Document of The World Bank FOR OFFICIAL USE ONLY Cc {{c)-flj Report No. P-4456-BU MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDET OF SDR 3.8 MILLION TO THE REPUBLIC OF BURUNDI FOR A SECOND TELECOMMUNICATIONS PROJECT April 24, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (as of September 1986) Currency Unit - Burundi franc (FBu) $1.00 - FBu 119 (September 1986) FBu 1 million - US$8,403.36 SDR 1.0 - $1.263 (as of negotiations, February 1987) FISCAL YEAR Government and ONATEL January 1 - December 31 WEIGHTS AND MEASURES Metric System PRINCIPAL ABBREVIATIONS AND ACRONYMS CCCE - Caisse Centrale de Cooperation Economique MTPT - Ministere des Transports, Postes et Telecommunications ONATEL - Office National des Telecommunications FOR OFFICIAL USE ONLY BURUNDI SECOND TELECOMMUNICATIONS PROJECT Credit and Project Summary Borrower: Republic of Burundi Beneficiaries: Office National des Telecommunications (ONATEL) and Ministry of Transport, Posts and Telecommunications (MTPT) Amount: SDR 3.8 million (USS4.8 million equivalent) Terms: Standard Onlending Terms: $3.1 million would be onlent to ONATEL for 17 years including four years of grace at the IBRD rate. ONATEL will bear the foreign exchange risk. Financing Plan: US$ million CCCE 10.5 Netherlands Government 3.9 IDA 4.8 Commercial Bank 3.9 ONATEL 2.3 TOTAL 25.4 Economic Rate of Return: 28% Staff Appraisal Report: No. 6535-BU This docurnent has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mnay not otherwise be disclsed without World Bank authorization. MEIORANDUW AND RECOHMENDATION OF THE PRESIDENT OF THE INTERNA2IONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BURUNDI FOR A SECOND TELECOHMUNICATIONS PROJECT 1. The following report on a proposed development credit to Burundi for SDR 3.8 million (US$4.8 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms and would help finance rehabilitation and extension of the telecommunications network, institutional development and some basic assistance to the postal sector. Cofinancing of $18.3 million equivalent would be provided by the Caisse Centrale de Cooperation Economique (CCCE), the Netherlands Government and a Dutch commercial bank. Of the $4.8 million IDA credit, $3.1 million equivalent would be onlent to ONATEL at the IBRD rate for 17 years including four years of grace. ONATEL would bear the foreign exchange risk. 2. Background. In 1980, Government established the Office National des Telecommunications (ONATEL), a publicly-owned parastatal entity, which provides all telecommunications services in Burundi. At the end of 1985, ONATEL operated 20 automatic telephone exchanges with 8,130 lines installed and 5,926 lines connected. This is equivalent to 0.13 telephones per 100 population--one of the lowest telephone densities in the world. Connected lines at the end of 1985 met only 63% of expressed demand for service (subscribers plus applicants) and a much lower proportion of total demand: unexpressed demand is known to be high because of long waiting times for connection and poor network coverage. Telex service is automatic and is available in 15 towns. International telecommunications are provided through satellite. Local telephone service in Bujumbura is only fair and repairs are unacceptably slow. The IDA-financed First Telecommunications Project, wlhose completion is expected in December 1987, will ease traffic congestion between provincial towns and Bujumbura. It has also provided initial institutional support for management, budgeting and control systems. ONATEL is reasonably well organized and its financial performance, although modest, is improving steadily. The four main constraints to telecommunications development are remaining management weakness, shortages of skilled staff, inadequate maintenance and unmet demand, which the proposed project would address. 3. Postal services in Burundi are provided by the Postal Department within the Ministry of Transport, Posts and Telecommunications (KTPT). The Department operates 38 postal facilities, about one for every 124,000 people. Postal facilities and equipment mostly are dilapidated. Extremely poor service quality has caused a loss of public confidence and postal services are close to complete collapse. The potential for financial services such as postal checking and savings is not fully utilized. The proposed project would address the following institutional constraints facing the sector: (a) poor organization of the Department; (b) inadequate accounting and management information systems; and (c) a shortage of qualified staff. 4. Project Objectives. The proposed project would Increase ONATEL's operating and financial efficiency, improve the quality and reliability of services and partially meet unsatisfied demand. The objectives of the postal component are to initiate the reform of the postal sector and to support basic sector investments. 5. Project Description. The proposed project would have a total cost of US$25.4 million equivalent; US$24.1 million for telecommunications and US$1.3 million for postal services. Total foreign exchange costs would be US$21.8 million (86%). The telecommunications component comprises US$4.2 million of technical assistance and training and US$19.9 million of telecommunications equipment. Technical assistance covers: improvement of accounting, management organization and planning; fellowships and experts to improve MTPT school programs. Equipment financing covers: replacement and expansion of telephone and telex facilities in Bujumbura; a new international transit exchange and expansion of the satellite earth station; public call offices in rural areas; and vehicles and tools. The postal component comprises US$0.4 million of technical assistance and US$0.9 million of postal equipment. Technical assistance covers: a review of sector structure and reform steps; design of accounting aad information systems; and management training and fellowships. Equipment financing covers a parcel sorting center, vehicles and training equipment. The proposed IDA credit would finance US$3.5 million of the telecommunications component and the US$1.3 million postal component. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank group operations in Burundi are given in Schedules C and D, respectively. Maps are also attached. The Staff Appraisal Report No. 6535-BU dated April 15, 1987, is being circulated separately. 6. Rationale for IDA Involvement. IDA's strategy is to provide support to the Government to cor-tinue implementation of its structural adjustment programs under SAC I (Credit 1705-BU) while addressing long term structural constraints in key sectors. In line with our support for institutional development and improving managerial and technical skills, the proposed project would build upon the achievements of the first project and strengthen ONATEL's ability to operate and maintain facilities, to implement priority investments and to plan future development of the sector. These objectives, and the nature of the institutional support included in the proposed project are consistent with reform initiatives to be carried out for other parastatals under the SAC I. By providing pilot assistance to the postal sector, IDA will have the opportunity to establish a dialogue with Government on a strategy for comprehensive postal reform and to assist Government in planning and implementing reform steps. 7. Actions Agreed. The following actions were agreed at negotiations: (1) Government and its agencies will settle accounts with ONATEL promptly upon receipt of billing; (2) ONATEL will agree with IDA on a plan to reduce arrears owed by residential subcribers, and, each year, present to IDA an accounts receivable aging schedule with provisions made for irrecoverable debts; (3) Based upon reco endations of the postal study, the Government will agree with IDA on a plan and timetable for t-he -3- reform and restructuring of the postal sector before March 31, 1988; (4) ONATEL and Government will review implementation of all technical assistance and training with IDA each year and agree upon objectives for the following year; (5) Government and ONATEL will consult with IDA before making changes to ONATEL's investment program which would increase investment costs by more than 5% in any year; (6) each year ONATEL will agree with IDA on financial, operational and maintenance performance targets for the following year; (7) Government will enable ONATEL to adjust the structure and level of tariffs as required for ONATEL to earn a 12% rate of return on net revalued assets; and (8) ONATEL will maintain net cash generation equal to the local funds required for its investment program, or 25% of total investment funds required, whichever is greater. 8. The following would be special conditions of effectiveness: (1) Government will have appointed a project coordinator acceptable to IDA for the postal component; (2) The Government and ONATEL will have appointed consultants to provide the postal and telecommunications technical assistance in accordance with already agreed terms of reference; (3) ONATEL and Government will have signed a subsidiary loan agreement; and (4) conditions precedent to effectiveness of the loan from the CCCE will have been fulfilled. 9. Justification. Benefits from the proposed project would reach most sectors of Burundi's economy. Improved telecommunications would increase management efficiency, improve coordination of economic activities and so increase business productivity. Benefits to rural communities mainly would be through improved marketing made possible by the availability of better telephone service. More reiiable and prompt mail delivery would also improve business efficiency, facilitate Government administration, help promote rural trade and strengthen resource mobilization by improving postal checking and saving services. The estimated economic rate of return of the project is 28%. 10. Risks. Tne project has been adequately planned and does not present any significant technical risk. Preparation of bidding documents for procurement of equipment and services is well advanced. Residual risks are that financial and institutional benefits would be delayed or reduced througlh slow implementation. These risks are addressed through agreed mechanisms to monitor implementation and make adjustments as necessary. 11. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. April 24, 1987 4 - SCHEDULE A ESTIMATED COSTS a/ -- Millions------- Local Foreign Total TELECOMMUNICATIONS 1. Switching 0.1 6.6 6.7 2. External Plant 2.1 4.4 6.5 3. Subscriber Plant 0.1 0.6 0.7 4. Rural Telephony 0.3 1.6 1.9 5. Telex 0.1 0.4 0.5 6. Satellite Earth Station - 0.6 0.6 7. Buildings 0.1 - 0.1 8. Vehicles and Tools - 0.4 0-4 9. Training and Consulting Services - 3.4 3.4 10. Training Equipment and Fellowships - 0.8 0.8 Total Base Cost 2.8 18.8 21.6 Physical Contingencies 0.1 1.0 1.1 Price Contingencies 0.6 0.8 1.4 Total Telecommunications 3.5 20.6 24.1 POSTAL SERVICES 1. Vehicle & Miscell. Equip. 0.1 0.7 0.8 2. Training Equip. & Consultancy Services - 0.4 0.4 Total Base Cost 0.1 1.1 1.2 Physical Contingencies _D/ 0.1 0.1 Price Concingenciesb/ - - Total Postal Services 0.1 1.2 1.3 TOTAL PROJECT COST 3.6 21.8 25.4 a! Project expenditures are exempt from custom duties and taxes. b/ Less than $0.1 million. FINANCING PLAN Source Local Foreign Total ------(US$ million)-- IDA - 4.8 4.8 CCCE 1.3 9.2 10.5 Netherlands - 3.9 3.9 Commercial Bank - 3.9 3.9 ONATEL 2.3 - 2.3 Total 3.6 2L.8 2-5 SCHEDULE B Page 1 of 2 PROCURE Tied Project Item ICB LCB LIB Otherb/ Pmocu- Total rementC/ - -(UJS$ million)aS~ a) Telephne exchanges - _ _ _ 7.3 7.3 b) local netiork - - _ - 4*7 4*7 c) Subscriber plant - - _ - 0.7 0.7 d) Rural VHF system 1.2 (1.2) - - - - 1.2 (1.2) e) Public call offices 0.4 (0.4) - - - _ 0.4 (0.4) f) Telex services 0.5 (0.5) - - - 0.5 (0.5) g) Earth station - - - - 0.7 0.7 h) Vehicles - 0.6 (0.6) - - 0.4 1.0 (0.6) i) fiscellaneous equipment - - 0.8 (0.8) - - 0.8 (0.8) J) Training ar-n consultants - - - 1.3 (1.3) 3.2 4.5 (13) Total 2.1 (2.1) 0.6 (0.6) 0.8 (0.8) 1.3 (1.3) 17.0 21.8 (4.8) Percent 10 3 3 6 78 100 Percent IDAcrelit 10 3 3 6 0 22 Note: Figures in parentheses represent the armxits financed by the proposed I1M credit. a/ Contingencies have been included in the above figures. b/ World Bami Guidelines for use of consultants, and ITU procedures for recruitnent of experts. c/ OCXE, letherlaris CGoernnent and a Dutch camuercial benk. FSrIMAKTh DISBURSEMES ($ Dxusands) i1S FY 1988 1989 1990 1991 1992 1993 1994 Aanual 430 430 1,000 1,140 1,090 520 190 Cuulative 430 860 1,860 3,000 4,090 4,610 4,800 SCHEDULE B Page 2 of 2 DISBURSEMENTS Amount X Financed by (USS million) IDA 1. Telecommunications equipment and materials 1.90 100% of foreign expenditures 2. Civil works 0.30 80% 3. Training equipment: a) telecommunications 0.30 100% of foreign expenditures or 65% of local expenditures if b) posts 0.10 procured locally 4. Vehicles and miscellaneous equipment: a) telecommunications 0.37 100% of foreign expenditures or 65% of local expenditures if b) posts 0.23 procured locally 5. Training and consultancy: a) telecommunications 1.00 100% b) posts 0.10 100% 6. Fellowships: a) telecommunications 0.08 100% of foreign expenditures b) posts 0.04 100% of foreign expenditures 7. Refinancing of PPF 0.27 8. Unallocated 0.11 Total 4.80 - 7 - SCHEDULE C BURUVNDI SECOND TELECOMMUNICATIONS PROJECT Timetable of Key Project Processing Event. (a) Time taken to prepare: Two and a half years. (b) Prepared by: Government with IDA assistance (c) First IDA mission: June 1983 (d) Appralsal mission departure: May 1984 (e) Post appraisal missLon May 1986 (f) Negotiations: February 23-27, 1987 (g) Board consideration: May 1987 (h) Planned date of effectiveness: September 1, 1987 - B - SCHEDULE D STATUS OF BANK GROUP OPERATIONS IN BURUNDI Page 1 of 2 A. STATEMENT OF bANK LOANS AND IDA CREDITS (As of Sept. 30, 1986) Amount Loan or USS Million Credit (Less Cancellations) Number Year Borrower Purpoae Bank IDA 1/ Undisbureed 4/ One Loan 2/ and fourteen credit. fully disbursed. 4.8 93.03 1049 BU 1980 Burundi Urban Development - 15.00 3.87 1058 EU 1980 Burundi Telecommunications - 7.70 0.75 1154 BU 1981 Burundi NLckel Exploratlon - 4.00 0.10 1165 BU 3/ 1981 Burundi Kirlmiro Rural Development - 19.30 5.68 1192 BU 1982 Burundi Integrated Rural Dev./Ngozi III - 16.00 8.29 1230 BU 1982 Burundi Local Construction Industry - 4.40 0.75 1358 BU 1983 Burundi Third Education - 15.80 2.53 1419 BU 1983 Burundi Ruzizi II Regional - 15.00 9.20 1456 BU 1984 Burundi Third Technical Asasistance - 5.10 3.67 1583 BU 1985 Burundi Fourth Highway - 18.10 15.53 1593 BU 1985 Burundi Power Transmission and Distribution - 12.30 11.48 1620 BU 1985 Burundi Second Forestry - 12.80 11.16 1625 BU 1985 Burundi Rural Water Supply - 9.50 8.48 1705 BU 1986 Burundi Structural Adjustment - 15.00 10.27 A017 BU 1986 Burundi Structural Adjustwent - 16.20 9.57 Total 4.8 279.23 101.33 Of which has been paid 4.8 0.58 Total now outstanding 0.0 278.65 Amount sold: 2.97 Of which has been repaid: 2.97 Total now held by Bank and IDA 0.0 278.65 Total undisbursed 101.33 / 1/ Prior to exchange adjustments. 7/ Extended in 1957 to the Belgian Trust Territory of Ruandat-Urundi for the improvement of the Bujumbura-Muramvya road and the expansion of the lake port of Bujumbura. The loan, which was guaranteed by the Kingdom of Belgium, has been fully repaid. 3/ Including a NORAD Grant participation of US$5.8 million. 4/ Credit 1154-BU and higher are denominated in SDRa and are shown in USS equivalents, based on the exchange rates in effect at the time of negotiations. SCHEMUE D B. STATEMENT OF IFC INVESTMENTS - BURUNDI EXPRESSED IN US DOLLARS (As of Sept. 30, 1986) Type of Amount in USS Million Year Obligor Business Loan Equlty Total 1981 Verreries du Glass Container 4.8 0.8 5.6 Burundl Total Gross Comituents Less Cancellations, Terminations, Repayments and Sales 4.4 0.8 5.2 Total Co intients Now Held by IFC 4.4 0.8 5.2 Total Undisbursed 0.1 0.1 0.2 3000 :-. . > ~U GANDA \BURUN9 BURUNDI MINISTRY OF TRANSPORT, POSTS AND ZAIRE K E N Y A TELECOMMUNICATIONS . :: : e ffi 6 POST OFFICES RWAO abi MINISTERE DES TRANSPORTS, POSTES ET Ki| ga. > S l [* TELECOMMUNICATIONS J OURUNDJ BUREAUX DE POSTES .~~~~~~ ~~~~ A -- Z A N I A v-~~~~~~~~~~~~~~~~~~~~wr ; I, 29^X . i O~~~~~~~~~~~ ~ ~ ~~~~~~~~ K;rundo)/ (0136)~~~~~~~~~~~~~~~~~~~~ _ R W A N D A 8.,1 (°8' | y- ,--N Z N I > . / (. TANZAN I ^ ~ ~ ~ ~~~R A D 0K un / / r |. ~ ~~ >'s -'. { S; *|* tS ;. \,-'\ /''-'_- \1 Muyingo if Cibitolce 0~~~~Koyanzo 0 Ngozi *''\.' (0.18) { (0.21) (1.70) A IR R E, / f j ,,:5 fJ ,fi, I 0~ AR I 2;Fd^_ ~ t} root r /S 8 .;'.~~~i C-. , sin ;X a%A>aX.................... j S'"'>' 12'''0- - REo/ Muromvya / . -,; z&\//~~~~~~~ ;) f . ' ~~~~(0.3<9 . _..VJ roport (2.78)' 3 C- i g vubu i; | m oM c 1 (4.01 0 'oR'iG' ) ^ C' g , , ( :m / b y86.22)/ 4 1 (4.201 Ruyigi 3'3O~~~ ~ ... . .U.BUA (013 .. OGe ... ... .. Nga. ,Rumoa e (0.65) 2 0Mwar (0 l 2 * , r0.0 )o U 4*w 4w~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Rt4 I. .;;a _J'\,c *1Buji;-i (0.68) O EXSTING POST OFRCS PERCENTAGE OF TOTAL POSTAL EVENUE / f : \ i > (1)70) HANDLED BY THE POST OFFICE PERCENTAGE DES IECETTPS POSTAlES TOTAIES /1 2 ...|.NTERAT PMA LE 8A DE POSIE g - ' ^ ' | i. . 5 \ t- 1i ' ~~~~~~~~~~~~INTRNATIONA AIRMT {' o, jv X / jtr, 5 ''! i@' .,1 * 'i . ' . 6, - rS * AEROPORT INTATINA10I <,: jN L^;} i:' ''; ;.'....... :.'t;- .! J.;:^'2 ,, ....Y..N...... , 75-NA, ji) BYUM I" j eoe UJ|uS MBUwoI8ro.22 Y( /i BUJUMBURAH @".,',;."',*.;,T,,>.',S,'.'.i '42 ii - 1Ruyigi gaca(0.65)Mwr * .2.. ..' garara waro -, /, r (021)/ 01jbU.i,,,,l ,,. ,.,,,j .. /_(0.44) ' iL !' '('I 'yL (.1 ,,.,,,./ji;.', .. ,1_' , .I 5 , 1v aJ ' "'\ ' ....... '' ', . '\ - ") 2\,, Rumangean' . O Rumonige - )oj (0.2 410 . ., >,!,!l Bururi - ' f . X ,: . \LrE .... 1~~~~~~~~~~~~~~~~~~~~~0.B o EXISTING POSTr OFFICE / / . (0.) -1 ,,BUREAU DE POSTES TANTS /: P ; \ z | FERCENTAGE OF TOTAL POSTAL REVENU 2 i / V.i f (1.70) HADLED BY THE POST OFFIC PERCENTAGE DES RECETTES POSTALES TOTALES . . ) JAIRE FAR LE BUREAU DE POSTE . +: i i I G INTERNATIONALAIMRPOET g . ; l | ~ ~ ~~~~~~~~~~~~.' + M~~~~~AROPORT OAA17OP "-~~~~~'-- S I ___ ~~~~~~~~~~~~~~~~PROVINCIAL BOUNDARIE i | . /.-/ FRONPERE DE PWONCE tN,' - . XfINTERNATIONAIL BOUNDARIES ) 1 ; / FRONTIE INIERNATPONALE bksf- . dim ft ard Em Wanu'd Lad md ft bftktal arW WIMfttWSJdO*WD¶m re 0 20 4060rLhTS £, - -' . ,ofin W m ~ ! .. -t . 'wV 7 h 2 ~ / . , .fI fli*S FinO Cmp.ihnt0w M w p,td o /s e wd orI 9 _ _ ; O - z tm bsb o X 40 MILES w~~~~~~~~~~~Loa*wvw 29'00' - ;230 3n' 30r0o .g4 Tr!rSlr!-.r- r - - _ .*r .T-. r* ^ . - .;.-*-*.. *- - -,- , … 0 . U G A N D A BURUNDI MINISTRY OF TRANSPORT, ZA'RE Kornpola KENYA POSTS AND TELECOMMUNICATIONS Z ZA I RE g Kanpol K E N Y A 2 t00WONATEL TELECOMMUNICATIONS NETWORK , /S, ! = -, s~~~~~~~Nairobi 5 Klw ~ " *Nof rob MINISTERE DES TRANSPORTS, tx / X 4 ~~~~~~~~~~~~~~~~~~T A N Z A N I A| ( 'Rugombo Mrig | ( i4 iS t_@~~~~~~~~~~~? */ 11 / t 5 0 ) 2, \~~~~~~~~~0(5 \ Kayanzo -r 3004 \ jnzo \ XGX C d oK° zi3 ) / I'- , ~~~~Mugera 0 7~ N Bubanzo . -oKoruzi f ~~~~~(IUU.U f...., --.,~~~~~~~~~~~~~~~~P LJ- SbanZ\ | / . w S 0, . * , / - ,