FIIJE COPY RESTRICTED R*port No. PU-34a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT PAKISTAN April 30, 1970 Public Utilities Projects Department CURRENC EQUIVALENTS Us$1.00 - PRBs 4.76 US$0.21 = PRs 1.00 FIC'AL YEAR (FY) July 1 to June 30 PAKISTAN Appraisal of the Second Telecommunications Project TABLE OF CONT-MiTS Page No. Summary and Conclusions i - ii I. INTRODUCTION 1 II. THE TELECOIMUNICATION SECTOR 2 A. Telecommunications in Pakistan's Economy 2 B. Organization of the Sector 3 III. THE BENEFICIARY 5 A. T&T's Organization and Management 5 B. Training -6 C. Existing Facilities 6 D. Financial Aspects 8 IV. THE PROGRAM V. THE PROJECT 12 A. Description of Project 12 B. Procurement and Disbursement i3 VI. JUSTIFICATION CF THE PROJECT 14 VII. FUTURE FIMANCES 16 VIII. RECOM14ENDATIO14S 19 This report is based on the findings of a Bank mission consisting of Messrs. F. Gheith, H. B. Heier and D. J. M4ortier which visited Pakistan in November/December, 1969. List of Annexes 1. Basic Data as of June 30, 1969 2. Teleconmunications Sector in Pakistan's Economy 3. Telecommunications Factories in Pakistan 4. Description of T&T's Organization 5. Budgeting and Disbursement; Organization and Procedure 6. Expansion Program 1969-72 7. Foreign Exchange Requirements 1969-72 8. T&T Accounting and Audit - Functions, Organization, Procedures 9. Pro Forma Balance Sheet 1966-1975 10. Pro Forma Income Statement 1966-1975 11. Pro Forma Sources and Application of Funds 1967-1975 12. Representative Tariffs as of December 31, 1969 13. Justification of the Microwave Links in the Proposed Project 14. Work Schedule of Karachi-Rawalpindi Microwave Link 15. Chart of Trest Pakistan's Main Long Distance Network Maps 1. West Pakistants Main Long Distance Network 2. East Pakistan's Main long Distance Network ABBREVIATIONS, ACRONYMS AND DEFINITIONS Carrier - A system of providing a number of circuits (channels) over one transmission mode (Radio, cable or wire) CB - Common Battery Manual exchanges CCIR - Comite Consultatif International de Radio (ITU Geneva) CCITT - Comite Consultatif International Telegraphique et Telephonique, Geneva (ITU) CENTO - Central Treaty Organization Channel - One circuit of a carrier system carrying speech or telegraph signals CIP - Cable Industries of Pakistan CTI - Carrier Telephone Industries DEL - Direct Exchange Line (connected) EMD - (Edelmetall Motor Drehwahler) precious metal motor switch - Siemens Switching System EPIC - Engineering Planning and Installation Control Fill - Utilization of available capacity Gentex - Telegraph exchange switching system for use by the general public telegraph service HF - High frequency Radio 3,000 - 30,000 kc IFRB - International Frequency Registration Board (ITU Geneva) INTELSAT - International Telecommunication Satellite Consortium ITU - International Telecommunication Union Microwave - Radio systems working at frequencies above 300 mc, but normally applied to systems working at frequencies above 1,000 mc Modulation - The process by which one wave is made to envelope several carrier channels; modulating equipment is part of the multiplexing equipment, the other part being channelling equipment Multiplexing - Transmitting many communication channels over one transmission mode (see Carrier) NRTC - National Radio Telecommunication Corporation PABX - Private Automatic Branch Exchange PBX - Private Branch Exchange (manual) PCO - Public call office STD - Subscriber Trunk Dialling (direct long distance dialling) Telex - Teleprinter exchange service providing direct connections for any subscriber to communicate with another one TIC - Telephone Industries Corporation TIP - Telephone Industries of Pakistan T&T - TelegraSlh and Telephone Department Troposcatter - A system of radio communication using dispersed radio waves which are refracted by the Troposphere VFT - Voice Frequency Telegraph; telegraph messages trans- ritted by voice frequency signals VHF - Very high frequency radio 30 - 300 mc WT - Wireless Telegraphy PAKISTAN APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT SUMMARY AND CONCLUSIONS i. To relieve the severe shortage of telecommunications services in PaR*itan, the Government and the Association agreed on the FY 1969-1972 Telecommunications Expansion Program, which is based on a UNDP-financed study of requirements and provides for the most urgently needed facilities for .e extension and improvement of domestic and international services. The total cost of this Four-Year Program is PRs 910.3 million (US$191.2 million), with a foreign exchange component of PRs 388.7 million (US$81.6 millicn). An IDA Credit (145-PAK signed in March 1969) financed US$16.0 milliom, including consulting services to improve the organization of the sector. A major portion of the remaining foreign exchange requirements was secUlzd from bilateral sources, or was under negotiation, and a second credit fcm the Association was anticipated. ii. The proposed second credit for Pakistan's telecommunications sector amoults to US$15.0 million and will finance the foreign exchange componentsrl the second project forming part of the same Program and consisting oF items that could not be appraised at the time of the first credit: the arachi-Rawalpindi microwave link (us$6.5 million) for which technical d0^ils have become available only recently; local and junction cables (US$6.C million) which have to be imported because of the delay in constructionom the cable factory; and air-conditioning equipment for exchange and oansmission rooms (US$1.5 million) which could not be adequately financed frombilateral sources. The contingency amounts to US$1.0 million. The total prooct cost is US$35.3 million; the local currency component of US$20.3 milli4 equivalent will be financed from the resources of the Telegraph and elephone Department (T&T). The part of the Project relating to cables and &i-conditioners will be implemented during the Program period, and the West Pasktan microwave system is planned to be completed in mid-1973. iii. All Pr,urement of equipment for the Project will be through international conttitive bidding. The Telephone Industries of Pakistan (TIP) is qualifi4 to bid on the channeling equipment (total cost US$0.5 million); a 15% msrgin of preference requested by Pakistan and which is less than the customs city, will be granted. Procurement under the previous IDA Credit has bee delayed six months, due to administrative shortcomings and inexperience Vth Association procedures. Action has been taken to streamline the prourement process, and both IDA projects are expected to be completed withii the specified dates. iv. Over the ast decade, T&T has outgrown the old organizational structure. Implemertation of recommendations of the management consultants, financed under the first credit, is expected to bring about improvements in T&T's organizati,nal structure and operating efficiency. - ii - v. T&T's financial results continue to be very satisfactory. Self- financing of total requirements in the Program period will amount to 81%. The rate of return on net fixed assets in operation is expected to remain above 13%. On purely financial grounds, the second IDA Credit would not be required were it not for the lack of foreign exchange. vi. The project is of high economic priority. The microwave links are expected to yield an incremental rate of return of 43%. The cables and air-conditioning equipment are essential for the expansion of the local network up to the end of FY 1972, the incremental rate of return of which is estimated to be about 20%. vii. The project is suitable for an IDA Credit of US$15.0 million equivalent to be made available to the Government of Pakistan under normal terms and conditions. The proceeds of the credit will be passed on to the T&T Department at the Government's present interest rate of Eg% for a term of 24 years, including a grace period of four years. PAKISTAN APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT 1. INTRODUCTION 1.01 In 1968, the Bank Group appraised Pakistan's 1969-1972 telecom- munications sector Program, which was based on a UNDP-financed study, and financed the foreign exchange component (US$16.0 million) of the first telecommunications project in Pakistan. Credit 145-PAK for this Project was signed in March 1969 and provided financing for imported goods and the foreign currency cost of management consultants to advise on the organization of the sector and the introduction of a modern accounting system. It was then anticipated that the Association might consider further financial assistance for other parts of the Program for which technical details were not ready at the time of the first appraisal or for which foreign exchange financing could not be secured from other sources. 1.02 In October 1969, the Government of Pakistan requested a second credit amounting to US$15.0 million which would finance construction of a microwave artery in West Pakistan linking Karachi with Rawalpindi, with a branch to Lyallpur, to increase the capacity of West Pakistan's main trunk routes and thus meet the anticipated requirements for circuits. This credit will also finance cables, which cannot be procured from the local factory as it is still under construction, and air-conditioning for equipment rooms. 1.03 An appraisal mission composed of Messrs. F. Gheith, H.B. Meier and D.J. Mortier visited Pakistan in November/December 1969. This report is based on their findings and on information furnished by the Telegraph and Telephone Department (T&T), which will be the beneficiary of the proposed credit. - 2 - 2. THE TELECOIMUNICATIONS SECTOR A. Telecommunications in Pakistan's Economy 2.01 Pakistan's economy is still based primarily on agriculture, which employs over 80% of the labor force but contributesonly one half of the national income. Other sectors of the economy have been vigorously promoted in order to provide income for the rapidly increasing population; industry, for example, now accounts for about 14% of GNP. The average per capita income has been increasing, but is still only US$110. 2.02 There is a pressing need for better telecommunications in Pakistan, underscored by the fact that some 1,100 miles of Indian territory separate the country's two wings and its 128 million inhabitants, of whom about 45% live in the West Wing and 55% in the East Wing. Furthermore, within each Wing there is a particular situation giving rise to the need for more and better telecommunications facilities. In West Pakistan, the demographic pattern is such that the main population centers (Karachi, Lahore and Rawalpindi) are hundreds of miles apart. In East Pakistan, the densely inhabited areas are separated by natural communications obstacles in the form of numerous rivers which crissoross that part of the country. 2.03 Pakistan's telecommunications sector, with 0.1i telephones per 100 persons and 0.4% contribution to GNP., is one of the least developed among the major developing countries. There is a huge unsatisfied demand for both long distance and local services, as evidenced by the statistics on traffic overflows and the present waiting list of over 70,000, which is equivalent to more than half of the existing connections. 2.04 Government is well aware of this acute problem and of the importance of telecommunications in the overall economic development of Pakistan. Besides yielding high returns, telecommunication investments contribute to the achievement of Pakistan's economic development plans by (a) making possible modernized storage and marketing as well as efficient transporta- tion; (b) facilitating the establishment of secondary industrial centers; (c) allowing better inter-wing coordination; (d) providing an important facility for export promotion; (e) increasing general business efficiency through better management information and improved coordination; and (f) supporting market forces in Pakistan through ready access to market information. 2.05 Government is keen to improve the situation of the sector and has agreed to allocate for T&T's 1969-1972 Program about 3.3% of all public investments, not including investments in the telecommunications factories. The resulting growth in T&T's contribution to GNP in the program period will be more than 18% per year, and the yearly increase in telephone lines per capita in the same period will reach about 9% (see Annex 2). Despite this expansion, demand for telecommunication services will remain unsatis- fied by the end of the program period. But the improvement, both in quality and quantity, and the impact of the Program on the country's economic development are expected to be of crucial importance. - 3- B. Organization of the Sector 2.o6 The telecommunication sector consists of the T&T Department of the Government of Pakistan, described in the following chapter, and four factories closely:connected with the Department which are or will be manufacturing a wide range of telecommunications equipment. Two factories --Telephone Industries of Pakistan (TIP) in West Pakistanand Telephone Industries Corporation (TIC) in East Pakistan-- have been established to manufacture switching equipment and telephone instruments; plastic insulated cables will be manufactured by Cable Industries of Pakistan (CIP), starting in October 1970 and producing at full capacity by late 1972; Carrier Telephone Industries (CTI) will begin producing channeling and carrier equipment by 1972. The factories and their production programs are described in Annex 3. 2.07 Government exercises broad control over the sector through various authorities whose functions are not always well coordinated and whose procedures often have proved cumbersome. As a government department, T&T is under the direct control of the Ministry of Communications and is interlinked with other governmental authorities, such as the Ministry of Finance (through the Financial Adviser -Communications), the Executive Committee of the National Economic Council (it approves the annual budget as well as the Five-Year Development Plan), and the Auditor General (see Annexes 5 and 8). With respect to the four factories, Government exercises control not only as majority shareholder but also by providing, via T&T, financial and managerial resources. 2.08 The form of control the Government exercises over T&T and the factories does not permit efficient administration of the sector. Hence, the Association and the Government agreed at the time of the first IDA Credit that management consultants should be brought in to advise on improved forms of control over the sector. In addition, consultants will have to advise on the establishment of a wholly commercial relationship between T&T and TIP, which would become a model for the other factories as well. The appointed management consultants, Messrs. A.D. Little (U.S.), began their work on January 23, 1970, somewhat behind schedule. Their preliminary report is expected by June 1970 and the final report by October 1970. Implementation of the reorganization is planned to be completed by the end of FY 1972 (see also paragraph 3.03). 2.09 cince the first IDA operation in 1969, there have been some improve- ments in T&T's relationship with governmental authorities. The position of Finance and Accounts Officer has been created to assist the Secretary of the Ministry of Communications; one of his main functions is the scrutiny of capital investment proposals, which previously were evaluated mainly outside the Department there the technical knowledge was missing (see Annex 5). Also, the cumbersome disbursement procedures have been simplified. Nshereas formerly the Financial Adviser's authorization was required for the disbursement of current expenditures already authorized in the budget, under the present set-up his approval is required only for non-specific budget allocations. Furthermore, to speed up administrative processes, T&T has been assigned a Deputy Financial Adviser of its own. - 4 - 2.10 Coordination with the Ministry of Finance also has been improved with respect to procurement procedures that caused delays in project execu- tion under Credit 145-PAK. The tender committee, composed of the Financial Adviser - Communications and T&T representatives, did not work under specific deadlines and was delayed due to lack of coordination and proper communication among its members. T&T and the Financial Adviser have agreed to streamline the procurement procedures and to follow a timetable (given in Annex 4, page 2). 3. THE BENEFICIARY A. TV's Internal Organization and Management 3.01 Besides the weaknesses resulting from its position within the Government structure, T&T has some shortcomings in its internal organiza- tion. The span of control at the top is excessively large; according to the formal organization chart, 16 officers are supposed to report directly to the Director General, and 8 others to the Chief Engineer - Development. With the rapid increase in the scope of T&T's operations, the formal orga- nization has proved unworkable. This has led to the formation of informal channels of authority. These aspects of T&T's organization are discussed in detail in Annex 4. 3.02 There is an excessive concentration of functions and responsi- bilities at the top level,and this in turn causes considerable delays in the decision-making process. Moreover, the information flow is extremely slow and generally poor in quality, particularly between the directorate general and the field organizations. Operational efficiency could be considerably improved if more authority were delegated to the field, particularly with respect to material control and personnel administration. The various organizational shortcomings are partially responsible for inadequate maintenance of equipment and delays in development programs. 3.03 With the full support of T&Ts management, who are well aware of the organization's major weaknesses and are eager to correct them, the management consultants financed under Credit 145-PAK are analyzing these organizational problems, along with the relationships between T&T and Government and between T&T and TIP (paragraph 2.08). While this basic study is going on, T&T's management is already taking the steps discussed below to improve efficiency. 3.04 The major functions within T&T have been defined since the first appraisal mission's visit in 1968, and work has begun on new staff standards, though with some delays. T&T is also studying ways of remedying the low productivity of the excessive staff at the lower levels of the hierarchy, such as by a gradual and partial upgrading of staff through training associated with increased responsibilities. T&T has agreed that over the project period the ratio of staff employed to number of stations in service will be reduced by at least 4% per annum. In 1969 the absolute number of staff remained practically unchanged while the number of stations increased, improving the ratio by about 6%. 3.05 At all levels of T&T, the motivational system seems weak because promotion and rewards are granted mostly on the basis of seniority rather than merit. Management is studying this problem, but prospects are that the requisite change in attitute can be brought about only over a period of time. - 6 - 3.06 Financial and economic factors are not given proper considera- tion in investment decisions, due to the difficulty of finding staff who are trained in investment analysis. This situation is also reflected in the composition of T&T's management; out of the 40 top positions, only two (in Accounting) are held by non-engineers. Management has agreed to appoint a chief finance officer, who would participate in overall policy-making and in investment and finance decisions, and also would administer an in- tegrated management information system. 3.07 The Director General, the Chief Engineer-Maintenance and Opera- tions, and the local managers all devote an excessive percentage of their time to interview%s with complaining subscribers and applicants. This is particularly detrimental to efficient operations in view of the scarcity of administrative and managerial talent. The Director General is taking action to improve this situation through the nomination within the Directorate of a high-ranking officer responsible for complaints, with corresponding officers in the regions. Management stressed, however, that it will take a long time for the people in Pakistan to accept the fact that the valuable time of top management should not be wasted on answering customer queries. B. Training 3.08 Training facilities for technical staff continue to be satisfactory in both quality and quantity. In addition to the Staff College in Haripur (capacity 350 trainees), the three regional training schools for technicians located in Karachi, Lahore and Dacca (250 trainees each), and 16 vocational divisional training centers (50 trainees each), T&T plans to establish new regional schools in Peshawar, Rohri and Khulna and two divisional training centers and also to expand existing facilities. A project to improve instructional standards at the Staff College in Haripur is being approved by the UNDP; the UNDP contribution would be US$0.84 million, while Pakistan's would be US$2.5 million in kind and US$0.06 million in cash. C. Existing Facilities Local Network 3.09 By Mid-1969, the T&T Department had 466 automatic and manual exchanges with a total line unit capacity of 185,000 lines, or 20% more than in the previous year. Connected direct exchange lines amounted to 135,000, showing an increase of only 6.3% over the year before. There were a total of 185,000 connected telephone sets, representing a 7.6% increase. 3.10 This small growth in connections, despite a long waiting list and a substantial increase in exchange capacity, has been due to a shortage of cables, which in turn is attributable to delays in their procurement. The delays were caused by various administrative shortcomings and inexperience in dealing with the Bank Group's international competitive bidding procedures. The main deficiencies have now been overcome. Some cables obtained through suppliers' credit are due to arrive shortly, and others under Credit 145-PAK are expected towards the end of FY 1970. Since the other works (conduits, etc.) in connection with the network have already been executed, the laying of cables and the provision of connections will progress quickly after arrival of the cables. The building of new exchanges and the installation of switching equipment are progressing satisfactorily, although sometimes installation of switching equipment starts before completion of the buildings, thereby exposing the equipment to dust and damage. Management has agreed to improve coordination of the phases of project execution so as to safeguard the equipment. Long Distance System 3.11 The main long distance network of Pakistan is shown in Maps 1 and 2 and in Annex 15. The backbone of West Pakistan's network is a coaxial cable (960 channels capacity), which links Karachi with the main cities in the north; it is only half equipped with working channels. Channeling equipment which would bring the fill of the coaxial cable near its optimal capacity in most sections is under assembly in Telephone Industries of Pakistan (TIP) at Haripur, and delivery is planned to begin in March 1971. These additional channels to the coaxial cable, however, will not be sufficient to satisfy demand in 1970 and subsequent years. Therefore the microwave links discussed in para. 5.01 have to be provided as soon as possible. 3.12 East Pakistan's main centers are connected with a 60-channel very high frequency (VHF) system. For the most important Dacca-Chittagong link, additional multiplexing to increase capacity is being provided under a German credit. The microwave link Barisal-Khulna, fiiianced by Exii Bank, is under construction. Studies are underway to replace the planned microwave link from Chittagong to Barisal by a tropospheric scatter link because difficulties have been encountered in the use of repeater stations for micro- wave on the intermediate islands in the Bay of Bengal. Minor trunk routes in both East and West Pakistan consist of open wire lines and open wire carrier systems. At present there is extensive delay in traffic and a large number of ineffective calls between all centers, served by both subscribers trunk dialling (STD) and manual operation. Inter-Wing and International Facilities 3.13 Circuits to Teheran, Ankara, Rome and London are provided on the Central Treaty Organization (CENTO) microwave route, the quality of which does not meet current international standards. All other international telephone telegraph and telex service are provided via high frequency (HF) circuits, operating on daily schedules with more than 20 countries. The inter-wing communications rely totally on HF, which is neither satisfactory nor sufficient for this very important connection between the country's two wings. Improvement of this service is being carried out under the first IDA project. Satellite communications which are provided under the 1969-1972 Program (paragraphs 4.01 and 4.02) will take care of the unsatisfied demand and future needs of both the inter-wing and the international services. -8- D. Financial Aspects Accounting and Auditing 3.14 The Government budget accounting system being used in T&T has several shortcomings; it provides inadequate data with considerable delay. Responsibility for the accounting work is dispersed among several authorities - namely, the Finance Kinistry, the Financial Adviser, the Auditor General, and the T&T Department (Annexes 5 and 8). Furthermore, T&T's cash flow is not separated from the Central Government's Consolidated Fund, with the consequent lack of an integrated financial management. These shortcomings, however, are being remedied as a condition under Credit 145-PAK. A miajor task of the management consultants (paragraph 2.08), financed under this IDA Credit, is the design and introduction by the end of FY 1972 of a modern accounting system and the corresponding organization. 3.15 T&T's budget accounts are audited by the budget accounts section of the Auditor General of Pakistan. As soon as the new accounting system is introduced, accounts will be audited by experienced and competent auditors acceptable to the Association, and sent to the Association within six months after close of the fiscal year. This is also a condition under the first IDA credit. 3.16 In order to have comparable figures for past and future years and thus permit a meaningful financial analysis, the Bank's staff have prepared proforma financial statements (Annexes 9 and 11) as though T&T were an autonomous agency solely responsible for its financial operations. Financial Position 3.17 A summary of T&T's tentatively evaluated assets, to be reviewed by the consultants, is shown below. IMore detailed notional balance sheets are attached as Annex 9. Sumnmary of T&T's Assets as of June 30, 1969, in PRs Million Ulet Fixed Assets 904.4 Investments in factories and INTELSAT 71.9 Net Current Assets 92.8 Total Assets 1,069.1 Fixed assets in operation were estimated at PRs 1,039.2 million (US$218.3) or 14% higher than the previous year; wzork in progress was about PRs 183.4 million and the notional depreciation reserve PRs 318.2 million resulting in net fixed assets of PRs 904.4 million. - 9 - 3.18 Investments (PRs 71.9 million) comprise Pakistan's participation in INTELSAT (PRs 1.0 million), TIP in Haripur (PRs 50.2 million),the cable factory in Nhulna.(PR.s 9.0 million). TIC ip Dacca (PRs 8.5 million_)y and TCI in Islamabadc (PRs 3.2 million) . Net current assets consist of subscriber accounts receivable (PRs 43.u million) and inventories (PRs 6h.7 million) minus current liabilities (PRs 14.9 million). The accounts receivable position, which has been rather high in the past, has been reduced to a more reasonable level. The outstanding balance represents seven weeks' billing. With the computerized billing system being introduced, the outstandings will be further reduced. Accounts receivables include outstanding accounts against, semi-government agencies; T&T has made some progress towards a settlement of these accounts. To prevent similar situations from arising in the futures Government has agreed that its accounts as well as those of its agencies will be kept on a current basis. Inventories continue to be high, but management is taking steps to sell material the Department does not intend to use. 3.19 The notional basis for T&T's capitalization is explained in the notes to Annex 9. On the basis of that calculation, a net capital contri- bution of PRs 154.9 million was made to T&T from the central budget since the beginning of the Department's operations. According to the Association's forecast, all inflows to and outflows fromthe .Consolidated Fund will have balanced out by 1972. As of June 30, 1969, T&T's position was as follows (in PRs Million): Central Budget Contributions 154.9 Retained Earnings 710.4 Total equity 865.3 Bilateral Foreign Exchange Loans (excluding current maturities) 203.8 Total 1,069-.1 As the table indicates, T&T has had a high rate of self-financing while loans represent only one-fifth of its assets. At present, the Economic Affairs Division contracts and services foreign exchange loans for all Government departments. Therefore, T&T does not collect and record all relevant data on its debt. After introduction of the new accounting system, however, T&T will assume all obligations in servicing its debt, including repayment of foreign exchange loans to Government. Tariffs 3.20 The level of tariffs continues to assure the financing of a high portion of capital expenditures (paragraph 7.02). With effect from July 1, 1969, long distance telephone rates were increased to compensate for labor cost increases (paragraph 3.22). The pulse 1/ rate for metered STD traffic was increased from PRs 0.18 to PRs 0.20, while rates for manual service increased by about 10%. On September 23, 1969, rentals for teleprinter machines (including attachments), which had not been changed since 1949, were fixed at PRs 5,400 per annum. A table of representative tariffs is attached as Annex 12. 1/ Basic metering unit for the assessment of the call charge in automatic networks. - 10 - 3.21 The tariff structure is under continuous review. The revision of the low circuit rentals conceded to the railways is presently under study and the inter-wing rates, which hardly cover costs, will be reviewed by T&T as soon as the high quality satellite service is established. Past Earnings 3.22 Shown below is a summary of T&T's proforma Profit and Loss Statement (Annex 10), for FY 1967 through 1969 (in million PRs). Year ending June 30 1967 1968 1969 Revenues 217.5 246.1 290.0 Expenses (excluding interest) (123.5) (136.9) (156.5) Net income 94.0 109.2 133.5 Rate of Return 10.7% 11.0% 10.9% The high-capacity utilization of telecommunication facilities and the introduction of STD have brought very high revenues. Despite overstaffing, expenses were relatively low due to low wages for non-qualified staff. This is indicated by the low operating ratio, which was between 54 and 57 over the past three years. The rate of return on net fixed assets in operation (as defined in paragraph 7.08) was around 11%. Following the political upheavals at the end of 1968, several decrees were issued in early 1969 to increase salaries of Government employees in the form of "Good Conduct Pay,"' "Ad Hoc Relief" or -xation of minimum wages, re- presenting labor cost increases of over 105q. The effect of these measures was compensated by a tariff increase (paragraph 3.20) and an increase in labor productivity (paragraph 3.04). 3.23 This good earning performance permitted T&T to finance a high proportion of its expansion program. As the following table shows, internally generated funds were by far the most important source of funds, and T&T has become a net contributor to the Central Budget. Sources of Funds in % Year ending June 30 1967 1968 1969 Internal Cash Generation 80.4 70.4 94.3 Bilateral Foreign Exchange Loans 19.8 21.2 26.7 let Flow(to)and from Central Budget ( 0.3) 8.2 (21.4) Others 0.1 0.2 0.4 100.0 100.0 100.0 - 11 - 4. THE PROGRAM 4.01 The 1969-1972 Telecommunications Expansion Program, as described in Appraisal Report TO-695a, remains basically unchanged, with total costs amounting to PRs 910 million (US$191 million). The Program is conceived to provide Pakistan with high-quality international and inter-wing telecommunica- tions services, a high-capacity trunk network, and a 19% annual growth in subscriber facilities. It is the largest possible program that can be achieved with the available human and material resources, and its execution will require considerable effort on the part of T&T's management. The main items of the Program, which are shown in more detail in Annex 6, are as follows: a. Provision of 175,000 additional telephones; b. Provision of 550 public call offices in rural areas; c. Provision of 2,700 miles of open wire trunk lines, and 607 carrier trunk circuits on open wire lines; d. Microwave and coaxial cable system extensions to the main towns; e. Extension of STD facilities to provide a full inter- dialling network between main towns in both wings of Pakistan; f. Extension of the inter-wing and international network by provision of two satellite ground stations, and, improve- ment of the existing HF radio inter-wing and international systems; g. Extensions to the telegraph system; and h. Miscellaneous complementary provisions. 4.02 Initial progress under the Program has been slower than expected. The delay in the procurement of cables, and hence in the extension of the local network, is explained in paragraph 3.10. Also delayed by a few months were the survey and preparation of specifications for the coaxial cable and microwave links Dacca/Sylhet, Dacca/ymensingh, and Kushtia/Rang Pur, due in part to minor changes from coaxial cable to microwave system for topo- graphical or climatic reasons, and in part to administrative shortcomings. Bid documents for these links have now been issued. The contract for the satellite ground stations has been awarded to RCA of Canada, and financing has been secured from the Canadian International Development Agency (C IDA); the credit amounts to US$10.4 million and has a term of 50 years including a grace period of 10 years; there is no interest or service charge. Despite initial delays, the timely completion of the Program is still possible with concerted effort by all the participants. - 12 - 5. THE PROJECT The Project forms part of the 1969-1972 Program. A. Description of the Project 5.01 The Project consists of -- a. A microwave route from Karachi to Rawalpindi consisting of two microwave links (of a least 960 channels each) up to Multan, with one continuing to Rawalpindi and the other branching off to Lyallpur, together with the associated multiplex equipment. SPur connections are to be provided for: Hyderabad - Mirpurkhas Darya Kban - D.I. Khaq Lahore - Gujranwala;NJ b. Local and junction exchange cables with the related aCcesscries to be imported due to delay in construction of the local cable factory; c. Air-conditioning for equipment rooms for which adequate financing could not be secured from bilateral sources; The local and foreign exchange cost of these provisions are shown in detail in the table below. - ----PRs Million-- - ---- US$ Million----- Local Foreign Total Local Foreign Tota.l 1. Microwave Route, West Pakistan, including survey and studies 22.1 32.4 54.5 4.7 6.8 11.5 2. Cables-Local and Junction with related accessortes 58.7 27.1 85.8 12.3 5.7 18.0 3. Air-conditioning Equipment 9.5 7.1 16.6 2.0 1.5 3.5 4. Contingencies (7%) 6.3 4.8 11.1 1.3 1.0 2.3 Total 96.6 71.4 68.o 20.3 15.0 35.3 5.02 The cable and air-conditioners forming part of the proposed Project would be fully installed by mid-1972, while the proposed microwave links are planned to be operative by mid-1973. 5.03 The total estimated foreign exchange cost of the Project, amounting to US$15.0 million, would be financed by the proposed IDA credit. The agree- ment of the Association should be obtained before any major expansion exceeding US$2.0 million in aggregate is undertaken, which is not included in the 1969-1972 Programnor in that part of the Fourth Pive-Year PlAn scheduled to be undertaken before June 30, 1973. - 13 - B. Procurement and Disbursement 5.04 All items to be financed by the proposed credit will be procured under international competitive bidding. T&T requested that domestic manufacturers be permitted to participate in the bidding for the West Pakistan microwave link with a 15% margin of preference, which is less than the custom duties levied on the equipment. This preferential treat- ment will be granted with respect to the multiplex channeling equipment, which is being produced by TIP and would cost about US$0.5 million equivalent. 5.05 For the other components of the West Pakistan microwave project -- namely, modulating and radio equipment -- there are no local production facilities. If local factories for manufacturing these items are set up, they could not begin delivery of these highly complex items in time for the project, but they might be able to cater to the increasing demand for this equipment after FY 1973 (Annex 13 - IIIA, page 5). 5.06 Disbursement would be made for the CIF price of imported equipment and material. In the event TIP is the successful bidder on the channeling equipment, the ex factory price will be reimbursed. 5.07 The unused balance of the Credit might, after consultation with the Association, be used for additional provisions of items included in the Project, provided that no extension of the closing date will be required for the purpose. - i4 - 6. JUSTIFICATIai OF THE PROJECT 6.01 All parts of the project belong to the highest priority items in the Program. The three components of the Project -- the microwave links, the cables and the air-conditioners - are justified separately. The proposed microwave investment, for which data were not ready at the time of appraisal of T&T's Expansion Program, has been scrutinized in greater detail. Microwave Investment 6.02 The proposed investment in West Pakistan's microwave link will expand the most important trunk backbone of the Western Wging's telecommunica- tions system. Projections of circuit requirements given in Annex 13 (Table 4) indicate that by 1973 the existing coaxial cable, even with all channels equipped, would meet only 60% to 80% of requirements on some of its major sections, The microwave links would permit meeting I-est Pakistan's long distance traffic requirements for at least two years after their completion. Thereafter, additional investments for equal capacity units will cost only 20% of the initial investment. 6.03 Alternative routing of the microwave links, the possibility of using coaxial cables instead of microwave links, and alternative size and timing of the proposed investment have all been thoroughly examined with the Pakistani authorities. The agreed routing proposal and timing are fully justified by demand (see Annex 13). Microwave on the proposed links represents the least cost and most flexible alternative. Furthermore, the proposed microwave links would permit the trunk system in West Pakistan to achieve a high degree of reliability. WIith two modes (i.e., the existing coaxial system and the proposed microwave system), which have different causes of failures and are working side by side, the probability that any particular part of the network will always be functioning is much higher than in a single mode system. 6.04 The incremental rate of return / indicates the high benefits of the Project for Pakistan. It has a mean value of about 43% and a 95% probability of lying between 38% and 50% (see Annex 13 III, page 5). This rate, however, may overstate benefits because it was computed at official exchange rates. A minimum economic rate of return was therefore computed whereby the value of capital investments was corrected to account for the scarcity of foreign exchange in Pakistan. The benefits, measured by the revenues from incremental trunk traffic, are considered to represent the minimum economic benefits, since what the marginal user (who belongs essentially to the business sector or to the Goverrnent) is willing to pay is at least equal to the marginal productivity of his use of the long distance telephone system. Reflecting the shadow pricing of foreign exchange, the expected value of the minimum economic rate of return on this basis is estimated to be about 37%, with a 95% probability of lying between 33% and 43% (see Annex 13 IIC, page 6). Details on additiqnal economic benefits, which are only partially reflected in the incremental rate of return, are given in Annex 13 IV. it omputed as the discount rate for which the net present value of incremental cash flows to and from the economy is equal to zero. The incremental cash flows are net of financial transactions; they have not been adjusted for shadow pricing and represent monetary flows in current rupees. - 15 - Cables 6.05 The 1969-72 Program provides f or the installation and commissioning of 175,000 telephones. Credit 145-PAK included US$6.8 million to cover the foreign exchange component for thepurchase of local distribution cables and overhead line networks. This was estimated to provide cables for 125,000 telephones; the remainder vas then expected to be supplied by the domestic cable factory under construction. The delay in completion of the factory has now made it necessary to import cables needed for the remaining 50,000 telephones. 6.o6 The expansion of the local network up to June 30, 1972, for which the proposed cables will be needed, has been justified in Report TO-695a, in which the investment was estimated to yield an incremental rate of return of about 20%. Air-Conditioners 6.07 Automatic exchange and transmission rooms must be totally enclosed; air-conditioning is required to filter the air and keep it at constant temperature and humidity. Absence of filtered air and proper humidity leads to increased wear and tear of the switching contacts, and thus to deterioration in the quality of transmission and reliability of service. Overheating of equipment rooms occurs in the absence of air-conditioning due to highly concentrated installations in small spaces, and this decreases the reliability of exchange and transmission equipment. Lack of air-conditioning therefore implies either increased maintenance, shorter lifetime or larger building space requirements. Given that air-conditioning, where provided, represents on the average only 5% of the cost of automatic exchange equipment, the benefits are extremely high. - 16 - 7. FUTURE FINANCES Financing Plan 7.01 The financial forecasts in this report reflect the fact that until 1972 T&T's fund flow will remain interlinked with the Central Governmentts Consolidated Fund, while beginning in 1973 with the new accounting system T&T will have the power to control its cash. Annex 11 shows the estimated sources and uses of funds through 1975. A summary of the cash flows during the Program period is shown below. 7.02 The total requirements in 1969-72 amount to FRs 1,024.4, of which 88.8% will be invested in fixed assets, 9.6% in telecommunications factories and INTELSAT, and 1.6% in working capital. The foreign exchange requirements of this investment will be financed by bilateral loans and credits (25% of total investments) and IDA credits (13%). The remainder (62%) will be financed from T&T's own generated cash. In Million In Million In PRs US$ % Requirements for 1969-1972 Program Capital Construction 910.2 191.2 88.8 Investments and Advances 98.1 20.6 9.6 Working Capital 16.1 3.4 1.6 Total Requirements 1,024.4 215.2 100.0 Sources of Funds for 1969-1972 Program Internal Cash Generation 944.8 198.4 Minus: Debt Sercice (112.9) (23.7) Own Cash Resources 831.9 174.7 81.1 IDA 145-PAK (1969) 76.2 16.0 7.4 IDA Credit (proposed) 71.4 15.0 6.9 of which disbursed in 1973 (13.7) (2.8) (1.3) Bilateral Foreign Exchange Loans 254.8 53.5 24.9 (Secured or under negotiation) Total Sources 1,202.6 256.4 119.0 Retention of Cash Surplus in Consolidated Fund (196.2) 41.2 19.0 Total Sources available for Program 1,024.4 215.2 100.0 - 17 - As the above table shows, the proposed IDA credit is not required on purely financial grounds. A surplus of sources over requirements amounting to PRs 196.2 million (which is more than the two IDA Credits) will be retained in the Consolidated Fund to be used in other sectors of the economy. By the end of FY 1972, the cumulative flow of funds to the Central Consolidated Fund is estimated to have equalized the cumulative investments in T&T since its establishment. 7.03 Foreign exchange requirements are now secured except for a minor portion (US$10 million) under negotiation, and timely execution would thus be assured. Assurances should nonetheless be obtained from Government that it will promptly make available all funds (including the foreign currency) required to execute the Project. 7.04 The proposed IDA Credit of US$15.0 million to the Pakistan Government would be passed on to T&T at the Government's present interest rate of 6-1/4% for a term of 24 years, including a h-year grace period. Future Operating Results and Financial Position 7.05 Forecast income statements and rates of return are shown in Annex 10. In the foreseeable future, T&T's revenues are likely to be higher than its capacity to expand. A reduction of tariffs, however, is at present not advisable. The resulting increase in demand could lead to a breakdown of those parts of the system where capacity is being fully utilized. The inevitable surplus should therefore flow to the Government and be utilized in other sectors of the economy. Beginning in FY 1973 when T&T becomes a financially self-contained organization and surplus will not automatically be retained in the Government's Consolidated Fund, T&T will pay the Government (as agreed under Credit 145-PAK) an annual contribution of 6% on T&T's total equity, or such other percentage as may be established from time to time after consultation between the Government and Association. When these payments in lieu of taxes are considered as part of T&T s operating expenses, this results in rates of return of over 14% in FY 1974 and 1975. 7.06 Net income before contributions in lieu of taxes is forecast to increase from PRs 133.5 million in 1969 to PRs 313.3 million in FY 1975. After contribution in lieu of taxes, internal cash generation would still cover debt service at least 4.4 times in the period up to FY 1975. In view of the increasing debt service as a result of rapid expansion financed partly with foreign exchange loans, T&T is committed to consult the Association prior to the incurring of new debt if the maximum annual debt'service in the future is not cbvered 1.5 times by net revenues (before charging depreciation or contribution) of a 12-month period. 7.07 The projected balance sheets in Annex'9 indicate a sound financial position throughout the period under review. - 18 - Rate Covenant 7.08 Upon introduction of the new accounting system -- i.e., beginning in FY 1973 -- T&T is required under Credit 145-PAK to keep its expenses and tariffs on a level that will permit a rate of return of at least 10% to be attained on a rate base consisting of average fixed assets in operation plus working capital equal to 4% on net fixed assets In operation. The return is defined as the net income from operations after covering all operating expenses, including a straight-line depreciation of at least 5% and the proposed contribution to Government (see paragraph 7.05). Until introduction of the new accounting system, the present tariffs will not be reduced without prior agreement of the Association. - 19 - 8. RECOO12DATIONS AND AGRE.EENTS 8.01 The proposed Project is suitable for an IDA Credit of US$15 million to the Government of Pakistan under the following conditions which have been agreed to during negotiations; they are almost identical with those of Credit 145-PAK. a. The qovernment of Pakistan will pass on the proceeds of the Credit to T&T on conditions set out in paragraph 7.04; b. Levels of staffing related to the number of telephones in service will be reduced (paragraph 304); c. T&T will be reorganized and a modern accounting system intro- duced by the end of FY 1972 (paragraphs 2.08, 3.03 and 3.14); d. Satisfactory audit procedures will be established after the introduction of commercial accounting for T&T; prior to this, annual budget accounts will be submitted to the Association as soon as available (paragraph 3.15); e. After introduction of the new accounting system, T&T will assume full responsibility for servicing its debt, including repayment of its foreign exchange loans to Government (paragraph 3.19); f. Satisfactory procedures will be established for the expedi- tious payment of accounts for telecommunications services by Government departments and agencies, (paragraph 3.18); g. Major expansions exceeding US$2.0 million and not mentioned in para. 5.03 will not be undertaken without agreement of the Associationj h. The Borrower will promptly make available all funds (including foreign exchange currency) to execute the Project (para- graph 7.03); i. For the assumption of new debt, the covenant of paragraph 7.06 will be applied; and j. Tarriff reductions will not be made during the construction period without prior agreement of the Association, and after the accounting system will have been established (beginning in FY 1973) a rate covenant will be applied (paragraph 7.08). April 30, 1970 AL'NBE 1 PAKISTAN T & T De tment BASIC DATA AS ON 30th JUNE, 1969 AND FOR THE 1968-72 DEVELOPMENT PROGRAM Number of telephones in service 185,000 liumber of main subscriber's lines (DEL) 135,000 Percent automatic lines 85 Number of telephone exchanges 466 Number of long distance circuits 2162 Number of public call offices 663 Total mileage of long distance circuits 560,000 Percent automatic long distance traffic 70.1 Number of telex subscribers June, 1969 167 Average yearly growth rate in total number of telephone during last 12 years 12.2% Total staff (November, 1969) 30,000 Number of waiting applicants for telephones (Sept. 1969) 72,000 ASSETS VALUE AND REVENUE Net fixed assets in operation as of June 30, 1969 PRs. 721 million Average capital cost per telephone as of June 30, 1969 PRs. 3897 Total revenue in fiscal year 1969 PRs. 290 million PROPOSED EXPANSION AlD ESTIMATED COSTS (1969-1972 Development Program period) Estimated yearly growth in telephone lines during period 19.2%o Forecast increase in telephones 175,000 Construction costs PRs. 910 million PAKESTAN T& T D;"PARTTErT TELECOMMUNICATIONS SECTO,R Di PAKISTAN'S ECONOMY Third Fourth Plan Program Plan 1/ Period Period Period Year Ending March 30,- 1965 1966 1967 1968 1966-70 1969-72 1971-75 T&T Gross fixed investments (in 106 PHs) 116 85 129 151 779 91o 1,518 Factorieg gross fixed investments (in 10 Pas) 7 9 13 26 76 n.a n.a Share of T&T's gross fixed investmets in total public investments ( - 3.3 3.5 3. 3-6 3-3 3-3 (32 Share of T&T's gross fixed investments in total public & private investments (%) 1.5 1.4 1.9 1.9 1.6 1.9 2.2 Share of Sector's gross fixed investment in total public investments (%) 3.5 3.9 3.8 1-3 3.6 n.a n.a Share of Sector's gross fixed investments in total public and private investments (>) 1.6 1.6 2.1 2.2 1.8 n.a n.a T&T's employed labor (in 1,000) 20 22 26 28 n.a n.a n.a Sector's employed labor iin 1,OQ) 22 25 30 33 n.a n.a n.a T&T's value added (in 10 PRs) - 151 189 201 231 1,242 1,463 2,649 T&T's contribution to GNP at market price (%) 0.31 0.36 0.33 0.31 0.37 o.45 0.55 % of GNP at market prices allocated to T&T's investments (%) 0.24 0.16 0.22 0.24 0.23 0.28 0.31 % of GNP at market prices allocated to Sector's investments 0.26 0.18 0.214 0.28 0.26 / n.a n.a Capital/output ratio (T&T) - - - 0.49 o.16 0.45 T, o0.5 0.h6 Number of Telephones per 100 persons 0.112 0.120 0.124 0.138 0.137- 0.191-6/ 0295 6/ 1/ Except TMT for which the fiscal year ends June 30 2/ Excludes from gross fixed capital formation Lndus Basin Replacement and Stock formation 3/ TV& value added is derived from T&T financial statements by adding estimated wages, rents, interest, depreciation and profit. Indirect taxes figures are not available but are considered negligible. 4/ Capital figure is the average of past two year investments, and outpult is value added of current year. 5/ Average for 1967-70 7/ Average for the period SOURCE: T&T Department; Proposals of the Family Planning Division for the Fourth Plan; Planning Commission; Mission Estimates Marchi 4, 1970 ANRiTE3 3 Page 1 of 6 pages PAKISTAN T & T Department Telecommunications Factories in Pakistan I. Telephone Industries of Pakistan (TIP) 1. Establishment TIP, located in Haripur, wes established in 1952, in collaboration with Siemens (Germany) as a limited company. Since its establishment, it has passed through four phases of expansion with corresponding increases in share capital. At present (1969), the capital is PRs 73.72 million, of which the Government of Pakistan contribution is PRs 58.45 million and that of Siemens PRs 15.27 million. 2. Management The Secretary of Communications is Chairman of TIP's Board of Directors. The members are: the Director General of T&T, the Chief Engineer Planning ard Development of T&T, thle Financial Adviser - C - cations, the Managing Director of TIP, -Wnd -Wo wiAmuers from Siemens._.( There is close collaboration between TIP and T&T. As a condition for Credit 1h5 PAK one of the duties of the consultants (A. D. Little), who began their work in January 1970, is to undertake a review of the relationship between T&T and TIP directed toward the introduction of a fully commercial relationship between the two organizations that would allow accurate costing of TIP-produced equipment. 3. Production Since establishment, the factory has progressed from assembling 7,000 telephone instruments and 7,000 exchange lines in 195h/55, to the almost complete manufacture of the following items: 1/ The three factories described herein have the same membership for their respective Board of Directors. AIhIEX 3 Page 2 of 6 pages 1967/68 1968/69 1969/70 Actual Preliminary Estimated Auto. exchange lines (EMD) 34,000 40,500 43,0001/ CB and Magneto exchanges (lines) 7,000 9,400 9,800 Telephone instruments of all types 51,000 55,300 80,400 PBXs, all types (lines) 16,000 12,500 7,200 Carrier Channels 672 300 1,200 Telex/Gentex lines 220 500 750 Teleprinters 250 101 400 The value of production increased from PRs 5.0 million in 1958 to PRs 40.0 million in 1969. TIP has endeavored to atain self-sufficiency in its operations. An exchange planning group was started in 1959 to draw up exchange specifi- cations, as well as planning for installation of manufactured exchange equipment. h. a) Switching Equipment Manufacturing includes all processes from raw materials to finished products for racks, frame assemblies, coils, relays, resistances, most of the condensers, and the complete EMD switch. A special section manufactures all the necessary tools and jigs for almost all parts. Only the jigs for the EMD switch are imported from Siemens. Although the jigs prepared by TIP are finished manually, the quality is satisfactory. Mouldings for switches and telephone sets are completely manu- factured in a modern moulding shop. In addition to the switching require- ments of mouldings, the shop produces 80,000 telephone sets per year, utilizing only half its capacity. The feeding of the assembly line and preliminary testing of assembled products are still done manually. An improvement and doubling of the production can be achieved by chain or belt feeding. Most of the factory is still working on one shift. b) Quality Testing of the finished products proceeds in a normal way and shows satisfactory results. Production of END type exchange equipment 1/ To meet future demand, the TIP factory will expand in order to produce Z0,000 lines per year. TIC (described later) will have a future production of 30,000 lines, bringing the total for Pakistan to 90,000 exchange lines per year. ANNEX 3 Page 3 of 6 pages started early in 1968, and now cons itutes most of the production, at a rate of 100-140 switches per day. This rate enables TIP to supply automatic exchanges of about 40,000 lines total capacity per year. Some of the old two-motion switches (type Fl) are still manu- factured as extensions to existing exchanges of the same type. One working exchange of the EMD type was visited in Karachi. It is operating in a satisfactory manner since its commissioning in April 1969. 5. Teleprinters TIP started the assembly of teleprinters mostly from imported parts in 1963, at the rate of 400 sets/year. Preparation is underway for the manufacture of 50% of the parts, at the same time raising the production to 1,000 sets/year by 1971/72, covering all of T&T's immediate requirements. 6. Carrier Equipment In 1958, TIP added the manufacture of carrier equipment to its production, and actual deliveries started in 1960. During the initial stage, manufacture was confined to the production of valve-type equipment for 3 and 12 channel carrier systems. At the second stage, TIP produced valve-type equipment for the extensions to the coaxial cable channels. Total production of these types amounted to 709 channels in 1967/1968. TIP started the production of transistorized equipment in 1969 for the supply of 1,110 channels for T&T. Channels and channel modulator equipment (60-108 KC) are assembled and tested in the factory. Group and super-group modulators and similar equipment for higher fre- quencies will be supplied complete and ready for installation by Siemens. Delivery is expected to start in March 1971. There is no valid reason for this line of production to be transferred elsewhere at this stage of capacity utilization. 7. Cost of Production TIP's present cost accounting makes the exact costing of specific products or product groups difficult. The management consultants financed under Credit 145 PAK are therefore studying T&T's accounting practices and advising TIP on systems or methods which would allow costing of specific items on a current basis. The setting up of a new factory in Dacca while the first factory has not yet reached its optimum size, will prevent TIP from achieving optimum efficiency in the near future. 8. Training Training of staff constitutes an important function 6f the factory. It follows the German practice by recruiting high school ANTNEX 3 Page 4 of 6 pages students who attend 3-1/2 years of comprehensive courses covering both theoretical and practical aspects of teleconmmunications. At present, TIP has 350 students from West Pakistan and 47 from East Pakistan. Dur- ing the 1953-1959 period, 388 technicians graduated; 307 of them joined the factory staff. II. Telephone Industries Corporation (TIC), Dacca 1. The Telephone Industries Corporation was constituted in 1967, as a joint venture with Siemens. The capital of the Corporation is PRs 19.8 million, out of which the Government of Pakistan contributed PRs 13.2 million, and Siemens PRs 6.6 million in the form of machines and tools for the factory. 2. The factory is planned to produce ultinately 30,000 telephone sets and 20,000 telephone exchange lines per year, applying the same manu- facturing processes as does TIP in Haripur. The requirements of East Pakistan could easily have been supplied by TIP, thereby improving the latter's economic standing. But internal political considerations have caused the duplication. 3. Buildings and civil works of TIC are in the final stages of construction and will be completed by June 1970. Machinery started to arrive on site in June 1969, and its installation will be completed by October 1970. However, assembly of relays started early in November 1969, using piece parts recei-ved from TIP. 4. By October 1970, TIC plans to assemble 5,000 exchange lines (EMD) with parts from TIP. In 1971, another 5,000 exchange lines will be pro- duced with parts from TIP and 5,000 lines with parts will be produced by TIC. By October 1972, production will be increased to 20,000 exchange lines, and by 1975, to 30,000 lines. 5. Even after the installation of all the machinery, TIC will con- tinue for some years to import from TIP such items as aluminum castings, plastics for telephone sets, printed circuits, telephone set transmitters, receivers, condensers and dials. This arrangement was adopted to avoid duplicating investments for expensive machinery. 6. Jigs and tools will initially be supplied from Germany and the tool-making shop will be engaged in the maintenance of these tools; but at a subsequent stage TIC will start making its own tools. At present (1969), 47 technicians are under training in TIP and another 80 will be trained in TIC. This will cover the requirements for tool-making, maintenance and other mechanical work in the factory. ANNEX 3 Page 5 of -6 pages III. Carrier Telephone Industries (CTI) 1. Carrier Telephone Industires was constituted in April 1969 in conlaboration with Siemens. The factory is to be located in Islamabad. The authorized capital is PRs 20.0 million, of which the Government is contributing PRs 12.7 million and Siemens PRs 7.3 million. 2. The factory is planned to have the following annual production: a. 3-channel open wire systems 16 terminals 12-channel open wire systems 48 terminals with 15 repeaters b. Transistorized channel modulators 800 units Channel terminal circuits 1,200 units c. V. F. telegraph equipment 500 units 3. Land has been acquired, building plans are almost ready and tenders for the construction of buildings are expected to be called for in the first half of 1970. Assuming no obstacles or delays of any sort, production cannot be expected to started before mid-1972. IV. Cable Industries of Pakistan (CIP), Khulna (East Pakistan) 1. Cable Industries of Pakistan was constituted in November 1967 as a joint venture with Siemens. The capital is PRs 15.4 million of which the Government of Pakistan contributed PRs 11.8 million, and Siemens PRs 3.6 million in the form of machinery and tools for the factory. 2. The factory is situated at Khulna, on a convenient waterway for easy transportation of cables to various parts of East Pakistan and to Karachi in West Pakistan. 3. At its initial stage, the factory will produce plastic insulated (cores and sheath) cables, for the installation of 20,000 local exchange lines per year. 4. A major part of the machinery has already arrived on site and most of it has been installed. Installation will be completed by June 1970, operation of the factory will start in October 1970, and full capacity utilization is expected during 1972. There are ample space and facilities for further expansion of the factory up to five times the initial production. Installation of a second line to double the production is planned for completion in June 1973/1974. AOIIE 3 Page To-fI Opages V. National Radio Telecommunication Corporation (NRTC) 1. The National Radio Telecommunication Corporation (NRTC) was constituted in February 1966 by the Government of Pakistan to produce radio equipment for the Ministry of Defense. The capital, amounting to PRs 15 mil- lion, was paid in by Government. 2. The factory is in Haripur, adjacent to the TIP factory. It started its activities by assembling mobile-type radio equipment in the HF and VHF ranges, with piece parts obtained from NEC, (Japan). Very little is produced by this factory at present. The idea now is to sell this Corporation to T&T and to divert the factory to the manufacture of microwave equipment. 3. The factory has ample space for the purpose, but the nucleus staff remaining with NRTC had no previous experience with microwave techniques. 4. At present, NRTC, is governed by a Board of Directors composed of the Secretary/Communications (Board Chairman), the Financial Adviser - Communications, two Army officers, the Director General and the Chief Engineer Development from T&T, and the managing director of the factory. ANNEX 4 Page 1 of 3 pages PAKISTAN T & T Dezari=t~m Description of T&T'P Internal Organization A. General Description The overall organization of the T&T Department, up to divisional level, is shown in Chart 1. The chart shows only the position of the top 150 Class I gazetted officers; there are 350 Class I and 700 Class II gazetted officers. Altogether, the department has 30,000 employees. The stated objectives of the organization, as expressed by the chief executive, are the provision of an efficient service (technical per- formance), public satisfaction (in terms of quantity and quality of service and of tariffs), relative independence, and a good internal social climate. These goals are widely shared among all the top officers, reflecting their cohesiveness as the top management group. The centralization of decision-making has lead to an excessively large span of control within T&T's formal organization - particularly at the levels of the Director General, Chief Engineer-Planning and Development, and the Field Directors, and within the informal organization at the level of Chief Engineer. B. Organizational Structure and Functions The Maintenance and Operations Wing of T&T is described in Chart 2 along with the functions of its officers. Only the Karachi/Southern Tele- communications Region is described therein as an example of the field maintenance and operation organizations. The organization of the Development and Planning Wing of the T&T Directorate General Department, and the functions of its officers are given in Chart 3. There are three field organizations in charge of exchange develop- ment, headed by directors of development located at Karachi, Lahore and Dacca. There are two directors in charge of satellite development, located at Chittagong and Karachi. The director of development for microwave and HF projects is in Dacca. He is assisted by a divisional engineer for microwave, East Pakistan; a divisional engineer for VHF construction, West Pakistan; divisional engineer for microwave survey, who is in Dacca; a divisional rigineer for HF construction in East Pakistan; and a divisional engineer for the iwalpindi - Lahore microwave survey. The structure of the Field Development Organization is necessarily f-iible and woaild adapt to requirements. For the microwave project flnced by the Association, divisional engineers could be added in the orkization of the Director Development for Microwave and HF projects, or, refc-rably an additional position of Director Development for Microwave (l0tted at Karachi) could be created. ANNEX 4 Page 2 of 3 prges The principal staff functions and structure and the training organization are described in Chart 4. T&Tts accounting and audit functions, organization and procedures are described in detail in Annex 8. C. Major Relations of T&T Department with Outside Entities and Within Inter-Departmental Committee The major relations of the T&T Department with outside entities, and T&Tts relevant officers, are shown in Chart 5. The main inter-department committees are described below: a. Tender Committee I This Committee examines and approves on behalf of the Govern- ment all tenders for bids higher than PRs 700,000. The Chairman is the Director General of T&T, and the members are the Financial Adviser-Communi- cations, the Chief Engineer-Development and Planning, and the Director of Stores and Workshops. The Secretary of Tender Committee I is the Deputy Chief Engineer-Coordination. An agreement (concluded during the missionts stay in Pakistan) between T&T and the Financial Adviser to streamline the tender procedure will prevent delays such as those previously experienced. A maximum of five weeks will elapse between the time the specifications are ready and the Tender Committee approves them. The specifications will be distributed to all Committee members and a first meeting will be held seven days after distri- bution. If Bank/IDA concurrence is required and if changes are proposed, a maximum of seven days will elapse between receipt of the Bank/IDA opinion and final approval by the Tender Committee. In the bid evaluation, four weeks (up to six weeks in the case of complex bids) following receipt of all the bids will be allowed for designating the successful bidder. b. Tender Committee II This Committee fulfills the same functions as those of Tender Committee I, and will follow the above-described procedure. It examines tenders for bids lower than PRs 700,000. The Chairman is the Chief Engineer- Development and Planning. The members are the Deputy Financial Adviser, the Deputy Director. General-Planning, and the Director of Stores and Workshops. The Secretary of Tender Committee II is the Deputy Chief Engineer - Coordination. c. Telecommunications Development Board This Board meets once every four months to examine national defense requirements. The Secretary is a T&T officer (under the Chief Engineer- Development and Plannin) who works full-time for theBoard. The Director General of T&T is the Chairman. The Minister of Defense, the Minister of Communications, and the Minister of Firance (through the Financial Adviser) are represented on the Board. ANNEX 4 Page 3 of 3 .pnges d. Pakistan Wireless Bcard The Pakistan Wireless Board examines the requirements of special subscribers, such as government agencies, and of private wireless stations. It issues clearances for applications and licenses to lease and operate private stations. The members represent the Ministry of Defense, the Ministry of Interior, Radio Pakistan, and Civil Aviation; T&T is represented by the Chief Engineer-Development and Planning. e. Other Committees related to T&T capital budgeting are described in Annex 5. l I | ~ ~I * . C~~~~~7 ---- ---- ------- l ~~~~~~~~~~I pbbb ui~u Iie &XW wz I-: 0~ OZ I at 0 n l- - j - z~~~~~~~~~ A= ' - z~~~~~~~~~~~ - - - - - - - - --+ PAKISTAN iTT DEPATMENfT OPEfTIGU AcD YAINEDU0ICE NINORIfIlidI STRitlUfE AN1D FPUCTIONS ANNEX 4 ChocI 2 (Directorte General nnd e Banie of the Kahi/Siot}r telsoomunio.tiore Region)A I~~~~~~~~~~~~~~~IEO IRTEAL AIINT&INC OPSATION Official disr of tb Direotor SCrel .oa oprting spetc t inloddig traffic R veil as URLL ER ANioR sogieriog, to n so i od i3o3m1DCONUDNIHiTE INS REGION KYinCR T31HOMailUCiTItIS RE ID) l -. t r] r- pocibl SD- esietenoos, oontrol of store Overall direction aMd coerol of all nscomno C- .. services io Re is in ehorge of the oper-tion rd nod oobhqep, ad for a11 cer- te realne, eo ept fo the local t lepheot syst n-d-r s eprate esitcesc of the lcoc telephoos rent Wdit dirnotnrate;nveretio ed sainternce of ioet"flAtino gerarnl 5-cIit53 of -Ar d Wishnote; .ddstraien r o* er ditin. regadig etog de-S a snfe ton i with tsore lti l00 lines aed t long dietn- physinl ls- in orel ras; retions Lq~ ISITN LIlnE DEPUT CHIEF MIlEGSt - OPEATION D1PD1 CHIr ENOINIER - IMINTENAOE DInETeR - LYd ESTCR DR OR - RDIRRSO - TIEPRt DI; - [ARInG Dalo with polioy ter regard- Da.s sith policg -tte a$ C b ief Inspectin6g Officer od Tecb- P-rforel the s f-otioii aA G ate the nal -engr 1cc its inSg peretioc of all taleo ioe- prbls regaUding einnce dnl ted treffin ffrio y thb Dircotor., Log Diateone, Ret genral adeioietratie forenotioes. at tioes s .ines it Peistn. of asts of tdIcne -doatie-p Dfrifor of tbi regIon fo long far utter r*fgding teisgopb, 0 Die bts3f it enSerc tt , systesa toi F Petane distae prtit . Re octs _e e I.. local ecbogage emi coordinate the tohial ve* of the beheif of thb Qenernl Manger iD decoln t -foas hildiog ad dicioie nodsr his. al Aecgseriog attn regading aletiit. tie long ditaooe t-aioo rk cooriseets o"bs hecodica c-r Idth -sie-ss dLieti- Ae as__e _pofinbtolit far th -ainbilit of eaiteooc feods Re -ni- e cordija Re bdisiet, DIVIBIOAiL REINDR - TllFIO ASSISTANT mmgr 3 DIVeISYL wIYIl;lS - 3 DIVISIONAL DgRINYI - DrSISTOAL BhINS3 I-SPETIOD ENGINEER - NLII R iDLe 0IUL Sce,ticy of trcck lD rei.nr e In charge of tic toceical sd of daily etotmnte of ro dio, All prnbi_ of sintene-; oRaoh., Radio Ti ir K-r.hi. Diretly r-eponsible, itopsntioo of ehcngCe, follow-np tdlphone nod tl-grepbh chRnU1 in of Agi r6 ig tre- for tbs oplep o n dc o olt. nd t-rffic preblxe -nci OTn eoff it ellocatioc of tionel -aiottinO of etL n 1i oaid rpnt-r, tnr- inlord -nd inter.inS cir-oots; raponts of tslphe ecsogee icol aid -abhi, io their enb- ines.tigatiec of traffic Retti_ regions. necks; sgeetioc of orabnes it 2 DIVRISIONL ENGINEERS- T DlIIcIONL DcMINGMU - tIRAN3Ie tariff etatera.r 1510 EnAc idRISTiAW CU AlWVcais- to the differeot stINR - ADrINIsnbTIoN -arachi sd Qnstt- 2 DIVISIODhL gIEeMMS - oe f thexl orshi rEgiOn -nd tEZIRAPH I/I era esponui for their pertioo ASnISTAOO D _m1 D-e 1dth .il uttrs ef stares Responsefo the op- ad aintec . EDE0TtOR RNEhI - TEDARAPH o eocbtpe oradats ep n ecdn f cb oi epnil o h serice ithin the rages. nooia aetm (-.ePt ....al1 Coetrol of tlegroph nod phOte .biles), the ml loal eye- _tgrg serie and P=ing ad tea (lees than 5,00t tlphbone DIfISIXIL DEGRER - TRNSS c lodsing no lbelgropt offion, idRITAI XIRm LC lines), tel grh ad -m1i isenc f ecisintatinas MOINE - TRDS LIRM _DASID TR)'FPDG D?PGIaII d-en kaoy dtkdn their Ge. oharg of th eaict-oo on Delegreh eervioe sod sat-le- Dr gi ad operotioc of tbh trak ochacns _rt of tlgraph accoote witb Dele sith all V r garding COstral RAdio nOfice, torachl forign cos-tories. eionO of trash line _ 00 oDedial e."le, op.. sir lioc o si snle; enp DISIONL ISROINXIR - ply of too1s sd testing IXtL EXCRHNGES 3/ ARSIPTAe DEnTO nelp t; etacordi ntion DnIRtiR OGNL - TELYEPONE D ineenaoo of *qCipe_t Geeponiblh f-or the rpere- of trniring ostT-e tioc eeo nolntenec-e of neoh.og Int-lltino, dicectioo aid betve OcGoO ond 1n,oc te- restoration Of esri. of tle_ phon lire phD failities, poioy attn regarinrg tOcphone, ecrqhone ODd PDI, tcphon direotoi- RvILDIYaS Locke ot tecbs saiten-n of sISTST h 0D0T0 ndl tleonmaiontios office DIR00TDR OiDtRZL - IIR3LdDS bhilding id etoff qoartors in the regice an eotes sEno IGans- of irlec oe nces for btild-o ve canion abile cter ad other types of sirlnes *tetone; opding of itrtioe 1 iresea. cir tits; le an6g of intrnect l DIcISIDIL RENSilR - aORid ItT otronits; cdocting NETRICIlT DRT certificate eaicattoos scnd rP -EdnAtione. Rlspooible for the e- c- tanote of eo qipnet of tdlrrph ofics of teleprioier end as sooted qnipsni, of poer plAcat, and of al lstcaapplino-n in the ragen. CHIEF lDPRgINgfMEFNT Gentral Tnleg-ph Qiicc, K-.hi R DIRECDTRTE GNhL 5EI0D ORAtIZATO NS-- 1. Per rb-reoton etehi to. thre-aa heocdctoo rMons (ercatr., antnaeso asee in edhin al1 ine aeI... thon 5cOO loca telephone U-,s the Dib sOoal igtinee, Tbr grapo, corder the Geo E e f-or the -doati-en Rgioc, h.s the ponibilit, of tbi ec nt o both the long disteons nd of the looh yt- sod of the tlgraph sices eithiC Die e Line of n-thority 2. Whe the ceohe of lines in a tneo of a enb-regico reaohes betcv 5,0 sOd 10,000, n Divisional Egineer Teispbon, till noder thr Srl Hager for the (Fo.o treotor) Tel-OCitotiO- Region, in reponsibl for tie anog-t no tie local tlphn etee of this ion. L-one nOrthcrily 3. sooc as. t o nbr of telphoe lies in a . gic city is Arger thec 10,00, a Director, Tslqphlon, he-nne in ctpsre of tic l-o tephon et in tyie (fa- trtar) city ad rqorit dir-ntly to the DirAvtor onraol. Thi happens for Lh-ore soo Islashbad. Wc the local cysts of a city gonE eons 20,000 li-ne, en to -eroohi aid D-nna, a Genera Hrgr, also reporting ddr-otly to iRe Directorate O.-rel, is oinated. A-U TOoT DAOODODNOTA QINNAff. ~ ~ ~ ~ ~ ~ . TT~~HCTR L PAM DO oNLoNo00I AND 0O.fOooloD 0000 - OOIANAoDOIDoA0. 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Preoorotioo of 00010000 forsCPR3OCN oloofol Ofotl5o, 0000 0100 Tro Sflrooobo tr 4 ot r oool 00000e no f toto- 2. oooofostooUnv for Do0043hii ooonati 0000005t f3D p01opood eo1oo loi : to0.ooo0.teroond t00000071 log-boo .Yd f1oo-reor 00010000000 pLofo °, Z h.veort o0ll of toDsOMOrO t 5 001000000 r,ooo.oD of 0r000000 of voote PAKISTAN T&T DEPARTMENT STAFF AND MSTARLISHMTNT WING: ORGANTZATTONAL STRUCTURE AND FUNCTIONS DIRTWTOR GENERAL CHTEF ENGTNEER STAFF AND ESTABLISHMENT He is the Administrative Manager advising the Director General on all matters relating to staff and establishment, and ITU II I Director Staff and Establishment Director Telecommunication Director Telecommunication Staff Deals with cases relating to Training College recruitment, training, posting, Responsible for technical Responsible for the manageMent transfer, promotion, etc. for training arrangements in of the College in Haripur. T&T staff; personnel management respect of gazetted Officers problems; administrative manage- and nongazetted staff not ment of T&Tts Directorate General. below the rank of engineering supervisor; for holding of examination, preparation of syllabus; for disposal of personnel cases regarding recruitment, appointment and promotion of staff in the training organization. Divisional Rngineer - Staff and ;- Divisional Ehgineer - Divisional Engineers Establishment Training - Karachi Training(6) Posting, transfers of gazetted staff, personnel management - Divisional Engineer problems Training - Lahore Assistant Deputy Director General - Divisional Engineer Staff and Bstablishment Training - Dacca Posting, transfers of non-gazetted staff of regions Administrative Officer Administration of the Staff and Fstablishment Organization PAKI STAN TELEGRAPH AND TELEPHONE DEPARTMENT MAJOR RELATIONSHIPS WITH OUTSIDE DEPARTMENTS, AGENCIES AND GOVERNMENT COMMITTEES * I 1 I I I I 1 11 1S1 kS I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~II ~I - ~-- 0Z ~~~~A NO - .s 500"T1'1- s~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~z 0S kO 1A UN UE -Xr X 4 I,. O .E,Iy T. . ,A. . I I I~ 0A... IAI -TAETT N IT,,T , E .,EYTA1 .~~~~~~~, 1- . t. .... $t ...... EJ.. I T ."i- 11, Tl-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.T YSI PAKISTAN Page 1 of 7 morb T & T De.partment Budgeting and Disbursement: Organization and Procedures The Finance and Accounts Officer and the Financial Adviser-Communications play a major "ole in the budgeting and disbursement decisions which are described in Part I. Part II describes the operating budget procedures and Part III the capital investment decision process. PART -I: ROLE OF TTE FILTNCP AND ACCOUNTS OFFIQCR AND OF THE FINANCIAL ADVIS-R- CCMMUNICATIONS I. The Revised System of Financial Control and Budgeting 1. The position of Finance and Accounts Officer has been created within the Ministry of Communications, and the interference of the Financial Adviser (Communications) in T&T's day-to-day operations has consequently been relaxed, by a law effective July 1, 1969. 2. The law intends to permit more delegation of authority to the kinistries and attached departments in those financial and economic matters previously controlled in part by the Ministry of Finance. This new control exarcised by the Finance and Accoiunts Offic-r has been incorporated into the budget formulation process, and at.the same time freedom has been granted to the Ministry of Communications and to WT Department in the implementation of the budget. II. Finance and Accounts Officer 3. The Finance and Accounts Officer is charged with advising the Secretary for Communications on all financial, budgetary and accounts matters. The position of Finance and Accounts Officer is assumed by T&T's Chief Accounts Officer, who retains also his position within the Department. 4. As Finarce OfficAr and A'.ccounts Officer his duties and responsibilities are to: i) coordinate and carry out internal scrutiny of the budget estimates of receipts as well as expenditures of the Ministry of Communications; ii) consolidate the annual development program, and ensure that the development schemes of the Ministry are prepared in accordance with prescribed procedures and instructions; iii) give advice, when called upon, in fields wherein the Secretary or T&T?s Director General heve full power and ANNEX 5 Page 2 of 7 ir-es advise on matters relating to regulations, foreign exclhange and provision of funds out of the "Contin- gency Itemtr of the budget that are reauired to be referred to the Ministry of Finannce through the Financial Adviser- Communications; iv) maintain property accounts and reconcile them with the actuals of the Auditor General's Cffice, maintain 1'liehbility registers"l in thc i4inistry and in T&T; control the progress of expenditure and reeeipts; v) perform all work relating to the Public Accounts Committee, and audit observations on appropriation accounts and ensure compliance with the Committee's observations and recommendations; vi) exercise intrrnal checks on irregularities, waste and fraud; vii) ensure compliance with all other rules and orders issued by the Ministry of Finance from time to time; and viii) scrutinize cases where reference to the Financial Adviser is necessary as regards relevant rules and orders, and furnish such further data as be requested by the Financial Adviser for the proper disposal of issues referred to him. III. Financial Adviser- Communications 5. The FinancialAdviser - Communicationr will continue to be under the administrative control of the Ministry of Finance and to exercise the power of Joint Secretary to the Ministry of Finance in relation to the divisions to which he is attached (i.e. at present, Communications, Commerce, Health, Family Planning, Labor, and Social Welfare). This means that in most cases he will decide without reference to other Wings of the Ministry of Finance. 6. He will continue to deal with matters relating to the interpretation, application and relaxation of service and financial rules and regulations, the allocation of foreign exchange, and the provision of funds out of the unspecified allocations of the budget. 7. TNhile previously he had to obtain clearance from the Ministry of Communications before he could refer a case to the Ministry of Finance, he can now do so without its concurrence. The advice of the Financial Adviser in cases ,ihere the Ministry or T&T Department have to refer to him will be birnding. In case of a difference of opinion with the Financial Adviser, the Secretary -Communications may take up the case with the Finance Secretary. ANNEX 5 Page 3 of 7 pages 8. The Financial Adviser -Communications is assisted in respect to the Post and the Telegraph and Telephone Departments by a Deputy Financial Adviser for T&T only located at Karachi. The position of a second Deputy Financial Adviser has been decided uipon and will permit faster and closer relations between the Deputy Financial Adviser and T&T. Part II. operating Budget Procedures 9. The budget integrates both current and capital operations, but there are substantial differences between the operating and capital parts as far as budget formation and disbursement are concerned. 10. The Ministry of Communications has responsibility for budgetary proposals, which are scrutinized by the Financial Adviser before any budget provision is agreed upon. 11. The preparation of the operating budget begins early in the fiscal year preceding the year to which it relates. T&T Field Divi- sional Engineers are asked by their General Manager or Director to submit estimates of operation and maintenance expenditure requirements. The Field General Managers or Directors scruitinize, correct and integrate the estimates, which are then forwarded together with revenue forecasts to the Directorate General. The Director General communicates to the Financial Adviser proposals for establishment and other items of expend- ture as they are ready. 12. The Finance and Accounts Officer compiles and scrutinizes all estimates of propoced current charges, revenues and capital receipts, and submits them for approval and verification to the Finan- cial Adviser. The Fiancial Adviser then send them to the Budget Wing of the Ministry of Finance. - 13. Once provisions for current expenditures have been made in the budget and the budget has become effective, the Secretary -Commu- nications has authority to sanction expenditure already allocated in budget. Reference to the Finnncial Adviser is only requested in exceptional cases, such as expenditureR charged to the Contingency Item in the budget, matters of interpretation, application and relaxation of financial and service rules and regulations such as a new salary scale, creation of a new permanent non-budgeted position, allocation of .foreign exchange. ANNEX 5 Page h of 7 pages Part III. Capital Investment Decision Process I. Yearly Capital Budgeting Procedures a) Individual Scheme Proposals 1h. They are prepared within T&T and Government approval takes place all through the fiscal year, about once every quarter 1. T&T Internal Procedure: 15. The steps in formation of tho capital investmcnt proposals within T&T take pl-^ce in the following sequence: i) The Deputy Director General, Planning,is responsible for overall planning and forecasts of local and trunk requirements and assesses technical alternatives. i) When necessary, he askes the Field Directors of Develop- mont to make detailed estimntia cf the requirements of the ro,ons. iii) At the same time, he is informed by the EPIC Branch and directly by TIP and other local industries about local manufacturing capacity and the minimum desired level of operation. iv) He may informally consult with the Deputy Financial Adviser, and, if necessary, with the Financial Adviser as well as with the Finance and Accounts Officer on financial, economic and foreign exchange matters regarding the scheme proposals. v) Once he has received all necessary information, he finalizes the individual scheme proposal; he presents esti- mates of demand, costs, benefits, foreign exchange re- quirements and technical aspects. vi) As soon as an individual scheme is ready, it is forwarded through the Director General to the Finance and Accounts Officer, the Secretary- Communicatinns , and then to the Financial Adviser. Schemes are proposed for approval between November and April. 2. Government approval procedure: 16. The procedure for capital investment schemes costing more than PRs 2,500,000 is summarized in the following chart: ANNEX 5 Page 5 of 7 pages 4 5 | T&=T Department -~~~> lPlanning Commission | -- Ministry of Financ --. (Comments) Joint Secretary I I ' . Development l l l (Study and comments) ,~~~~~~~~~~~~~~~~~~~~ I Finance and It Accounts Officer 8' 6 (first scrutiny) _ __l Secretary, Central Development Ministry of Wlorking Party Communications Chairman Project Scrutiny Planning Commission Committee of lMembers: Ministry of I T&T and Technical, Finance, presided Economic, and by Finance Secre- 2 Project Appraisal tary and attended Sections by all Financial l______________ s(clearance) Advisers l inancial ____________________ (Comments) lFinancial. ,. 3 Adviser Communications (Scrutiny, 9 comments) x, __________ __ . Dcecutive Committee of the National Economic Council (Final approval or rejection) * Numbers refer to the time sequence of the approval procedure. 17. Schemes which have been prepared in detail and cleared by the Central Development Working Party become effective when the approval of the Executive Committee of the National Economic Council or the antici- patory sanction of the Chairman of the Executive Committee of the National Economic Council has been accorded to the scheme. After receipt of this approval and even before the budget is finalized, the scheme is eligible for aid negotiations. ANNEX 5 Page 6 of p-rgcs 18. In tho caso of capital investmcnt schemes costing less than PRs 2,500,000, tne Finroncial Adviser - Communications has the power to sanction the invcstmcnt schemo proposal, and only steps 1 and 2 (shown in para 16) are required. b) Yearly Capital Budget Formation: 19. The annual development program, presented together with the operating budget, incorporates the individual schemes already approved, any neway proposed schemes, and allowances for funds not specifically allocated. 20. The procedure is as follows: i. The Accounting Wing of T&T prepares the integrated budget proposal; ii. the Director General of T&T sends it to the Finance and Accounts Officer and then to the Financial Adviser; iii. the budget is presented to the Planning Committee and discussed with representatives of T&T; iv. after the advice of the Planning Committee has been expressed, the budget proposal is sent to the Ministry of Finance and discussed in the presence of a representative of the Economic Affairs Division; v. once it has been finalized by the Ministry of Finance, it remains to be approved by the National Assembly. II. Five-Year National Development Plan 21. The present formation and approval procedure of the Five-Year Development Plan is summarized below. a) The Office of the Deputy Director General for Planning prepares long-term projections which are prepared and revised every year. The long-term projections prepared about one year before the Plan is to be adopted are the basis for preparation of the proposed guidelines; b) the proposed guidelines are sent to the Planning Commis- sion, which scrutinizes them; c) they are then discussed by the Planning Commission and T&T, and revised guidelines are issued; ANNEX 5 Ppge Tof 7 pages d) the Plan Coordination Committee examines the draft out- line prepared by the Planning Commission; e) after discussions with the Secretary (Communications) the Executive Council makes tentative allocations. III. Expenditure Procedure for Capital Investments 22. Prior to the law of July 1, 1969, all projects had to be approved by the Financial Adviser or his Deputy before the Secretary (Communications) or the Director General of T&T could proceed with an expenditure for capital investment. 23. Now the Financial Adviser's concurrence, or that of his Deputy, is necessary only for lump sum budget allocations and in a limited number of exceptional cases. As a rule, whenever a provision for a specific scheme has been included in the budget expenditure, sanction of such scheme may be given by the Director General of T&T without further reference to the Financial Adviser. ANSI 6 PAfSU T&T DDPAR?R!U urL Rn Pran 19z68#69 79_j72 (filWO %PM nl, nln Urbadg) 1968/69 1969/70 1970/71 __ 1971/72 Local Forde Tota Loaa Fsr4!n Totl Local Foreign Total Local Foreign Total 1. Local Telephone Network 2nd Plan proJecto 10. 03 - 10.50 10.d4 - 10.62 5.64 - 5.64 - 3rd Plan projects 40°.06 26.16 66.22 10_6 3 617 16.92 43,08 6o.o0o 7S g62 70.00 S /Ttal Tr"7ri5 .7- 21.51 W5 w .3 39.6 70.00 2. Track Switohirg & Trurk Exchanges 2Oa Plan projects 0.75 0.20 0.95 1.89 - 1.89 - - - - - - 3rd Plan projects, truck exchanges 1.40 - 1.40 0.07 0.15 0.22 3.00 2.00 5.00 1.38 0.29 1.67 Nl.W STD E.P. - o.o6 0.15 0.21 1.50 1.50 3.00 0.93 0.57 1.50 N.X.STD W.P. - - - 0.07 0.o5 0.22 2.90 2.10 5.00 agl 3.79 7.00 S/Total 0l5 0.20 23 o a fl5 h 370 5.602 T75 10.17 9. Long Dlstance ad Subsidiary Network 2nd 'lan proj ect -ank roates and mrual liars 6.03 12.62 18.60 12.37 1.68 14.05 3.39 0.61 4.00 5.90 - 5. O 3rd Plan cro jects S.P. PCo's - - - 06 - .44 1.40) 3.60 3.00 253) 0 3.31 T/~~~~p~~~ P00's - - - o.to 0.62 4.00 )~~~~~~~~~~~~~~~~~~~~~~~~~~ 6.oo 5:00 ) 2.0) 6.00 Ocon wire linas W.P. 1.08 2.62 3.70 1.20 2.80 4.00 6.o0 4.00 10.00 6.8o 9.20 16.00 npae -ire lanes E.P. 1.66 1.44 3.10 0.o6 0.94 1.00 4.00 2.00 6.oo 3.64 0.36 4.00 L-hore-Nhanewal cable - 0.28 0.28 0.62 0.60 1.22 0.38 0.40 0.76 - - - Karachi-R-awlpandi a.rtrrave - - - 0.11 - 0.11 4.00 8.00 12.00 2.00 5.00 7.00 Lahore-Rawalpindi sdorowars - - - 0.41 3.70 4.11 0.97 2.53 3.5o 0.51 0.49 1.00 Peshawar-Rawalpinda coaxial - - - 1.62 1.00 2.62 2.00 5.00 7.00 6.oo 7.00 13.00 Spr ceoeaal W.P. - - - 0.08 - o.o8 1.70 2.50 4.20 3.22 5.50 8.72 Eyder-bad-Mirpurkhas siorowa - - - 0.10 - 0.10 1.00 - 1.00 0.27 1.13 1.60 Chittagong-Earisal-Khula micrrowave - - - 0.22 - 0.22 2.00 - 2.00 2.08 6.42 3.52 E. P. coaxial and sicrosare - - - 0.22 - 0.22 3.00 10.00 13.00 2.10 9.90 12,00 M1ltiplex Dacca-Ohittagorg 1.50 1.00 2.50 0.02 o.o8 0.10 o.56 1.60 2.16 - - - Other projects - - - O.66 8.88 9.54 9.00 1.00 10.00 1500 - 15.00 S/Total Tr" m7i& nm T8 TM 3E Ufl7.407 47U-m5423 7700 10 1.7 4.. Interming and International 2nd Plan projects 10.44 3.06 13.50 3.13 1.37 4.50 3.40 0.70 4.10 6.88 - 6.00 Inveotment in C003AT - 0.38 0.38 0.37 0.35 0.72 - 0.35 0.35 - 0.35 0.35 3rd Plan projects - - - - - - - - - - - EF radio - - - - o.85 0.85 5.64 12.36 18.00 2.05 2.95 5.00 Satellite grcund station - - - - 2.00 2.00 12.11 27.89 40.00 4.05 3.95 8.0 0/Total 10.6 3.4W I3BB 73u0 5755 6.07 i55 li730 327.r 12.10 7.8 739.3e r. Telegraph and Telex Sqaipornt 2nd Plan ercienco 1.80 - 1.80 0.6c o.60 - 3rd Plan -ojcts - oast Pakistan - - - 0.63 - 0.63 2.00 1.00 3.00 3.11 2.d9 6.0^ Nest pakiotan 0.10 - 0.10 1.27 - 1.27 4.13 1.87 6.00 2.16 2.84 1. S/Total 1.95 1.95 2.557 _ 3 13 2 .8 7 9 .00 5.27 7773 il7)) a. Serntceo to Goverorent Departornts 2ad Plan projects 3.53 2.00 5.53 11.22 0.50 11.72 - - - - 3rd Plan projects 4.59 1.21 5.80 4-99 1.50 6.39 10.67 9.33 20.00 18.00 9.90 S7, I S /Total 1732 3 .2 133 16.11 2.00 1 8 1 10.67 9 .33 83700 18.00 .07 7 7,0I . -inmng and Research 2nd -I-n projects 0.87 - 0.87 1.40 140 - - - - - 3rd Pla proje.-t 2.42 - 2 3.2 - 3.12 12.00 3.00 15.00 7.95 2.05 10.)2 ,'Total 3.29 - 3.29 +# - 1T3 1200 3.0 1 7.95 2T 12. :0 . lalOrta and Qoarters 2m Plan projects 0.97 _ 0.97 1.68 - 1.68 - _ _ _ _ - 3rd Plan projects 2.68 - 2.68 1.63 - 1.63 19. 00 20.00 21.15 0.20 21.35 S/Total 1; 5 - 5 31.30 0. 20 I, -cokshoco and Stores 2ad Plan cojects - - - 3rd P]an -o lcts 0.40 0.40 0.70 - 0.70 2.21 1.80 4.01 3.80 1.2 5½32 0 'Total 750 _ 0.73 Tr _.o . .O1 3r80 1-2n 8. ''. tthar 'Sorks Mor works 7.70 0.50 8.20 6.80 3.20 10.00 0.70 0.30 1.00 - lMiscellanecus works 2.40 0.10 2.50 3,D 1.20 5.oo 10.32 4.70 15.00 _ 4.30 4.30 S/rTtal 10.10 70775 795507 10.60 723 1 11.00 5.00 1500 5.- 73077 TOTAL 1. 153 2 1.59 7 ir 16.6 .5 M.7 153.92 309.74 =9 0o 185 210.002 'I. Factory Insestmaet TIP Naripnr 5.00 - C.00 3.00 _ - 5.20 TIC Dacna 6.oo - 6.00 3.60 - Cable factory,Khulna 4.80 - 4.8o 4.38 - _ 4.00 Tablo factory,Islanabad - _ - 1.00 _ _ 8.o6 - - 4.00 4.00 S/Total 15.8 - 15 U.96 17.2! 17.26 7i - O5 GRAND TOTAL 116.7_ 1.7 *0 11 6=2. I 173 10 2 3 1300 i9 284.00 March 1970 ANNEX 7 pAKISTAN T & T DEPARTE Foreiga Exchage RequirelntS 1969-1972 Program and Use of DA Credits 7n millione of PRe) 1968/69 1969/70 1970/71 1971/72 Total 1972/73 Total IDA 1. Local telephone network 26.16 31.14 438 39.62 140.00 _ _ Line concentrators - - o.06 .6 - - Pay stations - - 0.33 - .33 - - Underground cables _ 6.00 27.80 18.50 52.30 Drop wire i fittings - 1.00 2.00 - 3.00 - - Pole material - 1.50 3.26 _ 4.76 Add-a-line equipment 0.25 - 0.25 Total IDA 8.50 33.70 18.50 60.70 _ 60.70 2. Trank Switching 0.20 0.45 5.60 4.65 10.90 IDA 3. Lcng Distance ard Subsidiary Network 17.96 19.68 41.24 47.00 125.88 IDA Eastern Province Public Call Office ) 3.60 2.00 5.60 - - Western Province Public Call Office VHF Radio mobile - - 1.00 - 1.00 - - Open Wire Lines - W. Pakistan - 3.80 2.00 5.80 - - Open Wire Lines - E. Pakistan - 1.40 1.00 - 2.40 - - Western Province spur coaxial - - 1.00 1.50 2.50 - - Eastern Province coaxial & microwave - - 10.00 9.90 19.90 - - Western Frovince Microwave network - - 6.00 12.90 18.90 12.00 - Total IDA - 5.20 24.60 26.30 56.10 12.00 68.10 4. InterwirL ani International 3.44 4.57 41.30 7.25 56.56 h. F. Radio - o.85 1.15 - 2.00 - 2.00 5. Teeraphs and Telex _ - 2.87 5.73 8.60 IDA 6. Services for Governmrnt departments 3.21 2.00 9.33 9.00 23.54 IDA - _ - 7. Training & Research - - 3.00 2.05 5.05 IDA 8. Buildirgs and Quarters - - 0.70 0.20 0.90 IDA 9. Air Conditioning for EouiPment Rooms - - 2.33 4.81 1 IDA - 2.33 4.81 7.1 7.14 10. Workshop and Stcres 1.80 1.20 3.00 IDA 11. Other Works o.6 4.40 _500 4.30 14 43 IDA Overall requirerents 51.57 62.24 156.25 125.81 395.87 - IDA Contingencies 9.51 9.51 Total IDA 147.45 or U0531.0 * This ccIln (1972/1973) has been added as the West Pakistan Microwave project is schedLuled to be completed by mid 1973. March 1970 ANNEg 8 PAKISTAN Page 1 of 4 pcges T &_T Department T&T ACCOUNTING AND AUDIT FUNCTIONS, ORGANIZATION, PROCEDURES The accounting organization of the T&T Department deals with revenue billing and accounting, current budget proposals and initial accounts of stores and workshops. The capital budget is prepared by the Planning Wing and the expenditure accounting is done by the Auditor General's Office. T&T S accounting organization is described in Part I, and the Auditor General's organization within T&T is described in Part II. I. T&T ACCOUNTING A. Directorate General The accounts wing in the Directorate General consists of: a. The Chief Accounts Officer, who is directly under the Director General. He is responsible for: i. Preparation of budget estimates (revenues and current expenses) and relations with the Financial Adviser (Communications) re- garding acceptance of budget estimates; ii. Control of current expenditure against budget allocations; iii. Collection of bills, including arrears; iv. Introduction of computerized billing; and, v. Tariff proposals. b. Reporting to the Chief Accounts Officer are: i9 The Assistant Chief Accounts Officer in charge of the Rates and Statistics Branch; ii. The Assistant Director of Accounts in charge of the Budget Branch; and, iii. Four (temporary) "Officers on Special Duty" who assist the Chief Accounts Officer in the recovery of outstanding telephone bills from Railways and other Government agencies. T&T accountants are posted in different branches of the Directorap. General to deal with budgetary and financial accounts. ANNEX F, "age 2 of 4'pegu-t B. Field Organizations The field accounting organization is in charge of billing, collection and revenues accounting. It is headed by the Director of Account:. For other accounting matters and for budgetary preparation, accounts office:-, or accountants are posted in the different regicnal offices. a. Directorate of T&T Accounts The Directorate is headed by the Director of T&T accounts, who reports to the Chief Accounts Officer and whose main functions are the super- vision of T&T accounts offices under his control, and the general administration of these offices including a half yearly ins-action. He is assisted by two accounts officers, one of whom is designated to deal with the recovery of outstanding telephone bills. He supervises the following accounts officers: i. The Senior Accounts Officers heading the Telephone Revenue Accounts Office in Karachi, Dacca, and Lahore. They are responsible for billing and collection of all telephone bills. They compile the accounts of Tele- phone Revenue monthly and render them to the Deputy Comptroller PT&T. They keep ledger accounts of all the subscribers under their jurisdiction. They issue monthly discon- nection lists of telephone subscribers who fail to pay their bills and take proper action for recoveries in case of defaults. They are also in charge of billing and revenue accounting for telex services, except for long distance lines rented to Government de- partments. Telegraph revenue accounting is done by the staff of the Comptroller PT&T. ii. The Accounts Officer of Telegraph Stores, Karachi, keeps the store accounts and is an adviser to the head of the Telegraph Stores in accounts matter. He heads the disbursing office for the stores organization. iii. The Accounts Officers of the Telegraph Work- shop Accounts Offices (in Kotri and Dacca) keep workshop accounts and are advisers to the heads of the Workshops. ANNEI 8 Page 3 of 4 pag,'.s b. Other Accounts Positions To assist in budgetary and general accounting matters, accounts officers are posted in the offices of the Field General Managers and Directors Development. Senior and junior accountants are also posted in other regional offices, in the offices of Directors of Telephones, and in the offices of other Directors Development. Al- though these Accounts Officers or Accountants are physically located in the offices of the field managers and in a staff position regarding these managers, they report under direct line authority to the Chief Accounts Officers in a similar way as the other accountants posted in the differ- ent branches of the Directorate General. II. AUDIT AND EXPENDITURE ACCOUNTING The Auditor General of Pakistan, who reports directly to the President of Pakistan, is responsible for the audit of Government depart- ments. Under him the Comptroller of PT&T has, wqithin T&T Department only, a staff of about 350 employees. According to the present arrangements, the final accounts of the T&T department are maintained and consolidated by the Comptroller Post, Telegraph and Telephone in Karachi, with two branch offices headed by the Deputy Comptroller PT&T (Lahore) for T&T offices in West Pakistan and by the Deputy Comptroller PT&T (Dacca) for T&T offices in East Pakistan. The Comptroller's function is threefolds: i) expenditure and some revenue accounting; ii) general accounting; and, iii) auditing. A. Expenditure Accounting and Telegraph Revenue Accounting In each engineering division of the department, a Divisional Accountant (who represents the Comptroller PT&T) is posted to advise the Divisional Engineer. The latter is the primary disbursement authority, but he needs the concurrence of the divisional accountant who checks whether the expenditures conform to budgetary allocations and gives legal opinion on accompanying documents. The divisional accountant at the same time keeps the expenditure accounting. In telegraph offices, which are usually located within Post buildings, an accountant from the Comptroller PT&T staff is also responsible for revenues accounting. All T&T offices submit initial accounts of payments and receipts to the branch audit offices concerned. The Comptroller PT&T is responsible for maintaining and consolidating T&T department accounts. ANNEX 8 Page h of 4 pag&,s He is responsible for audit of expenditure and receipts of the department. Primary pre-audit is performed by divisional accountants in each engineering division. Post audit is conducted by the branch audit offices located in Lahore and Dacca. Audit inspectors are posted in the Telephone Revenue Accounts to conduct audit of receipts. Local audit inspections of all T&T offices are also carried out periodically by auditors under the Deputy Comptrollers of Lahore and Dacca. PAASTAN T & T DEPAhITIIU Pro Fcrm Balance Sheet - 1966-1975 (in Millicn P`Rs) A d jiu s t e d A c t-u-aRs P r o j e c t i o n s _7eo_s-ed rEstiantew Adjusted Budget Fiscal Year ending June 30: 1)66 1967 1968 1969 1970 1971 1972 1973 1974 1975 ASSETS Fixed assets Fixed aseets in operation 671.8 781.1 909.6 1,039.2 1,182.0 1,445.3 1,683.3 1,902.0 2,1149.3 2,428.7 Iests depreciation reserve 190.9 227.2 269.5 318.2 373(. 7 517.6 607.2 708.5 822.9 Net fixed aseets in opration 45.9 563.9 1 721.0 08.3 1 9 1,165.7 1, 1 , Work in progress 118.6 137.9 160.5 183.4 208.6 255.0 297.0 335. 379._ 3 1428.6 Total net fixed assets r99.5 691.8 9 00.6 1. 19 1,260.9 1 .46 27 -130 1- 20. ruIwz Investments and advances 32.9 42.4 56.1 71.9 83.9 101.2 154.2 154.2 154.2 154.2 Current assets Cash - - - - - - - 30.8 67.7 99.9 oustomers accounts receivable 22.8 29.8 39.u 43.o 45.0 51.4 61.0 70.1 80.2 90.3 Inventories - stores 41.0 38.1 59.7 60.o 60.0 60.0 60.0 60.0 60.0 60.0 - workabops 4.7 6.6 7.4 4.7 4.7 5.0 5.0 5.0 5.0 5.0 Total current assets 6U. 7 4. 5 106.1 107.7 _-16.7 16.0 - 2 Less currert liabilities Accounts payable 5.5 5.7 6.1 6.9 7.8 8.8 S.S 11.2 12.7 14.4 Current uturities 2.3 2.9 4.3 8.0 9.0 11.3 21.2 28.9 36.9 a Total current liabilities 7.8 __8. 10.4 14.9 16. 20.1 *T" . 4 Net current assets (less current liabilities) 60.7 6c.9 >9.7 92.8 92.9 96.3 94.9 125.8 i63. 202.1 TOTAL ASSETS 693.1 800.1 952.4 1,069.1 1,193.7 1,458.4 1.711.8 1,910.5 2.137.6 2.390.7 LIABILITI Cenr.1 budget comtributicns 179.1 178.5 196.2 154.9 79.4 37.0 Retained earnings 424.3 02.7 596.0 710.4 857 1 021. 8 Total equity 603.4 681.2 792.2 93 7 1,0. 1,212.4 1, 354.0 1,703.4 Long-term debt in foreigi exchange (excluding zurrent maturities) 89.7 118.,) 160.2 203.8 257.0 399.6 499.4 556.5 616.5 687.3 TOTAL LIABILITIES 6)3.1 800.1 Q02.4 1 1,193.7 458.4 1,711.8 1,910.5 2.137.6 2,390.7 " ar h1970a- M4arch 1970 ANNTE 9 Page 2 of 4 pagng' PAKISTAM T & T Department Notes on Balance Sheet 1. Fixed Assets The valuation of fixed assets is described in detail in Report No. To 695a, Annex 7, page 2. The consultants work financed under the first IDA Credit will include assessment of the value of T&T's assets. In the projection of fixed assets for 1973-75 an annual increase of 13% was assumed. 2. Work in Progress For want of any data work in progress was estimated at 15%, of acca- mulated capit,l outlay, this percentage was applied for past and future year.. 3. Depreciation Reserves This notional depreciation reserve was arrived at by calculating an annual 51 depreciation on the annual average gross fixed assets in operation since FY 1948. 4. Investments and Advances Up to 1971 these consist of T&T's shares in TIP, TIC, CIP and CTI. In 1972, a provision is also made for advances to the new factories. After 1972 it was assumed that the relationis with all factories will be on a fully cormmercial basis. It should be noted that T&T's present advances to TIP are not showm in the accounts, because they are charged directly under capital expenditures for which advances were given. T&T's funds are in closed circuit with the Central Government's Consolidated Fund. The cash balance shown in 1973 and the following years reflects the assumption that T&T will have the power to control its own cash. 5. Customers Accounts Receivable Up to 1969, actual collectible outstendings are showm; 1970 shows T&T's expectations while thereafter 1-1/2 months billings are assumed outstanding. 6. Inventories These accounts are rather high because of delays in charging receiving accounts for transferred material, but also because much of tk_ material in workshops and stores is not needed and should be sold. WJith J;iTEXm 9 Page 3 of pages the introduction of a more efficient inventory management, inventories can be kept lower. Therefore, no allowance was made for increases in the near future. 7. Accounts Payable In the absence of records consolidating accounts payable, this item was estimated. Since T&T should pay all bills before closing its budget accounts, accounts payable are unlikely to be high. For past years it was assumed that one month's material supply was payable. This account was projected to grow at 13% per annum. T&T has no records on customerst initial deposits. The funds are administered by the Finance Ministry. 8. Equity Capital is allocated to the Department annually under the Certr.al Government Budget, while on the other hand the Department pays its depre- ciation provision and its surplus into funds maintained in the Mtinistry of Finance. The balance of the Central Budget Contributions as of fiscal year 196' amounting to PRs 187.1 million was arrived at by deducting from total capital outlay, the part which could have been financed with T&T's net contribution to the Renewals and Reserve (R&R) Fund and the Surplus Fund. This difference between capital outlay and fund contri- butions amounting to PRs 255.6 million is considered Government's gross contribution, from which the outstanding foreign exchange loans of PRs 68.5 million have to be deducted to arrive at the Central Budget's own contribution of PRs 167.1 million. PRs million T&T's accumulated contributions to the Surplus Fund 378.9 T&T's accuaulated net contributions to the ReR Fund 89.8 T&T's Total Contribution 468.7 T&T's total capital outlay until June 1965 724.3 Difference of 255.6 Financed by foreign exchange loans 68.5 Financed by Central Budget Contributions 187.1 In the Pro Forma Balance Sheet 1965, T&T's contribution to the Surplus and R&R Funds are recorded as Retained Earnings. In the years followi- fiscal year 1965, the net profits are added to this account while the account Central Budget Contributions is the balencing item until fiscal year 1972, when a modern accounting system is introduced. ANiTE $' Page h of h pates 9. Long Term Debt in Foreign Exchange In TMT's budget accounts, foreign exchange loans assumed by the Government to import telecommunication material form part of Central Budget Contributions. The mission made an effort to put together various parts and pieces making up T&T's foreign exchange obligations. T&T does not in fact have to service long term loans any more than Budget Contri- butions, but for the purpose of the financial statements it is assumed that T&T does have to. The debt projections for fiscal year 1969-72 are based on a detailed estimate of foreign exchange needs, while for the fiscal year 1973-75 it was assumed that one third of fixed capital expenditures would require long term foreign exchange financing. PAKISTAN T & T DEPARTMENT Pro Forms Inco.e StatOmn.-16.9 (in Mullion PRs) A d j u s t e d A c t dua s E A P r o j e c t io n s Revised Estimate Adjusted Budget Fiscal Year ending Jura 30: 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 REVENES Telephone Rentals - flat rate 14.3 14.9 16.3 17.9 21.2 23.3 25.7 27.7 28.7 29.3 - message rate 18.7 20.7 22.9 33.6 44.5 5148 66.9 80.9 96.7 113.9 Trunk and international calls plus local calls at message rate 115.3 132.1 158.9 181.0 227.4 268.3 318.7 369.1 424.1 479.2 Installation fee 2.1 1.5 3.4 3.6 11.0 12.4 15.1 15.1 16.5 16.5 Telegraph 38.4 39.7 42.7 1l.1 46.1 418.0 48.9 49.9 5O.9 51.9 Telex 1.2 1.6 1.9 2.8 4.6 10.7 14.2 18.2 28.5 31.5 Non collected revenues 10.7 7.0 - - - - _ _ TOTAL RUVENfl 200.7 217.5 246.1 290.0 354.6 414. 489.5 560.9 645.4 722.3 EIPENSES Operational and administrative costs 59.4 59.2 70.3 86.0 104.1 123.0 146.9 170.3 195.5 220.4 Maintenance and minor works 23.8 28.0 24.3 21.8 31.2 41.6 49.4 57.2 65.7 74.2 Depreciation 31.8 36.3 42.3 48.7 55.5 65.7 78.2 89.6 101.3 114.4 Expenses before contribution 115.0 123.5 136.9 156.5 190.8 230.3 274.5 317.1 362.5 409.0 Proposed contribution to Government in lieu of taxes 72.7 81.2 91.3 Expenses after contribution 389.8 443.7 500.3 NET INCOME (before interest) 85.7 94.0 109.2 133.5 164.0 184.2 215.0 171.1 201.7 222.0 Lees: interest - central budget contributions 11.0 10.7 10.1 9.7 5.0 2.3 - - _ - foreign exchanige loanis 3.8 4.0~ 5. 8 9.4, 12.1 17.4 24.4 29.534697 Total interest 3_.8 5 ___-8 1 19.1 1 2 .1 7__ -m__ _ _F NET PROFTT 70.9 78.4 93.3 114.4 146.9 164.5 190i. 141.6 167.1 182.3 Rate base as defined in mcvenant 479.2 538.1 620.9 707.7 795.2 943.4 1,129.2 1,279.4 1,422.5 1,584.2 Rate of return as defined in covenant 11.1 10.7 11.0 12.2 14.1 13.6 13.4 13.4 14.2 14.0 operating ratio (expenditures L/ as percentage of revenues) 57 57 56 54 54 56 56 57 56 57 l Number of DEL's 127 135 156 198 252 300 355 410 019 1/ Excluding proposed contribution to Government and interest a March 1970 AFTNEX 10 Page 2 of 3 pagIs PAKISTAN T & T Department Notes on the Incone 3tatement 1. Revenues Revenues in 1968 and 1969 correspond to cash receipts only, thus understating revenues somewhat. The breakdown of revenues in cate- gories is estimated, because T&T's final accounts do not provide a meaning- ful breadovyn. Revenues for future years have for the first time been proJected by T&T's staff and adjusted to somewhat more conservative assumptions. 2. Expenditures Total expenditures for operation and maintenance of the past years are those shown in T&T's Budget Accounts, adjusted for expenditures chargeable to capital accounts (credits to working expenses). The notional depreciation was arrived at by calculating a 5/ rate (straightline) on average fixed assets in operation. Interest on Central Budget Contributions shows the likely net interest payable by T&T to Central Government Funds for the period up to 1972,during which T&T is interlinked with the Consoli dated Fund. Afterwzards T&T will pay a contribution to Government in lieu of taxes calculating a rate of 65o on the equity at the beginning of the y T&r2T is at present not responsible for servicing its debt and does therefore not have all pertinent information. On long term foreign ex- change loans/credits for which conditions were exactly known, the actual charges by the foreign creditor was applied,and for the rest an interest rate of 5%3, the weightel1 average of 1968. Rate of Return Covenant Applied for the Years 1,66 - 12975 (PRs. Million ) Fiscal Year Ending June, 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Average Net Plant in Service 460.8 517.4 597.0 680.5 764.6 907.1 1,085.8 1,230.2 1,367.8 1,523.3 Working Capital -4% Assumed 18.4 20.7 23.9 27.2 30.6 36.3 43.4 49.2 54.7 60.9 Total Capital Base 479.2 538.1 620.9 707.7 795.2 943.4 1,129.2 1,279.4 1,422.5 1,584.2 Net Profit (before interest and Contribution) 85.7 94.0 109.2 133.5 164.0 184.2 215.0 243*8 282*9 313.3 Equity at beginning of year 540.5 603.4 681.2 792.2 865.3 936.7 1,058.8 1,212.4 1,354.0 1,521.1 6% Contribution to Government calculated on equity at beginning of year 32.4 36.2 40.9 47.5 51.9 56.2 63.5 72.7 81.2 91.3 Net Profit (used for covenant) 53.3 57.8 68.5 86.0 1121 128*0 151.5 171.1 201.7 222.0 Rate of Return in % 11.1 10.7 11.0 12.2 14.1 13*6 13.4 13.4 14.2 14.0 March 1970 Ca rn PAKIoTAN T 4~ T DZFAR3iNT Pro Forma Sources nd APPlications of Funds - 1967-1975 (in Million PEs) Adu ted Actas Proj e c t i o n s Fiscal Year ending June 30: 17 1968 1969 1970 1971 1972 1973 1974 1975 SOURCES OF FUNDS Internal cash generation Net lncome (befoidnterest but after contribution in lieu of taxes) 94.0 109.2 133.5 164.0 184.2 215.0 171.1 201.7 222.0 Depreciation 36.3 42.3 48.7 555 65.7 78.2 89.6 101.3 114.4 Total internal cash generation 13 2993.2 2139.5 249.9 293 . 2 260.7 303.0 Borrowings Bilateral foreign exolinge loans 32.1 WV.6 51.6 46.6 88.2 68-4 - - IDA credit I - - - 19.6 46.4 13.4 0.8 IDA credit II - - - - 19.3 39.2 12.9 - - Future loans - - - - - - 72.3 96.9 109.5 Total borrowiage 32.1 153 w i f 62 .2 i 57 1.0 9.9 9 Increase in accounts pyable 0.2 0.4 0.8 0.9 1.0 1.1 1.3 1.5 1.7 TOTAL SOURCES 162.6 197.5 6 282.6 S. § I 3 4.0 447 .6 APPLICATIONS OF FUIIS Capital construction 128.6 151.1 152.5 168.0 309.7 280.0 257.4 290.9 328.7 Invertnents and advances 9.5 13.7 15.8 12.0 17.3 53.0 - - - Imventories - in stores (2.9) 21.6 0.3 in workshope 1.9 0.8 (2-7) - 0.3 - - - - Increase in accounts receivable 7.0 1.2 4.0 2.0 6.4 9.6 9.1 10.1 10.1 Intereat 11!iiral foreign exchange lowne 4.9 5.8 9.4 11.6 14.5 17.9 19.1 18.1 16.7 Central budget contributions 10.7 10.1 9.7 5.0 2.3 - - - - IDA credits - - - 0.5 2.9 6.5 8.1 9.0 9.0 Future loans - - - - -2 7.5 14.0 Total interest 15.6 15.9 . 1. 19. 2h4 795 39.7 Amortization Bilateral foreign exchange loans 2.3 2.) 4.3 8.0 9.0 11.3 21.2 25.0 33.0 IDA credit I - - - - - - - 2.1 2.1 IDA credit II - - - -- - 1.8 1.8 Total amortization 2-3 2.S 4.3 -° -9.0 -113 -2 .9 36.9 Total debt service 17.i_ 18.83 25.1 2__ 35.7 507 63.5 76.6 F1ow to (and from) central budget o.6 (17.7) 41.3 75.5 42.4 37.0 - Charge in cash position _ - - 30.8 36.9 32.2 TOTAL APPLTCATIC8S 162.6 197.5 234.6 282.6 404.8 415.3 348 O 401.4 447.6 Debt service coverage 7.3 8.1 7.7 8.7 8.7 8.2 5.1 4.B 4.4 March 197C ANNEX 12 Page 1 of 2 prores PAKISTAN T & T Department Representative Tariffs as of December 31, 1969 1. Telephone a. Installation fee per telephone or per extension 250o00 b. Line rent per month / i. Flat rate connections- up to three mies from exchange - exchange capacity up to 100 lines 24000 - exchange capacity more than 100 lines 350co ii. Message rate connections up to four miles from ex- change - exchange capacity up to 1,000 lines 21.00 - exchange capacity more than 1,000 lines 25,00 c. Call charges i. Local calls (unlimited time) .20 ii. Long distance (per 3-minute duration) Distance Manual STD (miles) (rate in PRs) (rate n PRs) pulse metered up to 15 0.45 1.80 16 - 25 o.65 1.80 26 - 50 0.90 2.40 51 - 75 1.55 3.60 76 - 100 2.20 4.80 101 - 200 3.30 7.20 201 - 300 4.60 9.00 301 - 500 6.80 12.00 501 - 600 10.00 12.00 above 600 11.00 12.00 2. Telegraph (domestlic) Ordinary Express First eight words FRs 1.00 PRs 2.00 Each additional word PRs 0.10 PRs 0.20 (Special rates for press and greetings telegrams) 1/ No additional local call charge applicable ANNEX 12 Page 2 of 2 ptgeo 3. Telex PRs Rental for teleprinter machines - 5,h4O.0 0 Rental for local telex line per mile (within 3 miles radius for exchange)- - - - - _ 150.00 p.a. Trunk call charge for 3 minutes: Karachi - Lahore 4050 Karachi - Dacca 4.00 Lahore - Dacca 8.50 ANNEX 13 PAKISTAN Page 1 of 7 pages T & T DeDartment JUSTIFICATION OF TIE MICROWAVE LINKS IN THE PROPOSED PROJECT The methodology used in the demand forecast and rates of return calculationsis described in detail below. Basic data used in the computatiorE are given in Part II and the results in Part III. Part IV briefly describes additional economic benefits. I. METHODOLOGY A. Demand Forecast a. Traffic Fcrecast Traffic, expressed in effective minutes, has been forecast for 20 years after the start of operation of the proposed microwave links, i.e., up to 1992; this corresponds to the estimated economic life of the microwave equipment installed in 1970-730 The 98 basic connections between major stations and their areas in lWest Pakistan on which traffic could be borne by the proposed microwave links, or by further additional links, are identifiec". They cover nearly 100% of the trunk traffic in West Pakistan. Traffic on these connections has been evaluated for fiscal year 1968/1969 on the basis of observations made in mid-1969. For each connection on which subscriber trunk dialing (STD) is planned to be introduced, a stimulus factor has been estimated and applied to the traffic figure at the expected date of STD introduction; it takes into account community of interest between the two cities to be connected and LS based on increases experienced in similar situations in the past. For con- nections on which traffic is estimated to be presently supressed, the factor by which the initial traffic has to be multiplied to account for the relaxation of the shortage of circuits has been estimated on the basis of existing overflow statistics. Traffic growth for each of the 98 connections was ccmputed on a yearly basis up to 1992. Cwing to the availability of additional data, up to 1972 the growth in traffic originated by new subscribers has been dis- tinguished from growth due to subscribers already existing in 1969; traffic originating from existing subscribers has been assumed to increase somewhat because of the general increase in economic activities and the extension in the number of subscribers who can be reached by telephone. Each new sub- scriber was assumed to generate, on the average, traffic similar but somewhat inferior to that generated by the average existing subscriber; this is because. although new telephone lines will continue to be granted mostly to non- residential subscribers, new subscribers will generally belong to lower priority socio-economic groups who use telephone facilities less intensively- ANNEX 13 Page 2 of 7 pagez The projection of circuits requirements using the same methcdolcqy as in the traffic forecast was made on the basis of an estimated average natural annual growth rate based on past experience for every connection; suppressed demand, and when appropriate, a stimulus factor for STD introductIna were taken into account as well as the estimated effect on demand of a regular small decrease in tariffs expressed in constant rupees. Tariffs are assumed to remain constant in current rupees, and it is reasonable to forecast a small yearly increase in cost of living, which implies a small decrease in tariffs in constant rupees every year. The effect on traffic is computed through the price elasticity of demand for long distance services; the possible range of values of this elasticity was estimated on the basis of past experLenrs in Pakistan and other countries. b. Forecast of Circuit Requirements In the projection of circuits requirements, the same methodology as in traffic forecast has been used. ',fhenever the traffic or the number of circuits of a connection was missing for the base year, the conversion of thc one into the other assumed a 20% day concentration factor, a 5% grade of service, and 275 active days per year. Circuit requirements calculated for every year and for every connection were increased by 15% to allow for tele. graph and telex circuits, leased circuits, circuits to carry manual calls between STD and non-STD exchanges, and circuits used for testing purposes. Total circuit requirements on the main sections of the microwave system in West Pakistan were calculated by adding the forecast circuit requirement figures for the relevant connections. B. Incremental Rate of Return The incremental rate of return measures the financial return of the nroject to the economy including taxes, interests, etc; it is defined as the discount rate for which the net present 'ralue of incremental cash flows to and from the economy is equal to zero. The incremental cash flows are net of cash flows from financial transactions; they have not be-en ad-usted for shado^- pricing and represent monetary flows. The flows are expressed in current rupees, and take into account expected increases in the cost of livin- and their effects on demand as well as capital and current costs. a, Cash Outflows i. Capital Investment Expenditures The local component of initial capital investments was distinguis1-vf from the foreign component. The latter was expressed in Pakistan rupeese by using the official foreign exchange rate in the incremental rate of return calculation and the shadow exchange rate for computing the minimum economic rate of return. The possibility of obtaining through international competit-. bidding a slightly lower cost than the most likely estimate was explicitly taken into account. AN'NZ7 12I.) Page 3 of 7 pages The calculation of yearly total circuit requirements on all the maajor sections of West Pakistants trunk backbone permitted the assessment :f the timing of additional capital investments; these extensions were assumed to be required a year before full capacity is likely to be reached. They were expressed as a percentage of total initial capital investment, in- corporating the same assumptions as used for the exchange rate and possible range of costs. A small overall yearly reduction in the cost per channel due to technological improvements was assumed roughly to compensate for the cost of living increase effect on cash inflow. ii. Other Cash Outflows Incremental personnel costs have been estimated for the first year of operation and have been supposed to increase proportionally to capital investment and at an average rate based on experience of past wage and saLarv increases. The local component of other incremental operating and maintenanco costs has been expressed as a percentage of the cumulative capital invest- ment. It was further corrected to account for the increase in cost of living. Incremental cash required for increased working capital has been sxpressed for the incrermental accounts receivable as a percentage of the in- crease in revenues, and for the increased current liabilities as a percentage cf the incremental personnel and other operating and maintenance costs. The tercentages were based on recent performance. iii. Compensation for the Use of Local System Facilities and for Trunk Switching and Exchanges Twenty-five percent of trunk revenues were allocated to the funds required for the rest of T&T's operations and expansion which directly or in'- directly permit the development of the trunk traffic. This allocation was split 3/4-1/4 between the local system facilities and the trunk switching equipment and exchanges. It takes into consideration the fact that the ex- nansion of the local network, the partial use for trunk purposes of local exchanges, and the total use of trunk switching and exchanges are neceseary -or the operation and expansion of the trunk network. The 25% allocation 'igure was based on the available estimate cost of the trunk switching and exchanges up to 1972 and the relative capacity utilization of local faciliti-c: for long distance purposes. b. Cash Inflows i. Incremental Revenues from Operations STD tariffs for each of the basic 98 connections have been estinratzd or recorded. For connections only partially using the proposed microwave lin'-, only the incremental revenues corresponding to the use of the proposed micro- wave were considered. Whenever an additional capital investment on the main trunk backbone in West Pakistarn corresponded to a connection not initialJy ANNE; X- Page Z-of 7 pa.cs covered by the proposed microwave, the tariffs on the routes using this additional connection were increased starting from the year when the add ti,r-Js ainvestment was estimated to be operating. Total revenues on the proposed microwave links were computed from the estimated traffic and tariffs on each of the 98 connections. Total maximum revenues from the existing coaxial cable were canputed for every year. Additional revenues due to additional investments for extension on parts of the main trunk backbone not initially covered by the prcposed micrc- wave links were also added for those connections after the extension was assumed to be operative. Incremental revenues from the proposed microwave investment and from additional investments were calculated by taking all revenues on the microwave and coaxial route and subtracting, when appropriate on additional links, the estimated maximum possible revenues from the coaxia1 cables. ii. Residual Value of Capital Investment Given the estimated 20 years of economic life of the microwave equipment, the initial equipment has noresidual value. The equipment corresponding to further extensions was assumed to have a residual value proportional to its initial value by the ratio of remaining years of life to total economic life. C. Minimum Economic Rate of Return The trunk telephone system in Pakistan is almost entirely used fo. business and government purposes. Given tht the marginal user is willing to pay at least the value of the marginal productivity of the use of the trunk telephone system, the estimated incremental revenues of the microwave links are a rough measure of the minimum contribution of the proposed investment to the income of the business and administration sector, and hence to Pakistan's national income. On the cost side, in order to better reflect the scarcity valuie of foreign exchange to Pakistan, the opportunity cost of foreign exchange was estimated at 9 rupees to the US dollar. No shadow rate for labor was used, as the mission thinks that over-valuation of certain salaries compared with their opportunity marginal productivity, compensates roughly for the under-valuation of other salaries. Using the shadow rate of foreign exchange, the minimum economic rate of return was computed in the same manner as the incremental rate of return. ANNEX 13 Page 5 of 7 pagos D. Risk Analysis Major elements of uncertainty were found in most of the estimates underlying the demand and rate of return calculations. These include the following: the stimulus factors for introduction of STD, the measurement of suppressed traffic, the growth factor of the demand of existing sub- scribers and the attenuation factor of the demand of new subscribers, the overall natural growth rate of demand, the initial value and growth rate of personnel expenditures, the increase in cost of living, and the price elasticity of demand. Instead of using most likely values with qualifications, uncertainties were expressed in quantitative terms. Therefore, major risk factors -ere identified and evaluated, while risk analysis was applied to demand and rate of return computations. Two hundred samples were taken at random. This permitted expressing the results by their mean value and possible spread or risk, which in turn are expressed by probabi- lity distribution curves or summarized by the standard deviations of the distribution. II. BASIC DATA A. Basic Data Relating to the 98 Connections The attached table (1) gives the following data: the initial traffic for the 98 connections and number of circuits in the base year (1968/1969), the estimates of suppressed traffic, the STD stimulus factor, the percentage increase in number of DEL of the cities on each connection between 1968/69 and 1971/72, and the incremental revenue per minute of traffic. B. Risk Factors Factors affecting the demand and rate of return, for which un- certainties were quantified and taken into account in the computation, are given with the estimated probability distribution in Table 2. C. Other Data Other important data used in the demand and rates of return computations are given in Table 3 (pages 1 & 2). III. RESULTS A. Circuit Requirements Circuit requirements, expressed by their mean value and standard deviation, are given in Table 4 for every year up to 1992 for each of the eight major links of West Pakistan's trunk backbone. This table shows that, given the planned installed capacity in 1973, additional links will be needed in 1974/75 between Lyallpur and Lahore; in 1975/76 between ANNEI' 13 Page 60Tf 7y pses Multan and Sargodha and between Karachi and Hyderabad; in 1978/79 between Sargodha and Rawalpindi; and 1979/80 between Hyderabad and Sukkur, between Sukkur and Multan, and between Multan and Lyallpur. Construction for these extensions will have to start about two years before the required operation date. B. Incremental Rate of Return The values obtained from the 200 samples have been graphed in Charts 1 and 2. Chart 2 gives the frequency distribution and the best fit density function curve approximated by a normal curve skewed to the right. Chart 1 gives the cumulative frequency distribution and probability and the corresponding best fit curve. The median of the incremental rate of return is about 42.73%; its mean is 43.15% and its standard deviation 3.02%. C Minimum Economic Rate of Return Chart 3 gives the cumulative frequency and probability distributio' and the best fit curve. The median of the minimum rate of return distribution is 37.0%; its mean is 37.4% and its standard deviation 2.5%. IV. ADDITIONAL ECONOMIC BENEFITS The expected high minimum economic rate of return is already an Lndication of the priority of the proposed microwave investment. However, the rate reflects only very partially the economic benefits of the expansiorn of the trunk system in West Pakistan, About 80-90% of all direct exchange lines will continue to be used for business and government purposes many years after the projectts com- pletion. The rate of use of these lines, particularly for long distance caUe5, is much higher than for lines used by residential subscribers. The use of the trunk facilities in W^Test Pakistan will therefore be mostly for production rather than consumption purposes. The proposed microwave links would make a substantial contributicn to the production effort of Pakistan. They would save managerial time otherwise spent in unsuccessful, repetitive attempts to make a long distance call or in travel for face-to-face contacts. Business management would be im- proved by better information, allowing easier decentralization with better control and faster decision-making permitting for instance, faster procure- ment leading to lower inventory levels. The microwave links also would permit better transmission and faster processing of government orders, They would be particularly crucia'l in the implementation of political decentralization in four provinces, thiee of which are in West Pakistan. ANNE 13 Page f 7 pges Industrial decentalization, intended to be fostered by the pro- motion of secondary industrial centers, would be impossible without the provision of proper communications. The expansion of the trunk system would also permit increasing tro role of market mechanisms by making it possible to obtain better and faster information on market prices, conditions and alternative sources of supply, and to shop for low prices. The efficiency of the country's transport sectoe would be enhanced by betber coordination such as through contacts with carriers and information on alternative routing and transportation facilities. Furthermore, with extensions into the rural areas, flood control, agricultura"_ marketing and storage would all become more efficient through the more rapid communication provided by the expanded trunk system. PALKISTAN Banjo Data R.lathii to ties 96 Connections INITIAl. ~~~~~~~~~~~~~~~~~BASIC TRAFFIC ~~INITIAL STD sUNUS TOTAL INRCRUWAL (IN 1000 kflUU OF BTDEUIB TRAJJC 1315581 RfoUSE AIDTIDNAO. ADDITIOMIL 0070&TIONS NI112TE) I/ CIEDITS 2/ 710CR ~/ FACTOR W - iN DEL(% j/ FIR MINTS 6/ RNMU3E I 7/ RNMUE II 8/ 1. Karachi to Hyderabad 6,185 88 1 1.3 97 1.60-- 2. Karachi to Sakkr 300 7 o 3. 10k 2.33- 3. Karachi to lb'derahd Area 54.9 17 o 1 8k 1.6o 4,. Karachi toSkhhu Am.a 374 9 o 1 B4 2. 23- 5. Karachi to Qoeta 229 7 a 1 47 2.23 - 6. Karachi to Milton 1,4.25 1a 1 1.2 63 3.00 7. Karachi to LYolipoi 1,54.8 18 1 1.14 80 6.00- 6. Karachi to Lahore 10,172 loS 1 1.4 109 4.00 9. Karachi to Rawalplodl. 5,610 72 1 1.6 88 6.00- 10. Karoohi to Peshawr 2fl 5 b 1 63 4.00- 11. Karac hi to N.T.R. /9 5ko 17 b 1 86 6. 00- 12, Karachi to Inter-hiff-g & Ithe'l 600 17 1 1 0 3.33- 13. Hyderabad to Sukkar 162 4 a 1 flO 2.00- IL. Hyderahad to SukkurAe 121 9 o1 85 2.00- 15. Bydorobod to Nawabeha 191 4 a 1 85 lao - 16. Hydorahal to Multon 65 2 b 1 69 3.00- 17. Hydorohod to ty-11por 66 2 b 1 86 3.40- 1d. Hydorbad to Lahors 188 6 b 1 114 3.60 0.60o 19. Hyderahad to Sargodha 44. 1 b 1 121 6.00- 02. Hydorahad to R-awldilit 20 1 b1 93 4.00- 21. h6.dorahod to Peohaasr 15 1 b 1 69 4.00- 22. Oakkarta lt-la 63 2 b 1 76 2.33- 23. Sukkuar~A-o to Nr.fh. 85 8 b 1 76 2.33- 24.. Ouklrr to Ly'allpa 74 2 b 1 94 3.00- 25. SiakdcrutoaSargodha 21 1 b 1 129 3.33 2o. Sukkcxto Lahore 146 4 b 1 122 3.00 1.50- 27. So,kkca to Rowolpisndi 21 1 b 1 121 4.00 2d. Sohlca to Peohawor 21 1 b 1 76 6.00- 09. Moltan to Lyal1par 61.1 iS 1 1 53 1.60 - 3`0. Muitan to Lohoor 2,272 36. 1 1.1 67 1.60 0.56 33. Y.1ton to Rawalpiodi 142 4 b 1 6o 2.23 - 32. hitact Sargodha 76 3 b 1 88 1.88 33. Iha1-a to pe-h-oa 52 1 b 1 0 0.03 - 31.. hiltan to flahawalpar 196 8 o1 18 1.50-- 35. Molton lAr to N.T.R. 4.31 8 A1 0 1.50 - 3et. Lyalipar to Lahoro 3,290 46 1 1 86 0.00 1.08 ?7. Lyalipoar to GoJrrwamla 186 4. a 1 70 1.20- j-3. Lyahipo to Lahors Area 563 4 a 1 70 0.00 ,0 30. Irollpor ta Sargodho 483 16 1 1.2 109 o.S8ci 1.2. Lyolipar to Rovalpiod & Area 156 10 o1 70 0.00 0.00 2.233 4.1 LyolloUr to Poshawar 128 4 b 1 53 0.00 0.00 0.20 1.7. sargadha to Lhbors 784 14. 1 1 84 3.80 1.36 - 1.3. Sargodhto to Rawalpindi 177 9 a1 77 1.60 - EL. Sorgodh. to Peohawar 28. 1 h 1 53 1.60) - 4.. Lhor. to Rawolpizdi 5,108 72 1 1.2 91 -0.00 1.0o 60. Labh- to Pshwawr 697 13 0 1 67 O.00 1.06 47. Lahoro Area to Rawolpindi Area 21.9 30 a 1 59 0.00 1.00 4a. Laharo to G.jraowol 610 11. o 1 124 1.g8 - 4.9. Karachi to Okar 22 1 a- - 6.00-- 50. K-rahi to Shikorpor 55 3 b - 2.23- 51. Karoohi to Sadik Abed 32 2 a- - 2.23- 52. Karaah t Kohat 29 2 a- 4 .00- 53. Karachi to Noshera 23 i a - 4 .00- 31.. Karachi to Thatta 82 4 aI -100- 53. Karachi to Jacahbo.d 74. 3 b 2.23-- 56. Karachi to Ohotks 9 1 b 2.23- 57. Karahi to Dada 21 1 b 2.23- Id. Karachi to Khorpnr 27 1 b 2.23-- 39. Kar-hi to Toodo Mahd.KO,oo 32 2 i .60-- 02. Karachi to Khiapar Miro 44 3 b 2.23- 1.1. Karahi to D.0I. Than 5 1 a -Woo.0 o2. Hyd-radai to Dada at 14 0--2.00-- 6.3. Hyderahad to Mhatt.a 69 3 a--1.00- 64. Hyderabad to J.Jcoababd 41 2 A - 2.30 - o5. Hyd -rada to Khalrpur Mirn 52 3 b 2.0 -C tO. M.Itac to Sadiqobod 18 1 o- 1.00-- o7. ltita to 5.1. Mean 21. 1 a 1 .80- o.5 It-no to mitawli 10 5 a - .80 o9. 14a1ton to D.0G. Khan 129 4.a 1.00-- 70. M.t.ata to Khaapr 32 2 o--1.27 D 71. Lyallpur to thiooict 128 4 0.00 -- 72. Lyallpa- to Haf-saaaoi 54 3 0--0.00 1.06- 7?. Lyal1poa- to Yiar.olh 59 3 b n .80 -- 7... Lya3lpar to docohahbod 17 1 K' - .75 7;. Lahoro to 0hiohawatol 63 3 a - . 00 I-d0 76. Laho,e to Thandur 84. 2 b 1.00 1.0.. 77. Labh- to Khaipar Mirs 74 3 a --3.00 0.5o 7o. Labor to Haitoahd 64 3 o--1.08 - 79. Lahoro ;a OGhinot 34. 2 a--0.00 1.26 02. Leharo to Jacobahd 25 1 a --3.50-- 31. Lebors to haJarkhso 40 2 a --1.33 -- 32. Laharo to Tohatk Singh 42 2 0 MO 00 1.00 3?-. Lahore to D. 0. Th,an 83 3 b 2.50 2.00 - 34.. labor to. Kaht 25 1 8 0.00 1.2d 1. 3 60. Labor to IapboIlpar 31 2 K'- 0.00 2.J0 1.31. to. Lahore to W-oiroad 55 3 a 1.08 - 07. Lahoro to Jlaranwala 106 4. a MO 1.36 So. Labors t o. ..-sa ko 4 2 o--0.72 i.o8- 39. Lahora to ArfIfoal 45 a - - 0.72 L.Oo 90. Lhbar to Ydtamis 81 3 b - .67 1.06 91. Lahoro to Jhang 76 3 b - .00 1.00 90. Lahoro to Ydonohano 22 1 8 1.60 o.56 93. Lbloom to No.-hora 50 3 b --0.00 1.286 2D.92 14. Lahors to Q. Shetkhopora 116 5 a .00 1.08- 00-. Roa~lcotdi to D.I. Than 1.0 2 a 1.60 - 26 . Bowapiodi to Waolrobd 03 1 & - - 1.60-- '1 mae initial traffic is the traffic sbeered in 1968/69 on the 98 oeanectotsn. 79 mae initia1 mooer of cirosits ha. benso recorded at tin snd of 1968/69. 7!- The value of a,b, and c ors given to table 2 . For the first 68 s..ssnes thtn,tiaulw jootAe.- pplt*s to trafficto before the end of fiscal year 1972; for te. lanK 50 " tlawv it wpphiee bstifo -Je7 1,972 and Jayl 1975. O4 The cppre...ed traffic factor wae isooporated, when zu...eeary, i tohle initial trafi c and airosate figuores f or the Iast 5D ss-aotiosn. TThis soloe giro tie Inoreowe between July 1969 and J.1y 1972 In. the total- retter of direct axohasg. lines (DEL) of neW we.t ec at-tics '6 The basio inomeestal reveuoo wse Aaeed on thing STD tariffs; it wae correctsd to eaccont only for tlu part of the traf flo which sos- the Prp.ssd icoaeliki.. /7 This colIn gi-en the tincrmentol revre,e due to the introdsotlsn of Odditiaal. oowr link betwee Lyalipor and Lehere. 79This coloos -given the irnormuotal reumUe doe to the introduotion of as additional microwave link betwen Lyallpor and Ra-pndilrl. /9 Northern Vele-asseodcatisn Regios. ANNEX 13 TABLE 2 PAKISTAN T a T JUSTIFICATION OF THE PROPOSED MICROWAVE LINKS: RISK FACTORS ATTENUATION FACTOR OF TRAFFIC RATE OF GROWTH OF PERSONNEL STD STIMULUS FACTOR a GENERATED BY NEW SUBSCRIBERS EXPENDITURE 1.20 1.40 1.60 1.80 2.00 .65 .70 75 .50 B5 40 4.5 5.0 SS SD0 OVERALL NATURAL GROWTH STD STIMULUS FACTOR b RATE OF TRAFFIC RATE OF GROWTH IN COST OF LIVING 0 0 01 3 3 --.0 4 1~50 1.7S 2.00 2.25 2.50 11.0 II.S 12.0 12.5 13.0 13.5 14.0 %) 0 0.5 I.S 2.5 3.5 4.5 5.5 6.0 RISK FACTOR OF FOREIGN STD STIMULUS FACTOR COMPONENT OF CAPITAL COST PRICE ELASTICITY OF DEMAND .60~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~5 31 .32 ~ ~ ~ ~ .0 0 0 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3 3 3 .10 .10 .15 .10~~~~~~~~~~j .2 2.00 2.50 3.00 3.50 4.00 .88 .90 .92 .94 R9 .98 1.00 -0.2 -0.3 -0.4 -0.5 -0R6 RISK OF OBTAINING LOWER THAN RISK COEFFICIENT CALCULATED MAXIMUM REVENUE OF SUPPRESSED TRAFFIC PER YEAR ON COAXIAL CABLE 1.00 1.10 1.20 1.25 0.90 0.95 1.00 MARGIN OF ERROR ON ESTIMATES GROWTH FACTOR OF TRAFFIC OF INIT IAL INCREMENTAL G EveiATEDk BY EXISTIN SUBSCRIBERS PERSONNEL EXPENDITURE 0 0 0~~~4 0 0035 .3 4.0 4.5 5.0 505 6.0 .90 .95 1.00 1.05 1.10 I BRD - 4829 (2R) A1N'JC X Table 3 Page 1 of 2 pages OTIER BASIC DATA USED IN DEDNDA AND FATES OF RETURN CALCULATIOC:IS 1. Most likely value of foreign component of initial capital investment in (USS million): - in 1970/71 : 1.4 - in 1971/72 : 4.7 - in 1972/73 : 0.1 2. I4ost likely value of local component of initial capital investment in (PRs million): - in 1970/71 : 1.00 - in 1971/72 : 5.50 - in 1972/73 : 5,36 3. Connections using the basic sections of West Pakistan's trunk backbone (referred to by their number, on first colwmn of table 1) - Karachi - Hyderabad section: 2, 4 to 11, 13 to 21, 49 to 55, 55 to 58, 60 to 62, 64, 65 - Ryderabad - Sukkur section : 2, 4 to 11, 13 to 21, 49 to 53, 55 to 58, 60 to 62, 64, 65 - Sukkur - Multan section : 6 to 11, 16 to 28, 34, 48, 50 to 53- 6], 66, 69, 70, 74, 76, 77, 80 - Multan - Sargodha/N,1anwali : 9 to 11, 19 to 21, 23, 25, 27, 28, section 31 to 33, 35, 52, 53, 61, 67 to 70 - MIultan - Lyallpur section : 7, 8, 17, 18, 24, 26, 29, 30, 39, 42, 49, 71, 73 to 77, 80, 82, 83, 88, 89, 90, 92 - Lyallpur - Lahore secti^on : 8, 18, 26, 30, 36 to 38, 45 to 47, 72, 75 to 77, 79, 80 to 85, 87 to 94 - Sargodha - Rawalpindi : 9 to 21, 29, 28, 31, 33, 40, 41, 4W section to 47, 52, 53, 81, 84, 85, 93, 95 to 98 - Lyallpur - Rawalpindi : 40, 41, 45 to 475 81, 84, 85, 93 section AM= 13 Table 3 Page 2 of 2 pages 4. Percentage of initial capital investment to add a 960 channel microwave link between - Karachi - Hyderabad : 0.7% - Hyderabad - Sukkur : 2.6% - Sukkur - lfultan : 2.6% - M4ultan - Sargodha : 2.5% - Sargodha - Rawalpindi : 1.3% - Multan - Lyallpur : 2.0% - Lyallpur - Lahore : 1.3% - Lyallpur - Rawalpindi : 2.6% 5. Initial personnel' cost in 1973/74: PRs 2,75n5000 6. Local currency component of operating expenditure (excluding personnel costs) as a percentage of total cumulative capital investment: 2.3%o 7. Foreign currency compornent of operating expenditure (excluding personnel. costs) as a percentage of foreign component of cumulative capital investment: 3.2% 8. Incremental working capital: 8% of the yearly increase in revenues less 12% of the increase in incremental current expenditures. PAKISTAN T & T DEPARTMENT Circuit Requirements on the Major Sections of West Pakistan Microwave System KARACHI-HYDERABAD HYDERABAD-SUKKUR SUKKUJR-MUELTAN MVLTAN-SARGHODA HULTAN-YLALLPUR LYALLPUR-LAHORS SARGHODA-RAWALPINDI LYALLPIUR-RAWALPINDI YEAR ENDING STANDARD STANDARO STANDARj STANDARD STANDARD STANDARD STANDARD STANDARD JUNE 30 MRAN DFVIATION MEAN DEVIATION MEAN DEVIATION MEAN DEVIATI(N M3RN DEVIATION MEAN DEVIATION MEAN DEVIATE ON MNkN DZVIATEON 1973 1,597 62 1,325 53 1,280 51 521 241 881 35 1,3d6 56 1,025 52 603 43 1974 1,837 77 1,526 65 1,471 67 603 30 1,038 46 1,62d 68 1,6f8 56 583 45 1975 2,054 82 1,706 69 1,646 70 680 32 1,158 52 1,827 86 1,323 70 773 58 1976 2,314 107 1,921 90 1i,51 91 763 42 1,305 62 2,052 99 1,487 82 866 64 1977 2,609 125 2,164 103 2,063 101 859 48 1,464 76 2,300 122 1,670 99 971 76 1978 2,909 159 2,420 131 2,337 127 957 56 1,647 96 2,592 149 1,878 115 1,095 88 1979 3,274 183 2,710 161 2,611 155 1,072 67 1,847 116 2,90d 181 2,102 134 1,226 97 1980 3,683 224 3,053 189 2,914 185 1,206 79 2,080 137 3,272 217 2,362 163 1 380 116 1981 4,148 282 3,436 243 3,322 232 1,368 102 2,334 160 3,680 258 2,663 196 1,554 134 1982 4,653 34 3,861 295 3,729 293 1,537 122 2,618 210 6,130 318 3,001 239 1,749 159 1983 5,215 4S7 4,325 335 4,172 336 1,711 150 2,942 234 4,632 387 3,358 305 1,962 205 1984 5,674 467 4,877 40d 4,695 390 1,943 164 3,310 285 5,227 458 3,782 341 2,211 234 1985 6,590 595 5,463 499 5,274 460 2,179 207 3,706 331 5,829 532 4,233 396 2,467 257 1986 7,427 721 6,156 601 5,933 580 2,433 230 4,162 425 6,574 664 4,756 463 2,773 312 1987 8,332 831 6,911 679 6,66d 675 2,735 275 4,7J7 494 7,386 737 5,329 529 3,104 336 lose 9,364 1,032 7,767 84d 7,4187 80a 3,076 359 5,280 586 8,320 921 6,010 696 3,517 429 1989 10,511 1,206 8,726 1,0OG 8,415 936 3,161 416 5,939 668 9,359 1,078 6,771 827 3,952 510 1990 11,836 1,419 9,809 1,178 9,457 1,133 3,882 471 6,687 822 10,512 1,239 7,5d1 892 4,425 552 1991 13,349 1,659 11,061 ,1,4 ) 10,677 1,324 4,366 553 7,540 974 11,858 1,513 d,534 1,078 4,989 679 1992 14,944 1,972 12,392 1,661 11,960 1,573 4,924 oo64 ,429 1,109 13,347 1,672 9,595 1,211 5,606 733 PAKISTAN: T &T DEPARTMENT. CUMULATIVE DISTRIBUTION OF THE INCREMENTAL RATE OF RETURN ON THE PROPOSED MICROWAVE lo VESTMENT. _____ _____ _ 0 -4 80 80 z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ > 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 60 60 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ z -n z z 40-4 z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ z ~~~~~~~~~~~~~~~~~~~~~~~~~~~~m z~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~-20 20 m 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0 0~~~~~~~~~~~~~~~~~~~~~~0 37 38 40 42 44 46 48 50 51 % INCREMENTAL RATE OF RETURN PAKISTAN: T & T DEPARTMENT. PROBABILITY DISTRIBUTION OF THE INCREMENTAL RATE OF RETURN ON THE PROPOSED MICROWAVE INVESTMENT. 10 ,_ _ __ ___ _ __,_____ __, .0 0 S~~~ 8 .04 z Z) ~~~~~~~~~~~~~~~~~~~~~~~~~Z UJ -j 6 0 .03 00~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 0 37 38 40 4 4 0~~~~~~~~~~ 37 38 40 42 44 46 48 50 51 % INCREMENTAL RATE OF RETURN Dz Note: Right Scale:- Density Function _ Left Scale :- Frequency Distribution ( Out of 200 Samples ) IBRD- 4823 (R) X; PAKISTAN: T a T DEPARTMENT CUMULATIVE PROBABILITY DISTRIBUTION OF THE MINIMUM ECONOMIC RATE OF RETURN ON THE PROPOSED MICROWAVE INVESTMENT 1.0 1.0 Z 0.8 0.8 0 0 z ' 0.6 0.6 z o z ;- 0.2 0.2 0 0 ~~~~~~~~~~~~~~~~~~~~~~0 32.5 34.7 36.9 39.1 41.3 43.5 > Iz MINIMUM ECONOMIC RATE OF RETURN I x IBRD - 4828(R) i ANNEX 14 Page 1 of 2 pages PAKISTAN T & T Department Work Schedule for the Karachi-Rawal-indi Microwave System Chart attached to this Annex shows the schedule for implementation of the various phases of the Karachi-Rawalpindi microwave system. The total period of execution is 42 months, with a starting date in December 1969. Execution of the various sections will be progressively carried out, tested and commissioned beginning in June 1972. Ordering of equipment is scheduled by November 1970, delivery from June 1971 to March 1973, installation, testing and final proof of performance by June 1973. Survey and System Design The survey of the project will include propagation studies, verification of "Line of Sight," and Fresnal Zone clearances. The exact location of the repeater stations will be determined as a result of this study. System design will include determination of station parameters, transmitter power, antenna gain, threshold margin, fading and signal to noise ratio, so as to ensure that the system's overall performance is in conformity with prescribed standards. Installation The installation will be carried out by departmental engineers and technicians, under supervision of the suppliers' engineer. Training Engineers and technicians of the Department will be deputed for training abroad with the contractor or other organizations for various periods. The total period of training will be 14 months. PROJECT SCHEDULE OF KARACH I-SUKKUR-RAWALPINDI MICROWAVE SYSTEM 1970 1971 1972 1973 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J A S O N D J F M A M J 1. SURVEY 2. ACQUISITION OF LAND I K 3. BUILDING CONSTRUCTION _ _ EEHEE 4. ORDERING OF EQUIPMENT 5. OCEAN SHIPMENT AND DELIVERY TO SITE 6. INSTALLATION OF U *1 n.m. RADIO EQUIPMENT 7. TESTING U ..E 8. PROOF OF PERFORMANCE >I z IX IBRD - 4856 (R) -4 To Teheram (Cento) Quetta WEST PAKISTAN: MAIN LONG DISTANCE NETWORK Katri Thana Bula Khom Shikarpur Kot Addu Mianwali z 2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ps ____w_ r ___i __ Mirpurkhes NUMBER OF CHANNELS in each section S8_| 600 | 1020 119731 1973 1596 1332 1284 64780 1320 1975 RP Branch _97 202270614 1380 2364 11980 888 ~~1380 - 1973 1980 3684 3060 2940 I 2076 3276 _____11980 rn Coaxial Cable - Under Construction Microwave (Cento) ~~- Microwave - Proposed IBRD -4779 2(R) WEST PAKISTAN TELEGRAPH & TELEPHONE DEPARTMENT HARIPUR MAIN LONG DISTANCE ROUTES c PESHAWAR C MUREE 960 CHANNEL COAXIAL CAELE W / RAWALPINDI - - - - MICROWAVE - EXISTING AND UNDER CONSTRUCTION I . ... .. . 5ATELLITE CONNECTIONS - INTERWING AND INTERNATIONAL / , C MICROWAVE SYSTEM - PROPOSED IDA FINANCE / ¢ LIM 'AR IAN CENTO MICROWAVE~~~~~~~~~~~~~~~<-A-A ! AIc-.IAW/ SALPIRGO f GUIRA.WALA /~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ _S'e' /- -/ g L~AHORE N / IA F (E W0 IN W 0 $ T M W {' / / " LYALLPURL.' 'r lISI\th :9 e i ! \ < N~~~~~~~ ~ ~ ~~~~~~AWA.sHA. T NI D I A N 0v C FA A 1\\i MILES K T \ FEBRUARY 1970 IBRD 2850R MAP 2 D A PAKISTAN 7 x sa TELEGRAPH E TELEPHONE DEPARTMENT /.' )a *A MAIN LONG DISTANCE ROUTES. EAST PAKISTAN iXISTING VHF 12/63 2FHANNEL SYSTEMS - ICIROWAVE LINKES UNDER UCDNSTFUCTI3f; OR USOPOSED RNDgR BILATERAL & EKXIM.BANK CRLDILS (C-COAXIAL;M-MICROWAVE) R:~g - --. - \MICROWAVE OR COAXIAL SYSTEMS PROPOSED UNDER IDA CREDIT t , \1 ~ ~~2 .(C-COAXIAL) WIes1 PakistOn N SoIe/lite .1J t -trxX /0 ~~~~MYfme -si n 9h 2p/ _*AJSHASHI i,Madl,upr \2?/" _ '-S~~~~~S _ --(Nto ¾ 2 t ~~~t' >' \' ~~~~~~24/1 j MagurI | - j f v? 60|I M ( LJESSORE 2 )AESARY 1IKRhulnO 23.551 \ |12 > N i~1 8 . | v A S A 20 ~~~~~~~~~~~~~~~~~~~~CHITTAGONG 0 AF A L MI LES JANUARY 1969 IR 33R