Document of The World Bank FOR OFWICIAL USE ONLY 6,. /gro-T Report No. 6728-TA STAFF APPRAISAL REPORT TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT May 5, 1987 Industry Department Energy and Industry Staff This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit: Tanzanian Shilling (TSh) $1.0 - TSh 55 I/ TSh 1.0 - $0.18 SDR1 = $1.286 FISCAL YEAR Government: July 1 - June 30 TPTC: January 1 - December 31 WEIGHTS AND MEASURES Metric System LIST OF ABBREVIATIONS AND ACRONYMS AfDB - African Development Bank BOT - Bank of Tanzania DEL - Direct Exchange Line EAC - East African Community ERP - Economic Recovery Program GOT - Government of Tanzania ICB - International Competitive Bidding IDA - International Development Association ITU - International Telecommunication Union LCB - Local Competitive Bidding MHz - Megahertz MICROWAVE - A wave length term normally applied to Radio systems working at frequencies above 1,000 MHz MIS - Management Information Systems PBX - Private Branch Exchange PCO - Public Call Office PIP - Public Investment Program PPF - Project Preparation Facility SIDA - Swedish International Development Agency STD - Subscriber Trunk Dialing TAC - Tanzania Audit Corporation TPTC - Tanzania Posts and Telecommunications Corporation 1/ As of April 1, 1987. FOR oMCIAL USE ONLY TANZANIA SECOND TELECOMMUNICATIONS PR.JECT TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) Table of Contents Page No. CREDIT AND PROJECT SUMHARY - ili - I. INTRODUCTION .. . ................................. 1 II. THE TELECOMMUNICATIONS SECTOR 2 A. BACKGROUND General I.. ....... .......-. 1 Access to Service ......... ...ecc.c.e c. .. e eec.. 2 Usage of Service *.-.....................-....c...X 2 Existing Facilities . ....-........ -ec......-..-. 2 Quality of Service ............................ . 3 Demand for Service *...... ****....... - . ** ..... 4 B. THE ENTITY--TPTC organization and Management 4 Staff and Training 5 Computerization 6...6 Billing and Collection of Receivables .............. 6 International Payments 7 Accountants and Audit ................. . . 7 C. DEVELOPMENT Sector Goals .o..o.o... ......o..o . o.o.....oo...... 8 Sector Constraints .... 00000000*0000.. ............ 8 Bank Group's Role and Strategy 10 III. THE PROGRAM AND THE PROJECT o......eeecc........eeeee 11 A. DESCRIPTION The Program and the Project *,11 Project Objectives ..*...e.. *eeccc..e..c..c.e.e.c 11 Project Components *.*o...o* ...**.. o.*****. .*.......o 12 B. COSTS Project Costs ..........c................c..... 14 Contingencies .......e...eee .... ..... 15 Project Financing ...... ................ cc.... 15 This report was prepared by Messrs. A. Shanmugarajah (Telecommunications Engineer), S. Luode (Financial Analyst) and Ms. D. Thompson (Financial Analyst) based on missions to Tanzania in November 1986 and Msrch 1987. This document has a rstricted distribution and may be ueed by fecipients only in the performance of their official duties. Its contents may not otherwie be disclosed without World Bank authorization. - ii - Table of Contents, Continued Page No. C. PROCUREMENT Procurement ....o...eo...ooo......o.eo..o. ¢ 16 DPsbursements ........................................ 17 Implementation 0060000 18 Performance Indicators .............................. 18 IV. FINANCIAL AND ECONOMIC ANALYSIS ...o....................... 19 A. FINANCIAL ANALYSIS Past Financial Performance .......................... 19 TPTC's Financial Position ........................... 20 Revaluation of Assets ........ 21 Financial Projections * .............................. 21 Financing Forecast .......e *e*,***e.................. 22 B. ECONOMIC ANALYSIS Tariffs .......................... 23 Project Benefits ...... .............................. 23 Risks ................................ *. 24 Return on Investment ................. . 24 Resource Mobilization ............................... 25 Least Cost Solution ... .............................. 25 Environment and Health Aspects ...................... 25 V. RECOMMENDATIONS ........................................... 25 Annexes 1. Telecommunications Statistics .......................... 29 2. Organization Chart ...................................... 34 3. Training Facilities .......... 35 4. TOR for PPF Study ................... 42 5. Annual Investment Program 1986-1990 ..... ................ 47 6. Investment Program and Sources of Financing 1986-1990 ... 48 7. Works Under TPTC's Program, 1986-1990 ................... 49 8. Consultant Services: Terms of Reference ................ 54 9. Telephone and Telex Facilities over the Project Period (1986 - 1990) .................................... 63 10. Disbursement Schedule .00................. 65 11. Implementation Schedule ............................ . 66 12. Performance Indicators .................................. 67 13. TPTC Income Statements (Historic) ....................... 74 TPTC Balance Sheet (Historic) ........................... 75 14. Forecast Income Statement ............................... 76 Projected Balance Sheet ......*........ ............... 77 Projected Flow of Funds ........0...........e............. 78 Notes and Assumption on the Financial Forecasts ......... 79 15. Principal Telecommunications Tariffs .................... 82 16. Return on Investments ...0............................0.. 85 17. Selected Documents and Data Available in Project File ... 87 Map: IBRD #20127: Telecommunications Development - 111 - TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT Credit and ProJect Sumary Borrower: United Republic of Tanzania Beneficiary: Tanzania Posts and Telecommunications Corporation (TPTC) IDA Credit: SDR 17.9 million ($23.0 million equivalent). T#erms: Standard IDA terms. On-Lending Terms: The Government will onlend the credit proceeds to TPTC at 7.92% for 20 years including 4 years of grace. TPTC will bear the foreign exchange risk. Project The current deteriorated state of the Tanzanian obiectives: telecommunications network and consequent poor quality of all telecommunications services are severe constraints on Tanzanian economic development, particularly of the agricultural and other productive sectors which play a key role in the Tanzanian economy. The project aims at reducing these constraints through rehabilitation, building up the supply of spares, and limited expansion of physical facilities to improve overall performance and to ensure that the new and rehabilitated assets are maintained. A further objective is the institutional development of TPTC, with special emphasis on utilization of financial and technical tools to improve management performance and efficiency. Project The project comprises: Description: (a) rehabilitation of cables and subscriber distribution networks and provision of equipment to relieve traffic congestion to improve quality of service; - iv - (b) upgrading of maintenance by (i) strengthening maintenance units; (ii) upgrading stores, garage and workshops; (iii) providing tools, instru- ments, spare parts and specialized vehicles; and (iv) partial financing of recurrent maintenance costs; (c) provision of ancillary equipment power and air conditioning; computer hardware and software, civil works material and training equipment; (d) provision of fellowships and staff training; and (e) provision of consultant services to enhance TPTC's capabilities in project planning, monitor- ing and control; equipment installation, opera- tion and maintenance; finance and accounting; stores and material management. Project Benefits The project is expected to benefit all segments and Risks: of the economy, with the business and Government subscribers being the major beneficiaries. Ex- port sectors in general, and specifically agriculture, tourism and industry, all key foreign exchange earners, will benefit from improved communications. More efficient use of the transportation system, due to increased use of telecommunication services, will reduce costs, ease transportation bottlenecks, and reduce energy consumption. The project faces a risk that TPTC's management improvements may develop slower than anticipated and that the physical improvements financed under the project will not be properly maintained or operated. Technical assistance in the form *f experts in line positions is provided to assist in institutional development and to min-mize this risk. The impact of technical assistance will be monitored by TPTC and IDA in a joint annual review. Furthermore, annual reviews of specific project performance criteria will identify technical and financial problems and measures to resolve them in a timely fashion. Advanced procurement activity will minimize technical implementation delays. The occurance of long term foreign exchange shortages after the project period, which could adversely affect operation and maintenance of TPTC's facilities, is dependent on the prevailing macro-economic climate in Tanzania. This will be monitored and addressed in the consideration of future lending operations. Estimated Project Costs: Item - - - ($ million equivalent) - - - Local a/ Foreign Total Local cable network 2.0 6.3 8.3 Switching equipment and spares 0.4 13.7 14.1 Radio and transmission equipment and spares 0.4 5.5 5.9 Telephones, teleprinters, switchboards and coinboxes 0.6 3.2 3.8 Earth station 0.4 9.2 9.6 Vehicles, power plant, air conditioning, repair center work shop equipment, civil works materials, office aids training equipment and spares 3.5 3.2 6.7 Technical assistance and training 0.3 3.4 b3.7 TOTAL BASE COST 7.6 44.5 52.1 Physical Contingencies 0.4 2.2 2.6 Price Contingencies 3.0 2.3 5.3 Total Contingencies 3.4 4.5 7.9 TOTAL PROJECT COST 11.0 49.0 c/ 60.0 a/ Excludes customs duties and taxes from which TPTC is exempt. b/ Including r6payment of PPF advance ($600,000). cl Including $1.4 million estimated indirect foreign exchange. _ vi - Project Financing Plan: million Equivalent Source Local Foreign Total IDA - 23.0 a/ 23.0 ADB - 5.0 5.0 Italy - 10.0 10.0 Sweden (SIDA) - 11.0 11.0 TPTC 11.0 - 11.0 TOTAL 11.0 49.060.0 Estimated Disbursements: b/ - - - - - - - - - - million equivalent - - - - - - - - - - IDA FY: 1988 1989 1990 1991 1992 1993 '1994 1995 Annual 0.7 2.8 3.9 4.1 4.0 3.0 3.5 1.0 Cumulative 0.7 3.5 7.4 11.5 15.5 18.5 22.0 23.0 Economic Rate of Return: 40% Staff Appraisal Report No: 6728-TA Mfap: IBRD No. 20127-TA a/ Including PPF funds of $600,000 disbursed prior to July 1, 1987 and an estimated $1.4 million in indirect foreign exchange. b/ Based on Bank standard disbursement profile for all projects in East Africa FY76-85. Actual project implementation is expected to be substantially in advance of this. TANZANIA SECOtlD TELECOMMUNICATIONS PROJECT I. INTRODUCTION 1.01 The Tanzanian Posts and Telecommunications Corporation (TPTC) is responsible for domestic and international telephone, telex, postal and savings bank services. The Government of Tanzania (GOT) has requested IDA's continued support for the rehabilitation and further development of the telecommunications network over 1986-90. Government's objectives are to improve the quality and availability of services. TPTC's Government approved Telecomminications Sector Investment Program amounts to $65.0 million equivalent, including $52.0 million in foreign exchange. The program to be implemented over 1986-90 comprises ongoing works ($5.0 million) and the proposed project ($60.0 million). To finance the project, the Government has secured $5.0 million from African Development Bank (AfDB) and $10.0 million frou the Italian government on concessionary terms. Of the balance, $11.0 million equivalent will be financed by TPTC, $23.0 million from Internatioual Development Association (IDA) and $11.0 million from the Swedish International Development Agency (SIDA). 1.02 Despite previous interventions, the network has deteriorated due to the lack of foreign exchange and inadequate institutional development. The main thrust of the proposed project, is to rehabilitate the network and ensure efficient maintenance through institutional strengthening of TPTC and the provision of foreign exchange for spare parts, recurrent costs, and maintenance and rehabilitation equipment. The project also provides technical assistance and training. Based on the standard Bank/IDA disbursement profile for all projects in East Africa, over FY76-85, disbursements would be completed by June 30, 1995. Given the advanced stage of procurement and its focus on rehabilitation, the project is, however, expected to be completed much earlier. I1. THE TELECOMNUNICATIONS SECTOR A. Background General 2.01 TPTC was established by the Tanzania Posts and Telecomminications Corporation Act of December 2, 1977, following the breakup of the East African Community. TPTC is an autonomous government-owned public corpora- tion responsible for all domestic and international postal and telecommunications services in Tanzania. It commenced operations on February 3, 1978. In addition to the public telecommunications network operated by TPTC, dedicated networks exist to meet the specialized requirements of the police, military, railway and civil aviation services. Private users are licensed to operate radio link services in areas inadequately served by the public network. Tanzania has no telecomunications manufacturing industry. -2- Access to Service 2.02 As of December 31, 1986, total installed telephone exchange capa- city was about 73,000 lines with about 54,000 direct exchange lines (DELs) in service. The overall telephone density of 0.2 DELs/100 population is among the lowest in the world. 1, Service is concentrated in Dar-es-Salaam and in the other 25 regional capitals which, with 80% of DELo but only 101 of the population, have 1.4 DELs/100 population. In the rest of the country the telephone density is only 0.05. Automated telex service is available to 1,217 subscribers, 1,140 of whom are in Dar-es-Salaam. Telegraph service is also available. Basic telecommunications statistics are shown in Annex 1. Usage of Service 2.03 No precise data are available regarding categories of subscribers or users. However, rough analysis of the billing records shows that about 60% of telecommunications revenue is generated by business users, about 30% by government users, including the parastatal entities and only about 10% by residential users. About 402 of exchange lines serve PBXs. Few tele- phones are used solely for residential purposes. Business communications generate most of the traffic; this is reflected in pronounced peaks in both local and long distance traffic, particularly between 9 a.m. and 12 noon. In 1985, international calls generated 302 of total revenues (of about $24.0 million equivalent); 35% came from local and automatic long distance calls and 252 from operator assisted trunk calls. Dar-es-Salaam, with 402 of subscribers, generated about 50% of total revenues. Existing Facilities 2.04 At the end of 1986, TPTC operated 173 telephone exchanges with an installed capacity of 73,000 lines. Average exchange fill was 74% and 54,000 direct exchange lines (DELs) were connected. Seventy-seven percent of the DELs were served by 35 automatic exchanges and the remaining lines by 138 small manual exchanges. Seventy-one of the exchanges which serve over 50% of the subscribers, are more than 20 years old and not in effi- cient condition, due to poor maintenance over a prolonged period. Replace- ment of the equipment is not feasible at this time, given the prevailing macroeconomic conditions in Tanzania. Furthermore, the equipment has not yet completed its useful life. However, the severe service degradation, which has resulted from the years of inadequate mintenance, necessitates a major rehabilitation effort. It is possible to improve performance consid- erably by intensive maintenance and selective replacements. Two new electronic exchanges were installed under the first project (Credit 1173-TA, para 2.27). The majority of international services are provided through a standard B earth station at Dar-es-Salaam which has been opera- ting at full capacity since 1983, and via a terrestrial link to leased 1/ For example, in 1985 Kenya had 4.7 DELs/100 population in the capital area, 0.3 in the rest of the country; Zimbabwe 7.7 and 0.5; Ethiopia 4.1 and 0.2. -3- satellite circuits on a standard A earth station (Atlantic Ocean satellite) at Nairobi. Telex service, which is automatic, is available in 16 towns. Basic telecommunication statistics are shown in Annex 1. Quality of Service 2.05 Although the quality of telex service is satisfactory, the tele- phone service is congested, unreliable and inadequate. Poor maintenance and inadequate trunk equipment terminations are the major contributors to the present congestion and low quality of service. Service standards are not prescribed and clearance of faults Is unsatisfactory. On average, only about 24% (as against a target of 65%) of the long distance call attempts are successful during the peak business hours. On average, there are about 25-30 faults per 100 telephones per month which is high. The faults are mostly in the local cable distribution network. Repairs take 10 days on average which is unacceptable. 2.06 The operator assisted long distance telephone service is severely impaired by the shortage of long distance circuits, which is compounded by heavy congestion in the local netwo ks. Service delays of over 4 hours on operator booked calls are frequent,j which leads to cancellation of more than 50% of the booked calls. The average time for an operator to answer on trunk calls was over 27 seconds (compared to TPTC's target of 10 second ) in Dar-es-Salaam. However these delays are expected to be eased _/ following the completion of the first telecommnications project (para 2.27) expected in December 1987. 2.07 International call statistics are properly maintained. Outgoing calls (semi-automatic) have an effective rate of 78% compared to a target of 80X. However, only 25% of tie incoming international calls are suc- cessful. Congestion on international routes will be relieved with the pro- vision in 1989 of a standard A earth station at Dar-es-Salaam, (financed by Italian aid) as part of the 1986-90 telecommunications program (para 3.01). 2.08 TPTC has reviewed the existing quality of service with assistance from the International Telecommunications Union (ITU), and areas tar improvement were broadly identified. To follow up on this work, consultants under the project preparation facility (PPP) (para 2.24) have now specified in detail the necessary measures and equipment which will be required to improve the quality of service. The proposed project will (a) provide equipment to alleviate traffic congestion in heavily congested routes, (b) introduce modern maintenance aids and Improved maintenance methods and procedures, and (c) provide for institutional development to ensure the benefits of the rehabilitation and maintenance are sustained. 2/ In 1986, the average waiting time for long distance calls was 4 hours in Dar-es-Salaam, with 5 hours nationwide. 3/ Average time to answer is expected to meet the target of 10 seconds and cancellation is expected to be reduced to 25% of the booked calls. -4- Demand for Service 2.09 Public telecommunications facilities in Tanzania have developed slowly and failed to keep up with demand. Over 1980-85, DELs increased at an average of 5.7% p.a. but slowed to only 2.4% in 1986 as a consequence of the worsening shortage of foreign exchange for imported equipment and materials and the deteriorating condition of the cable network (Annex 1). Over the same period, the registered waiting list increased by about 20% p.a.; by the end of 1986 it had expanded to 64,000. Working lines thus satisfied only 46% of total demand. Demand for telex services has also grown faster than the number of connections and only 48% of the total de- mand for telex service is satisfied. 2.10 Because of overall macro resource constraints, meeting demand is clearly not a realistic policy option for the foreseeable future. The allocation of scarce DELs to those with greatest need thus assumes critical importance. In allocating new connections, TPTC gives priority to essential services. It is considering modifications in the tariff structure, such as the introduction of subscriber deposits, or a peak load pricing structure (para 4.08). To overcome the shortage of telex terminals, which are currently leased from TPTC, direct imports of telex terminals by private subscribers has been permitted since 1984 for connection to the network; this should reduce the telex waiting list. B. The Entity - TPTC Organization and Management 2.11 TPTC, created by law in December 1977 (para 2.01), is an autono- mous government-owned corporation administered by an eight-member Board of Directors, whose Chairman and Director General are appointed by the P-asi- dent of Tanzania. The other six members are appointed by the Minister of Communications and Works. Since its inception, TPTC has established a managerial framework, financial structure, manpower development and information base to meet its perceived needs. However, the systems are fragmented and management lacks interactive and timely information. The new management (appointed by the GOT in August 1986) has recognized the need to strengthen TPTC's operations, organization and efficiency to maintain and operate the existing network, undertake further rehabilitation and plan for expansion. TPTC has therefore, assigned consultants (para 2.24) to undertake a comprehensive review of TPTC's organizational structure, administrative and financial procedures, and management's authority in administration and finance relative to the Board. The Tanzania Posts and Telecommunications Corporation Act of 1977, which governs TPTC's relationship and activities with other government ministries and agencies and powers of the Board, will also be reviewed and amendments recoumended to reflect TPTC's enhanced future responsibilities. TPTC's current organization chart is given in Annex 2. -5- Staff and Training 2.12 As of December 31, 1986, TPTC had about 4,125 employees in tele- communication operations. The staff ratio of about 69 per 1,000 DELs, although high, is not excessive given the manual operation of the local telephone service iP many areas, and of the long distance telephone and telegraph services all over the country, as well as the maintenance needs of the numerous open wire lines. With the gradual automation of services, digitalization of sw-itching equipment, and replacement of open wire lines by cables and radio systems, the staff ratio should, however, decrease. TPTC expects to reduce the ratio to 55 staff per 1,000 DELs by 1990 through retraining, reassignment and natural attrition as part of the implementation of a detailed manpower plan, for which technical assistance is provided under the project. The staff ratio will be monitored annually in IDA's annual review of TPTC's performance (para 3.15). 2.13 There is a severe shortage of trained and experienced management and staff, particularly in the engineering and financial grades. Further- more, the staff morale and productivity are low, partly as a result of low salaries, which in real terms have been declining significantly in recent years. These problems are compounded by the lack of an incentive structure to reward performance. In order to improve productivity in TPTC and to make it a competitive employer, it is essential to introduce appro,riate and workable incentive schemes. Consultants (para 2.24) have reviewed TPTC's staff emoluments and benefits, including establishment of profit centers, quality circles and bonuses based on performance targets and have recommended changes which are consistent with overall Government guidelines and Tanzania's recent experience with other parastatals. An acceptable incentive scheme would consist of a list of performance categories, a monitoring system and a pre-announced award system. TPTC agreed to develop the details of such a scheme and forward it to GOT and IDA for their review and approval by January 1, 1988. The scheme would be implemented by no later than June 30, 1988. 2.14 TPTC has a new training center in Dar-es-Salaam, financed partly by the Swedish International Development Agency (SIDA), which offers instruction and training programs (Annex 3) in most of TPTC's operational activities. These in-house training facilities are supplemented by esta- blished national training institutions and staff assignments with overseas telecommunications administrations, universities, and manufacturers. Since 1979, when SIDA support was initiated, the annual training volume has 4oubled to 9,600 student weeks but is still inadequate to meet TPTC's needs. TPTC plans to expand training to deliver about 15,000 student weeks by 1990. The training center needs little additional investment in physi- cal facilities, but improvements are needed in the quantity and quality of training delivered. TPTC's Directorate of Manpower Development and Admini- stration, which is respensible for assessing the training needs of all TPTC staff, and for preparing and implementing staff development plans, has identified critical shortages of technical staff and urgent training needs in the maintenance of cables, subscriber equipment, switching, and trans- mission and works supervision. Support for improving and expanding the - 6 - technical training program at TPTC's training center would be provided by SIDA under the proposed project (para 3.04 and Annex 7). 2.15 TPTC has no program for managerial, administrative or financial training. Some students have been sent on an ad hoc basis to a multina- tional training institution in Arusha and to Nairobi, but those facilities are limited. The project provides for about 40 overseas fellowships in technical, commercial and financial functions. TPTC will agree with IDA on the training disciplines and locations for fellowships by December 31, 1987. 2.16 TPTC's current (1984-90) manpower plan emphasizes a reduction of the overall staff ratio (para 2.12) by increasing productivity as the system develops. There are no strict standards for staff recruitment or requirements. It also does not accommodate the impact of technical changes on staffing requirements nor the suitability of staff for redeployment within the organization. With consultants' assistance (para 2.24), TPTC will review its manpower plan and by December 31, 1988, will establish a cnmputer data base for all staff records, incorporating its requirements, targets and recruitment strategy. Computerization 2.17 TPTC purchased and installed a computer under the first project and has initiated recruitment and training of additional staff to utilize the system's full capacity. The computer is now being tested for transfer- ring billing and the payroll from an out-of-house computer. Additional key areas for computerization as well as the necessary staff and other resources have been identified by the consultants provided under the PPF. Technical assistance to implement the systems in these areas is provided under the proposed project (para 3.04). Billing and Collection of Receivables 2.18 In theory TPTC has a strict billing and disconnection policy. Monthly bills not paid within 14 days of the billing date of service should be disconnected without notice. In practice, billing delays amount to about 2 months. The transfer of billing to TPTC's in-house computer (para 2.17) is expected to reduce billing de'lays to one month by the end of FY88 which would be acceptable. Collection of accounts receivable is also poor. Total accounts receivable, as recorded in the balance sheet for FY85, are shown as TSh 953 million. However, total actual subscriber receivables as of December 31, 1985 amounted to TSh 642 million. The gap represents the two month billing delay, receivables from foreign admini- strations and some postal receivables. Furthermore, about TSh 200 million of receivables are more than 6 months old and, with little realistic pros- pect of payment, should be written off. Incorporating these qualifica- tions, outstanding accounts receivable, are equivalent to about 4 months of revenues, which is high. Poor accounting recording and controls also de- lays the recording of cash receipts. The billing and accounting systems were reviewed by the consultants under the PPF (see TORs, Annex 4). Their -7- agreed recommendations will implemented by TPTC with the assistance of consultants financed under the project (para 3.04). Progress will be reviewed by IDA as part of the annual performance review (para 3.15). TPTC's write off policy will also be reviewed. By December 31, 1987, TPTC will present and agree with IDA upon a plan of action to reduce outstanding subscriber receivables to two months of revenues by end 1990. TPTC will also maintain an aging list of receivables to be forwarded to IDA every six months commencing December 31, 1987. International Payments 2.19 Severe overvaluation of TShillings and congestiotn in the local network (paras 2.05, 2.06) have resulted in a high volume of outgoing international telephone traffic relative to incoming traffic (at a ratio of 2 to 1); thus TPTC has to make substantial payments to foreign administra- tions. As of December 31, 1985, these payments were about $11.2 million equivalent. Although the Bank of Tanzania has approved most of TPTC's pay- ment applications and received the equivalent amount in local currency, few remittances have been made due to the country's foreign exchange shortage. To reduce the imbalance TPTC is considering allocating more capacity to incoming calls by deliberately delaying the outgoing calls beyond the peak period for incoming calls. However, major improvement in incoming calls cannot be achieved until the poor performance of the local network is improved; only 25Z of incoming calls are successful. In January 1987, TPTC increased the international tariff by 120% to partially compensate for the devaluation of the TShilling since the last tariff revision February 1985. Furthermore international tariffs are now quoted in dollars in an attempt to minimize the impact of currency realignment. The project provides technical assistance for improved record keeping and international traffic management. Accounts and Audit 2.20 TPTC prepares accounts both on a cash and commercial basis but has been slow in finalizing accounts and having them audited by the Tanzania Audit Corporation (TAC). Recent improvements resulted in draft 1985 accounts being finalized by TPTC in June 1986 and submitted to TAC for audit. The audit report was received in March 1987, 15 months after the close of TPTC's fiscal year. While this is later than the 6 month period agreed to in the First Credit Agreement (Cr-1173) and stipulated by TPTC Act (para 2.01), it is a major improvement over previous years when the production of audited accounts took one to four years. TAC has recently solved its staffing problems and should be able to reduce the audit period. Provisional accounts for FY86 are expected to be completed by TPTC by June 1987, and the audit report is expected from TAC by August 1987. Furthermore, TPTC has taken corrective action to implement the auditor's recommendations in those areas where lack of documentation or proper accounting procedures did not permit a non-qualified audit. The technical assistance to be provided under the project would support these efforts (para 3.04). This includes the establishment of a computerized fixed assets register (para 4.04); for which the telecoimunications asset revaluation study (October 1986) is a good base; improving physical control of materials and supplies; verification of the value of stores and improving recording for international payments. TPTC will prepare and forward to IDA draft and audited financial, special and project accounts within 4 months and 9 months respectively of the end of FY87, e and 8 months respectively of the end of FY88, 3 and 6 months respectively of the end of FY89 and 2 and 6 months respectively of the end of FY90. C. Development Sector Goals 2.21 The Government has recognized communications as vital for econo- mic development and considers well functioning telecommunications crucial to the 1986-89 Economic Recovery Program (ERP) and its achievement of the targeted growth in exports and increased efficiencies in the productive sectors. Priority is given to rehabilitation and maintenance of existing facilities rather than to network expansion. The main sector goals are to: (a) increase operational efficiency and quality of service through network rehabilitation, introduction of an effec- tive maintenance program and improved management systems, and staff development; (b) ensure that revenues cover operating costs and contribute significantly to investments; (c) generate revenues for Government; and (d) extend services to rural areas. Sector Constraints 2.22 The main constraints to sector development are: (a) lack of management skills and system and trained man- power, which constrain TPTC's capacity to maintain the existing facilities and to prepare and implement develop- ment projects; and (b) lack of foreign exchange, which limits procurement of essential equipment and materials for maintenance and expansion. 2.23 Lack of Management Skills and Systeas and Trained Manpower. TPTC's current managerial framework and management system are fragmented and constrain sector development (para 2.11). Particular weaknesses exist in muanpoper planning, budgeting and cost control, inventory management, project implementation, network management, maintenance, and customer service, as well as in data processing capabilities. Furthermore, there is a severe shortage of trained and experienced managers and staff at all - 9 - levels, exacerbated by low salaries and incentives (para 2.13), which in turn contribute to a lack of motivation among the existing staff. 2.24 To overcome current institutional deficiencies and develop an effective and efficient management, TPTC appointed consultants, under a PPF for $600,000 approved on November 11, 1986. They have undertaken a comprehensive review of organization and management in the administrative, technical and financial disciplines, identifying weaknesses, and have recommended corrective measures. The TORs (Annex 4) for these assignments were prepared with IDA's assistance. Specifically the consultants were to review, recommend and propose an action plan on the following: (a) the Tanzania Posts and Telecommunications Corporation Act of 1977; (b) TPTC's relationship with the Government and its agencies; (c) TPTC's organizational structure and management procedures (including introduction of adequate management information systems); (d) delegation of administrative and financial powers to lower levels of TPTC's management; (e) norms of staff sanctions and productivity, long-term manpower plans, recruitment and training programs; within the purview of Government directives for state enterprises, staff emoluments and benefits; (f) maintenance procedures, service quality norms and procedures for monitoring service quality; (g) stores and materials control; and (h) use of computers for efficient use of network capacity. The consultants' recommendations were discussed and agreed between IDA and TPTC during negotiations. Technical assistance amounting to about 140 manmonths is provided under the project for implementation of agreed recommendations in these areas, according to an action plan agreed upon during negotiations (para 3.04). 2.25 TPTC's work program includes areas that could be implemented by outside agencies, such as subscriber installation, vehicle and electri- cal equipment repair, transportation and computer activities. Such exter- nal participation could relieve TPTC of current logistical problems and speed up implementation. These nontelecommunications activities within TPTC are currently inefficiently organized, lack skilled workers, operators and uechanics and essential equipment. Major financing and training would be needed to upgrade these activities if they are to be retained within TPTC. Given TPTC's shortage of administrative capacity (para 2.11), suc- cess from such an effort is doubtful. Consultants will assist TPTC in identifying such activities and by December 31, 1987, TPTC will, In consuluation with Government and IDA, prepare an action plan and commence implementation of the following measures to increase its efficiency through: (a) restructuring of its organizational structure and management procedures; (b) establishing profit centers; and (c) contracting out those activities which can be handled more efficiently by other agencies. 2.26 Lack of Foreign Exchange. Over the past five years, TPTC has had limited access to foreign exchange for essential spare parts and routine operational requirements because of Tanzania's general foreign exchange shortage and the relatively low priority accorded to the telecommunications sector by the Government. As a result, the quality of service has remained poor and declined in many areas (para 2.05). The project provides foreign exchange to meet the urgently required purchase of services, equipment and - 10 - materials for rehabilitation, and maintenance and includes the reestablishment of sufficient stock levels for the project implementation period, with a minimum inventory level of six months by project completion (December 31, 1990). However, given the continuing need to import spare parts beyond the project period, the sustainability of a well functioning telecommunications network will depend on the long term availability of foreign funds. It is important that TPTC's and GOT's future investment plans and annual budgets take this constraint into consideration. Bank Group's Role and Strategy 2.27 Past Experience. The World Bank Group has been associated with the telecommunications sector in Tanzania since 1966, first through the East African Community (EAC) and then directly with Tanzania. Prior to 1977, telecommunications services in EAC were managed by the BAC Telecommunications Corporation. The Bank approved three loans to the EAC; a $13.0 million loan in 1967 (Ln 483-EA), a $10.4 million loan in 1970 (Ln 675-EA) and a third loan of $32.5 million in 1973 (Ln 914-EA). These were completed satisfactorily. The first credit to Tanzania, following the breakup of the EAC in 1977, of SDR 22.1 million ($27 million equivalent), was approved in July 1982 (Credit 1173); the original closing date of June 30, 1986 has been extended to June 30, 1987. The credit supported an essential part of TPTC's 1980-86 investment program, focusing on service expansion to rural areas and expansion of the network to presently unserved or underserved areas, both urban and rural. It also had a broad institutional objective of developing TPTC, mainly through expanding training facilities. Progress has been good and the physical improvement components of the project have been implemented: (a) improved long distance communication links through replacement of highly fault-prone open wire line by radio microwave systems; (b) provision of a pilot digital exchange; (c) improved local cable networks in 90 urban and rural centers (Mwanza, Shinyanga, Tabora); (d) telex service extended to 500 new subscribers; and (e) training of 30 senior TPTC staff, mostly in engineering and finance. In retrospect, the project shoul-i have given higher priority to maintenance and rehabilitation. Full project benefits have not been realized due to the persistent lack of complementar7 foreign exchange, even for basic maintenance and rehabilitation, and poor management (para 2.23) resulting in severe deterioration of the country's telecommunications network. Furthermore, the institutional component was limited and TPTC lacked staff incentives to retain staff once they had received training. 2.28 IDA's Role. These are three main reasons for IDA's assistance to Government in the telecommunications sector in Tanzania. First, IDA is a unique source of advice to Government on sector management and organization, financial management, investment planning and staff training. Second, IDA is needed to maintain a balance between physical and institutional development of the sector. Bilateral funding support is not necessarily institutionally oriented and typically it does not finance maintenance. Without an IDA presence, it is likely that inadequate attention would be paid to improving management and strengthening technical, financial and maintenance systems compared to network - 11 - expansion. The project components supported by IDA will focus exclusively on these items and will ensure that adequate foreign exchange for operation and maintenance is made available to the sector. IDA's third role is to help focus and coordinate bilateral assistance. Although Government experienced early difficulties in securing cofinancing, IDA's involvement has attracted participation by the AfDB, and the Italian and Swedish Governments, who will finance a substantial part of the program. Donors have significantly modified their support as a result of the appraisal process for this project. 2.29 Current IDA Strategy. Given the sector constraints (para 2.22), and goals (paras 2.21) IDA's strategy, at Governrint's request, is to finance the network's most urgent rehabilitation and maintenance needs and to provide technical assistance to support sector reorganization, management improvement and development of technical and financial systems. IDA's efforts in the sector are consistent with and complement initiatives currently undertaken by the GOT (and supported by IDA's Multisector Rehabilitation Credit) for other priority parastatals in Tanzania. In addition, IDA will discourage new investment until the above issues are addressed. Network rehabilitation will also be financed by SIDA and AfDB; Italian assistance will expand international facilities. III. THE PROGRAM AND PROJECT A. Description The Program and Project 3.01 Within the framework of GOT's overall Economic Recovery Program and consistent with the sector goals (para 2.21), TPTC's 1986-90 Investment Program (Annex 5) is designed to: (a) rehabilitate the countrywide long distance network: 46% of total program costs; (b) rehabilitate local net- works: 35%; (c) improve international facilities: 12%; and (d) enhance TPTC's management capabilities: 7%. The financing of maintenance and spare parts is included in these components. The total cost of the program is estimated at TSh 3,575.0 million ($65 million) with a foreign exchange component of TSh 2,860.0 million ($52.0 million). It includes ongoing works ($5.0 million), and works under the proposed project ($60.0 million). Sources of financing for the program are detailed in Annex 6. Project Objectives 3.02 The project objectives are to address the sector constraints (para 2.22) by: (a) strengthening TPTC's management, organization, financial and engineering systems to maintain and operate the existing network, to undertake further rehabilitation and to plan for expansion; and - 12 - (b) rehabilitating key parts of the networks, removing bottlenecks and imbalances to ma.i"ze capacity utiliza- tion of existing installations. Pro-lect Components 3.03 The Project (Annex 7) consists of the following components: Part A. Rehabilitation: (a) provision of equipment for rehabilitation of local cable networks and subscriber facilities; (b) replacement of worn out or obsolete switching and trans- mission equipment, including marginal expansion where justified by substantial excess demand (e.g., Pugu Road industrial area, Bukoba and Kigoma agricultural area); (c) installation of new transit exchanges for local and international traffic and a satellite earth station for international services; (d) upgrading of maintenance facilities by providing tool and test equipment, spare parts and specialized vehicles, training equipment, upgrading the stores and the repair facilities in workshops; and (e) upgrading the computer facilities for: (i) introduction of management information systems; and (ii) automation of local cable and subscriber data to ensure optimLn utili- zation of existing resources. Part B. Technical Assistance and Training: (a) for strengthening TPTC's organizational structure and management systems; (b) for strengthening TPTC's training programs; and (c) overseas training for about 40 staff (for a total of 150 manmonths) in disciplines and locations to be agreed with IDA commencing in 1988. 3.04 The technical assistance will be provided both by the SIDA and IDA and comprises an appropriate balance of technical and institutional strengthening. There are good prospects of sustained project benefits through extensive training of counterpart staff. SIDA's assistance (about 100 manuonths) will focus on technical support for the installation and operation of new equipment to be financed under the project and on improving training by providing experts for TPTC's training center. IDA's assistance (about 140 manmonths) will incorporate the agreed - 13 - recommendations prepared by the PPF consultants, (para 2.24) and will assist TPTC in managing five critical areas-project planning, monitoring and control; installation, operations and maintenance; financial management and planning; materials management and data processing capabilities. Six experts will be provided to work in line positions In TPTC and assist in the organization and supervision of the network rehabilitation and undertake on the job training of TPTC's counterpart staff in: (a) Project planning, monitoring and control-an expert to assist TPTC in establishing a central planning office and project monitoring and control group; in designing and developing planning, implementation and control procedures and practices; and on guidelines for future network operations and planning. (b) Installation, operations and maintenance-an expert and 3 technicians assist TPTC on field control and coordination of operation and maintenance activities, setting of standards for quality of service, maintenance operations and performance; updating engineering instructions as necessary and production of operational and maintenance statistics. The expert and the technicians will ensure that maintenance procedures are fully understood by counterpart staff. (c) Financial management and planning-two experts to assist in the design and implementation of financial management systems including the computerization of the accounting system, separation of postal and telecommunications accounts, budgeting, forecasting, cost control and stores accounting. (d) Materials management-an expert to assist TPTC in setting up a comprehensive and integrated stores and material management control procedure based on current and future requirements of TPTC. (e) Management information system-an expert to assist in establishing an integrated management information system to provide the data necessary for senior management to monitor performance. TPTC's computer system will also be updated, particularly for subscriber, financial and local network data. Draft terms of reference for the IDA financed experts are given in Annex 8. TPTC will appoint, by no later than December 31, 1987, the six experts and three technicians under terms of reference and conditions of employment satisfactory to IDA. By the sae date, TPTC is expected to appoint at least six counterpart officials and the necessary supervisory staff to work with the experts and technicians. The counterpart officials will subsequently head their respective units. TPTC will review with IDA, - 14 - by no later than October 1 each year, the implementation of all technical assistance and counterpart staff training and agree to the implementation objectives for the following year. 3.05 Annex 9 shows the anticipated improvement of telecommunications facilities over the project period. IBRD Map No. 20127-TA shows planned telecommunications development in Tanzania under the proposed project. B. Costs Project Costs 3.06 The total cost of the project, including the PPF advance of $600,000, is estimated at about TSh 3,300.0 million ($60.0 million), with a foreign exchange component of about TSh 2,695.0 million ($49.0 million). Costs are based on TPTC's experience with contracts under the first IDA project and on experience in other countries of the region, adjusted to mid 1987 prices. TPTC is not liable for customs duties or taxes. The base cost of technical assistance is estimated at $2.8 million. Project costs are summarized below (Table 3.1). Table 3.1: PROJECT COST SUMMARY a/ - - - -TgSh million - - - - - - - - $ million - - - ITEM local Foreign Total Local a/ Foreign Total Local cable network 110.0 346.5 456.5 2.0 6.3 8.3 Switching equipment, components and spares 22.0 753.5 775.5 0.4 13.7 14.1 Radio and transmission equip- ment, components and spares 22.0 302.5 324.5 0.4 5.5 5.9 Telephones, teleprinters, and switchboard 33.0 176 209.0 0.6 3.2 3.8 Earth station 22.0 506.0 528.0 0.4 9.2 9.6 Vehicles, power plant, air conditioning, repair center, workshop equipment, training equipment, civil works, materials & spares 192.5 176.0 368.5 3.5 3.2 6.7 Technical assistance, and training 16.5 187.0 203.5 0.3 3.4 bl 3.7 TOTAL BASE 0OST 418.0 2,447.5 2,865.5 7.6 44.5 3 T Physical contingencies 22.0 121.0 143.0 0.4 2.2 2.6 Price contingencies 165.0 1126.5 291.5 3.0 2.3 5.3 Total contigencies 187.0 247.5 434.5 3.4 4.5 7.9 TOTAL PROJECr COST 605.5 2,695.0 3,300.0 11.0 49.0 c/ 60.0 - - -_- a/ Excludes customs duties and taxes from which TPTC is exempt. b/ Includes repayment of PPF advance ($600,000). c/ Includes an estimated $1.4 million equivalent of indirect foreign exchogVg. - 15 - Contingencies 3.07 Physical contingencies are estimated at 5% of local and foreign costs for equipment, 10% on local and foreign costs for services and 10% on civil works. Foreign price contingencies are based on annual foreign cost increases of 3.0% in 1987 and 1.0% in 1988, 1989 and 1990. Local price contingencies reflect annual increases of 20% in 1987, 15% in 1988 and 1989, and 10% in 1990. Project Financing 3.08 The sources of project financing (Annex 6) are summarized in Table 3.2 below. The project's foreign costs of $49.0 million equivalent would be financed by AfDB, Italian aid, Swedish govcrnment aid and the IDA credit. Local currency financing, estimated at $11.0 million equivalent, will be provided by TPTC through internally generated funds. Table 3.2: PROJECT FINANCING ($ million equivalevt) Local Foreign Total % of Total IDA - 23.0 23.0 39 AfDB - 5.0 5.0 8 Italy - 10.0 10.0 17 Sweden - 11.0 11.0 18 TPTC 11.0 - 11.0 18 Total 11.0 49.0 60.0 100 __ -___ 3.09 The IDA Credit of $23.0 million equivalent would be onlent to TPTC at 7.92% for 20 years including a 4 year grace period. The loans from SIDA and Italy will be onlent to TPTC under the same concessionary terms as to the Government. The loan from AfDB will be onlent to TPTC on the same terms as the IDA credit. TPTC will bear the foreign exchange risks. The execution of a subsidiary loan agreement between the Government and TPTC, acceptable to IDA is a condition of credit effectiveness. The IDA financed segment of the program comprises high priority critical elements, particularly for spare parts and maintenance, and can stand on its own. Cross effectiveness conditions are therefore not required. Moreover, the parallel financing from AfDB, SIDA and the Italian Government is largely confirmed. 3.10 TPTC's 1986-90 Rehabilitation Investment Program (para 3.01) has been designed to address the urgent maintenance and rehabilitation needs and to avert further deterioration of the network which is near collapse. Given the prevailing macro resource constraints in Tanzania a larger - 16 - program is not feasibie. Furthermore, any major additions to the program would impose a serious strain on TPTC's financial and institutional resources. Consequently, TPTC will consult with IDA before undertaking works outside the approved investment program which would require investment of $2 million equivalent or more each year. Furthermore, TPTC will review and agree with GOT and IDA, by no later than October 1 each year, TPTC's annual expenditure budget within the agreed five-year program. Disbursement of the specified IDA share of the annual financing plan for TPTC's agreed five-year program would be conditional on agreement on the annual expenditure program and provision of the agreed TPTC/GOT funding. IDA's disbursements would be reduced pro rata if the annual program is reduced below the levels indicated in the five-year program. C. Procurement 3.11 Procurement arrangements are summarized below: Table 3.2: PROCURMEW ARRLiE2ENTS m$ million a/) Negotiated ECB and Item ICB Purchase LIB b, Others Total tscal cable networks 3.4 (3.4) - 0.3 (0.3) 6.1 da 9.8 (3.7) =Sitching equipment 6.3c/(3.7) 1.4 (1.4) 0.4 (0.4) 8.0 t/ 16.1 (5.5) Tranmission equipment 5.4u/(3.1) 0.5 (0.5) 0.4 (0.4) 0.4 I/ 6.7 (4.0) Telephones and switchboards 2.7 (2.7) 0.7 (0.7) - 0.9 4.3 (3.4) Earth station 10.6 d/ 10.6 Vehicles, power plant, air conditoning, workshop anA equipment, computer equipment, civil works materials, spares 2.7 (2.7) 0.7 (0.7) - 4.9 8.3 (3.4) Technical assistance - - 2.4 (2.4)e/1.8 (0.6)f/ 4.2 (3.0) TOTAL 20.5 (15.6) 3.3 (3.3) 3.5 (3.5f)32.7 (0.6F 60.0(23.0) Percent of Total 35 5 5 55 100 Peroentage of IDA Credit 69 14 14 3 100 Note: Figures in parentheses represent the amounts financed by the proposed IDA credit. .1 Including contigencies b/ limited international bidding c Includes AfDB funds. 41 Italian and Swedish Governmunt guidelines. e/ Bank guidelines for the use of consultants (includes $600,000 for PPF). I/ Pelhombips - 17 - About $15.6 million of equipment (including contingencies) to be financed by IDA would be procured through international competitive bidding (ICB) in accordance with the Bank's guidelines. Spare parts and components costing about $3.3 million for rehabilitation of existing equipment would be procured through negotiations with the original suppliers subject to prices being satisfactory to IDA. Limited International Bidding (bIB) would be used to procure about $1.1 million of measuring equipment and tools for which there are only a limited number of suppliers. IDA financed contracts for more than $250,000 equivalent would be subject to IDA's prior review of procurement documentation; this would cover about 85% of the total value of IDA financed contracts, Other IDA financed contracts would be subject to post-award review. Selection of IDA-financed consultants (about $2.4 million equivalent) would be in accordance with IDA guidelines. Local procurement of equipment and services to be financed by TPTC ($11.0 million) would be in accordance rith existing TPTC procedures which are acceptable to IDA. To minimize possible delays, advanced procurement activity has been undertaken by TPTC, including IDA's review of all procurement packages which it will finance. By April 30, 1987, TPTC had finalized and submitted to IDA for review and clearance, bid documents for 50% (by value) of the IDA-financed items. It is expected that bid documents for a further 20% (by value) o LDA-financed items will be submitted to IDA for review and approval, enabling TPTC to issue bids for about 70% (by value) of IDA-financed items by May 31, 1987. Procurement of all equipment and services to be financed by Italian Government and SIDA would be in accordance with their respective procedures. About $5.0 million of equipment (including contingencies), to be financed by AfDB would be procured under their procurement guidelines. Disbursement 3.12 Disbursement would be made against full standard documentation. The estimated disbursement schedule (Annex 10) is based on the Bank's standard disbursement profile for all projects in East Africa. According to this schedule, disbursement would be completed by December 31, 1995. Rowever due to the advanced procurement activity it is expected that the project and disbursements will be completed much earlier. A Special Account in foreign currency of $2.0 million equivalent will be established by GOT and held in a commercial bank on terms and conditions acceptable to the Association. This amount represents about four months of estimated disbursements during the forecast peak disbursement period of 1988-89. The Special Account for the IDA credit is replenishable and would be used for disbursements against all foreign expenditures. 3.13 The proposed IDA credit of $23.0 million would be disbursed as follows: - 18 - Cate- Amount X Financed gory Item ($1,000) by IDA 1. Telecommunications equipment: switching 15.0 100% of foreign transmission, trunk terminations, expenditures coin-telephones, switchboards, cables, dropwire; materials and spare parts 2. Vehicles, power plant, air conditioning, 3.2 100% of foreign repair center, workshop equipment, civil expenditures works materials, computer equipment, tools & spares, training equipment 3. Technical assistance & fellowships 2.2 100% of foreign expenditures 4. Refinancing of PPF 0.6 Amount disbursed and outstanding 5. Unallocated 2.0 Total 23.0 Implementation 3.14 The project, except for switching and transmission installations, which will be executed on a turnkey basis as part of the equipment supply contract, will be implemented by the TPTC staff, which has gained experience under the First Telecommunications Project, over 1987-90. Civil works for outside plant and mechanical services will be executed by contractors under TPTC's supervision. To ensure coordination of all project items and implementation of the project on schedule, TPTC will appoint a Project Coordinator with adequate administrative and financial autonomy. The Project Coordinator shall be responsible for implementation of all development works in TPTC. His appointment, under terms of reference and conditions of service agreed between TPTC and IDA, is a condition of credit effectiveness. To minimize implementation delays, technical assistance has been provided under the project which wil1 be monitored annually (para 3.04). IDA's annual review of TPTC's expenditure program (para 3.10) and frequent IDA supervision particularly in 1987 and 1988, will result in close monitoring of implementation. The proposed implementation program for the major components is presented in Annex 11. The project is expected to be completed by December 31, 1990. Performance Indicators 3.15 Upgrading TPTC's management systems will be monitored through selected performance indicators on service quality, financial performance, operating efficiency, and project implementation. TPTC and IDA agreed that the performance indicators (Annex 12) represent desirable and feasible goals, which IDA will review annually with TPTC. Targets and detailed action plans designed to achieve them were agreee for 1987/88 (Annex 12). - 19 - By no later than October 1 each year, TPTC will review with Government and IDA its performance against agreed targets, and agree on targets for subsequent years together with an action plan to improve performance if necessary. TPTC will report progress against the physical and implementation indicators in quarterly project reports and against financial indicators in annual financial statements. The Bank will use these indicators as a guide in supervision. IV. FINANCIAL AND ECONOMIC ANALYSIS A. Financial Analysis Past Financial Performance 4.01 TPTC's financial performance was mixed during 1980-85 due to high inflation, currency devaluations and infrequent tariff adjustments. The quality of service deteriorated and despite tariff increases of 25% in 1983, and 33% in February 1985, real revenues per DEL declined by about 50X over 1980. The imbalance of international traffic, (para 2.19) resulted in an outflow of payments to other national authorities, more than doubling from TSh 47 million ($5.9 million) in 1980 to TSh 184 million ($11*2 million) in 1985. The rate of return on net fixed telecommunications assets (book value) in operation (after tax) rose from about 8% in 1980 to 53% in 1985. Telecommunications assets were revalued in 1985 (para 4.04); the revalued rate of return was revised to 18%, easily meeting the 12% rate of return covenant of the first project. TPTC's financial performance over 1980-85 is given in Annex 13 and summarized in Table 4.1 below. Table 4. 1: TPTC FINANCIAL PERFOREM=E (TSh, 000, Current terms) FY Ending December 31 1980 1981 1982 1983 1984 1985 Operating Revenue (Telecoms)/DEL 9.9 8.2 10.3 11.4 18.2 23.9 Operating Expenditure (Telecoms)/DEL 5.7 6.2 8.2 8.7 12.3 12.9 Operating Income (Telecoms)/DEL 148,000 67,000 141,000 70,000 234,000 502,000 Operating Ratio (%) 57.6 76.2 64.2 76.5 67.5 53.7 Return on (Telecom) Assets (%) - Revalued After Tax a/ n/a 12 15 4 11 18 Debt-Equity Ratio 19.8 22.8 26.6 33.3 47.9 46.8 CPI 100 126 162 206 247 296 a/ Revalued gross fixed assets as of December 31, 1985. 4.02 TPTC's improved performance in 1985 reflected improvements in telecommunications operations and tariff increases in 1983 and 1985. The postal service, which is expected to operate on a break-even basis, increased its losses from TSh 16 million ($2.0 million) in 1980 to TSh 42 - 20 - million ($2.5 million) in 1985, which in turn remained equivalent to about 10% of telecommunications annual operating income. The postal losses were easily covered by the telecommunications operating surplus. TPTC's accounting system can separate the direct postal operation costs and revenues but cannot yet produce separate financial statements for postal operations. However, with consultants' assistance provided by the project (par 3.04), TPTC will, by December 31, 1987, establish a computerized fixed assets register and establish a methodology for regular asset revaluation to be agreed with IDA. An acceptable methodology to IDA would comprise a periodic review every three years of fixed asset values with a revaluation index of 5% to be applied in the interim years. The size of the index and the frequency of the review would be reviewed and if necessary adjusted during project supervision. Telecommunications and postal accounts will be separated by December 31, 1988. TPTC's Financial Position 4.03 Despite fluctuating operating performance during 1980-85, TPTC's financial position has remained satisfactory although the debt-equity ratio has deteriorated to 47:53 due to the expansion in long-term loans. Liquidity has increased with the current ratio improving from 1.6 to 2.3. Accounting for billing delays, outstanding accounts receivable as of end 1985 were equivalent to about four months of revenues which is high (para 2.18). TPTC's financial position is summarized below. Table 4.2: TPTC's BALANCE SHEET (TSh Million, current terms) PY Ending December 31 1980 1985 Assets (Book Value) Fixed Assets: Net plant in service 545 493 Work in progress, materials, equipment 105 722 Total net fixed assets 650 1,215 Investments 140 239 Current assets (incl. receivables and cash) 647 1,387 Total Assets 1,437 2,841 Liabilities Equity 835 1,186 Long term debt 206 1,045 Current liabilities 396 610 Total Liabilities 1,437 2,841 Current Ratio 1.64 2.27 Debt/Equity Ratio 20/80 47/53 - 21 - Revaluation of Assets 4.04 An asset revaluation study completed in October 1986, resulted in a revaluation of gross fixed telecommunications assets as of end 1985 by 5 times. This revalued asset value has since been further revised to reflect the recent devaluation. TPTC agreed that commencing with end FY87, the financial accounts would reflect revaluation of TPTC's assets and liabilities. Financial Projections 4.05 TPTC's consolidated projected financial statements with accompanying assumptions for the project period FY87-90 (Annex 14) are summarized in Table 4.3. The recent devaluation in mid 1986 of about 160% will increase the cost of imported equipment and materials, payments to international administrations and foreign debt service. To partially compensate for this, in January 1987 TPTC increased postal tariffs by 60%, local telecommunications tariffs by 50%,. and international tariffs by 120%. International tariffs are now quoted in dollars thus providing an element of automaticity. In the projections, no further tariff increases have been assumed. Projected financial performance appears satisfactory reflecting improvements in the quality of service, maintenance and management. Total cash operating cost increases/DEL are about 19% p.a. and staff costs/DEL are assumed to increase by about 5% p.a. in real terms In 1988, 1989 and 1990. Maintenance/DEL is expected to increase in real terms by 10% in 1988 and 1989 and by 5% in 1990. Total operating revenues/DEL should increase by about 20% p.a. in real terms over the same period. Postal losses are assumed to be eliminated in 1987 as a result of the above increase in postal tariffs. The rate of return on revalued average net fixed telecommunications assets after tax is expected to increase from about 22% as of end FY87 to about 31% as of end FY90 due to efficiency improve;tents under the project. TPTC and Government have agreed to make tariff 4/ and efficiency improvements sufficient to achieve an annual rate of return on revalued average net fixed telecommunications assets of at least 12% after tax. Table 4.3: TPTC PROJECTED FINANCIAL PERFORMANCE (TSh thousand, current terms) FY Ending December 31 1987 1988 1989 1990 Operating revenue (telecom)/DEL 47.9 55.6 64.1 70.8 Operating expenditure (telecom)/DEL 27.5 31.8 36.1 38.8 Operating income/DEL 20.4 23.8 28.0 32.0 Operating ratio (%) 57 57 56 55 Return on telecom Assets - Revalued after tax 21 22 26 29 Debt Equity Ratio 51 44 43 41 4/ With international tariffs linked to the dollar, a degree of automaticity of tariff adjustments to devaluations is assured. - 22 - Financing Forecast 4.06 Table 4.4 below summarizes TPTC's projected flow of funds over the project period (Annex 14). Government will onlend credit proceeds to TPTC at 7.92% for 20 years including 4 years of grace, with TPTC bearing the foreign exchange risk. TPTC agreed to take appropriate measures sufficient to ensure that its net internal cash generation for the current year shall not be less than 50% of the two-year moving average of TPTC's total investment requirements (including incremental working capital) for the current year and the following year. Foreign exchange is the main constraint to TPTC's development program (para 2.22). Due to Tanzania's overriding macro resource constraints, the Government is unable to guarantee a flow of foreign exchange to TPTC. However, with the assistance of consultants (para 3.04) TPTC will prepare and discuss with Government a resource transfer policy to address TPTC's foreign exchange needs (para 4.12). In addition to financing TPTC's foreign exchange requirements for spare parts and equipment, IDA will be partially financing TPTC's foreign exchange requirements of operation and maintenance. During IDA's annual review (para 3.15), TPTC will review with Government and IDA its foreign exchange needs for financing operating costs and identify sources of funds to meet such needs. Furthermore, disbursement of the IDA share of the annual financing plan would be conditional upon agreement on the annual expenditure program and provision of the agreed TPTC/Government funding (para 3.10). Table 4.4: TPTC CONSOLIDATED FUNDS FLOW (FY87-90) (TSh Million - current terms) TSh Million 2 Applications Total program cost 3,186 76 Increase in working capital 1 Oil 24 Total applications 4,-197 55 Sources Internal cash from operations 4,387 Less debt service 2,279 Net internal cash 2,108 51 Foreign borrowings 2 089 49 Total sources 4,197 00 - 23 - B. Economic Analysis Tariffs 4.07 Level. Tariffs set by the East African Posts and Telecommunica- tions Corporation in February 1975 remained in effect until September 1983 when they were reviewed and the level increased by 25%. A further tariff increase of 33% occurred in February 1985. The tariff structure was not reviewed in either 1983 or 1985. The combination of infrequent tariff re- views, combined with continuing inflation, at about 25% p.a. over 1980-85, resulted in a decline in real tariffs by about 100% over 1980-85. The tariff adjustments that did occur also produced substantial swings in overall profitability (para 4.01). The real cost of outgoing interna':ional calls fell substantially during this period and exacerbated the interna- tional imbalance problem (para 2.19). In January 1987, TPTC increased tariffs to partially compensate for inflation and the recent devaluation. International telephone and telex tariffs, which are now quoted in dollars, were increased by 120%, domestic telecommunications tariffs were increased by 50% and postal services by 60% (Annex 15). 4.08 Policy and Structure. Consultants (financed by the first project) analyzed the present tariff level and structure and concluded (in October 1986) that existing services were underpriced. The January 1987 increase largely rectified the issue of tariff levels, which will now be sufficient to meet the financial covenants (paras 4.05 and 4.06) but the structure remains a problem. Furthermore, the expected rapid inflation rate will also require more regular adjustment in levels if real rates are to be maintained. With PPF consultants' assistance, TPTC is preparing a tariff policy proposal including a mechanism for periodic tariff review to ensure automatic tariff increases, providing TPTC has achieved the efficiency improvements to be agreed under the project. Such an automatic increase could be at the level of the inflation rate less 'x', where 'x' represents efficiency improvements. The resulting tariff increases would be reviewed every three years to ensure that they are in line with inflation increases and currency realignment. The proposal would also consider the introduction of a peak pricing system since demand is high and relatively price inelastic (para 2.10). Government has provided IDA with a statement of intent to introduce a revised tariff policy incorporating the objective of automaticity. Government agread to introduce by January 31, 1988, a tariff policy, which had been reviewed and agreed with IDA, which would include a formula and mechanism allowing TPTC to adjust its tariffs automatically, provided efficiency improvements have been made. Project Benefits 4.09 A countrywide network of reasonably well functioning telecommuni- cations services is essential to support the Government's objectives under the Economic Recovery Program. Efforts to increase export growth, increase production efficiency and ease transportation bottlenecks are being seriously impeded by inadequate communications, particularly between Dar-es-Salaam and other regional capitals, and between them and the - . 4 - district centers and other principal towns. The proposed project will follow on from the successful ongoing First Telecommunications Project (para 2.27) and will protect existing investments, introduce effective maintenance programs and halt the deterioration in the network. Key elements of the network will be rehabilitated, bottlenecks and imbalances will be alleviated to maximize utilization of existing installations. Furthermore, TPTC's management and organization systems will be strengthened to improve maintenance and operation of the existing network. The project is consistent with the Bank's development assistance objective for Tanzania, since it would develop an essential infrastructure sector, and Improve productivity in other sectors, particularly transportation infrastructure and agricultural marketing. Risks 4.10 The project faces no unusual risks. However, there is a risk that TPTC will implement management improvements more slowly than anticipated. Technical assistance is provided under the project in line positions to assist in institutional development and will minimize this risk. The impact of technical assistance will be reviewed annually with IDA and TPTC will be required to agree to the implementation objectives for the following year (para 3.04). Annual reviews of specific project performance criteria will identify technical and financial problems and determine measures to resolve them in a timely fashion (para 3.15). Advanced procurement activity will minimize physical implementation delays. The risk that inadequate foreign exchange (para 2.22) will be available during the project period is being addressed by financing of the foreign exchange requirements of the program, including the provision of spare parts and the financing of recurrent maintenance costs. The occurrence of a longer term foreign exchange constraint facing TPTC for spare parts after the project period will be dependent on the prevailing macroeconomic climate in Tanzania. This will be monitored and addressed in the consideration of future lending operations. The risk of a shortage of domestic supply of imported components, e.g., building materials, is addressed by the project's financing of indirect foreign exchange, and providing TPTC with foreign exchange for their direct import if necessary. Return on Investment 4.11 The rate of return calculations are based on the entire invest- ment program. The projected financial and economic rates of return are 45% and 40% respectively (Annex 16). These are in line with experience in other countries and reflect the high rehabilitation content of the pro- gram. The financial rate of return is based on the incremental benefits and costs to TPTC. The minimum estimated economic rate of return includes an estimate of consumer surplus and local costs and revenues are adjusted by a standard conversion factor of 0.5. Sensitivity analysis indicates that in the worst case scenario, (20% cost increase, 20% benefit decrease), the ERR falls to about 22%. - 25 - Resource Mobilization 4.12 TPTC, as a public corporation is currently liable to income tax at 50%. Over the project period (1987-90), this is expected to generate about TSh 2,502 million ($45.5 million) for the Government. In addition, the 5% sales tax on subscriber billing, which TPTC collects for the govern- ment, is expected to generate about TSh 740 million ($13.5 million). Although TPTC may not be a direct earner of foreign exchange due to its dependence on imported equipment and materials, and the current i-st outflow to foreign administrations, the improvements under the project are expected to generate substantial foreign exchange earnings indirectly through improved service to the export industries. Consultants provided under the project (para 3.04) will identify the extent of the net outflows to foreign administrations and ensure that TPTC receives payment due from them when TPTC makes payments to them. They will also assist in renegotiating international accounting rates. The financial projections indicate that TPTC will generate a cash surplus in local currency, expected to amount to TSh 3,058 million ($65.7 million) by end 1990. Consultants will assist TPTC in preparing in a resource transfer policy which could include dividend payments to Government, prepayment of TPTC's long-term debt or other means to transfer resources to Government. TPTC will discuss and agree this resource transfer policy with Government and IDA by June 30, 1988, which would be implemented by December 31, 1988. Through the dialogue with Government, TPTC should also investigate the possibility of trading the projected large local currency surplus generated for foreign exchange required for their operation and maintenance costs. Least Cost Solution 4.13 The investment program (para 3.03) is the least cost solution for providing the service levels planned, within the constraints imposed by the existing configuration and technology of the telecommunications network. The timing and dimensioning of elements in the system are based on accepted engineering practices for selection of technique and equipment. Environment and Health Aspects 4.14 The project is expected to have no adverse environmental or health impacts. Improved telecommunications improve the delivery system for routine and emergency health services. Increased use of telecommunica- tions services produces more efficient use of the transportation system, reduces costs, environmental pollution and energy consumption. V. RECOMMENDATIONS 5.01 During negotiations assurances were obtained that: (a) By January 1, 1988 TPTC shall present to IDA an acceptable incentive scheme which would consist of a list of performance categories, a monitoring system and a - 26 - preannounced award system; to be put into effect not later than June 30, 1988 (para 2.13); (b) TPTC will agree with IDA by no later than December 31, 1987, on the training disciplines and locations for fellowships (para 2.15); (c) TPTC will review its manpower plan and by December 31, 1988, will establish a computerized data base incorporating its requirements, targets and recruitment strategy (para 2.16); (d) By December 31, 1987, TPTC will present and agree with IDA upon a plan of action to reduce outstanding subscrib- er receivables to two months of revenues by end 1990. TPTC will also maintain an aging list of receivables to be forwarded to IDA every six months (para 2.18); (e) TPTC will prepare and forward to IDA draft and audited financial, special and project accounts ko IDA within 4 and 9 months respectively at the end of FY87, 3 and 8 months respectively at the end of FY88, 3 and 6 months respectively at the end of FY89 and 2 and 6 months respectively at the end of FY90 (para 2.20); (f) TPTC shall, no later than December 31, 1987, in consulta- tion with Government and IDA, prepare an action plan and commence implementation of the following measures to increase its efficiency through: (i) restructuring of its organizational st:ueture and management procedures; (ii) establishing profit centers; and (iii) contract out those activities which can be handled more efficiently by other agencies (pars 2.25); (g) TPTC shall appoint by no later than December 31, 1987 and under terms of reference and conditions of employment satisfactory to IDA, consultants necessary to design and implement management systems necessary to ensure efficient implementation of its investment program, and operation and maintenance of the existing and future network operations and planning (para 3.04); (h) Not later than October 1 each year TPTC will review and agree with Government and IDA: (i) TPTC's annual expenditure budget within the agreed five year program (para 3.10); (ii) the foreign exchange needs for financing operating costs and identify sources of funds to meet such needs (para 4.06); - 27 - (iii) the implementation of all technical assistance and of counterpart staff training and agree on implementation objectives for the following year (para 3.04); and (iv) TPTC's performance during the previous year against agreed targets, and agree on targets for subsequent years together with an action plan to improve performance if necessary (pars 3.15); (i) TPTC will consult with IDA before undertaking any new works outside the approved investment program which would require investment of $2 million equipment or more each year (para 3.10); (j) Disbursement of the specified IDA share of the annual financing plan for TPTC's agreed five-year expenditure program should be conditional upon agreement on the annual expenditure program and provision of the agreed TPTC/Government funding. IDA's disburp2ments would be reduced pro rats if the annual program is reduced below the levels indicated in the five-year program (parae 3.10 and 4.06); (k) TPTC will (i) by December 31, 1987, establish a computerized fixed assets register and establish a methodology for regular asset revaluation, to be agreed with IDA and (ii) will separate telecommunications and postal accounts by December 31, 1988 (para 4.02); (1) Commencing with end PY87, the financial accounts would reflect revaluation of TPTC's assets and liabilities (para 4.04); (m) TPTC and Government would make tariff and efficiency improvements sufficient to achieve an annual rate of return on revalued average net fixed assets after tax of at least 12% (para 4.05); (n) TPTC agreed to take appropriate measures to ensure that its internal cash generation for the current year shall not be less than 50% of the two-year moving average of TPTC's total investment requirement (including incremental working capital) for the current year and the following year (para 4.06); (o) The Government will introduce by January 31, 1988, a tariff policy, which had been reviewed and agreed with IDA, which would include a formula and mechanism allowing TPTC to adjust its tariffs automatically, provided efficiency improvements have been made (para 4.08); and - 28 - (p) TPTC will prepare a resource transfer policy, to be discussed and agreed with Government and IDA by June 30, 1988, and to be implemented by December 31, 1988 (para 4.12). 5.02 Conditions of credit effectiveness are that (a) TPTC and the Government has signed a subsidiary loan agreement acceptable to IDA, whereby $23.0 million equivalent of the proceeds of the IDA credit would be onlent to TPTC at 7.92X for 20 years including 4 years of grace (para 3.09); and (b) a project coordinator has been appointed under terms of reference and conditions of service to be agreed between TPTC and IDA (para 3.14). 5.03 Subject to the above conditions and assurances, we recommend an IDA credit of $23.0 million equivalent at the IDA standard terms. - 29 - ANNEX 1 Page 1 of 5 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT A. Telecomunication Statistics as of December 31, 1986 A. Physical Facilities I. Local Telephone Capacity of telephone exchangs, lines 73,942 of which autoatic " S8,SOO manual " 15,842 Number of automatic telephone exchanges 35 Number of manual telephone exchanges 138 Number of telephones 117,179 Annual growth in DELs (last 4 years) percent 5.7 Number of subscriber connections 54,460 Average exchange fill, percent 74 Unsatisfied demand, number on waiting list 66,718 1, II. Long Distance Telephone Total number of long distance circuits (udcrowave, VHF UhF, HF, tropospheric scatter, line-carrier) 6,192 Number of Radiocall Service Subscribers 256 Number of Radiocall Control Centers 3 Ill. Telegraph and Telex Number of telegraph offices /07 Number of telex offices 4 Number of telex subscribers 1,231 Unsatisfied demand for telex subscription, number on waiting list 1,223 IV. International Facilities (extencing circuits to Tanya and Uganda) Number of telephone circuits 103 Number of telex circuits 79 Number of telegraph circuits 8 B. Staff Total telecommunications staff 4,125 Number of staff per 1,000 DEL. 69 / TPTC estimates that there is a latent unregistered demand amounting to at least this figure. - 30 - ANNEX I Page 2 of 5 C. QUALITY OF SERVICE IN DAR-ES-SALAAM INDICATOR EXISTING OVERALL VALUE (1) Call success rates, automatic calls Busy Slack Hr. Hr. Local 462 492 S.T.D. 24X 43% (Kenya, Uganda) I.S.D. 16% 232 (2) Dial tone delay. N/A % receiving Dial tone in 3 seconds (3) Call success rate, Manual Service Long Distance 502 International 781 (4) Delay in response by operators 2 calls answered in 10 seconds Long Distance 102 International 952 (5) Number of faults/line/year 3.0 (6) Speed of fault clearance X cleared within 1 day 122 X cleared within 2 days 282 (7) Avaulability of transmission links N/A PANAFTEL National Troposcatter W47ANL4 SECOND TELECOMMUNICATIONS PROJECT Tanzanio Posts and escommunbalons Corpooion (IPTC) Monthly Fauft Per-Woddng D.EL PrAmum - 1M _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 4-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I' .~~~~~~~~~~~~~~ 29 X jon Feb Mar Apr MCy June J kV Sep Oct Nov Doc FoKt itInclude ThoseCmWle Fewud ifom Pr0Aow Month0 0 WbWl 8onIc-31OO9.3 - 32 - ANNEX 1 Page 4 of 5 TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMNICATIONS PROJECT E8 DEMAND AND SUPPLY BY REGION - 1986 Exchange Connections Waiters TOTAL Arusha 4,585 3,458 8,044 Dar es Salaam 21,530 29,805 51,335 Dodoua 3,127 1,391 4,518 Iringa 843 1,131 1,974 Kagera 812 1,880 2,692 Kigoma 827 968 1,795 Kilimanjaro 3,082 3,635 6,717 Lindi 806 565 1,371 Mara 947 1,336 2,283 Mbeya 2,210 2,721 4,931 Morogoro 1,771 1,645 3,416 Mtwara 849 732 1,581 w4anza 3,467 4,372 7,839 Ruvuma 589 991 1,580 Shinyanga 832 2,000 2,832 Tabora 903 1,521 2,424 Tanga 3,571 3,675 7,246 Zanzibar 3,708 4,808 8,516 TOTAL 54,460 66,634 121,094 TANp 1_ SECOND TELECOMMUNICAIOM PROJECT Tanzania Pcots and Toelsoommkunlcam Coprion IC) EXCHANGE CONNECOn AND WAMNv US 100'- # ) oopp-~~~~~~~~~~~~~~~~~~~~~~~C. 70- 40 30S ouks1t --.. - SimUw ,0000 ~ ~ ~ ~~tS~409 -S, a.-0100 F o WONz SDVWTGMv Imm i k* 1 ^ ; WAN PO AND E _C OCc M (WIC) SECOND ELECORMOCONS P O|im a zJd I d lc -_-- -1- - Son hucao I Ei1 8m*4IOM - 35 - ANNEX 3 Page 1 of 7 TANZANIA TANZANIA POST AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT SUMMARY OF TRAINING FACILITIES (1980-90) Courses offered 1.01 A training centre, run by TPTC in Dar-es-Salaam, is utilized to train both telecomunications and postal staff. Telecomunications courses have been developed for new recruits to the technical wing and for recruits to the traffic wing. The technical staff courses are at the technicians (operative) level, and at the Technical Officer (supervisory) level. The minimum entry qualifications, method of selection and course duration, including on-the-job training for technical courses are given below: Minimum Method of Duration No. of Qualification Selection of Course trainees per course Technicians: C.S.E. Written 1 year 20 test + interview Technical officers: A.C.S.E. -Do- 3 years 20 (1.5 years theoretical + 1.5 practical) 1.02 The technical course is intended for recruits who would ultimately be employed In external plant (underground and overhead) construction. The maintenance technical officers course trains recruits for junior supervisory pos;'0ons. Their training covers four areas; external plant switching, transmission and radio and power plant. Each technical officer receives individual supervision in the field and the specialized training in one of the four areas takes place during the final year. - 36 - ANNEX 3 Page 2 of 7 1.03 The telecommunications controllers course runs for 9 months for traffic staff. Minimum qualifications for direct entrants to the course is a B.Sc. in science subjects, while corporation employees are required to five years experience in a supervisory position, such as a Senior Telephone or Telegraph Supervisor. This course is run according to requirements every two or three years. 1.04 The training center also runs refresher courses for technical officers and technicians requiring further training on a particular type of equipment. 1.05 The center can accommodate 240 students at a time. For technical staff it caters to 60 technicians and accommodate 60 technical officers in three intakes. Facilities 1.06 Facilities at the training center comprise the class room, 4 laboratories and 19 equipment rooms. While training material and equipment is available for externa. plant, power plant, transmission and radio; the necessary training equipment in crossbar and digital switching systems are not available. Instructors 1.07 The instructors for the courses are chosen from serving Corporation staff, mainly from the level of Assistant Engineers holding full technician certificates and considerable (more than 5 years) experience in a particular field. However, adequately trained instructors are not available for courses in digital technology, which has been adopted by the corporation for phased implementation. Staff chosen as instructors are given a promotion of one step and a special allowance while at the training center. Recruitment of engineering degree holders, based upon their academic qualifications 1.08 Normally, the duration of training is 2 years for engineers other than telecommunication engineers, while the training for the latter category is limited to one year and is mainly on-the-job training. This type of recruitment is made through the National Manpower Allocation Committee under the Ministry of Labour, which allocates engineers according to availability, qualifications and requirement. Training of qualified (A.C.S.E. - level) technical officers as Engineers, outside Tanzania is restricted due to lack of funding and, so far, only 1 or 2 candidates are sent for such training each year. - 37 - ANNEX 3 Page 3 of 7 STAFFING & PRODUCTIVITY (1979-1987) INSTRUCTING STAFF TRAINING CENTER INSTRUCTORS OUTPUT PRODUCTIVITY IN TSh IN STUDENT WEEKS ACTUAL COST IN STUDENT PER INSTRUCTOR PER YEAR AUTHORIZED POSITION WEEKS PER ANNUM STUDENT WEEK 1979 41 32 4881 152 1925 1980 41 38 5358 141 1743 1981 51 43 6234 144 1617 1982 51 47 6618 140 1787 1983 60 41 6171 1SO 2237 1984 60 42 8059 192 2086 1985 60 48 9684 201 2342 1986 60 45 10237 227 2980 1987 60 60 11000 183 4968 B. Proposed Training Courses 1987 - 1990 IUrn Number of Trainees Tralinig Frequecy Total Number Entry Target of Traling Course Per Course Dtration of Trainee Qaalificatlons (upon successful completion of the course, trainees vill be able;) 1. NUsic Course Maintenance Nanagemat 20 persons I week 11 times 220 persons Persomnel of NSP-6 to understand the outUnes of level in the fault administration, material Par-es-Salas. administration, and plant record Telepbone Office adinnistration Otside Plant Instal- 20 " 2 weeks 11 n 220 n 1 (1) to uAderstand each copoent lation Techniques and of outside plant and the concept Subscriber Premises ¢ telecommicattions ytem Technique (2) to Install and repair flephone sets, idres, cables, poles, guys, boxas, etc., and (3) to inspect outside plant to guide their sabordinates; 2. Advanced Cour- Malatenance Management 20 persons 2 weeks twice 40 persons Personnel of WU-7 to enercise antea level In the mansgemnt Dar-es-Salasm Telepbone office *bscriber Premises 20 " 2 n 40 " to ilstall and repair telephone Installation Tecbhnqu, sets, wires. and to uvderstand eke concept of telecoamnication system outside Plant Cable 20 " 2 w 40 n (1) to jolt cables Intallation Techniques U) to Install poles, and (3) to inopect outside plant Mlatenance Activities 20 n 2 n 40 n To conduct trouble sbooting and eceptance tests 3. Comprehbsive Course 10 persons 1 month 4 times 40 persons eaders of outside (1) to urcise mintenanc pant section In the magant, and to uderstad the eighteen regional concept of telecomsniaton telepboe of fices system (2) to supervise listallation, malatenace and adminitration worka of their persomel, a" (3) to conduct trmble shootlng. s and acceptanee tests TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION SECOND TELECOMXUNICATIONS PROJECT PROPOSED OVERSEAS TRAINING R_UM.ER OF CANDIlDATES No. SUBJECT/COURSE TITLE LEVEL/QUALIFICATION DURATION 1987/88 1988/89 1989/90 1. MANAGEMENT 1.1 Training for Chief Executives Certificate low 1 1 _ 1.2 Telecommlnication Technical Management Certificate 1.3 Telecommunication Operations 6W 1 1 Management Certificate 5 1.4 Management Development Program Certificate 8W 1 1 1 1.5 Pinawcial Management Certificate lIo 1 1 1 2. TELECOMMUNICATIONS ENGINEERING 2.1 Telecominications System 121 Management Postgraduate Diploma 2.2 Telecommunications Technology M-Sc. 12M 1 1 1 2.3 Electronics and Instrumentation Diploma 2YRS - 1 2.4 External Plant Engineering 3M 1 1 1 Planning Certificate NUNUR OF CANDIDATES Noe SUBJECT/COURSE TITLE LEVEL/QUALIFICATION DURATION 1987/88 1988/89 1989/90 2.5 Switching Systems Engineering/ Planning Certlficate 3M I I I 2.6 Telecommunications Traffic Measurement and Network Planning Certificate 3M 1 1 2.7 Electronic Power Systems Certificate 3M - 1 - 2.8 Transmission System Planning Certificate 2M 1 1 - 2.9 Teletraffic Engineering Certificate 31 - I - 3. TELKCOMDUNICATIONS OPERATIONS 3.1 Traffic Operations Course Dipolma 4W - 1 - 0 4. CORPORATE PLANNING 4.1 Telecomunications Economoist Certificate 3f - _ 1 5. AUDITING 5.1 Performance Auditing Certificate SW - 1 I 5.2 Computer Auditing Certificate 8W - I _ 6. COMPUTING 6.1 Electronic Data Proecssing Diploma ZYRS | - | oft NUMBER OF CANDIDATES No. SUBJECT/COURSE TITLE LEVEL/QUALIFICATION DURATION 1987/88 1988/89 1989/90 6.2 WANG Vs Programming Certificate 4W 1 1 I 7. SUPPORT SERVICES 7.1 Manpower Planning Certificate 12W 1 _ _ 7.2 Materials Management and Purchasing Postgraduate 12W 1 1 1 7.3 Telecommunications Contracts and other legal aspects Certificate 8W -1 -42- ANNEX 4 Page I of 5 TANZANIA TANZANIA POSTS AND TELECOPWJNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT Terms of Reference for PPF Study 1. Introduction and Alas A. Background 1. The Tanzanian Post and Telecomunications Corporation (TPTC) is responsible for the provisions of all public telecommunications services (domestic and international) in Tanzania. The telecommunications network is being rehabilitated and is projected to expand in the future. TPTC needs to improve and strengthen its organizational capabilities in order to deal with the resulting increase in scale and complexity of its management needs, in particular, in network planning and project implementation and the operations and maintenance of the existing and more complex new digital network planned to be introduced in Dar Es Saleaa. B. Objectives 2. The purpose of this assignment is to assist TPTC in the design and implementation of requisite management systems necessary to assure efficient implementation of Its investment program and operation and main- tenance of its existing and future network, the assignment will focus on three areas, (i) Development Planning and Control; (ii) Installation, Oper- ations and Maintenance; and (ill) Financial Management and Accounting, Stores and Materials Management, all within the framework of TPTC's policy objectives. C. Approach 3. The assignment is to transfer mansgement know how and know why to TPTC, a large part of which cannot be adequately codified in written reports. Consequently, the consultant will work closely with relevant staff and management of TPTC to assist them through a hands-on process with both analytical techniques and Implementation of the recomendations. The resources budgeted for this assignment will make due allowance in this. II. Scope of work 4. TPTC has, since its inception, established a managerial frame- work, financial structure, manpower development and information base to meet its perceived needs. The systems in place however, remain fragmented in that management declsion making does not have the benefit of interactive and timely flow of adequate information. In order to avoid possible incon- sistencies In planning or delays ln decisions and to promote lntegration of _ 43 _ ANNEX 4 43 - ~~~~Page 2 of 5 technical and financial aspects of network development and operation as well as to facilitate anticipation of potential problems it is necessary to have a coherent decision support system. s. To meet the above objectives, TPTC wishes to appoint a suitable and competent telecommunications consulting coapany(s) to undertake a series of tasks in phases. The first (about 40 manmonths) for which bids are now being invited consists of the diagnostic problems. During thig phase, the consultant will thoroughly analyze TPTC's performance in recent years in project planning and monitoring and control operation and mainte- nance and instalIations and in finance and accounting and stores and materials management and identify the critical issues TPTC faces. Based on the findings, the consultant will review with TPTC's management the perfor- mance indicators currently monitored, propose a plan of actions to improve the management system and assist in finalizing the implementation schedules for major components of the project. 6. The consultant will work with relevant staff and management of TFTC to assist them through a hands-on process with analytical techniques and preparation of the recommendations. Task I: Development Planning and Control A. ObJective 7. Assist in establishing the basis for effective planning and pro- ject control systems to support the implementation of TPTC's investment program including establishing a central planning engineering and project monitoring and control; and performing selected planning/engineering func- tions. Consideration will be given to both manual and computer assisted planning and control techniques. 8. The consultants will thoroughly analyze TPTC's performance in recent years along both technical and financil1 dimensions of activities and identify the critical issues the Corporation faces. Based on their findings, the consultants will then assist in devising suitable procedures and formats for various units within TPTC to generate the requisite infor- mation on an ongoing basis for timely management review. Concurrently, the consultants will also assess the need for both long term and short term strategies to address the issues, with special regard to the critical role of focused management attention. Finally, the consultant team will assist TPTC staff in actually formulating these strategies in a ",nitorable man- ner, e.g., through the performance indicators and propose appropriate action programs. B. Main Elements 9. (a) Implementation - a review of causes of various bottle- necks in the implementation of TPTC's investment pro- grams. In connection with the rehabilitation program, the consultants will assist TPTC in detailed planning, design and engineering of the works, and will review the ANN8X 4 44 Page 3 of S current-set-up and operational status of TPTC development planning unit and the procedures/practices used tn pro- ject preparation and implementation; (b) Installation, Operation and Maintenace - review of cur- rent maintenance areas, manuals, procedures and technolo- gies and fault identification and clearance organization, practices and reporting procedures for exchange equip- ment, outside plant, subscriber facilities, domestic long distance and international transmission facilities (earth station, microwave radio, UHF, VHF radio, open wire lines), etc. and propose changes where necessary, parti- cularly in light of new technology and modern malatenance techniques, review current service standards in respect of call failures, fault rate on equipment, fault clear- ance, operator answer, etc. in respect of each type of equipment and service; (c) review the existing traffic forecasaing system for national and International calls, with a view of recom- mending appropriate dimensioning of the network. Effects of peak period (busy hour) congestion and the resultant pressure on engineering to provide the solution by increasing circuits which ay be Idle or little used In off peak periods should also be considered; 10. The guiding principles for the an&lysis and recomendations should be rationalization (rather than centralization necessarily) of plan- ning (strategic and operational), monitoring and control functions; avoid- ance of duplication; due to regard to the cost of laformation, i.e., only that whlch can be deciphered and gainfully used should be generated. 11. In addition to relatively straight forward historic output measures such as number of connected subscribers, staffing ratios, per unit costs, service quality, profitability and liquidity, the following areas must be specifically investigated and plans of action established. (a) an ower Plonni - review TPTC's manpower plans based on an assessment of current projected needs due to network rehabilitations, expansion and changes in technology. The consultants will assist in detailing the require- ments, targets and recruitment or training strategies; (b) Training - identification of specific training needs for new staff, regarding deployment and skill upgrading with- in the system. In addition to technical training, finan- cial management, stores managemnt and audit needs will be covered. The consultants will also review the availa- bility of requisite facilities in the TPTC training center and other institutions within Tanzania; ANNEX 4 -45 - Page 4 of-5 (c) Stores :- review the system for management of stores, including both book keeping and physical movements, and propose streamlining measures to be implemented in the proposed systems; and (d) Computeritson - assist TPTC In developing a suitable program for the Improvement of the finance, operations, personnel, services, planning and other division opera- tions, Consultants will review data processing needs of the various divisions and devise strategy for computeri- zation of the different divisions functions, with parti- cular reference to software and communications between the divisions within TPTC. This will Involve a program for effective use of information processing capabilities for functions such as inventory control, operation and maintenance, customer services, financial management, and billing and collection. Consultants should advise on the role of personal computers, in particular with regard to management Information systems and financial modelling. 12. (a) Review of accounting procedures and financial policies and objectives of TPTC's plan and statement of policy; (b) Review of internal procedures for budget preparation and monitoring; (c) Review billing and collection system and procedures and propose options (software and hardware) for their improvement; and (d) Review the internatlonal In and out payments situation and propose a solutlon to improve the balance of payments and monitoring system. 13. Output. On a aonthly basis the consultants will issue a brief progress report on each of the elements of the above assignment. 14. On specific agreed dates to be determined between TPTC and the consultants an interim detailed report will be issued by the consultants. Dates will also be agreed for the issuance of draft final reports to be reviewed by TPTC, the Consultants and IDA. These final reports will essen- tially be the agreed plans of action for Task Two. ANNEX 4 -46- Page of 5 Input Estimate Man-Months Senior Engineers 14 Senior Financial Analysts 11 Senior Economists 2 Computer Specialists 2 Manpower and Training Specialist 3 Stores Expert 3 36 15. One further assignment needs to be carried out in conjunction with Task One. Of itself it is not implementation oriented but will focus on sector structure and the policy and strategic relationships necessary between TPTC, and parent Ministry and the Government of Tanzania. It will also question concerning both the organizational thrust of TPTC over the next few years, the need for and the format of a regulatory framework all encompassed within the policy objectives of TPTC, its Ministry and the Government. 16. This ass$gnment is expected to be collaborative with the consultants providing a senior economist. Man-Mouths 1 senior expert for 2 months 2 (wm P$ d k)mretomcg to 1986199D 1 _t fro r P a 1966 1987 1968 1989 1990 1961D0 L F T L F L P T L F T L F T L F T A. 8cgpft Wade 1.0 1.5 2.5 1.0 1.5 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.03.0 5.0 B. ,Sead IVA Ph,ect A1F1 a t 0.0 0.0 0.0 0.3 0.3 0.6 0.8 2.0 2.8 0.5 2.0 2.5 0.4 2.0 2.4 2.0 6.3 3 Sdtdbhg 0.0 0.0 0.0 0.0 1.3 1.3 0.1 . 2 3.3 0.2 4.2 4.4 0.1 5.0 5.1 0.4 13.7 14.1 & - 08a1s)a 0.00. 0.0 0.0 0.3 0.3 0.1 1.2 1.3 0.2 2.5 2.7 0.1 1.5 1.6 0.4 5.5 5.9 Taleobmm & SAt1s 0.0 0.0 0.0 0.2 0.5 0.7 0.3 1.9 2.2 0.1 0.8 0.9 0.0 0.0 0.0 0.6 3.2 3.8 !axtbotatimn 0.0 0.0 0.0 0.0 0.0 0.0 0.1 1.0 1.0 0.2 3.0 3.2 0.1 5.2 5.3 0.4 9.2 9.6 eacles & S9pM, *t Fiat; Mr QuIt1is Qautr PI* drt arainir CLvlbdumktadlB. 0.0 0.0 0.0 1.9 1.6 3.6 0.6 1.0 1.6 0.7 0.6 1.3 0.3 0.0 0.3 3.5 3.2 6.7 Te1MI stat& 6 Tndaig 0.0 0.0 0.0 0.1 0.3 0.4 0.1 1.5 1.6 1 0.9 1.0 0.0 0.7 0.7 0.3 3.4 3.7 Bam Ct 0.0 0.0 0.0 2.5 4.3 6.9 2.1 11.8 13.9 2.0 14.0 16.0 1.0 14.4 15.4 7.6 44.5 1.1 Esa C1qphy 0.0 0.0 0.0 0.1 0.2 0.3 0.1 0.6 0.7 0.1 0.7 0.8 0.1 0.7 0.8 0.4 2.2 2.6 Pr1sO & _timpow 0.0 0.0 0.0 0.5 0.1 0.7 0.8 O.5 1.3 1.1 0.7 1.8 0.6 0.9 1.5 3.0 23 5.3 Tota Quth_y 0.0 0.0 0.0 0.7 0.4 1.0 0.9 1.1 2.0 1.2 1.4 2.6 0.7 1.6 2.3 3.4 4.5 7.9 Wm 1L E( 0.0 0.0 0.0 3.2 4.7 7.9 3.0 12.9 15.9 3.2 15.4 18.6 1.7 16.0 17.7 11.0 49.0 60.0 1UML DNDM }M 1.0 1.5 2.5 4.2 6.2 1).4 3.0 12.9 15.9 3.2 15.4 18.6 1.7 16.0 17.7 13.0 52.0 65.0 - 48 - ANNE 6 TANZANIA TANZNIA POSTS AND TELECONUCATIONS CORPORATION (TPTC) SECOND TELECOIICATIONS PROJECT Investment Program and Sources of Financing: 1986-1990 Investment inanceing TShs US US$ Millions TEM Nillions Millions TPTC IDA SIDA ITALY ADS 1. trat IDA L 99.0 1.8 1.8 - - - - project P 143.0 2.6 - 2.6 - - - (Cr 1173-TA) T 242.0 T.8 T.T - 2. SIDA L 11.0 0.2 0.2 - - - - F 22.0 0.4 - - 0.4 - - T 33.0 0.6 I.2 2 6 -- Total o-goLOg L 110.0 2.0 2.0 - - - - Works F 165.0 3.0 - 2.6 0.4 - - T 275.0 .0 2.0 2.6 0 - Rehablitation 1. Second IDA L 478.5 8.7 8.7 project 1,265.0 23.0 - 23.0 1,743.5 31.7 8.1 23.0 2. ADS L 38.5 0.7 0.7 F 275.0 5.0 - 5.0 T 313.5 0.7 0 3. SZDA L 55.0 1.0 1.0 F 605.0 11.0 - - 11.0 T 660.0 12.0 1.0 11.0 Total L 572.0 10.4 10.4 - - - 5.0 W Riiitatlon 2 145.0 39.0 - 23.0 11*0 - - - 2,717.0 49.4 10.4 13.0 11.0 - .0 ITALY L 33.0 0.6 0.6 F 550.0 10.0 - 10.0 'T53.0O 10.6 0.6 10.0 TOTAL PROGRAM L 715,0 13.0 -2,860.0 52.0 3,575.0 65.0 13.0 25.6 11.4 10.0 5.0 L u Local; F - Foreign; To Total - 49 - AMh 7 Page I of S . ~~~~~TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT Works Under TPTC's Program, 1986-1990 1. TPTC's 1986-1990 telecommunications development progrs consists of the following components: (a) works supported by IDA; (b) works supported by ADB; (c) works supported by Italian Government; (d) works supported by Swedish Government; and (e) ongoing works. 2. The following i8 a brief description of the major works In the above groups: IDA Su!ported Works: A. Local Network Materials/Equip.snt Works L. Cable distribution Works will include: network: re-doing of joints, sectional replacement of cables, anti- Provide materials to reha- corrosion treatment, pressurl- bilitate and repair all nation of all important existing cable networks unfilled cables, junction (except those completed cables and primary cables; recently), test equipment replacement of cabinets, and tools. distribution points; and intro- duction of modern testings for The supply includes: fault locating and fault clearing: Methods using Auto- - Direct buried matic Line Installation cables-jelly filled, Routiners, black spot analysis; armoured and updating and computeriza- - Terminating cables-non tion of cable records. J elly filled - Cables and ducts- jelly filled - Aerial c bles-self support - Dropwire - 50 - ANNEX 7 Page 2 of 5 - Cabinet and distribu- tion boxes - Jointing materials and cable closures - Tools and test equip- ment - Pressurization equip- ment ii. Exchanges: Works Provide common equip- Works will include: restablishing ment, trunk terminations regular routine maintenance of so that existing strow- exchange equipment, use of automa- ger/cross-bar/ digital tic routning equipment, introduc- automatic exchanges and tion of automatic call sending pro- manual exchanges can grams using artifical traffic handle the traffic of the equipments and portable call designed number of con- senders and replacement of two nected lines, and provide strowger exchanges. test equipment, traffic monitoring equipment and tools. Replacement of wornout strowger exchanges in Tanga and Moshi. The capacity to be provided is 5,000 lines each. Mi. Subscriber equipMent and lines: Provide materials and equipment to repair and Reduction of overhead line lengths replace telephone sets, using dropwire; and introduction of coinboxes and switch- work procedures and supervision to boards. The supply improve productivity. includes: - 25,000 ordinary tele- phone sets - 1,000 magneto tele- phone sets - 1,000 secretarial type telephone and power units - 200 linemen's test telephones - 150 switchboards - 300 coinboxes - Mfalo? ffagae wiring - 51 - ANNSX 7 Page 3 of 5 iv. Telex Network: Provide about 500 tele- printers and 25 VFT equipment to improve service to telex subscribers and telegram service in various parts of the country. B. Inter-Urban Network: Provide and install multiplex terminating equipment for about 3,000 channels, to increase the traffic handling capacity on congested routes. C. Logistics support for installation and operation: (i) New vehicles to replace part of the fleet reduced due to obsolence. The supply includes: - 10 Heavy torries - 6 22-Seat Minibuses - 50 Vans - 15 4-Wheel Drive Vehicles - 15 5-Seat Samll Cars - 100 Motorcycles/Tricycles - 200 Bicycles (ii) Provide spare parts for telecommunicatioa equipment, power supply equipment, air conditioning equipment, and for vehicles in the fleet. This includes the re-establishment of sufficient stock levels for the project implementation period, with a minimum inventory level of six months at the tim of project completion; (iii) Machinery and tools for rehabilitation and improvement of the mechanical workshop, for service and running repairs of various vehicles of TPTC fleet. The machinery Includes: hydraulic trolley jacks for 2.5 to 10 ton vehicles, air compressors, arc welding machine, arc weldting machine vulcanizer, battery chargers, etc.; (iv) Provide civil works materials: G.I. sheets, P.V.C. pipes, acid proof cement; air conditioning equipment for telecommunications equipment rooms; electrical fittings including lightning protection equipment. - 52 - ANNEX 7 Page 4 of 5 D. Rural Network: (i) Telephone service will be introduced at 60 towns, mostly rural, which have no access to two-way telecommumications service; (ii) Installation of power supply equipment for telecommunications transmission facilities, with solar cell equipment at about 170 places; and motor-generator-batteries at about 20 places, most of the places being located in rural areas. E. Training and consultarcy: (i) Provide a small amount of training equipment, training manuals and training aids; (ii) Provide for 40 fellowships and overseas study tours in outside plant-engineering, construction and operation, in stores and supply management and in other sectors of TPTC as needed; (ii) Provide for about 140 manmonths to assist TPTC in the implementation of agreed action plan to restructure TPTC to operate effectively and efficiently. Works Supported by Other Sources: ADB, Italy & SIDA: Funded Zone Station A. Local Network (i) Provision of switching Dar-es-Salaam Pugu Road SIDA equipment, and cable Oyster Bay distribution to replace the worn-out network and provide for limited expan- sion. The capacity is 10,000 lines (6,000 lines 4,000 lines Oyster Bay). (ii) Provision of switching Mwanza Bukoba ADB equipment to replace the Kigoma ADB worn-out exchanges and provide for limited expan- sion. The capacity to be provided is 4,000 lines each - 53 - ANMEX 7 Page 5 of 5 Funded Zone Station B. Inter-Urban Network (i) Provision of digital (34 Mhanaa Nwansa Nbits) radio system to Mhsoma Italy replace the present open- wire route and provide capacity for growth. (it) Provision of transit/ Dar-es-Salaam Dar-es-Sals SIDA tandem exchange in Dar-es-Salaam required to interwork with the na Pugu, Oyster Bay exchanges and to ease congestion In rest of the network. C. Regional Network Provision of digital radio manaa hukoba-Ugsada ADS systems to improve commuica- Kigoma-Durnadi ADS tions to neighbouring Ngara-Ruanda ADS countries; Surundil, Rwanda and Ugands. D. International Facilities Improvement of Iiternational facilities: (S) Provision of standard "Al Dar-es-Salsam Dar-es-Salsam Italy Earth Station and associated equipment at Dar-es-Salaas (ii) Provision of intern.- Dar-es-Salaam Dar-es-Salaaa SIDA tioal gete- way exchange to introduce International direct dialing and automa- tic messag accountlng Z. Training 100 menmontha of experts in Dar-so-Salsam Dhr-es-B1alam SIDA vocational training to fomu- late and introduce comprehen- sive training in the mainten- ance fields; upgrade or develop program tillored to TPTC's job requirements; modernize teachlng methods and further develop Instruction inoew telecomunaieatios technology. ANNEX 8 - 54 - Page I of 9 TANZANIA POSTS & TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATION PROJECT Technical Assistance for Institutional Development Terms of Reference (T.O.R.) 1. Introduction and Aims A. Background i. The Tanzanian Posts and Telecommunications Corporation (TPTC) is responsible for the provision of all public telecommunications services (domestic and internatlonal) In Tanzania. The telecommunications network is being rehabilitated and is projected to expand in the future. TPTC needs to improve and strengthen its organizational capabilities in order to deal with the resulting increase in scale and complexity of its managements needs, and in particular, in network planning and project implementation and the operations and maintenance of the existing and wore complex new digital network planned to be introduced in the country in future. TPTC has reviewed the current systems and prepared proposals for strengthening its organizational capabilities with assistance of consultants. B. Objectives 2. The purpose of the consultancy assignment is to assist TPTC in the design and implementation of requsite managemnt systems necessary to assure efficient implementation of its investment program, and operation and maintenance of existing and future network within the framework of TPTC's policy objectives. The assignment will provide assistance for engineering activities namely Project PlanAnig, Monitoring and Control, and Operations and Maintenance, and management assistance for: (i) Financial Management and Planning; (ii) Materials Management; and (iiI) Data Processing capabilities. The assignment will also transfer management know-how and know-why to TPTC, a large part of which cannot be adequately codified in written reports. C. Approach 3. To achieve the above objectives, while executing the assignments in para 2 above, the Consultants shall be required to work closely in line positions with management and counterpart staff of TPTC to assist them through a hands-on process with both analytical techniques and ANNEX 8 -55 - Page 2 of 9 implementation of the accepted recommendation. Resources budgeted for this assignment will make due allowance for this. II. SCOPE OF WORK 4. TPTC has an established managerial framework, financial structure, manpower development and information base originally designed to mest its perceived needs. The systems in place however, remain fragmented In that management decision making does not have the benefit of interactive and timely flow of adequate information. In order to avoid possible inconsistencies in planning or delays in decisions, to promote Integration of technical and financial aspects of network development and operation, and to anticipate potential problems and facilitate their resolution, it is necessary to have a coherent decision support system. S. To meet the above objectives, TPTC wishes to appoint suitable and competent telcomuinications consultants to refine and implement its investment program, operate and manage its assets, and train TPTC's counterpart staff. Consultants are required to propose technical, managerial and financial experts to work In line positions in each of the areas in para 2 above. Consideration should be given to automated data processing capabilities within TPTC. 6. The Consultants will work with the relevant msanaerial and technical staff of TPTC and train them through a hands-on process in both analytical techniques and in implementation of the accepted recommendations to ensure that counterpart staff can takeover all the critical functions at the end of the consultancy assignment. 7. The scope of each task is detailed below. In making their proposals, the Consultants should keep in view the general local conditions in Tanzania, state of the entity, and availabliity of local staff with required qualifications. A. ENOINERRING TASKS I. Project Plannins, Monitoring and Control 8. ObMective: Assist in establishing the basis for effective planning and project control systems to support the implementation of TPTC's Investment program including establishing a central planning engineering and project monitoring and control group; and performing selected planning/engineering fune- ANNEX a -56 - Page 3 of 9 tions. Consideration will be given to both manual and computer assisted planning and control techniques. Main Elements (a) assist In reviewing Government's economic and social development plans to determine what telecoiumnications faclllties are required in order to meet the rehabilitation of services in urban areas and extension of services into rural areas; (b) assist in establishment of a planning unit to: (1) undertake strategic and corporate planning functions; (1i) define broader policies, stra- tegies and priorities of the telecommunications sector; (Lit) undertake special studies in the economic development of the sector; and (iv) adapt technlques to met the local enviroament. (c) assist in ensuring technieal Integration among all parts of the domestic network on the one hand and its technical interface with interna- tional networks following Internationally agreed fundmental transmission, wvitching and routing, sgnalling, numbering, charging, and synchronisation plans; (d) establish an engineering costing system to pro- vide accurate costs for the control of opera- tions and construction and provide management with information for planning, budgeting, tariff setting and similar purposes, in parti- cular for checking the benefit cost ration of all proposed investments and in outlining measures to determine the cost of the various existing and new services; (e) recotwed manpower requirements, training of existing staff, qualification and training of staff to be recruited, to perform the pertinent functions; and (f) field-train TPTC's counterpart staff and assigned officers on the experts' activities to the maximum extent possible while performing their tasks. ANNEX 8 57 - Page 4 of 9 II. Installation, 2peration and Maintenance 9. The objective is to improve service quality, operator effi- clency and reduce traffic overload caused by ineffective calling attempts. The consultants will assist TPTC to esta- blish a central organization and necessary records and: Main Elements (a) assist in the establishment of detailed O&M procedures and assist in identifying require- ments for satisfactory maintenance and operation of service; (b) assist in the collection, modification and retention of data required for effective opeation of the Dar-es-Salaam district and input to the MIS under anagement task (III); (c) assist in defining and setting up targets for different service quality and performance and outline means of monitoring them to enable improvements In performance and productivity to be measured; (d) assist in developing a new traffic forecasting system for national and international relations and to define its use in planning and modern traffic engineering based on identification of measured item and analyses thereof; (e) assist in implementing planning and traffic engineering based on above; and (f) field train TPTC's counterpart staff and assigned officers to the expert's activities to the maximu extent possible while performing his tasks. B. MANAGEMENT TASKS I. Financial Management and Planning 10. Oblectives: To Implement a management system for TPTC's financial opera- tions. TPTC has reviewed, with the assistance of consul- tants under the PPF, the current systems for commercial accounting, stores control and financial management and planning and prepared proposals for their improvement. These proposals need to be refined and implemented and the TPTC staff traidned in their use. One consultant will be needed to work In a line position in financial accounting ANNEX 8 - 8 - ge of9 and one in management accounting although there could be some overlap in their activities. Proposed tasks include but are not necessarily lUiited to the following: Financial Account lu: To assist TPTC in developing its commercial accounting system to, among other tasks, pro- duce quarterly commercial accounts, separate telecommunications and postal assets and accounts and establish a financial management Information system (MIS). TPTC staff training needs will be identified and the Consultants will provide training in techniques and practi- ces where necessary. lain Elements: (a) Accounting system design, general ledger establishment, production of commercial .financial accounts (initially annually) verification of opening balances; identify cost/profit centers, establish procedures for regional data collection; (b) Capital expenditure and fixed asset record- ing; establishment of computerized asset register, revaluation of assets and liabi- lities, preparation of statement of affairs on FY87 accounts, establish and verify led- ger, training in evaluation techniques, financial modelling and new procedures; (c) Debt analysis, tax liability (in conjunc- tion with a local tax expert); (d) Design of revenue accounting system, bil- ling and collections, write-off policy, agi ng list, timetable and action plan to reduce receivables; (e) accounts payable and cash payments, verifi- cation of opening balances, establish in- voice register, coding and approval. Management Accountins: To assist TPTC in implemating the financial management systems includiag billing and col- lection, analysing TPTC's write-off procedure for debts, budgeting and cost analysis, and setting up a data base and system for perfor- 59 - ANNEX 8 Page 6 of 9 mance monitoring. The monitoring system wlll be integrated with the engineering information system (para 8). Emphasis shall be given to organizational arrangements, particularly to developing procedures for coordination between the accounting, finance, engineering, planning and stores control functions. The systems shall be action oriented with adequate flexibi- lity built in. Necessary reports would show uactualsw and 'targets" (establisbed through budgeting) and to indicate exceptions and trends. The system shall be computerized and supported by manual systeme as necessary. The training programs for the users will be deter- mined. The budgeting (including income and ex- penditure planning and capital budgeting) and cost control system shall provide a basis for allocating costs between the different services of TPTC (internal and external telecoamnica- tions, postal and savings bank operations). Main Elements (a) Budgeting and preparation of five year forecasts, financial planning, establishing links with TPTC's engineering planning, identify TPTC training requirements; (b) International Accounts (link with financial accounting), set-up system using creditors and general ledger routines, assist in accounting rate negotiations; (c) Stores accounting--valuation (financial and physical) and computerized control system (link to materials management expert), improve coordination between planning, pro- ject implementation and financial account- ing functions. The computerized system will use on-site information units to be linked to the centralized data base; (d) TPTC capital restructuring, TPTC's organization structure, non-telecommnication activities; (e) costing of services-link to engineering costing, cost allocating, cost control sys- tems; and (f) Tariff structure, levels and policy review --the extent of this activity would depend on the tariff initiatives taken by TPTC during project implementation. -60- ANNEX a - 60 - ~~~page~~ of 9 lt. ObJectives To establish a comprehensive and integrated materials sanapement and control system which would meet the current and future requirements of TPTC. Main Elements (a) assist in the installation of practices and procedures for the procurenent, storage and distribution of capital project and maintenance materials; (b) assist in establishing the stores management and personnel structures including redeployment and staff training as necessary; (c) assist in maintaining proper classification of stock and stock location codes, Including re- mote locations; (d) assist in reorganizing the layout and storage of stocks in order to allow access to frequent- ly used iteim and control and identification project materials; (e) assist in re-establishing purchasing routines Including the maintenance of stock specifica- tion files, supplier files and setup reorder levels and quantities. Set up order progressing files. Observing the corporation policies and limits of authority; (f) assist in establishing proper stores receipts routine and procedures including the mainte- nance of stores record cards and stores rojec- tlon routines; (g) assist in maintaining an adequate stock costing system for local purchases and project pur- pOses* (h) assist in improving the computer based stock recording and valuation; (1) assist in providing regular information to man- agement on stock levels, outstanding orders and receipts including constant liasion with Pro- ject Planning Department; and -61 - ANNEX a Page 8 of 9 (j) asslst in establishing proper stores issue rou tines and stock distribution to project sites or remote locations. III. Data Processing Capabilities: 12. Ob ectives To assist In developing a suitable program for the improve- sent of the finance, operations, personnel services, plan- ning and other division operations. This will Involve a program for effective use of data processing capabilities for functions such as operation and maintenance, customer services, inventory control (materials management), and financial managoment information systems and financial modlling. Main Elements (a) assist TPTC with the Installation of a suite of fully intergrated packages and programs on the existing computer - Wang VS 65; (b) assist In coordinating the installation of those packages by liaising between the roftware suppliers, and TPTC; (c) assist on implementing the needed amendments to existing programs which were designed to run on the ICL 1900 Series, and provide programming support as necessary; (d) assist on the scheduling and planning activi- ties for the installation of accounting, stores and stock control packages, subscriber data managemnt, engineering support applications and management information systems; and (e) identify TPTC staff training requirements. 13. Training and Transfer of Know-how: Consultants are required to train and transfer skills and know-how to designated counterpart TPTC staff in all above tasks. The consultattc shall make specific proposals in this regard. 14. Han-months: It is estimated that a total of about 140 man-months of consultants servlces will be required for all the above tasks. Consultants may, however, make their own assessment -62 - Aex a Page 9 of 9 of the actual services needed. Consultants shall indicate J.n their proposal the following for each of the tasks: (a) total man-months proposed to be employed; (b) person (or persons) proposed to be employed indicating the curriculum vitae(s), and period for which each will be available; (c) bar chart including the proposed dates of commencement and completion of the task, period for review, preparation of proposals, implementation of proposals, training of TPTC staff, the availability of personnel for the task both in consultants headquarters and in the field In Tanzania; (d) detailed work program; (e) program for transfer of skills and know-how and training of TPTC staff; and (f) assistance expected from TPTC specific to the task. 15.* Lguage: English shall be the governing language in respect of this assignment. All Consultant's personnel shall be fluent in English. All reports, communication and presentations shall be in English. - 63 - 4NNEX 9 Page 1 of 2 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECTS Telephone and Telex Facilities over the Project Period (1986-1990) - ------- -Forecast - As of December 31. 1986 1987 1988 1989 1990 I. uocal Telephone Network (a) Number of exchanges 173 190 205 220 230 (b) Equipped capacity ii) DAR es SALAAM 28,800 30,800 30,800 34,800 36,800 (ii) Main Provincial 29,700 30,400 30,800 32,800 34,800 towns (iii) Rest of Tanzania 15,442 16,200 17t200 18,200 19,200 Total 73,942 77,400 78,800 85,800 90,800 (c) Direct exchange lines (DEL) Ci) DAR es SALAAM 21,198 23,500 26,500 30,500 33,000 (ii) Main Provincial 24,015 26,000 27,500 30,500 37,000 towns (iii) Rest of Tanzania 9s247 12,000 15,000 17,000 18,000 Total 54,460 56,000 60,000 66,000 72,000 (d) DELs per 100 pop (i) DAR es SALAAM 1.4 1.4 1.5 1.6 1.6 (ii) Main Provincial 1.4 1.5 1.5 1.6 1.8 towns (iil) Rest of Tanzania 0.05 0.06 0.07 0.08 0.08 Average 2.5 2.3 2.8 3.1 3.4 (e) Demand satisfaction 46.4 46.4 46.4 46.5 46.6 (Z) 1/ (f) Avergte exchange fill 74.0 74.0 77.0 77.0 79.0 -~M- 1I Demand Satisfaction . working lines working lines + waiters 2/ Exchange Fill _ workings lines equipped capacity -64 - Page 2 of 2 - - - -Frecast---- 1986 1987 1988 1989 1990 (g) Automatization factor 77.7 75.1 77.8 81.6 83.0 (2) (h) Public call offices 348 400 500 600 800 II. Long Distance Network (Domestic) (a) Number of interurban 3 3 4 4 4 exchange (b) Interurban trunk 4,010 4,138 5,928 6,984 9,484 terminations (c) Long distance channels 2,706 3,140 3,140 5,060 5,060 1IU. Telex Services (a) Number of Telex 3 3 3 3 3 exchanges (b) Equipped capacity 1,800 1,800 2,000 2,000 2,000 (c) Number of subscribers 1,231 1,300 1,400 1,500 1,600 (d) Demand satisfaction (2) 50 42 44 45 46 IV. International Telephone Service (a) Number of international 1 1 1 2 2 exchanges (b) Total terminations on 109 109 109 500 735 international telephone exchanges (c) Total number of 85 85 85 400 613 international telephone circuit V. International Telex (a) Total number of 106 106 106 150 200 international telex circuits Includes junction circuits - 65 - Ann 10 TANZANIA TANZNIA POTS AND TELECOfNCATIONS CORPORATION (TPTC) SECOND TELECOI1SWNICATIONS PROJECT Schedule of Dsbursements 1/ (U11$ Million) - Estimted Disbursement I DAh FI Semester Seoueter Culumtive I of total FY 88 XC-87 0.2 0.2 1 June 86 0.5 0.7 3 FY 69 De 88 1.4 2.1 9 June 89 1.4 3.5 15 Fy 90 DOC 89 1.8 5.3 23 June 90 2.1 7.4 32 FT 91 XeC-90 2.0 9.4 41 June 91 2.1 11.5 50 FY92 Dec 91 2.5 14.0 59 June 92 1.5 15.5 67 FY 93 DeC 92 1.5 17.0 74 Jum 93 1.5 18.5 FY 94 Dec 93 1.5 20.0 90 June 94 2.0 22.0 94 FT 95 Dc9 94 0.5 22.5 97 June 95 0.5 23.0 100 1/ BDsed on Bank standard disbursement profile for all projects tn last Africa, PY7685. - 66 - W~~IZANL4~~~A SECOND TELECOMMUNICAllONS PROJECT Tanzania Pote (:nd Telecommunkcxffons Coiporatton [TC) Imp emenatln Schedule Ca M rAR 19S7 .98 4989 4990 QUAVER 42] 344 4 2 3 4 4 2 3 4 LOCAL CABLE NET14RI _ __ __ __ _ _ __ _ NERURBANEMR Mupf Equ"en OJ *8 SU1B9CREWllPt EQUI*"~ TlsWPhoeCai 8oxUfhbods o w MdCH?di bL. - POAWER SUPPLY. AIR CONM1ONNG O W-NNtSGEOUM - p .PRE L. C iCOMI EQBT O V FELLOWPSH SIUDY TOURS - - XONSUTANCY SEICES ° O Tbndw ArffVuncemet Y Contr AWrd V Sat bMsalbtk n/AUs0a 0 corlo OtfA lgmsnt/froa Word Bok-31009.4 -67 - ANNEX 12 Pagp 1 of 7 TANZANIA TANZANIA POSTS AND TELECOMNUNICATIONS CORPORATION SECOND TELECOMMUNICATIONS PROJECT A. Performance Indicators A. A set of indicators which will assist in wonitoring TPTC's performance during the project period has been established. TPTC wlll report on the actual achievement as well as protected/budgted estimates relating to the performance indicators. Targets for 198771988 to be agreed during negotiations is given below in B. --Actual-- -Proposed- Year endins Dec. 31 1986 1987 1988 1989 1990 I. Engineering (a) Telephone exchange capacity (lines) 73,942 77,400 78,800 85,800 90,8000 (b) Main telephone lines (DEL) connected 54,460 56,000 60,000 66,000 72,000 (c) Telex subscribers 1,231 1,300 1,400 1,500 1,600 (d) Maintenance targets i) Subscribers faults cleared per telephone per annum - Urban networks 3.0 2.4 2.0 1.6 1.2 - Rural automatic networks 4.0 3.2 2.6 2.0 1.6 ii) Percent of faults cleared within one day 15 25 40 50 65 iii) Percent of faults with two days NA 30 40 60 70 (e) Average call completion rate (durins busy hour) - Local calls (automatic): 46 50 55 60 65 - long distance calls: Manual: SO 70 75 80 85 - (8TD): 24 30 40 50 60 - 68 - ANIX 12 -Actual-Estimeated- - Proposed- Year ending Dec. 31 1986 1987 1988 1989 1990 vf) vehicles in garage for service or repair (average vehicle-calendar days per year counted over the total vehicle fleet) 70 60 40 20 10 (g) staff ratio (employees per 1000 DEL.) 69 66 64 60 55 II. Financial (a) Rate of return on average revalued net telecom assets(Z) after tax 3 1/ 12 18 20 23 (b) Debt/equity ratio (X) 52 55 49 50 50 (c) Subscriber Accounts receivable as a percentage of telecom revenues in same FY 602 452 352 302 202 (d) Billing delay (days 2/) 60 50 35 30 25 (e) Time required to discon3ect defaulting subscriber I 45 45 4S 45 45 (f) Presentation of draft accounts to Bank (in months after end of PY) 6 4 3 3 2 (g) Operating revenues/average DEL (TSh '000 at constant 1986 price) 25.2 37.9 36.83 36.9 40.0 (h) Operating cost/average DEL at constant 1986 price (TSh'000) 22.7 22.9 23.15 22.7 22.2 In addition, beginning with JamarJ 1, 1988 TPTC will present five year financial projection--rolled over each year, for IDA's anual reviw. These will form the basis of discussions for longer teot adjustmnts focusing on such items as debt. 1/ Estimate 2/ Days from recording of billing. ills are due monthly. 3/ Target - 69 - ANNEX 12 Page 3 of 7 B. Programoedn8 and Monitoring of Maintenance Program for the Period June 1957 - December 1988 1. The principal aim of the quarterly programming and monitoring scheme for the period July, 1987 - December, 1988 is to ensure the lmprovement of efficiency In TPTC operations. Execution wlll be monitored on a quarterly basis. The programming and monitoring will be based, inter alia, on the following: 2. Permanent-Network Condition Inventory A complete review of the existing network with an inventory of the actual state, updating of all corresponding records, review of all management procedures and a rehabilitation of the existing traffic handling apparatus. The permanent network condition inventory will permlt to determine the priority works to be Included in the 1987/1988 work program of each functional area; local network, switching, transmission, trunk network and ancilliary equipment and to schedule the work during the above period. The Inventory will also form the basis for monitoring the quality of the works carried-out. 3. Activities The main activities to be programmed/monitored include: (a) Equipment June 1987 - December 1987 Build up a stock of meterials to enable replacement and rehabilitation to be correctly executed. (b) Training June 1987 - April 1988 Ensure refresher training for both technieans and supervising officers (also see Annex 3). (c) Subscriber Network January 1988 - December 1988 Drop wires In line route to be limited to one opan by erecting self supportlig eable 5/10 pairs - Dsr-es-Salaso area 15,000 subscribers - Regional centers 5,000 subscrlbers - 70 - ANNEX 12 Page 4 of 7 - Replacement of 10,000 faulty telephones - Replacement of 100 switchboards (d) Cable Network January 1988 - December 1988 - Re-make 1,000 Joints - Replace 25 cabinets - Replace DP Boxes distribution points 200 - Replace fault prone cables 5,000 km - Introduce Blackspot nalyeis - Refurbishing of cable chambers (man-hole) - Updating records (f) Trunk Network June 1988 - December 1988 - Communce traffic and service quality mwasurements on all the four trunk centers. - Rehabilitate automatic traffic handling equipment - 71 - ANNEX 12 iage S of 7- 4. Inputs required/used to achieve the activity targets bz l/ brigade/unit include: - Personnel (expatriate/TPTC - Equipment (units and utilization) - Spare parts - Vehilces - Materials S. Efficiency Indicators I/ Efficiency indicators will Include availability (in X and utilization rates (in hours/in km) of mjor equipment. (a) Quality of Service: Percentage of calls failed Local Trunk International Telephone Service: Plant defects Congestion Telex Service: Plant defects Congestion (b) Manual kExhange service (Percentage answered within) - S seconds - 10 seconds - 15 seconds Directory Inquiry calls - 5 seconds - 10 seconds - 15 seconds 1/ To be dtertined with the asslstance of the Consultants who wvil be appointed by October 1987. - 72 - ANNEX 12 Page 6 of 7 (c) Repair Service (monthly) 1/ Cables Distribution Subscriber P S Network Equipment Faults 1/ Target Actual 6. Workshops Indicators measurins workshop Jan. 1988-Dec. 1988 activity would be: Received - Repaired - repairs by major type ! - overhaul by major type - spare parts consumption (in TShillings value) 7. Trainins Main indicators of training would be: (a) standard training sessions - mber of trainee weeks - 11,000 - number of traning session - 3,000 - average length of traning - 4 weeks (b) special training seminars - number of trainees - 10 - average length of training - 2 weeks 8. Summry Report A summary report shall accompany the above indicators and include, inter alia; - key information which is not provided by the quantitative indicators; - information on unforeseen events which have a bearing on the lmplementation of the program; 1/ For each exchange over 1,000 lines capacity. 2/ To include: Radio, transmission, switching, teleprinters and subscriber equipment. - 73 - ANNEX 12 Page 7 of 7 - explainatiou as to deviations from the targets set and description of the corrective measures which have been taken to are being prepared; - informatlon on key staff changes - financial lnformation on the execution of the budget or on budget revision. - 74 - ANNEK 13 Page 1 of 2 TANZANI TAZANIA POSTS AND TBECO CMaONS CORPORATION (TPTC) SECOND TELAMcNICATIONS PROJECT Historical Income Statement (TSh milllon) Year ending Dec 31 1980 1981 1982 1983 1984 1985 OPERATING REVNENES (TELECOM): Telephone 357 320 468 490 814 1,147 Telegraph 16 17 18 19 23 27 Telex 55 62 74 79 122 170 Otber 4 0 8 6 7 8 Misc io 11 7 11 Int'l traffic expenses -47 -71 -50 -115 -149 -184 Total Operating Revenues 36i2 329 528 490 834 1,193 OPERATIIO EXPENSES (TELECOM): Staff expenses 74 82 117 111 138 168 Operation & Naintenanc 87 98 89 141 258 291 Administration 7 6 72 59 93 100 Subtotal 168 187 278 311 489 559 Training (90%) 9 9 12 13 16 17 Depreciation 37 40 42 37 41 43 Bad debt prov 8 15 8 14 17 22 %of tot telph rev 2.3% 4.6% 1.6% 2. 4 2.1% 1.9% Noncash total 45 55 49 51 58 65 Total Operating Expenses 222 250 339 375 563 641 --a- - OPERAIING INCONM 164 78 189 115 271 552 Interest receipts(+) 2 8 4 13 8 7 NET INOWE BEF INEREST 166 86 193 128 279 559 Interest paeymnts (-) 9 16 11 12 17 15 Exchang adjustment -18 -17 -190 -117 NET TrLEOOM INCOME SW TAX 157 70 1 100 7- 724 Postal losses -16 -12 -48 -45 -37 -42 TOTL NET ICOME BEU TAX 140 58 118 54 35 385 Tax (50%) 70 29 59 27 18 192 NET INCOME 70 29 59 27 18 192 Operating Ratio Rate of Return (revalued) aft tax% Rate of Return (historic) aft txi% - 8.3 18.4 11.1 97.0 53.0 -75- ANEX 13 Page 2 of 2 TANZANIA TANZANIA POSTS AND TLEO IMICATIONS CORPORATION (TPTC) SECOND TSLECOHMICATIONS PROJECT Historical Balance Sheets (TSh million) As of Deceiimer 31 1980 1983 1984 1983 18 1985 FIXED ASSETS Gross Plant In service 785 850 870 878 910 962 less accum depreciation 239 286 335 334 3B4 469 Net plant in service 545 564 535 544 526 493 Work In progress 53 64 130 181 242 314 Materials and Equipment 52 126 219 253 363 408 Investments 140 158 174 182 207 239 Total Net Fixed Assets: 70 912 1,058 19160 19338 1,454 CURRENT ASSETS: Stores 96 155 147 284 168 191 Subscriber Receivables 348 369 315 393 674 953 Other Receivables 33 36 44 69 45 44 Cash at Bank ill 118 126 61 83 199 Total Current Assets 647 7 -97 0816 0 38 TOTAL ASSETS 1,437 1,590 1,689 1,966 2,3084 LIABILITES: Accounts Payable 0 71 40 55 54 75 International Fees Payable 103 103 72 127 315 346 Interest 11 11 4 1 Other Accruals 61 54 49 69 58 80 Corporate Tax 210 181 162 111 13 109 Tmqanylka P.O.S.B. 10 13 26 49 Total Current Liabilities 395 434 353 412 440 610 Long Term Loans 206 263 356 517 895 1,045 Equity 464 464 464 489 484 467 Funds and Reserves 138 167 204 210 211 233 Retained Earnings 232 262 311 339 278 486 Total Equity Capital 835 893 980 1,037 973 1,186 LIABILITITES & EQUITY 1,437 1,590 1,689 1,966 2,308 2,841 RATIOS: Current Ratio 1.64 1.56 1.79 1,96 2.20 2.27 Debt/Equity Ratio 19.8 22.8 26.6 33.3 47.9 46.8 Accounts Receivable/Tot rev 81.2% 92.5% 56.1% 66.8& 70.32 70.92 - 76 - ANNEX 14 Page 1 of 6 TANZANIA TANZANIA POSTS AND TELECOMKUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT Projected Income Statement (TSh million) Year ending December 31 1986 1987 1988 1989 1990 TELECOM OPERATING REVENUES: Telephone 1,288 2,498 3,017 3,769 4,541 Telegraph 35 42 48 56 61 Telex 197 452 531 627 737 Other 10 12 14 17 18 Misc 14 17 20 23 25 Tnt'l service payments -193 -375 -407 -452 -499 ; of tot teleph rev 15.01 15.01 13.5Z 12.0% 11.0% Total Operating Revenues 1,352 2,648 3,223 4,038 4,883 TELECOM OPERATING EXPENSES: Staff expenses 218 265 325 397 461 Maintenance 774 973 1,169 1,452 1,720 Other expenses 130 156 179 206 227 Training 20 31 61 70 77 Subtotal 1,Z142 19424 T73 2,126 2,486 Depreciation (telecom) 40 46 54 74 108 Baddebt prov 24 47 57 72 86 Noncash total 64 93 l11 146 194 Total Operating Expeases 1,207 1,517 1,846 2,272 2,679 OPERATING INCOME 145 1,131 1,377 1,766 2,203 Interest *c;ceipts (4) 20 25 25 25 25 NET INCOQA SEP INTEREST 165 19156 1,402 1,791 2,228 Interest payments (-) 26 333 376 411 452 NET INCOME BEFORE TAX 139 823 1,026 1,380 1,776 POSTAL INCOME (LOSS) (50) 0 0 0 0 P&T INCOME BEF TAX 89 823 1,026 1,380 1,776 TAX (502) 45 41 513 690 888 NET PROFIT 45 411 513 690 888 _ -_ _ Operating Ratio 89.3X 57.3% 56.3% 56.3% 54.9X ROR (revald) bef tax 5.01 35.31 36.6% 43.6Z 51.2X ROR (revald) aft tax 2.71 20.71 22.41 25.61 29.11 - 77 - ANNEX 14 Page 2 of 6 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT Projected Balance Sheets (TSh million) As of December 31 1986 1987 1988 1989 1990 FIXED ASSETS Gross Plant in service 1,151 1,322 1,959 2,654 3,350 less accum depreciation 516 569 631 713 828 Net plant in service 635 753 1,328 1,941 2,522 Work in progress 384 579 713 852 991 Materials and Equipment 425 474 508 543 577 Investments 311 373 429 493 542 Total Net Fixed Assets: 19754 2,180 2,978 3,829 4,632 ae= . - ,, CURRENT ASSETS: Stores 191 218 271 363 456 Subscriber Receivables 806 1,255 1,180 1,108 893 Other Receivables 50 50 50 50 50 Cash at Bank 486 1,035 1,002 1,867 3,041 Total Current Assets 1,538 2,626 2,611 3,472 4,524 TOTAL ASSETS 3,293 4,806 5,589 7,301 9,156 LIABILITIES: Accounts Payable 263 391 530 662 733 International Fees Payable 346 375 407 452 499 Other Accruals 80 80 80 80 80 Corporate Tax Payable 45 411 513 690 888 Total Current Liabilities 734 1,257 1,530 1,885 Long Term Loans 1,265 1,702 1,664 2,162 2,637 Equity 467 467 467 467 467 Funds and Reserves 234 234 234 234 234 Retained Earnings 531 1 942 1,455 2,145 3 034 Total Equity Capital 1,232 1,643 _2156 2,846 T LIABILITITES & EQUITY 3,231 4,602 5,350 6,893 8,573 Working Capital 804 1,369 1,082 1,587 2,323 RATIOS: Current Ratio 2.10 2.09 1.71 1.84 2.06 Debt/Equity Ratio 50.7 50.9 43.6 43.2 41.4 Accounts Receivable/Tot rev 60.0X 50.0Z 40.0X 30.0% 20.0% - 78 - ANNEX 14 Page 3 of 6 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT Projected Flow of Funds (TSh million) Total Year to December 31 1986 1987 1988 1989 1990 1987-90 SOURCES: Net Income aft tax 45 411 513 690 888 - bef interest 71 744 889 1X101 1,340 4,074 Add Depreciation 3/ 47 53 62 82 116 313 Total Internal Cash 118 797 1 951 1,183 1,456 4,387 Less Debt Service interest 26 333 376 411 452 amortization 28 132 176 180 229 Subtotal 54 465 552 591 671 2,279 Net Internal Cash 64 332 399 592 785 29108 Foreign Borrowings 2/ 248 569 138 678 704 2,089 TOTAL SOURCES 312 901 537 1,270 1,489 4,197 APPLICATIONS: Construction Program 4/ 348 478 859 933 916 3,186 Increase in Working Capital (36) 423 (322) 337 573 1,011 TOTAL APPLICATIONS 312 901 537 1,270 1,489 4,197 1/ Provision for bad debts already included in working capital. 2/ Total increase in loans--loans shown net of amortization on Balance Sheet but includes amortization here. 3/ Depreciation: postal and telecommunications. 4/ Change in GFA, WIP, M&E and Investments - 79 - ANNEX 14 Page 4 of 6 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT TPTC CONSOLIDATED PROJECTIONS (7Y86-90) Notes and Assumptions 1. Projections for FY86-90 for consolidated postal and telecommni- cations operations are based on the following assumptions. All figures are in current terms reflecting forecast inflation. In addition: (a) Exc range rate projections are based on the prevail- ing exchange rate of $1.0 - TSh 55.0 as of mid 1987; and (b) Local inflation rates of 30% in 1986, 20% in 1987, 15% in 1988 and 1989 and 10% in 1990 have been assumed. International inflation is estimeted to be 4% in 1986, 3% in 1981, and 1% in 1988-90. Income Statement 2. Tariffs. Tariff increases of January 1987 have been incorpora- ted; 120% on international telephone and telex, 50X on domestic telephone and telex and 60% on all postal charges. 3. Telephone revenues are calculated by telephone revenue/average DEL times the average number of subscribers. Traffic/DEL is assumed to increase by 5% in 1986, 10% in 1987, 15% in 1988 and 1989 an 10% in 1990. 4. Telex revenues are calculated by the telex revenue/average con- nection times the average nmber of telex connections. Telex traffic is assumed to increase by 10% each year over 1986-1990. 5. Other revenues (operational), and miscellaneous revenues (mainly rental incom on staff housing) are projected to increase from the 1985 levels by the same rate as domestic inflation. 6. International traffic expenses include payments to foreign administrations for International calls, international mail, telex and telegram charges and contributions to other organizations. As a percentage of total telephone revenue they are projected to fall from 15% in 1985 to 11X by end 1990. 7. Staff expenses. Only marginal Increases are expected in the num- ber of existing staff. Base salaries are maintained at the 1985 level In real terms. However, the impact of the lncentive bonu2se of 5% are assumed each year for 1988,, 1989 and 1990. Increases in the number of skilled staff Is expected to increase the real unit staff costs by about 5X per annum. - 80 - ANNEX 14 Page 5 of 6 8. Naintenance expenses are increased from the 1985 level by the currency devaluation in 1986 (1601) and a weighted annual inflation rate, with the weights reflecting the 80% foreign exchange component in maintenance costs. In addition maintenance costs are increased in real terms by 10% in 1988, 10% in 1989 and 5X in 1990. Improvements due to the project are expected to increase the efficiency of maintenance expense. IDA will be financing $8.0 million equivalent of recurrent maintenance expenses over 1987-90 with 35% in 1987 and 1988, 20X in 1989 and 10% in 1990. 9. Other expenses comprising administration costs are projected to increase at the domestic inflation rate. 10. Training expenses are expected to increase by 20% in 1986, 50% in 1987, 100% in 1988, 15% in 1989 and 10Z in 1990. Ninety percent of training expenses are allocated to telecoms, 10% to postal operations. 11. Depreciation expenses are calculated on a straight line basis at 5% of gross fixed assets in oreration each year and divided between postal and telcommunications operations in relation to their share of gross fixed assets. I/ For the calculation of rate of return on revaluated assets, operating income has been adjusted to reflect depreciation on a revalued basis. 12. Interest receipts, (mainly on fixed deposits) are assumed to increase in 1986 and 19V but remain constant thereafter. Interest payments are calculated on TPTC's foreign borrowings, with varying Interest rates. 13. TPTC is subject to a 50% corporation tax. In calculating the revalued rate of return, a 50Z allowance for depreciation is made. Balance Sheet 14. Fixed assets reflect the investment program (Annex 5) and transfers from work in progress. Work in progress as a percentage of the construction program is 75% in 1986 and 1987, 30% in 1988 and 25% in 1989 and 1990, reflecting the rehabilitation and stores build up. It is transferred to fixed assets in full the next year. 15. Materials and equipment are equivalent to 202 of work in progress and represents large construction and civil works item, identified for project consumption. Investments, mainly in pension funds and INTELSAT, 11 It is assumed that 85% of CPA as of end 1985 relate to telecommunica- tions operations and 15% for postal operations. The level of postal assets at that time (TSh 144.0 milllon) is assumed to grow marginally. - 81 - ANMEX 14 Page 6 of 6 increase at the domestic rate of inflation. The increment in stores ($5.6 million) financed by IDA is built-up over 1986 levels by 10% in l917, 201 in 1988 and 351 in 1989 and 1990. The value of stores in 1985 is not revalued to account for devaluation, but in physical terms, stores will be built up equivalent to six months of maintenance expense by end 1990. 16. Subscriber receivables as a percent of total revenues are assumed to decrease to 20% by end 1990, equivalent to about two months outstanding which is acceptable. 17. Accounts payable represent 201 of cash expenses plus 301 of fixed assets and spares. 18. International fees payable are assumed to be paid in full the year they are due. 19. Other accurals include negligible interest payments and Tanganyika Post Office Savings Bank payables, both discontinued in 1983. The balance consists of salaries payable and fees payable and is not expected to increase. 20. Corporation tax of 502 i assumed to be paid In full the year it is due. 21. Net long term loans are made up of bilateral loans and wulti- lateral onlending. 22. Fixed assets were revalued as of end 1985 by five times by a revaluation study completed in October 1986. Antual revaluations of 51 have been applied; a weighted average of International and local inflation with the weights reflecting the high import content (801) of telecommunications assets. Funds Flow Statement 23. Bad debt provisions are Included in working capital. The change in fixed assets comprises changes In gross plant, work in progress, materials and equipment and Investments. - 82 - ANNEX 15 rage 1 of 3 TANZANIA TANZANIA POSTS AND TELECOMKTNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PROJECT PRINCIPAL TELECONMVNICATIONS TARIFFS 1. Tariffs for telecommunications and postal services were substantfially revised effective January 1, 1987. Postal rates were increased by 601, domestic telephone, telex and telegraph services by 50% and international servi'e charges by 1201 over the rates in effect from February I, 1985. Furthermore, international rates are quoted in US dollars, although payments will be made in Tanzanian Shillings. The conversion rate is established at the beginning of each month and will apply for a whole month. 2. Schedule of Tariffs Uffective Effective Feb. 1I 1985 Jan. 1, 1987 TSh A. Telephone 1. Monthly rental for single telephone I/ Exclusive line - 80.00 120.00 Shared line 60.00 80.00 2. Connection charges 2/ Exclusive line - 900.00 1,500.00 Shared line 900.00 1,500.00 Temporary Disconnectlon 40.00 60.00 3. Call charges: Untianmed local calls 1.20 1.80 STD calls - Unit fee 1.20 1.80 Length of call per unit varies with Full rate charge radial distance: 3 minutes eg. kms 30-60 7.20 10.80 kIs 230-350 28.80 43.20 over kmas 700 (maximum) 50.40 75.60 1/ Additional charge for multiple telephones. 2/ Surcharge applied to connections greater than 5.2 km from a central office. 3/ Cheap rate applies 6pm-7sm at half full rate. - 83 - ANNEX 1S Page 2 of 3 Operstor connected-3 sinute Full rate charge mininma-charge varLes with radial 3 minutes distance: eg. kms 30-60 7.20 10.80 kms 230-350 28.80 43.20 over kms 700 (maximum) 50.40 7S.60 Coinbox-Local call TSh 2.00 Full rate charge charges varies with radial distance: 3 minutes eg. kms 30-60 8.00 11.00 kr.s 230-350 28.00 44.00 over kms 700 (maximum) 50.00 76.00 International calls Per Minute I/ To Kenya or Uganda same as for - Inter-urban call wlthin Tansanti To Eastern and Southern Africa TSh 50.00 $3.00 (except eanys/Ugands) - other African Countries TSh 60.00 $3.50 Rest of World TSh 80.00 $4.50 B. Telex 1. Monthly rental 2,500 3,500 2. Connection charge 2/ 7,000 10,000 3. Call char es: tnland / automatic service time per unit vires with distance: unit chage 2.00 3.00 3 manute call 0-60 km 4.00 6.00 60-230 km 12.00 18.00 Over 510 km 24.00 36.00 Inland operator connected charge varies with distances 3 mlnutO minimum 3 minute call 0-60 km. 3.90 6.00 60-230 kms 9.75 18.00 Over 510 km. 19.50 36.00 1/ Minimum charge 3 minutes 2/ Surcharge applied to connections greater than 5.2 km from a central office. 3/ Including Kenya and Uganda - 84 - ANNEX 15 Page 3 of 3 international Telex Per minute Eastern and Southern Africa TSh 30.00 S2.50 other African Countries Tsh 40.00 $3.00 Rest of World Tah 60.00 $4.00 C. Telegrams 1. Internal charges: ordinary telegram (under 10 words) 6.00 10.00 - each additional word .60 1.00 Urgent t'ilegram (under 10 words) 12.00 20.00 - each additional word 1.20 2.00 Press telegram (under 40 words) 6.00 10.00 Radio telegram (under 10 words) 12.00 20.00 Internotional charges: Full rate per word mi. 7 words Eastern and Southern Africa $0.40 other African Countries $0.60 Rest of World $0.80 Letter per word mn. 22 "ords Eastern and Southern Africa )4.20 Other African Countries $0.30 Rest of World $0.40 D. Selected Postal Charges Internal Post Cards - surface 1.00 1.50 - airmail 1.50 3.00 Letters under 20 gms - surface 1.50 2.00 - airmail 4.00 6.00 under 100 gms - surface 4.00 6.00 - airmail 4.00 6.00 International post Cards - surface 3.00 5.00 - airmail Africa 3.00 6.00 Europe and Asia 4.00 8.00 Others 5.00 10.00 Letters under 20 gms - surface 2.50 4.00 - airmail Africa 8.00 12.00 Europe and Asia 10.00 16.00 Others 16.00 24.00 - 85 - ANNEX 16 page 1 of 2 TANZANIA TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMUNICATIONS PERIOD Return on Investment 1. TPTC's investment program for FY87-90 includes the IDA financed project as an Integral part, ongoing and other works. The close relationship between project and non-project Investments makes any attempt at separation of benefits arbitrary. Consequently, the rate of return calculation is made on the entire investment program. The benefit period extends from 1987 to 2006, when on average the equLpment provided under the program is expected to have substantlally completed its useful llfe. All incremental costs and revenues have been deflacted at 10% p.s. to brLug them to comparable 1987 prLce levels. It Ls assumed that without the program: (a) the number of DELs would remain constant at the end 1986 level; (b) traffic per line would remain at the FY86 level through 1989 and decrease by 52 p.a. in FY90-91 and remain constant thereafter; (c) staff numbers vculd remain constant at the end FY87 level; and (d) incremental licome tax is levied at 502 of the incremental not benefLt with these assumptions, the stream of financial costs and benefits is shown below: Incremental Financial Costs and Benefits of the Program (TSh million, constant 1987 prices) Investment Operating Year Costs Costs Benefits Net Benefits 1986 116.2 0 0 (116.2) 1987 451 123 275 (299) 1988 679 389 737 (331) 1989 781.2 842 1,305 (318) 1990 753.2 1,012 1,872 106.8 1991 0 1,164 2,353 1,161 1992-2006 0 1,126 2,139 1,013 The internal financial rate of return for the above net benefit stream ls 452: - 86 - ANNEX 16 Ppag 2 ol 2 2. This calcilatlion does not account for the 5 sales tax which the subscribers pay to the Government and i8 collected by TPTC, nor for consumer surplus or indirect and external benefits due to the improved telecommunications system. A portion of the consumer surplus was estimated by assuming that new consumers are similar to the average current consumer, and that the existing and new subscribers will be willing to pay for telecomuunications services at the same rate in real terms as they pay today. The 32 sales tax was added to the resulting economic benefit stream. A conversion factor of 0.50 was applied to all local costs and benefits to convert them into economic border prices. Based on these assumptions, the stream of economic costs and benefits is summarized below: Incremental Economic Costs and Benefits of the Progras (TSh million, constant 1987 prices) Investment Operating year Costs Costs Benefits Netlenefits 1986 102.3 0 0 (102.3) 1987 385.7 70.8 144,S (312.0) 1988 608.8 223.7 423 (409.5) 1989 652.9 484.2 820 (317.1) 1990 588.4 581.9 1,289.5 119.2 1991 0 669.3 1,769 1,099.7 1992-2006 0 647.3 1,769 1,121.5 The Internal economic rate of return for the above net benefit stream is 40%: 3. Sensitivity analysis on the economic rate of return reveals the following: Sensitivity Analysis on ERR Component Ch!age ERR (a) Base Cost - 402 (b) Program Costs +20% 252 (c) Operating Costs +20X 30% (d) Benefits -202 222 (e) Combination b, c, d (f) Program Benefits delayed 20% 2 years - 87 - ANNEX 17 TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC) SECOND TELECOMMlUNICATIONS PROJECT Documents and Data Available in Project File A. General Reports and Studies on the Sector ITJ Sector Study, December 1987. B. General Reports and Studies Relating to the Project 1. TPTC Telecommunications Tariff Review, MG Associates, October 1986 2. IDA Aide Mesoire on Identification Mission and First Project Supervision Report, November 21, 1986. 3. Revised Executive Project Summary, February 19, 1987 4. TPTC organization of Postal Services, Report by Bank Consultant Mrs. M.C. Chapell, April 17, 1987. S. Economic Recovery Program 1986-1990. C. Selected Working Papers 1. Project Costs 2. Internal Rate of Return Calculations 3. TPTC External Loans Analysis 4. TPTC Projected Financial Statements NAP SECTION jU A O 1i* . -- .. -. -. - - To iblbiii U GAN D A >t'_h$ bbeXr AI u.-> .* % ,,KARAGWE UAukoo.C 4ARIM? -, 7\/ i? 1MULEMBA KEREWE r * RWANDA . M -soS MEgETI 'OO . ?NGAR B! AL~~~II.O 00 i. ___ MONDBARLAD .\N.GA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ oo $0 / KIBONDO j KIB ON DW . JHANANG °SUt~KAULU Xg ) D KONDOA i ' \ ) ) wf ~~URAMBO ) _ LJ ' TABORA '\ KlGOMAj o _ 1 1 .M MPANDA MANYONI \./ // / [ <) / g ~~~~~~~~~~DODO SUMBAWANGA K , CHUNYA IRINGA ZAI RE ' *m>= fMBEYA M Lusako~~~~~~~~~~~~~~~ ZAMBIA \.~~~~~~~~. . ~~NJOMBE Z A M B I A .NlQho> In \, E G * \ Project 1 Operoton ProjeictIt3 '\ Pdncipal Long Distance Transmisson System 7 * *| AutomraNlc Telephone Exchange / O 0 bManual Telephone Exhanoe -' 0 _ m 0 Rural CalWOIces O MALAWI @S 4 B qcA Eotaons SONG1A // Ubam MBING I?' * w b f / 36 Ahil _ ) UGANOA| N. /1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~S'OMALIA -.s - j' \\' ' z X KENYA h-a,oo ' d ' K E N Y A ERENGETI / 8UIN I <~~~~ h' N 8 X t-X\ T W _ g ( . A, o t ~C h . 1 ). ' | N \ ~~~~~~~~~TANZANIA !/ N r- Z A I R E Dar os Saloom '0 itZAMBIA () ' Makuyuni ~~~~~? ER M L. MALAV~~~~~~~1 MOZAMBIQUE X J ^ '° Z;ti( \ / :S''¢ ° o N 4* 8 . .8te7/ N.; se ,.ANANG tSHOT oO t y ) 9 i ~~~~~~KITETO 5 W IE 00. U~~ A (KONDOA HADN rIC CTANZAIA SECOND TELECOMMUNICATIONS !> e -8AG, YO" > PROJECT t t f M ~ ~~PWAP Kiloso M P W A P W A/ KjIoso - + 4 . D ot M ain R o a d s KISART Aroads IRINGA / t > Intentional Nattonal Akpotts Obt'haI Regbn / DIstrt Centes .-DIstdict Boundarie IRIN6 , = / |t/\0 Intefafxioncl Boundaries / < ZlOMBE~~~~RO< RUFt t + UF DI~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I , O,Mofingo > 9 jo,g 'N 0 t ,MUFINC4 / 1 \ findi~~~~~~~~~~~~~~~~~~~~~~~~~~~ii komboko (,WAL 0? SONGEA Tundure "1BNG )TUNDURU ,L MASASI~ C w MBING k 0 FM, OoIeQ E mb '- 17MOZAMBIQUE 36' ~~~~~~~~~~~~~~~~~~~~~~~40. APUIL 1987