for the long distance network would mostly be additions to existing exchanges procured under Loan No. 435-VE under international bidding. The equipment would be procured from the same suppliers on the basis of previous prices and on terms obtained under international competitive bidding, but w-ould be financed outside the Bank Loan. - 15 - j. Disbursement 4.21 The proposed Bank Loan would be disbursed against CIF costs of imported equipment and material and the foreign currency cost of the consult- ant services (Annex 10). 4.22 The portion of the cable purchases reserved for local procurement is somewhat larger than CANTV's purchases over the past few years. It is therefore doubtful if the local industry will be able to bid on the supplies to be purchased under international bidding. If a domestic manufacturer would be the evaluated lowest bidder after international tendering, only the estimated foreign exchange cost of about 40/,w ould be disbursed. However, since the total foreign exchange cost of the cables to be procured is in excess of the proposed allocation under the Loan, it is expected that the entire amount will be disbursed for the CIF costs of imported goods. 4.23 After consultation with the Bank, any unused balance of the Loan should be used for purchasing additional goods, similar to those already procured under the Loan, which are part of the 1970-1974 Program. - 16 - 5. JUSTIFICATION 5.01 The principal economic issues in telecommunications projects are (1) whether the projects' component parts are in line with the actual priori- ties, and (2) whether the least-cost design is chosen to meet given volume requirements and standards of service. 5.02 The Project aims at improving the unsatisfactory local and long distance services for existing subscribers, taking into account the growth of traffic generation by existing and new subscribers. After meeting the needs of achieving a higher quality service -- obviously a matter of first priority -- the remaining available physical and financial resources are used for new subscriber connections. It is expected that about 651 of the antici- pated demand for subscriber connections, as estimated by CANTV (paragraph 5.o4), will be met during the Project period by the addition of 269,000 connections to the existing 248,000, giving a total of 517,000 connections in 1974. This works out to a growth rate of about 10% per year. The high initial charges levied at the time of telephone connection (paragraph 3.15) have the effect of allocating the connections primarily to business users. a) Demand for Services 5.03 The facilities required to meet the demand for these telecomunica- tion services with a good standard of service-are set out in paragraphs 5.04- 5.08 below, which are followed by paragraphs 5.09-5.11 below showing that the least-cost solution has been adopted. 5.04 Local Network Facilities. During the first Program period (1966-1969), the annua th rate of connected DELIs progressed from 7% in 1966 to 11% in 1969 following the availability of facilities for new connections provided under the Program. Despite this growth, the registered waiting lists for new connections increased from 49,000 applications by the end of 1968 to 76,000 by the end of 1969, indicating that the growth of demand is significantly higher than the 11% actual growth of connected lines achieved in 1969. The number of waiting applications does not cover hidden demand nor new areas of service. CANTV estimates that actual unsatisfied demand is considerably - higher and that total demand amounts to 824,000 by 1974 (Annex 11, page 1). 5.05 In the table below, the telephone densities of Venezuela and its capital city are compared with a few countries and their capitals having a similar GNP per capita. GNP Number of Number of per capita Telephones Telephones (1968) per 100 per 100 US$ population Capital population Venezuela 950 3.76 Caracas 10.7 Argentina 82o 6.72 Buenos Aires 22.3 Greece 740 8.63 Athens 21.3 Spain 73° 11.44 Madrid 27.1 Uruguay 52o 7.23 Montevideo 12.5 - 17 - The densities in Venezuela and Caracas lag considerably behind those in the other countries and capitals, which further supports CANTV's estimate of substantial unsatisfied demand. 5.o6 Long distance facilities. The forecast of long distance traffic in the first Project (1956-1969) was for an increase of 175%. Hmth the introduction of STD service starting in late 1967, the actual increase was 35°h. CANTV augmented the amount of equipment and other facilities, but even so they are inadequate as explained in paragraph 3.23 and Annex 8, page 3. The planned expansions in the long distance and local network aim at correcting these deficiencies and at meeting an estimated 15% annual growth of traffic. 5.07 The main additions to the long distance network expand connections from Caracas to the west -- where most of the economic activity of the country is concentrated along with the oil production center (Maracaibo) and regional trade centers (Merida, San Cristobal) -- and to the industrial towns of the interior (Maracay, Valencia, Barquisimeto). Improvement of this network will play an important role in developing regional centers and promoting internal trade. The need for improvement is evident from the many private radio telephone routes and connections still in existence (paragraph 2.05). 5.o8 International service. The construction of the satellite station under the Project is aimed at meeting the requirements of high-quality telephone and telex circuits to destinations in Europe and North and South America. Some of these destinations are now served by a submarine cable to the-USA whose capacity is inadequate to meet future traffic needs (paragraph 3.25 and Annex 9, page 4). The traffic to existing destinations has been growing at 20% annually after an initial spurt of 400% from 1967 to 1968 upon the commissioning of high-quality circuits on the submarine cable. The establishment of reliable high-quality international telephone and telex service *ill especially benefit the export sector. b) Least-Cost Solution 5.09 Selecting the least-cost design to meet given requirements involves (a) making the correct technological choices when the system's basic structure is being laid down in the early years, and (b) following an "optimizing" path with respect to the design and timing of the deriva- tive subsequent investments as the system expands. The earlier choice of a microwave system for the national long distance network was clearly more economical than the alternative of a coaxial cable system. Given that, the main arterial routes (including buildings and masts) connecting the important cities are already in existence, hence the expansion of this microwave system is now the most feasible solution for expansion of long distance facilities. - 18 - 5.10 Another important decision is on the details of expansion, relative to size and timing, of local exchange systems within the overall Program. CANTV has handled this well after a detailed exchange-by-exchange analysis of the spare capacity and growth of demand for each exchange. 5.11 As far as international service is concerned, the opening of communications via satellite not only will provide direct connections to destinations in Europe and Latin America, but will also provide CANTV with diversification and flexibility in adding circuits and direct service to new destinations as required. The alternative of adding a submarine cable to meet the requirements would be more expensive as compared with providing the services through satellite systems. c) Internal Financial Rate of Return 5.12 The internal financial return of the Program is estimated to be 21% (see Annex 11, page 2) at current tariffs; it gives a minimum measure of the Program's substantial benefits, considering that the expansion and improvement of telecommunications will help promote business, transportation and other economic activities as well as diversify the Venezuelan economy. The rate of return was determined by equalizing the present values of expendi- tures and the incremental operating cash flows attributable to the Program. - 19 - 6. FUTURE FINANCES A. Financing Plan 6.01 Statements showing forecast sources and applications of funds for the 1970-1974 Program are given in Annex 4. Total fund requirements for 1970-1974 amount to Bs 1,517.2 million, as detailed below and include increases in cash to provide CANTV with an acceptable degree of cash liquidity. Requirements of Funds Million Bs Million US$ % 1970-1974 Program 1/ 1,325.3 294.5 87.4 Expenditures for subsequent Program 25.0 5.6 1.6 Remainder of program under Loan No. 435-VE 24.2 5.4 1.6 Investment in INTELSAT share capital 15.0 3.3 1.0 Increase in working capital (net) _127.7 28.4 8.4 Total l,517.2 337.2 100.0 Sources of Funds Internal cash generation 1,146.9 254.9 Less: debt service (575.2) (127.8) Net internal cash generation 571.7 127.1 37.7 Disbursements against - Loan No. 435-VE 24.2 5.6 1.6 - Proposed IBRD Loan 2/ 152.5 33.8 10.1 Debenture bonds 220.0 48.8 14.6 Subscribers' deposits 135.0 30.0 8.9 Medium and Long-term supplier credits 269.2 59.8 17.7 Long-term bank credits 110.5 24.5 7.2 Collection of past due Government accounts 34.1 7.6 2.2 Total 1_517.2 337.2 100.0 6.02 Internal cash generation is expected to finance slightly more than one third of total requirements; this is based on CANTV's financial projections which do not assume any payment of dividends. The financial forecast envisages an improved staff utilization (see paragraph 6.11). Failure to reduce the staffing ratio, or to control average expenses per employee as expected, would 1/ Net after deduction of Bs 11.0 million (US$2.4 million) advance payments made before December 31, 1969, in respect of the 1970-1974 Program. 2/ Bs 5 million retention payments will be disbursed in 1975. - 20 - require that tariffs be raised if CANTV is to meet its financial targets (Annex 7) or that additional outside financing be secured to balance the 1970-1974 financing plan. 6.03 The proposed US$35 million Bank Loan would be for a period of 16 years including a 5-year grace period. For the financial projections an interest rate of 72r has been assumed. 6.04 The debenture bonds, amounting to Bs 220 million (US$48.8 million) and to be guaranteed by the Venezuelan Government, will be placed on the domestic market during 1971-1974 in equal annual issues. On the basis of CANTV's past experience with bond issues, these debentures will be designed to yield about 9% per year with a repayment period of 10 years, including a 3- year grace period. 6.o5 The 1970-1974 financing plan contains Bs 135.0 million (US$30.0 million) which CANTV has undertaken to raise by levying a Bs 1,000 (US$222) guarantee deposit from existing and new commercial and industrial subscribers. This deposit is refundable to the subscriber at termination of the service (except if terminated because of payment default) and will bear interest at 6% per annum. The borrower has undertaken to have the start of the levy of this deposit implemented before the date of effectiveness of the proposed Loan. 6.06 The financing plan provides for Bs 269.2 (US$59.8 million) in medium and long-term supplier credits, which have already been contracted. For these credits the forecast assumes repayment over 5 years after a 2-year grace period and an effective total cost of 10%. CANTV proposes to cover any shortfall in funds from the contemplated sources by qbtaining supplier credits from the tendering of cables (paragraph 4.14). 6.07 The financing plan includes long-term loans and credits from foreign banks totalling Bs 110.5 million (US$24.5 million). CANTV has concluded an agreement with the U.S. Export-Import Bank for a credit of Bs 18.8 million (US$4.2 million), at 6% interest and repayable semi-annually over 8 years beginning in May 1972, to finance U.S. goods and services for construc- tion of the earth satellite station. In addition, CANTV has received from the Chase Manhattan Overseas Banking Corporation, a credit of Bs 45 million (US$10 million) that bears interest at ]l-A above the London 6-month average Euro-dollar rate and is repayable through May 31, 1977 beginning in August 1972; annual interest of 11% for 1970 to 1971 and 1Ctk thereafter was assumed in the forecast. A further credit of Bs 46.7 riillion (US410.3 million) 1Pas secured from a group of US banks led by Manufacturers Hanover Trust Company. This credit is repayable semi-annually over 61 years beginning in June 1972; its interest is also based on the London Euro-dollar rate and was assumed to be 114 for 1971 and 1972 and ICKJ% thereafter. 6.08 The plan envisages that Bs 34.1 million (US$7.6 million) in past due Government accounts will be settled. Arrangements to collect Bs 2.5 million (US$ .6 milLion) from state governments in 19?D have already been made.Agreement - 21 - was reached during negotiations that CAOTV will complete as a condition of effectiveness the necessary steps to enable collection of accounts from Federal Rinistries, autonomous institutes and state enterprises in due course through 1972 (estimated amount involved Bs19 million, US$4.2 million). CANTV has also undertaken to arrange that settlement wtill be finalized during the execution period in respect of the remainder of Bsl2.6 million (US$2.9 million) representing outstandings from municipalities and other governLment entities. The accounts not considered collectible are covered by the allowance for bad debts (see paragraph 3.14). CANTV:s approach to maintain in future the collection of government and private subscriber accounts on a current basis is described in Annex 6. B. Future Operating Results 6.09 Forecast income statements for the 1970-1974 period and an outline of the assLump-tions are given in Annex 2. CANTV's financial prospects are satisfactory. No tariff changes would be required on this basis during the period. Net operating income is expected to increase from Bs54.5 million (US$12.1 million) in 1969 to Bs223.4 million (US$49.6 million) in 197h, and the rate of return on average net plant in service from 8.6% in 1969 to 14.4% in 1974. The operating ratio would improve from 82 in 1969 to 71 in 1974. In order to assure that CANTV would generate the fands required to complete the financing plan and to provide the funds for future expansion, CANTV has agreed not to reduce the present tariffs without the Bankts approval. A rate of return covenant of 11% has been agreed to become effective with the year 1973 until which time the 8% of return prescribed under Loan 435-VE will be continued. 6.10 The forecast increases in revenues are attributable largely to the quantitative increase in the number of telephones and to the increased use of long distance facilities resulting from the improvements expected in the quality of service. The revenues per telephone connection (DEL) increase from Bs1,239 (US$275) per telephone in 1969 to Bsl1,88 (US$331) in 1974 and are conservative. 6.11 The forecast of expenses envisages that average expenses per employee w-Till increase 10W in 1972 when the collective Labor contract il-l be renegotiated and 3% in 1971, 1973 and 1974 and that the ratio of staff per 1,000 telephones wrould decrease from the present 18.3 persons per 1,000 telephones to 15 by the end of 1974. Since expenditures on personnel cons- titute a sizeable part of total expenditures, assurances were obtained during negotiations from CAAlTV on a progressive reduction of the annual staffing levels, to ensure that total personnel costs will not exceed the amounts projected. A financing gap would result, if staffing levels or average expenses per employee exceed the forecast. This is discussed in Annex 7. C. Forecast Financial Position 6.12 CANTV's financial position, as shown in the forecast balance sheets in Annex 3, is expected to remain sound. Since the entity will finance about 51% of its 1970-1974 fund requirements by medium and long term borrowings, the debt/equity ratio will increase from the present 29:71 to 40:60 in 1972; it will decrease to 36:64 by the end of the Program - 22 - period in 1974. Assuming a slower system expansion and that the increased internal cash generation is reached in 1975 and 1976 as forecast, the debt/ equity ratio would further improve to 22:78 by 1976. These ratios are reason- able, which is attributable to the fact that 8.9% of the 1970-1974 expansion are financed by the subscriberst deposit (paragraph 6.05) for which no repay- ments are forecast for the 1971-1974 period. 6.13 Based on the circumstances prevailing in 1965, the debt service test prescribed in Loan 435-VE required a two times coverage of debt service requirements by net revenues. While this was somewhat conservative, the requirements were appropriate with a new borrower. At present, CANTV is takdng up a relatively large expansion program which involves some reliance on medium term supplier credits (see paragraph 6.06). The debt service burden has increased though still reasonable as discussed in paragraph 6.12 above. To avoid requiring Bank agreement frequently, it has been agreed that during the construction period all debt incurred will be for purposes of the project only and thereafter debt service coverage will be reduced to a more realistic level 1.5 times instead of the two times coverage in Loan 435-VE. 6.14 Under Loan No. 435-VE, a minimum depreciation of 4% is required. Based on a review by CANTV of the economic life of its various types of fixed assets, the company has made provision for depreciation averag- ing about 5 on average gross plant in service in 1968 and 1969. This rate has been used in the forecast. Agreement has been reached during negotiat- ions on the composite depreciation rate to be used, which should be 5% or such other rate as agreed to by the Bank from time to time. - 23 - 7. AGREEMENTS AND RECOMMENDATIONS 7.01 During negotiations, agreement was reached on the following principal points: (a) Government will consult the Bank before making any new appointments to the position of President and General Manager of CANTV (paragraph 3.01). (b) The appointment of management consultants will be made in consultation with the Bank (paragraph 3.04). (c) Employment of personnel will be carefully controlled so as to progressively reduce the ratio of staff per 1,000 telephones to 15 by 1974 (paragraphs 3.06 and 6.11). (d) Costs and tariffs will be maintained at levels that will achieve a rate of return of at least 11% on average net plant in service beginning with the year 1973; until then the 8% rate of return prescribed under Loan No. 435-VE will continue (paragraph 6.09). (e) No debt will be incurred during,the construction of the project except for purposes of the project, and there- after, unless net revenues are 1.5 times the debt service requirements. (f) Annual depreciation will be charged at a rate of 5% on the gross value of plant in service. 7.02 The following conditions have to be met before the Loan becomes effective: (a) Satisfactory steps shall have been completed by CANTV for recovery of outstanding accounts from governmental entities, and contractual arrangements made for ensuring prompt settlement of charges for services in future (paragraph 6.08). (b) The levy of subscribers' guarantee deposits shall have been effected (paragraph 6.05). 7.03 The proposed project forms a suitable basis for a Bank Loan of US$35 million for a term of 16 years, including a 5-year grace period. October 19, 1970 ANNEX 1 VENEZUELA COMPANLA ANONIMA NACIONAL TELEFOIOS DE VENEZUEIA (CANTV) Basic Statistical Data December 31, 1969 1. Number of automatic exchanges in service 76 2. Number of manual exchanges in service 107 3. Number of exchange lines in service-automatic 241,335 4. Number of exchange lines Ln service-manual 6,831 5. Number of extension telephones in service: (a) Automatic 121,336 (b) Manual 2,208 6. Number of circuits and circuit kilometers in service of each of the following: CIRCUITS CIRC/M (a) Microwave 1,062 310,371 (b) Radio - Ultra high-frequency 382 82,552 c) Radio - Very high-frequency 36 5,965 (d) Radio - high-frequency 16 69,850 (e) Submarine cable 52 159,200 (f) Voice frequency cable 251 4,267 (g) Carrier on open wire 449 28,167 (h) Physical circuits on open wire 419 17,817 7. Number of telex exchanges in service 13 8. Number of lines telex equipment in service 1,640 9. Number of teleprinters in service 622 Remote Telex Subscribers 61 August 11, 1970 VENEZUELA COlfrANIA ANOINIMA IWACIONA1 TE.IEFONOS DE VENEZllELA (CANTV) Actual and Forecast Income Statemenlts 1967 - 1976 (In aillion of Bolivare.) Actual Forecast Years ending December 31: 1967 1960 1969 1970 19l1 1972 1973 1974 1975 1976 Revenves Rent and local service 100.4 108.5 118.9 133.5 153.2 178.3 208.1 240.9 270.5 298.2 National long-distance service 81.1 98.9 122.7 147.1 180.5 222.8 275.6 338.3 403.4 470.3 International long-distance service 12.9 15.9 23.1 29.3 37.0 47.4 59.7 74.7 90.7 107.8 Telex 3.9 5.3 6.8 16.9 25.6 32.9 37.9 41.5 46.1 51.8 Subscription rights 9.0 10.2 12.6 16.0 20.4 26.2 29.0 31.9 23.9 26.3 Other operating revenues 14.3 19.5 23.6 26.2 28.2 31.8 33.9 36.2 36.2 39.8 Total revenues 221.6 258.3 307.7 369.0 444.9 539.4 644.2 763.5 870.8 994.2 Operating expenses Personnel expenses 117.8 126.6 148.8 163.4 185.4 229.7 265.4 304.4 366.5 407.0 Other operating expenses 40.0 46.3 58.8 77.9 88.4 98.3 108.8 124.1 140.5 169.7 Depreciation 34.4 40.7 45.6 _ 57.1 71.0 84.3 97.4 111.6 125.8 138.9 Total operating expenses 192.2 213.6 253.2 298.4 344.8 412.3 471.6 540.1 632.8 715.6 Net operating income 29.4 44.7 54.5 70.6 100.1 127.1 172.6 223.4 238.0 278.6 Miscellaneous income .7 2.2 2.9 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Inccme available for fixed chargee 30.1 46.9 57.4 72.1 101.6 128.6 174.1 224.9 239.5 280.1 Fixed charges Interest expense incurred 5.5 8.2 20.8 24.6 38.6 48.5 55.9 62.8 62.5 59.4 Less: char&d to construction 2.9 4.7 10.7 - - - - - - Net interest charged to operations 2.6 3.5 10.1 24.6 -3.6 48.5 S5.9 62.8 62.5 59.4 Net income 27.5 43.4 47.3 47.5 63.0 80.1 118.2 162.1 177.0 220.7 Average net fixed assets in operation 484.2 544.7 632.0 792.4 1,005.8 1,193.7 1,365.0 1,546.2 1,710.9 1,841.3 Rate of return (net operating income to average net fixed assets) 6.1% B.2% 8.6% o.9% 10.0% 10.6% 12.6% 14.4% 13.9% 15.1% Operating ratio (% operating expenses 81 7 of total revenues) 87 83 82 81 78 76 73 71 73 72 Number of D.E.L's installed ('000) 207 224 248 282 326 382 445 513 564 621 s Average revenue per D.E.L. Bs. 1,070 1,151 1,239 1,306 1,364 1,411 1,449 1,488 1,543 1,602 o August 11, 1970 ANNEX 2 Page 2 of 3 pages VENEZUELA COMPANIA ANONIIVIA NACIONAL TE[EFONOS DE VENEZUELA (CANTV) Notes on the Income Statements 1. Revenues i) Rent and Local Service/National Long-Distance Service The break-down of past revenues into "Rent and Local Service" and "National Long Distance Service" is estimated, because no separate statistics are available for revenues from automatic subscriber trunk dialing (STD) and from local traffic in excess of the basic free pulses. -The subscriber increases as outlined in Annex 9, page 1, were used for the forecasts, which do not assume any tariff adjustments during 1970-1976: - Average rent and local service revenue per subscriber was forecast throughout at the 1969 level of Bs 503 per annum. - Average National long distance revenue per subscriber was forecast to increase 10% during 1970, 7% in 1971 and 6% per annum thereafter, the last representing the mean growth rate experienced during 1966-1969. The 1970 rate of increase is higher than that of 1971-1974 because 24 exchange areas will get access to STD this year. The comparative rates of increase have been 12.8% for 1968 and 12.5% for 1969 when STD was introduced between the exchange areas comprising all key cities. ii) International Long Distance Service The forecast of international long distance revenues per sub- scriber assumes increases of 10% per annum for 1970-1972 and subsequently 8% per annum. These increases are conservative considering the 1966-1969 increase of 29.6% per annum and the expansion of international service after commissioning of the earth satellite ground station in early 1972. iii) Telex Telex revenues were projected at a 6% annual increase of the average revenues per telex subscriber. Telex service has been rendered by CANTV on a national scale since 1969, and nearly half of the subscribers at December 31, 1969 were not connected until late 1969. This projection is conservatively based on the experience in other countries. iv) Subscription Rights Revenues Revenues from subscription rights were forecast at Bs 466.66 average per new subscriber on the basis of 2 new residential subscribers (Bs 400 subscription right) for each new commercial subscriber (Bs 600 subscription right). ANNEX 2 Page 3 of 3 pages v) -her Operating Revenues "Other operating revenues" comprise revenues from coin boxes; installations, repairs, maintenance and moving; leased circuits and channels; and net revenues from advertisements in the telephone directory. The forecasts of these various items are based on their past development and on the new subscriber installations. 2. Operating Expenses 1) Personnel Expenses Considering management's aim to keep labor costs under better control, the forecast of personnel expenses is based on an average annual 3% increase per employee for merit raises and for changes in the mix of the labor force except in 1972 and 1975 when raises of 10% are assumed to result fram contract renegotiations. ii) Other Operating Expenses "Other operating expenses" contain office expenses, rent, vehicle expenses and miscellaneous expenses forecast at annual rates of increase between 8% and 18%, extrapolating past experience, plus future annual operating expenses of the communications school, consultants and the monthly installments to the Creole Petroleum Company in connection with the micro- wave route Caracas-Maracaibo. iii) Depreciation Depreciation was forecast at 5% of average gross fixed assets in service, extending past practice since actual depreciation was about 5% in 1968 and 1969. 3. Interest Expense CANTV expects to charge all future interest expense directly to income. This is a change from the past practice to capitalize those portions of interest expense incurred on behalf of particular construction projects. The interest expense was forecast at effective debt costs per existing agreements and contracts and for future f inac ing at the rates shown below: IBRD Proposed Loan Long-term supplier credits 10 U. S. Export-Import Bank 6 Chase Manhattan Bank ) 11 1/2 1970 & 1971 Manufacturers Hanover ) Trust Co. ) 10 1/2 thereafter Debenture bonds 9 Subscribers' Deposits 6 August 11, 1970 ANNE;Y 3 Page 1 of 2 VEREZUELA COMPANIA ANONIMA NASIONAL TELFFONOS DE VENB211LA (CARTV) Actual and Forecast Balance Sheets 1967 - 1976 (In million of Boliveree ) Actual Forecsot Years ending December 31: 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 ASSETS Fixed Assets Fixed assets in oprtica 748.9 867.8 1,001 0 1,282.7 1,555.8 1,813.8 2,0380.2 2,385.2 2,667.0 2,91C.7 Less: Allswance for depreciotion 243.4 2846. 320 9 378.0 4499.0 533.3 630.7 742.3 868.1 1,07.0 Net fixed asset. in operation 505.5 583.8 680.1 904.7 1,106.8 1,280.5 1,449.5 1,642.9 1,778.9 1,903.7 Work in progress 128.2 188.2 188.0 157.8 152.0 141.9 177.6 189.3 i66.0 167.o Other fixed assets 35.4 22.6 17.9 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Total set fixed assets 699.1 794.6 886.0 1,077.5 1,273.8 1,437.4 1.642.1 1,847.2 1.959.9 2,085.7 O-rrect Ascets Cash ard banks 7.8 5.8 1i.5 6.7 65.2 70.0 64.4 76.5 83.7 93.5 Ac-ounts receivable 51.1 55.3 67.8 61.0 63.7 74.9 89.5 108.0 100.9 124.3 I-ventcrie- and other curr. ausets 49.1 46.9 47.2 52.8 58.2 63.2 68.6 74.4 79.2 86.4 Total current assets L18.0 112.0 136j4._ 120.5 167.1 208.1 222.5 258.9 271.8 302.2 Other Assets Accoucts rec. ou,040. in excess cf 1 year l7 14.6 26.3 36.1 31.6 26.6 11.6 2.6 - - I-vestsents and advances .9 - 11.0 20.3 16.7 11.6 14.8 15.0 15.0 15.1 Other non-curr. assets 3.3 5.4 9.6 7.9 7.8 10.3 11.2 10.6 9.1 7.6 Total Asseto 795.9 938.3 1,075.2 1,257.8 1,492.0 1,679.0 1,893.2 2.131.7 2.255.8 2,410.5 LIABILITIES Sua-ty -.o,son stock 400.0 4°0.0 600.0 600.0 600.0 600.0 600.0 400.0 400.0 600.0 Preferred stock redeemed (6.9) - - - _- - - - - Capital surplus 15.8 15.8 15.9 15.9 05.9 15.9 15.9 15.9 15.9 15.9 Earned surplus & reserves 72.4 110.2 162.9 210.4 273.4 353.5 471.7 633.8 810.8 1,031.5 OovG es,m-t contributi.o. 67.2 99.3 103.9 103.9 103.9 103.9 103.9 103.9 103.9 103.9 Total equity 548.5 625.3 682.7 730.2 793.2 873.3 991.5 1,153.6 1,330.6 1,551.3 Subocribers' Deposits - - - 75.0 90.0 110.0 135.0 153.0 172.0 Lo-g-ter. Liabilities Loacs, bonds, notes and accounts payable 10l.0 163.7 241.0 391.7 458.9 521.2 572.3 602.9 5(8.2 416.6 Accrued taxes 7.3 7.3 - Prcvision for employees' termino- tics & benefits t1ong-s- Pories only) 48.2 68.o 52.4 56.1 60.2 65.2 70.7 76.6 83.1 90.1 Total long-ta-r liabilities 156.6 219.0 293.4 447.8 519.1 586.4 643.0 679.5 591.3 506.0 Current Liabilities Notes & acots. pay. sod correct maturitis. 70.7 72.0 61.9 49.2 70.3 91 .1 108.1 121.2 6 3.4 139.9 A-croed interest adothcase expense 6.1, 6.7 11.6 12.6 16.1 15.1 15.5 15.6 15,.6 15.1 Lue to employees 11.0 11.6 20.8 i1.5 12.0 12.5 13.0 13.5 14.0 o a5 Total current liabilities 88.1 90.3 9_4.1 73.3 96.4 118.7 136.6 150.3 170.9 169.5 Dcferred inoms (conly sob.or. righto) 2.7 3.7 5.O 6.5 8.3 lo.6 12.1 03.3 10.0 11.0 Total Liabilities 795.9 938.3 1,075.2 1,257.8 1,492.0 1,679.0 1,893.2 2,131.7 2,255.8 2,410.5 Debt/equity ratio (exsl. goverament con.tributioss ard "Other long-term liabiliti-s) 17:83 26:76 29:71 38:62 h0:60 40:60 39:61 36:64 29:71 22:78 Surrent r-tio 1.2:1 1.2:1 1.6:1 1.6:1 1.7:1 1.8:1 1.6:1 1.7:1 1.6:1 1.8:1 _/ A te, dodu-ti-n of aliowos for bad debts. September 30, 1970 ANNEX 3 Page 2 of 2 pages VENEZUELA COCPANIA ANONIMA NACIONAL TELEFON06 DE VENEZUELA (CANTV) Notes on the Balance Sheets 1. The additions to fixed assets during l970-1974 are as shown in Annex 9, Table 1. The 1975 and 1976 expenditures were estimated at 10% of gross fixed assets in service at the preceding year-end, in accordance with the forecast increase in subscribers in 1975 and 1976. 2. Work in progress has been forecast to represent about 35% of the sum of the annual capital expenditures and the balance of work in progress brought forward from the prior year. In 1974 it includes Bs 25 million expenditures in respect of the subsequent expansion program. 3. The net amount of non-current receivables as at December 31, 1969 is forecast to be settled by collection of Bs 2.5 million in 1970 from the states governments, by Bs 19.0 million in 1971 and 1972 from the federal agencies, and Bs 12.6 million remainder from municipalities during 1973 and 1974. 4. The forecast for cash holdings was made in line with the require- ments for a reasonable liquidity, the cash balances for December 31, 1970- 1974 improving from 2.5% to 15.5% of forecast operating cash outflows of the subsequent year. 5. Accounts receivable-current at December 31, 1969, represent some- what more than two months' prior billings. Forecasts were set at 60 days of prior sales for 1970, 52.5 days for 1971, 50 days for 1972-1974, and 45 days thereafter, considering the payment terms of 30 days by personal collection and 45 days for payment by mail and a better future enforcement of such terms as a result of a reorganization of the collection system. 6. Inventories were increased by 2% of the annual capital expenditures. 7. Investments and advances contain the gradual investment of Bs 15 million in the share capital of INTELSAT, and also reflect advances to suppliers for equipment acquisitions. 8. Government contributions comprise the interest-free non-repayable contributions from the Government budget and the value of assets transferred in 1968 from the Ministry of Communications. 9. The long-term provision for employees' termination and benefits represents the future obligations toward employees for pensions, severance and length of service pay. 10. Accrued interest expense and deferred income have been forecast to reflect the change in volume of interest expense and subscription rights revenues, respectively. September 30, 1970 ANNEX 4 VENEZUELA CCNPANIA ANONIK( NACIONAL TELEFONOS DE TVNEZ21ELA (CANTV) Actual and Forecast Sources and Applicatibns of Funds Stat.,s.nts 1967 - 1976 (In million of Bolivares) Actual Forecat Years cdng fecenber 31: 1967 1968 1969 1970 1971 197Z 1973 1974 1975 1976 Sourcs ci Funds Net incove hefore interest expense 27.02/ 41 .3 55.4" 72.1 101.6 128,6 174.1 224,9 239.5 280.1 Dweaiatien 34.4 40.7 45.6 57.1 71.0 84.3 97.4 111.6 125.8 139.9 Increase provi5ion for staff tern. & bad debts 5.4 2.3 3.9 3.7 4.1 5.0 5.5 5.9 6.5 7.0 Total internal cash generation 66.8 8L,1 105.0 132.9 176.7 217.9 277.0 342.4 371.8 o26.O Share capioal portions paid by Government 13.5 6.9 - - - - - _ _ _ Gove-nsant contributions 18.7 32.1 4.6 - - - _ _ _ _ Borrowings: IBRD h35-VE 36.1 42.9 22.8 24.2 - - - - - IBRD pmposed loan - - - 11.7 45.9 56.2 38.7 S.0 Loans from foreign banks - - 102.8 7.7 - - - - Debenture bonds - 25.0 55.0 - 55.0 55.0 55.0 55.0 - Suppliers' long- term credits 15.1 33.3 25.9 59.5 60.1 49.5 45.0 55.1 38.8 u5.3 Sub-oribrc-' u.posits - - - - 75.0 15.0 20.0 25.0 18.0 19.C Acourals & Xiscellaneuo- liabilities 1.5 (3.1) 2.2 (8.1) (8.4) 1.5 .9 .6 .3 .2 Deferred inwo,-e & otour non-curr. liabilities (.2) 1.0 (6.0) 1.5 1.8 2.3 1.5 1.2 (3.3) 1.0 Non-current receivables (4 1) (14h2) (8.3) 2.5 5.0 15.0 9.0 2.6 Total sourcso 147.4 208.2 201.2 315.3 384.6 402.1 464.6 520.6 530.6 491.5 Appjlioatjo- of Fbnds I..struotion progran 114.5 166.1 128.3 251.5 267.3 247.9 302.1 316.7_/ 238.5 264.7 Investmnt INTELSAT - - - 2.8 2.9 3.0 3.1 3.2 - Receivables - current 15.7 8.2 8.5 (6.8) 2.7 11.2 14.6 18.5 .9 1j.4 Incontorios ~~~~ ~ ~~~~~~ ~~ ~ ~~1Qo.4 (2.2) .3 5.6 5.h 5.0 5.5 5.9 5.8 5.2 Otamr curr. & non-curr. assets (.3) 1.2 15.2 1.9 (6.6) (5.6) 1.0 (3.6) ( 15) (15) Debt Service: Interest: IBRD 435-VE ) ) ) 8.6 9.1 7.5 6.9 6.2 5.6 5.0 IBRD proposed loan 2/ ) - 4 2.6 6.2 9.7 11.1 11.2 Loans from foreign banks ) 2.6- ) 3.52/ 10.12/ h.8 12.3 11.7 10.6 8.8 6.8 4.6 Debenture bonds ) ) ) 5.6 8.1 12.9 17.2 21.4 20. 19.1 Suppliers' long-term credits a ) ) 5.6 8.5 9.0 9.0 9.5 9.7 9.3 Subscribers' deposits - 1.2 4.8 6.0 7.2 9.0 10.2 Total it.erest 2.6 3.5 10.1 25.6 38.6 58.5 55.9 62.8 62.5 59.1 Amortication: IBRD 435-VE - - 4.7 9.8 10.4 11.0 11.6 12.2 12.8 13.6 IBRD proposed loan - - - - - - - - - 9.a L-ons from f-oign b-nko 7.5 2.2 5.3 1.4 1.4 6.8 18.5 20.2 22.2 251, Debenture bonds - - - - - 7.0 11.0 11.5 19.4 27.3 Sappliers' long-term credits 8.4 31.2 15.1 37.3 25.0 42.5 47.0 61.2 63.9 D3.4 Total amortiza.tion 15.9 33.4 25.1 48.5 35.8 67.3 88.1 105.1 118.2 13B.5 Total debt service 18.5 36.9 35.2 73.1 74.4 115.B 144.0 167.9 10o.7 19T,9 hange io 0000 position (10.4) (2.0) 13.7 (12.8) 38.5 25.8 (5.6) 12.1 7.2 9.5 Total applications 147.4 208.2 201.2 315.3 384.6 402.1 564.6 520.6 53C.6 49105 vsbt service -overage 3.1- 2.01 2.3-' 1.8 2.4 1.9 1.9 2.0 2.1 2.1 Net of prior year adjutomnts debited to sarned surplus. 2' - Not Xt-0r capitalized interest. 3/ Debt servic- inclusive oapitalized interest. 5' IncloSing Bs25 million expenditures referring to subsequent expansion PcOcrax. Septenber 30, 1973 ANNEX 5 Page 1 of 2 pages VENEZUELA COMPANIA ANON3IA NACIONAL TELEFONOS DE VENEZUELA (CANTV) Representative Tariffs as of December 31, 1969 1. Telephone a. Subscription right Bs i. Residential subscribers 400 ii. Non-residential subscribers 600 b. Installation charge i. Hain telephone 50-125 ii. Extensi m 25-50 c. Line rent per month i. Residential subscribers - Localities with exchanges 24* of 5,000 exchange lines (including 180 free pulses) and more - Localities with exchanges 20 * of less than 5,000 exchange (including 150 free pulses) lines - Extension phone 5 ii. Non-residential subs&ribers - Localities with exchanges 36 * of 5,000 exchange lines (including 240 free pulses) and more Extension phone 12 - Localities with excharges 25 * of less than 5,000 exchange (including 160 free pulses) lines Extension phone 10 d. Call charges i. Local calls (unlimited time) 0.125 (1 pulse*for automatic service) One pulse is a basic metering unit for each local call in automatic working; for long distance calls, pulses are charged according to duration and distance. One pulse is charged at Bs 0.125. ANNEX 5 Page 2 of 2 pages ii. Long distance (per 3-minute duration) Distance Nianual * STD 2/ (kms) (in Bs) 2/ Pulse metered (in Bs) - Up to 40 .75 *5 41- 90 2.75 2.25 91-170 4.25 3.00 171-300 6.00 4.50 301-500 7.50 5.63 501 upwards 8.95 7.50 2. Telex Bs a. Refundable Deposit 1,200 b. Installation charge (according to actual circumstances) about 150 c. Monthly rent (apparatus is bought by subscribers from outside sales organization) none d. Local charge (per 3-minute duration) Normal 3/ 1.00 Reduced .75 e. Domestic long-distance (per 3-minute duration) Distance Normal Reduced (kms) (in Bs) 2/ (in Bs) up to 150 1.00 .95 151 - 400 1.50 1.00 401 - 700 3.00 2.00 701 upwards 4.50 3.00 I/ 22-33%) lower from 7 p.m. - 7 a.m. workdays and 2/ 20-50%) Saturdays from 12 noon and Sundays and holidays. 3/ Workdays 7 a.m. - 7 p.m. Saturdays 7 a.m. - noon. Refer to page 1 of this Annex for explanation August 11, 1970 ANNEX 6 Page 1 of 2 pages VENEZUELA COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV) Collection Procedures and Settlement of Long Outstanding Accounts The December 31, 1969, balance sheet contains an amount of Bs 34.1 million (net after Bs 4.2 allowance for bad debts) accounts receivable outstanding in excess of one year from various federal, state and municipal governments. Moreover, current accounts receivable amounting to Bs 67.8 million represent an average outstanding period of about 80 days, which is excessive considering the allowed payment terms of 30 days for personal collection and 45 days for payment by mail. CANTV's approach to settle the long outstanding Government accounts, to collect future bills on a current basis, and to remedy the major weaknesses in the collection of private subscriber accounts are summarized as follows. A. Government Accounts 1. A payment of Bs 2.5 million for the settlement of long outstanding accounts from various state governments is scheduled for this year. Bs 19.0 million is expected to be collected from the various Federal agencies in 1971 and 1972. The remainder of Bs 12.6 million represents outstandings from municipalities and other government entities for which settlement lwLll be finalized during the execution period. For this purpose CANTV has undertaken to send statements of account to the agencies concerned before the date of effectiveness of the proposed loan so that they can provide for payment of old debts by inclusion of a special item in their future budgets. Some Government accounts are not expected to be collected in full, but the bad debts allowance will be sufficient to cover the uncollectible items. 2. To avoid a similar accumulation of unpaid accounts in the future, CANTV has agreed to make arrangements for a payment routine to be imposed on all federal agencies similar to the one now in force for the Ministry of Finance. Under its arrangement with the Ministry of Finance, CANTV receives at month-end a remittance covering 75% of the average monthly cost of the Ministry's use of its telephones in the prior year. Final settlement is made at year-end payable within 30 days of issuance of the total year statement. 3. For each state and municipality, CANTV will seek to obtain similar contractual arrangements. B. Private Subscriber Accounts 4. The present weaknesses in the collection system for private subscriber accounts will be analyzed and improvements suggested, as part of the AESA management consultant study now going on for Caracas. ANNEx 6 Page 2 of 2 pages 5. Because of the absence of an efficient mail service, the collection of private accounts has been and still is heavily dependent upon CANTV's own collection staff. Only 25,000 of the 140,000 private subscriber accounts in Caracas are handled by mail. CATTV's subscribers have the option of paying their bills at the payment office of their particular central exchange. Payment terms in case of personal collection are 30 days; in case of payment by mail, 45 days. 6. Up to October 1, 1970 the collectors have been full-time employees of CANTV. In addition to the basic monthly salary of Bs 425, they earned a 2% commission on the amounts collected. Their total remuneration ranged between Bs 3,000 and 7,000 per month. To make the collection process more efficient and less costly, CANTV has been able to put all collectors on a flat "per bill"' collection fee and allocating the zones in a more appropriate way. 7. The average collection period of private subscriber accounts has been in excess of the allowed payment terms. This is partly because some collectors have concentrated in the past on large, heavy-comission accounts to the neglect of smaller accounts, and partly because the preparation of disconnection lists for unpaid accounts, which should normally be made during the first five days of the month following the one in which the bills were distributed, has been delayed in the past due to administrative deficiencies. Reduction of the lag in disconnections will result from the improved processing of collections. 8. Other shortcomings prevail in Caracas since CANTV1s relatively few CANTV payment offices are open only on workdays and during business hours and since subscribers have to use the payment office of their particular exchange when paying personally. The opening of payment offices on a trial basis during off hours proved very successful, but CANTV had to abandon this alternative because the collective labor contract does not allow personnel to work overtime on a long-term basis. The most likely way to improve the situation is by expanding the number of payment offices (two were added recently in Caracas, with two more soon to be added) and after the redesign of the computer system for collections, by allowing subscribers to pay at the payment office of their choice. 9. CANTVts plans for improving collection include making arrangements-- similar to those of La Electricidad de Caracas C.A. --for the payment of telci!;hone bills at drugstores and banks as well as in CANTV offices. The Company will also promote more vigorously the payment-by-mail method. For the interior of the country, the possibility of combining CANTV payment offices with those of the electric utilities is being looked into as still another low-cost means of improving or setting up collection service. September 30, 1970 ANNEX 7 Page 1 of 3 pages VENEZUELA COMPANIA ANONfIA NACIONAL TELEFONO6 DE VENEZUELA (CANTV) LABOR PRODUCTIVITY AND CO6TS CANTV's staff productivity is relatively low, due to over-staffing and high unit labor costs. A. Levels of Staffing In comparison with other similar telephone administrations, CANTV is over-staffed considering that 97.3% of its conmected DEL's are automatic (1969), most of its plant new,that it does not provide telegraph service and that a large portion of the construction work is executed by contractors. Inadequate personnel utilization was noted in the 1965 Appraisal Report (Loan 435-VE). At that time the Company had a staff ratio of about 19.1 persons per 1,000 telephones, and although the labor-intensive installation of many new exchanges and long distance routes was planned, the Bank felt that the ratio should come down to 17.2 by the end of 1968. At the end of 1969, however, the ratio had come down to 18.3 only. Considering that the 1970-1974 Project basically calls for only an extension of existing facil- ities, and also considering that during this period part of the national long distance operators will become available to fulfill other functions, CANTV agreed to reduce the staff ratio to 15 per 1,000 telephones. Number Telephones Number of of in Employees per Year-end Employees Service 1,000 Telephones (1000) 1965 5,420 283 19.1 1966 5,952 309 19.3 1967 6,555 327 20.3 1968 6,475 346 18.7 1969 6,796 372 18.3 1970 7,310 425 17.2 1971 8,232 490 16.8 1972 9,315 575 16.2 1973 10,374 665 15.6 1974 11,550 770 15.0 As shown in the above table, CANTV can almost double the number of its staff during the project period and the ratio will still decline. The table includes only permanently employed staff. Temporary fixed-term persons, who in 1969 totalled an average of 740, are not included in the calculation; the financial forecast assumes that their percentage share of total staff will remain unchanged. ANNEX 7 Page 2 of 3 pages Despite difficulties in comparing staff ratios between various telecammunication administraticns (because of differences in type of work, educational background, caliber of personnel, etc.) and ignoring line, cable and conduit craftsmen, the adjusted CANTV December 31, 1969, ratio of about 17.4 employees per 1,000 telephones compares with roughly 9.1 for the Bell System in the United States, 10.4 for Germany (some personnel for construction work included) and 4.2 for Switzerland (all telephone connections done by outsiders). CANTV's average wage costs per employee are roughly comparable with costs in those countries. On the other hand, there are many countries with higher relative levels of staff but also considerably lower levels of conpensation. The ratio of 15 persons per 1,000 telephones by 1974 can be attained by increasing the staff efficiency to bring it in line with the pay level. Policies destined to improve personnel utilization should comprise the definition of wcrk standards, the reorganization of work- gangs, the introduction of a wage incentive system, and more contracting out of installation and construction work (possibly even telephone connections) to sub-contractors. B. Labor Costs CANTV's unit labor costs are not accompanied by high personnel productivity. Average salary and wage costs per employee have shown annual increases between 4%1 and 6% for years without collective labor contract negotiations. The latest three-year labor contract (signed on December 22, 1969, and effective retroactively to April 1, 1969), brought salary/wage increases and additional fringe benefits iepresenting a 15.5% rise in average employee compensation. Average costs per employee have gone up by 40% between 1964 and 1969. With approximately Be 24,00o total compensation in 1969, CANTV's employees are among the best-paid personnel in Venezuela after those in the petroleum industry. Management is of the opinion that the Company's viability could be endangered if future average labor cost increases per employee cannot be kept below 10% for years with contract renegotiations and 3% for the other years, unless compensated by tariff increases. It aims to remain within these limits, and they have therefore been built into the forecasts. C. Sensitivity Analysis The following highlights the sensitivity of the projected 1970- 1974 income and cash flows to unfavorable changes in labor costs and levels of staffing, and indicates that control of labor efficiency and labor costs merits close attention: ANNEX 7 Page 3 of 3 pages If annual labor cost If annual labor cost per employee increases increases by 2%/5% more by 2% 1/ and 5% 2/ and if staff levels are more than forecast, 5% higher than forecasts it would result in a reduction/shortfaIl of total 1970-1974: (million of Bolivares) Net operating income 99.4 162.6 Net cash flows 3/ 131.1 214.2 Unless tariffs are adjusted, the rate of return, the debt/equity ratio and the debt service coverage would be less favorable than forecast. For example, the rate of return would be below the proposed covenant limit in 1974 and the debt service coverage below 1.5 in 1972. 1/ Years-without collective labor contract negotiations. 2/ Years with collective labor contract negotiations. 3/ Considering incremental labor costs for CANTV's capitalized own construction and the depreciation thereon as well as interest expense to finance the shortfall in cash flows. August 11, 1970 ANNEX 8 Page 1 of 5 pages VENEZUELA COMPANIA ANONIMA NACIONAL TEIEFONOS DE VENEZUELA (CANTV) EXISTING TELECOMMUNICATIONS FACILITIES A. Local Service 1. At the end of 1969, Venezuela had a total of 371,710 telephones. Of these, 65% were in Caracas. A large number of the smaller towns and communities do not have telephone service. Local Telephone Service Related to Dietribution of Population (1969) Communities With Without Auto Manual Population Total Service Service Exchanges Exchange8 More than 1,000,000 I 1 - 28 4 500,000 - 999,999 1 1 - 2 - 100,000 - 499,999 7 7 - 11 - 30,000 - 99,999 21 21 - 19 2 10,000 - 29,999 52 38 14 15 23 Less than 10,000 966 79 887 1 78 Total 1,048 147 901 76 107 2. The increase in telephone connections from 1965 to the end of 1969 is shown in the following table: Total Connected Tel. of direct DEL per Capacity lines Total Increase 100 Year Exchanges DEL Extensions Telephones % pop. 1965 238,945 178,345 104,213 282,558 - 3.24 1966 251,675 191,836 117,062 308,898 7 3.42 1967 272,260 207,084 119,954 327,038 8 3.49 1968 278,080 224,256 121,448 345,704 6 3.59 1969 342,435 248,166 123,544 371,710 11 3.76 ANNEX 8 Page 2 of 5 pages 3. There has been a large unsatisfied demand for telephone connections. The registered waiting list, which usually represents only a fraction of the total demand, shows by the end of 1969, 42,000 applications for direct exchange lines in Caracas and 34,000 in the rest of the country. With the exception of some special cases, waiting time for telephone connections has varied between two to five years. 4. The following table summarizes the existing situation at the end of 1969: Connected No. of Exchanges Total Capacity Subscribers Total Auto Manual Auto Manual DEL Telephones Caracas 24 - 204,350 - 152,999 ) Caracas suburbs 5 4 7,600 410 6,248 ) 243,722 Rest of the country 47 103 119,870 10,205 88,919 127,988 Total 76 107 331,820 10 615 248,166 37 __ =Z___ __l_71 342,435 5. CANTV has a multiplicity of types of automatic switching equipment in operation -- five types in Caracas and seven in all of Venezuela. 6. The various types of exchanges and their capacities in Venezuela, as of December 1969, are shown below: Automatic No. of Exchanges Total Capacity ATE-Strowger 12 59,650 ATE-5005 2 13,500 Siemens-EMD 8 104,000 Ericsson-ARF 9 51,000 Ericsson-AGF 27 51,500 Albis 11 44,500 Hitachi (Mobile) 7 7,400 PABX (Ericsson) 1 270 331,820 This has led to problems in training and staffing as well as to operational problems to provide satisfactory service. CANTV has decided to standardize on modern crossbar systems for all new installations. To further improve interworking in the Caracas area and to provide for increased traffic, CANTV is installing two modern tandem exchanges more suited to handle the inter- working between the existing systems. ANNEX 8 Page 3 of 5 pages B. Long Distance Service Routes 7. The main long distance routes in Venezuela are shown in Map 1. These consist of: a. A main microwave artery - Western Network - connecting the principal cities in Venezuela to the west of Caracas for telephone and television relay. This was financed by Bank Loan No. 435-VE. b. A microwave route (300 channels) between Caracas and Mara- caibo, owned by the CREOLE Petroleum Co. CANTV now rents some circuits to serve various towns on this route. According to an agreement reached between CREOLE and CANTV, CANTV will buy this route in 1974. c. A microwave artery - Eastern Network - connecting the principal cities to the east of Caracas is now being provided; a con- tract for this equipment was awarded in 1969 and the system is expected to be commissioned in 1971. This system will replace a 72-channel VHF system now in operation in the area. 8. The details of these routes, the number of circuits provided in the various sections and the details of the switching centers are given in the Charts 1 & 2 of Annex 13. Circuits 9. There were at the end of 1969 a total of 2,699 circuits in operation in all of Venezuela. This includes not only the circuits provided on the main routes referred to above, but also those provided by cables and open wire lines to the smaller centers. Exchanges 10. Subscriber trunk dialing (STD) is in operation between the principal cities of Venezuela. The automatic switching center exchanges providing this service and the capacity of these exchanges as they existed in 1969 are included in the information given on page 3 of Annex 9. Quality of Service 11. The service provided to the public is not satisfactory. Even though tle maintenance and operation of the long distance routes is satisfactory, there is acute congestion at various sections of the routes due to the heavy upsurge (about 350%) in traffic that followed the intro- duction of STD. At present only 30% of traffic originating during the busy hour is completed. Half of the failures are due to the shortage of long distance circuits, while the rest is due to congestions in junctions interconnecting with the local systems. The expansion program is aimed at eliminating the bottlenecks. ANNEX 8 Page 4 of 5 pages C. Telex 12. Telex service started in Venezuela in 1962 on a small scale of 90 subscribers connected to a telex exchange of 100 lines capacity. In 1969 CANTV had 683 subscribers connected to telex exchanges in 13 towns with a total capacity of 1,640 distributed, as shown below: Telex Service at December 1969 Telex Exchanges Capacity Connected Subscribers Metropolitan Zone Caracas National center 300 154 Mederero 300 290 Nlaiquetia 20 11 Sub-total 620 455 Rest of the Country Maracaibo 300 68 Punto Fijo 40 10 San Cristobal 100 18 Maracay 100 14 Valencia 100 51 Puerto Cabello 40 12 Barquisimeto 100 18 Puerto Ordaz 100 13 Ciudad Bolivar 40 11 Puerto la Cruz 100 13 Sub-total 1,020 228 Grand Total 1,640 683 V 13. CANTV provides the telex exchanges and lines to subscribers' premises. The supply, installation and maintenance of teleprinter machines are provided by local companies that are directly responsible to subscribers. National telex traffic is increasing at a rate of 40% per year, while international traffic is increasing at 30% per year. 1/ Made up of 622 ordinary subscribers and 61 remote subscribers situated outside the telex exchange local area. ANMEX 8 Page 5 of 5 pages D. International Service 14. Venezuela's existing (1969) international connections for telephone servioes are as follows: Connections to: U.S.A. - Europe and Central America included 46 Submarine Cable Puerto Rico and Virgin Islands 4 Submarine Cable Dominican Republic 2 Submarine Cable Colombia 19 UHF radio Curacao 2 UHF radio Aruba 1 UHF radio Panama 1 HF radio Argentina 1 HF radio Ecuador and Peru 1 HF radio Trinidad 2 HF radio Italy 2 HF radio Spain 2 HF radio Brazil 1 HF radio Total 84 15. Before 1966, all international circuits were handled by high frequency routes. In August 1966, a submarine cable was commissioned link- ing Venezuela with St. Thomas Island in the Caribbean and Florida in the U.S.A.. Telephone and telex traffic is directed to the U.S.A. and, by extensions through their systems via St. Thomas Island and the U.S.A., to a number of Caribbean locations, Mexico and Europe. Communications to Colombia and some other neighboring countries were extended by use of UHF. 16. Improvements in the quality of service upon commissioning of these routes resulted in a high upsurge of traffic - over 400% - to these destinations in the year following their use, and traffic has been increasing by about 20% a year thereafter. Due to this heavy unexpected increase, there is some congestion during the busy hour with an average delay of 18 minutes for calls to the U.S.A. and of 27 minutes for calls to Europe. The establish- ment of a satellite ground station in November 1970 will give relief and will be the mode utilized to meet future demand. August 11, 1970 ANNEX 9 Page 1 of 4 pages VENEZUELA COMPANIA ANONIMA NACIOMAL TELEFON06 DE VENEZUELA (CANTV) TELECOMUNICATIONS PROGRAM (1970-1974) The details of the CANTV 1970-1974 Program are given below: A. Local Service The expansion of local services is expected to achieve the following targets: 1969 1970 1971 1972 1973 1974 Total exchange capacities 342,435 382,235 440,635 515,435 5930335 689,565 Connected direct lines (DEL) 248,166 286,674 330,414 386,583 448,768 517,171 Total telephones 371,710 425,000 490,000 575,000 665,000 770,000 % increase 11 11 15 17 16 15 Tel/100 pop. 3.8 4.1 4.5 5.2 5.8 6.4 Out of the planned expansion of capacity by 347,130 lines, CANTV has already entered into contracts for the purchase of 33,506 lines comprising the following: Contracted: a) Extensions to existing exchanges contracted in 1969 25,000 b) Mobile Exchanges contracted in 1969 25,000 c) Contract concluded in 1970 after competitive bidding 121,500 d) Contract concluded in 1970 after negotiations based on previous international competitive bidding mentioned in (c) above 162,000 Total 333,500 Cable networks to meet the targets for additional connections will be taken up during this period. A part of the cables will be procured from domestic manufacturers and the rest under international competitive bidding with a preference for domestic suppliers. The details of this procurement are discussed in paragraphs 4.13 - 4.17. ANNlEX 9 Page 2 of 4 pages Some 240,000 telephone sets for the expansion Program are going to be financed by the proposed Loan under international competitive bidding. The balance of requirements has been contracted for in 1969. B. Long Distance Service Long Distance Routes The routes included in the 1970-1974 Program are shown in the Map and in Charts 1 & 2 of Annex 13. With respect to the Eastern Network, no new routes are being added except for the completion of the 960-channel microwave system (Japanese) already in hand. The Western Network is being strengthened considerably by two 1,800-channel capacity microwave links from Caracas to Altamira (2 bearers) and Altamira to Barquisiimeto (one bearer). The existing 960-channel capacity microwave equipment for Caracas to Altamira (one bearer) will be shifted to augment the Barquisimeto to Escuque section. The Northwestern system is also to be augmented and two alternatives are under consideration, the first to install a system between Caracas to Mirimire (through Pt. Cabello) and the secnd to erect a new route from Barquisimeto to Curimagua. A decision on this will be taken after a study to be performed and completed during the Project period. A number of spur routes are also being provided, including a short interconnection of the MIerida-San Cristobal link with the Colombian long distance network across the border. Spur routes in the immediate vicinity of Caracas are included. A microwave system to the south from San Juan to Calabozo-San Fernando is likewise included. All the systems would be procured by international competitive bidding and financed by the proposed Loan. The execution schedules for these routes are given in the Chart at Annex 12. Circuits Multiplexing equipment is being added to the existing routes and to the new routes being established in the 1970-1974 Project, pro- viding for a total of 6,000 additional channels to meet the estimated requirements. Existing Required Additions 1970 in 1975 Required Number of channels between STD switching centers 4,512 l,372 2,860 Number of channels from STD switching centers to local exchanges l,048 3,332 2,284 Number of channels to small local areas 39 705 666 Total 2,599 8,409 5,810 A1INEX 9 Page 3 of T page7 Long distance switching systems These installations are being financed by CANTV outside the Bank Loan. Costs The costs--local,foreign and total--of the long distance Project itemized and annually, are given in Table I, item 2 of this Annex. Automatic Switching Centers A total of 16,140 additional lines is included in the Program for expansion of existing and provision of new automatic switching centers. Details are given below: Existing lines New Lines Switching Center 1969 1970 1971 1972 1973 1974 Total 1. Acarigua _300 - 2- - 5 00C 2. Anaco 160 - - - - - 3. Barquisimeto 400 400 - 600 - - 1,4CC' 4. Cabimas - 240 - - 80 - 320 5. Caracas - C.N. 2,600 1,400 1,500 1,400 - - 6,500 6. Carupano - - 160 - 80 - 2h0 7. Tacarigua - - 80 - 80 - J6C o 8. Ciudad Bolivar - 200 - 400 - - 600 9. Coro 160 - - 160 - - 320 10. Cumana 240 - - 160 - - LoG 11. El Tigre 320 - - 160 - - 450 12. Guarenas - - 80 - 80 - 2U, 13. Los Teques 160 - 160 - - - 320 14. Maiquetia 500 - 400 - 200 - 1,100 15. Miaracaibo 400 - 600 - 500 - 1,5fJC 16. Naracay 400 600 - 400 - - 1,400 17. Maturin - 160 - 240 _ - _OO 18. M4erida 240 - 400 - - - 640 19. Ocumare del Tuy - - 160 - 80 - 240 20. Porlamar - - 240 - 160 - 400 21. Pto. Cabello 160 - 240 - - - 400 22. Pto. La Cruz 300 300 - 200 - - 0oo 23. Pto. Ordaz 200 - 400 - 400 - 1,000 24. Punto Fijo - 320 - - - - 320 25. San Cristobal 200 - 400 - - - cr(O 26. S. J. Moros 160 - 160 - - - 3c0 27. Valencia 400 600 - 600 - - 1,6Co 28. Valera 320 1/ 600 - - 200 - 'joo 29. V. Pascua 80 - - 80 - - 160 Total lines installed by 1974 23,5L'3 Less: total existing lines 7,400 Total lines to be installed during 1970-1974 16i140 1/ Will be transferred to another exchange ANNEX 9 Page 4 of 4 pages C. Telex Service CANTV has included in the Program the extension of total telex exchange capacities from 1,640 lines to 2,740,while the number of connected teleprinter macbines will be increased from 683 to 2,018,as shown in the tables, below: 1968 1969 1970 1971 1972 1973 1974 Total capacity of exchanges (lines) 320 1,640 1,740 1,940 2,140 2,340 2,740 Connected subscribers ordinary 285 622 1,322 1,322 1,522 1,572 1,622 remote (far from the ordinary exchange boundary) - 61 138 222 300 348 396 D. International Service By Nov. 1970, a satellite ground station has been taken into operation in Camatagua, about 70 miles south of Caracas. The station will work with the INTEISAT Atlantic satellite and provide circuits to a number of countries in North and South America and Europe. Initially the following telephone circuits are being provided: Venezuela to-- United States 5 Canada 2 Italy 4 Germany 4 8pain 2 Latin American countries 13 Total 30 Additional circuits as well as new destinations can be added as required. The ground station at Camatagua will be connected to Caracas by a microwave link of 960-channel ultimate capacity. The raquirements of telex circuits will also be provided through the satellite system. The international exchange in Caracas is being augmented to meet the increased requirements. The costs of establishing satellite communication facilities are shown in Table I, item 3 in this Annex. Item 3.2, shown as "INTEISAT" in this table, represents the share capital to be contributed by CANTV to INTELSAT for participating in the INTELSAT World wide Satellite Communication System. August 11, 1970 7301PAN1A .lOtTMA 1302124,L 7TEL00nN1S DE1 VENEZUEIA (0,0N9V) Tcl- -raoel:tio-o rogram 91'972 11174 I)-' I071 1171 1' l7, T4107, - 1974 Tons For..igo Tta Loca Forign Total lo'a Foein otl ooltro TotatIn1tLor1go Total lclrrg oa 1. us 571': Vt I 1,473 29,892 109,3(1 110,33' £7,191 1;2,o99 118,613 y11,i92 132, 5902, 137,911 n,n82 92, 9,2 32 m11, 48,7 ,371 105,491481 44,,463;31, o44i,oo1,66i 11 otra Plant .1 7 0TTU-l 10ATI1 NAL 41,ot92 6,5 31,045 30613<33 1 3 0, lo 486 01 2),6Ž1 31 1156-3 5893 44, c22,42 __4___ 1107,2375 ,'4,0£2 noeQrecie 25 1, Par.t-r NL-karl 2,6( 12,2950 .8,10i 4,7 ,,nil 5.n I -- 1, Zl,1,361i 3 0 -.I 0 -tcirug Feereo10 ,1 ,2 4o 119E4 1,n 3,6(9 5,664 1,0277 1 e igPlEat-ot- ITT 1,112 ,409 10,_213 116 6 1,1'S5 - -6(,386 263,914 .1.4 4r-t-r SeN,..k -ae 1-0 o Fr-ilolo .6,0231 .,ditioelTInrP r--. L36 1 1j 7r0 16,L-n6 5,117 14,23C 19,347 7,9"5 12,10n 15,099 12,1 I J82 9- 0,6198 1 9 0 4 tonI, Earqnlrtreuo-Ooro - - - - - - 1,49 361 0,4i4 1 lIe 4 1140 6,976 - - 32 9,Boi2 3,390~u ,84o ,976~,5'45,800 9,39 1 o enrn'1 tonic torr'a.e-V,0rernn - - - - - - 907 541 ,515 0 063 - 310 19 ',360 3,078,7 41 152~ ,66 - 21 2, "IB 236o ,27 armor Eootrr-e.o'nIArre -4- - 4 -4 1,o26 1,352 5,300 i2,650 5,253 5,134 12, oS7 1'1 0100 15,37, 31,163 r'rOfor 2,3011 14,3o4 17,172 14;~,23 14,576' 23,,376 0 01- - - 13 147,573 219 wi-ntchingT Wip-t' Pddit--,,l - - - 7,137 1172 13,697 9,q ,D)) 17,931 ) 9,547 7,010 17,5'.7 6, 3.11 15,00 16,34(, 2,120 12, 00 67,1122 3.- (tTfHNTIOIA19i 7000171 557 4773 lm4( 1,24 1,13 10,0 1,21' 4,boŽ 6,1 -"363 3,633 - 320( ,0 1,6 41,977 3.1.- Oonoroti or Orneroela - Ce( D *. % %qb°___ Mara 960 1947 48/00 372 \ 00 Villa de no 564 672 Valencia Z Rosario 2259 Berquisimeto 2796 oaxil 4 MW P uque… S………80D 24/3 °0Ec uqu e- -_ _ __ _- _ _- _- _-__ _-6-9 - -80 _L_ _- I 240 9 960 1800 180 Machiques TV \ t ,12600 4 tubes Altamira Los Teques 4 TV ~ ~~20 60S Juan Zjol. 48/104 Link ~~~~~~~~de Los Moros 0 1,208 Merida only Valera 570 Acarigua 1 72/600 960 San Cristobal Calabazo (I / 1 24/120 La Agueda S.aernanda 36/300 Camatagua 168 Earth Station 46-38. So. O.umore del Tuy 918 24 0 Pro. Ayocucho F-I STD Switching Center Existing Microwave Link (960 1+l+TV) Unless Indicated D Topographic and further traffic studies will determine the best lternative out at nev, route I or 2. In each Proposed Microwave Link As Indicated cose, traffic to Maracoibo will be divided between STD Switching Center With Area Network the main backbone and the new selected route. _ ------- ~~~~~~~~~~~~~~~~~Proposed Troposcatter Link 9 Existing (960 link) Caracas - Alt-mira will be trans- ( )O Main Repenter Stetions 1970 N ferred to Barq.isimeto - Escuque - Valera. _-17 Numbero0f Channels in Serviee 1980 Z IBRD - 4953(R) EASTERN NETWORK VENEZUELA CANTV MAIN LONG DISTANCE NETWORK PROJECT 1970 - 1974 Porlamar (AsuncionCcrpn > ~~~~Ca rupa no CARACAS(T LsVelasques Sabana Larga / CARACASC) * s 960 Avila UValle Guanpe Pto Barcelona / Port of Spain I UHF 72 La Cru zMW 300 ----==---- ___. M-llT ---------t --- ~ --~ Guri ---" ………K) …[~~~~~M +1tV --- ~-- ---Guiria' 9~L . ~~~~~~~~~~~300/960 Cerro Z: lArrajata Cumana (Trinidad i ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Island) u UHF 72 Guorenas ===l:~ ~~~ _____0 MW 120 Volcon 77; 3jO ~ ~~~~~~~~~~~~~~~Cerro Corozon UHF 72 Maturina Volcon MW 300 ~~~~~~~~~~~~~El Pi lar - = Altogroc ia Anac / Vallede \MWT La Poscua \ / 960 Cerro Grand 24 _] STD Switcking Center \ VHF 24e STD Switching Center with Area Network El Tigre Barrancas Q Repeater Station Cerro Pto. Ordaz UHF Existing Route (72) Las _ Cd. Bolivar _--__ { -~ - -Microwave Route (960) 1+1 TV (contracted for) 71 . Coaxial Cable 'Z . -> V.F. Cable Routes to be Taken Off IBRD - 4954(R) 13* '' i65' m7 MARAC~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~O4AI AOIA44AIN t~DB$0qEE~~ CNV ~~~~~~~~~~~~~~~~~~~~~~~~~~ANLN3%=STANCLI NLT WORK; VALENCIA b7- 65' n W ON z1 :J t{vBARGUI ! I dF,,y!Eg 9 d ALTAMIR d.9-. d YdJ F2 2 NA1gW 1 1 ) | 1 1@3D Vol1. d. 1. P...o (D~ E~,.ogm.M 96M.Lrih ECIbo S6ISTOBAL P. A,..,h.~~~~~~~~~~~~~~~~~~~~~~~~~~~~EOQ ,~M-UPCWoISo, 65' ~~~~~~~~6?