Document of The World Bank FOR OFFICIAL USE ONLY CLkk y 77w.'( Report No. 11539-TA STri APPRAISAL REPORT TUE UNITED REPUBLIC OF TANZANrIA TEMRD TELECONNNCATIONS PROJECT APRIL 2, 1993 z 1 ' '-; , ''i to.,(.. t Public and Private Enterprise Division Eastern Africa Department, Africa Region This document has a retsfid atbdisnd may be used by repin ony In the perfomance of Ihir offiW dutis Its contents may not dthwI,. be discld witt World Bank aauorIato Curreacy Unit Tanzanan Shillg Tsh 1.0 = US$0.003 US$ 1.0 - Tsh 32S IdISCAL YER Jamn y I to December 31 ADB Africa Dovelopment Bank DANDA Danish Development Agc3y DDGT Deputy Director General Tdecom DEL Direct Exchang Line EAC Eas Africa Community EEC Commission of the Eurpean Communities ELP Exte:nl Line Plat ERP Economic Recovery Program - 1986 ERR Eoenomic Rat of Retum ESAP Economic and Social Action - 1989-1992 FRR Financial Rt of Retum GOR Gross ting Revenue GOT Govemment of the Republic of Tanzaia CB Intematonal Competitive Bidding IDA Internatil Developmet Association ItR itenal Rate of Return .'CA Japane Development A"ecy LAN Loca Area Network LCB Local Codmpitive Bidding MIS Management Information System MOC Ministty of Transport ana Comnicatio MOu Memorandum of Undetnding PANAFTEL Pan AfiicB Telecommunication Network PRY Project Implementation Unit PMU Proect Monioring Unit PPF Proect Prepaaion Facility PIT Post and Telecommunieions Organization SAP SRctural Adjustment Pgram - 1982 SIDA Swedish Development Coopation Office SOB Staement of Expenditure TDP Tjtal Demand Potential TPTC Talzania Pots and Telecommunications TRP Tdecoms Recovery Program MESRES Metric System This report is based on (1) preparaton and apprail missions in April and November 1991 and May and October 1992 and (2) a report prepared by a consulfing fim in 1991. The report was prepared by Mr. Markku Karisnen (Egn), Mr. Raja Bas# (Fnnial Analyst, Ms. Ann 1_ee (rask Manager), and Md. Miay Nash (Sff Assistan) in (AFTEI) and Mr. Ibge Vabo (exral consultant). The lead advisor for the project was Ms. Shaah Torabi and th peor reviws Mr. M&snunad Mustaf and Mr. David LImax (AFTlE) and the Tannian Couny Team. The Sector Division Chief is Mr. Robert Hindle, the Country Division Chief Mr. Michaol Carter and the Couny Director Mr. Francis Colaco. FOR OMCIAL USE ONLY UND BEBLIM O TAMA THID TLJECOMWNCATJONS PRO JCT Page No. Credit and Project Summary ......................................... iv 1. TELECOMMUNICATIONS SECaOR DEVELOPMENT STRATEGY.. 2 A. INTRODUCTION .2 Role of Telecommunications in Economic Development. 2 Current Stams. 2 Sector Policy. 3 Secor Strategy. 3 Private Investment in the Sector. 6 A Regulatory Framework. 6 Institutional Resnuctung: Corporatiaon and Comerciaiation of TPTC ... 7 Rehabiitation and Expansion of the Basic Telecommnications Network. 7 Resource Mobilization and Cost Recovery in the Sector. 7 Previous World Bank Involvement in the Sector. 8 Rationale for World Bank Involvement. 9 n. THE TELECOMMUNICATIONS SECTOR . .11 A. INTRODUCTION .11 B. CUSTOMER REOUIREMENTS .......... .................... 11 Accessto Service ........................................ 11 Existing Facilities .............. ......................... 12 Quality of Service ....................................... 12 Demand for Service ...................................... 13 Ct. SECTOR ...................................... 13 D. THE OPERATING ENTIY .14 Tariff Policy .15 Billing and CoUection .16 Audit, Audit Controls, andFinancialAccounts .16 Management 17 Management Sse and Computizaon.17 Stffing, Traiing, an Compnsaon .18 Customer Orientation .19 m. THEPROGRAM AND. R.20 A. THEEQQA. PM.20 Steps Already Taken.20 B. THE PROJECT .20 Project Objectives .20 Project Description .21 Project Costs .25 Project Financing .27 This document has a estricted distibution and may be used by recipients only in the perforance of thoir offcial duties. Its contents may not otherarie be disclosed widhout World BIIk authozeOQ.| C. PROCUREMENT AND IMPLEMENTATN . ................. 28 Procurement .28 Disbursemnent .3 Project Phasing ......................................... 31 TPTC Management .31 Performance Indicators .33 Regional Coordination .34 D. ENVIRONMENTAL AND HEALTH EFFECTS .34 IV. FENANCIAL AND ECONOMIC ANALYSIS . . 35 A. Financial. 35 Past Financial Performance 35 B. Finncial Pojections and Restruct.ring Stra..av 36 Financi Goals .36 Key Steps Necessary for Improvement of Financial Performance .36 C. Financial Projections .38 D. Financial and Economic Ra of Returns .39 Sensitivity Analysis .40 Benefits .40 Risks .41 Least Cost Solution .42 V. AGREE NTS REACHED AND RECOM.MENDATION 43 Agreements Reached at Negotiations .43 Conditions for Credit Effectiveness .44 Conditions for Disbursement. 45 Recommendation. 45 - iii ANNEXES AND CHARTS 1-1 Draft Sector Policy Statement 2-1 Existing Telecommunications Facilities 2-2 Demand Potential and Estimated Growth in Demand 2-3 Ministerial Directive and Memorandum of Understanding 2-4 Negotiations Performance Targets to be Agreed Upon at Negotiations 2-5 TPTC Organization Chart 2-6 Training Courses Offered by the Staff College 3-1 Investment Program (1992-1995) 3-2 Detailed Project Description 3-3 Project Financing Plan 3-4 Schedule of Disbursements 3-5 Implementation Schedule 3-6 Environmental Summary and Mitigation Plan 4-1 TPTC's Income Statements and Balance Sheets (Historic) 4-2 TPTC's Forecast Financial Statements 4-3 Financial Projections Including Equity infusion Map Number: 23747 Documents in Proiect File Donors Conference - Organization and Implementation of TRP - Plan for Split of Corporation Delegation of Authority Procuctivity Based Incentive Scheme Statement of Affairs Tanzania Telecom II Project Completion Report Tanzania Telecom II - Assessment of Consultants Technical Assistance - Terms of Reference - iv - UNITED REPUBLIC OF TANZANIA TIDTELECOMMUNICATIONS PROJECT CRDIT AND PROJECT SUMARY Borrower: United Republic of Tanzania Beficiy: Tanzania Posts and Telecommunications Corporation Amoun&: SDR 53.6 Million (US$ 74.45 million equivalent) Ternis: Standard IDA Terms, with 40 years maturity Qjding The Goverment will lend US$ 74.45 million to the Government of Tanzania on Terms: standard IDA terms. Of this, US$20 million will be invested in TPTC as equity by GOT and US$ 53.50 mrillion will be on lent to TPTC at 8% interest rate for 20 years including 5 years of grace on repayment of principal. TPTC will bear the foreign exchange risk. Project To achieve its mission in the medium term the GOT has identified three key Qbi_ctives objectives for the sector. The first is to ensure that efficiency and finanja viabili drive sector development. The second is to eliminate the existing bottenecks in the availability of telecommunication services to business subscribers in key areas of economic imporance. The third is to optimze the availability and effectiveness of public and private resources invested in the sector. Three building blocks provide the base from which these objectives will be carried out: 1) establishment of a market-oriented regulatory and policy framework; legalizing and requiring a regulatory body to license private opeators to provide non-basic services in Tanzania; and developing an action plan to secure private investment in basic services in the medium term; 2) commercialization and corporatization in the state- owned monopoly provider of basic telecommunication services; and 3) rehabilitation and expansion of the basic local and long distance telecommunication network. Project The proposed project consists of: (a) the establishment of a market-oriented regulatory and policy frmework and creation of an appropriate environment for private sector participation; (b) a program to build TTC's institutional capacity through technical assistance for the purpose of improving project management, financial management and control, auditing procedures, materials management, and operations and maintenane; moderizing TPTC's accounting and financial systems and procedures as well as its billing and collection system, implementg priority computer systems and human resource development for TPTC; and to augment TPTC's implzmentation capacity through a performance contract with external consultant to implement new works; and (c) a physical development program including rehabilitation of existing facilities; supply, installation and commissioning of new exchanges and matching external line plant in Dar-es-Salaam and major cities with priority given to business subscribers; expansion of 1o0.g distance transmission links; expansion of the junction network in Dar-Es-Salaam using radio link systems and optical fibre systems and supply small capaUity radio link systems in the rural areas; and provision of telephone instrwnents, vehicles and ancillary equipment. Project Investments are focussed on improving TPTC's financial and economic Benfits returns by creating a market-oriented envirownent within the sector, and Risks: commercializing TPTC, rehabilitating and improving utilization of existing assets and expanding services in high demand areas to maximize the utilization of TPTC's existing facilities and thereby by upgrading Tanzania's telecommunications facilities, the project will alleviate a major infrastructure constraint to the sustainability of the country's economic devilopment and adjustment. Furthermore, the institution building and strengthening of TPTC's management systems will result in improved financial performance and encourage private investment. The principal risks are the potentially slow pace of institutional development within sector and inadequate or tardy resolution of the current billing problems. These risks have been minimized by the Bank's requirement of upfront actions by the Government and TPTC (management performance contract, tariff increases, employee incentive scheme, delegation of authority, etc.) Risks during the project will be minimized by additional World Bank conditions on restructuring the sector and institutions and agreement on timely installation of a new billing system with appropriate controls. In addition, an annual review of TPTC's achievements by the Government and the Bank will be required and wiU provide a framework to ensure satisfactory implementation of the institutional and physical components of the proposed project. EFsimated Project Costs: Loca Foreign Total -IJS$ Million Equivalent- 1. Telephone Exchanges 2.04 27.43 29.47 2. Extemal Line Plant 5.93 55.35 61.28 3. Transmission 8.67 48.17 56.84 4. Upgrade Std. A Earth Sation 0.00 0.50 0.50 5. Telephones and Teleprinters 0.00 2.28 2.28 6. Power and A/C 0.50 3.50 4.00 7. Buildings 3.00 0.00 3.00 8. Vehicles 0.10 1.50 1.60 9.A. Training - MOC .00 .20 .20 9.B Traiing - TPTC 1.70 2.80 4.50 10. Consultancy - TPTC 2.76 14.02 16.78 11. Consultancy - MOC 0.75 0.75 12. Postal 1.70 2.80 4.50 13. Computers 0.00 5.72 5.72 Base Cost 26.39 165.04 191.42 Physical Cantin cy 1.32 8.23 9.56 Pioe Contingency 2.64 16.45 19.12 30.40 189.7, 220.10 - vi - PROJECT FINANCING PLAN: LOCal Foreign Total -US$ Million Equivalent- IDA 74.4 74.4 ADB 45.9 45.9 EEC 17.2 17.2 DANEDA 8.3 8.3 JICA 2.2 2.2 SIDA 41.7 41.7 TTrc 30.4 - 304 Total 2Q4 189.7 22u.1 EST4ATDi1 DISBURSEMT SCHEDULE BDA' FRY 19 1294 1995 1996 1227 1998 1999 2000 2001 Aniual .8* 4.2 11.2 14.7 14.3 11.6 8.5 4.6 3.7 Cumulative 1.6 5.8 17.0 31.7 46.0 57.6 66.1 70.7 74.4 'mcluding PMF Disbursem Rate of Return: Financial = 27% Economic = 48% MM 23747: 1. TELECOMMUNICATIONS SECTOR PEVEWPMEN STRATEGY A. INTRODUCTION 1.01 In 1967, Tanzania's leadership embarked on an era of socialism and introduced sweeping economic and social changes. They sought a path of self determination with the goal of making public sector activity the primary means of achieving economic development. By the end of the 1970's, however, the economy was faltering. A turing point was reached in 1984 when the Governmuent of Tanzania (GOT), faced with economic stagnation, introduced a new, more pragmatic economic plan. In 1986, the Government introduced a comprehensive Economic Recovery Program (ERP) followed by an Economic and Social Action Program (ESAP) in 1989. Tanzania's main economic development objectives under these programs are to achieve a 5% growth rate; lower the inflation rate; restore a sustainable balance of payments position; rebabilitate and improve the provision of social services; and improve the effectiveness of external assistance. Tanzania's strategy to fulfill these objectives is to shift from a centrally planned system to a dynamic, market-oriented economy. Role of Telecommunicatlois in Economic Develoneut 1.02 A reasonably reliable telecommunications sector is crucial to the sustained economic recovery of Tanzania. The main linkages between telecommunications and economic recovery are (a) the requirements of business and government in a market economy for timely, accurate, and reliable information to determine the state of play in the market, to identify potential customers and suppliers, and to determine competitive prices; (b) telecommunications as a prime medim for transmitting information quickly, cheaply, and easily; (c) the cost to the economy of foregone economic opportunities due to an inadequate and unreliable domestic and international telecommunication network; (d) the financial cost to the GOT of operating a loss-making telecommunications network; -and (e) the sector's importance as a major foreign exchange earner. Reliable communication capabilities are especially important for financial, tourism, ming, transport, service, and export-oriented business activities in Tanzania and are becoming increasingly important in the sale and distribution of agrcultural products. Cvm staS 1.03 The existing telecommunications infastmcture in Tanzania has grossly insufficient capacity and a very poor quality of service. In 1991, .3% of Tanzanians had telephones or 25% less than the average percentage of the population owning telephones in Sub-Saharan Africa. In addition, only 60-70% of the installed phones actually worked. Fault rates are 30 times higher than those in developed countries. The call completion rate for inter-urban and incoming international calls is below 20% versus an average of 60 - 70% in industrialized countries. The severe shortage of telephones in Tanzania and the poor service quality poses a major constaint to the growth of private businesses or more efficient operations and can thus compromise Tanna's economic recovery. The financial position of the sector is quite weak. The Tanzanian Posts and Telecommunications Corporation (TPTCI)/, the main operator, was insolvent by 1988 due to a I'rP>TC meaw Tanzania Posts and Teecommunicaions Corporation, established purwsam to te Tanzanian Posts and Telecommunications Act, No.15 of 1977. It also refes to any succesor entity or enies which may be established by the Government of Tanzana to cary out dte fuins an nsponsibiles of TPM. At the time of the split of posts and teecommunicaions, it is undemood that the new ta nd postl endties will enter into asmption agreemnts where the new endties agree to enter ito the obligations of bte old company. -2- lack of tariff increases, substantial foreign exchange losses, and operational inefficiencies. The financial position has improved since 1991 with 300 - 500% increases in tariffs, conversion to equity of US$ 34 million of debt owed by TPTC to GOT; and improvements in operational efficiency. Sector Policy 1.04 In the long term, the GOT's vision for the development of the telecommunications sector is to provide universal access to telecommunications for all people in Tanzania whetrNer service can be supplied on a practical and economically justified basis. These services should satisfy all customer demand for all types of telecommunications with quality and secure services supplied at a fair price. Given the existing low level of development in the sector, to achieve their long term vision the GOT recognizes that in the medium term they must adopt a carefully formulated and focussed development strategy which provides telecommunications services to those subscribers with the highest demand and the greatest ability to pay for their services. A draft Sector Policy Statement of the GOT's intentions for ihe sector is outlined in Annex 1-1. Sedor Develoment Strategr 1.05 The GOT is committed in the medium term to ensuring that reasonably priced and satisfactory quality telecommunication services are available to satisfy business demand in terms of quantity and scope of services which will support the economic development of the country. The GOT has identified key principles for the sector's development which will achieve their vision. The first is to ensure that efficiency and financial and operational viabilitv drive sector development. The second is to eliminate the existing bottlenecks in the availability of telecommunication services to business subscribers in key areas of economic importance. The third is to optimize the availability and effectiveness of public and private resources invested in the sector. 1.06 The GOT has determined that the most effective means to achieve th ir development objectives is to establish a market oriented sector structure which allows for private as well as public sector participation and, where appropriate, competition. Taking into account existing macroeconomic and sectoral constraints, a phased approach to sector restructuring has been adopted. The building blocks of the GOT's plan to fulfill these objectives include: (a) establishing a market oriented regulators and policy environment, which includes introducing, private sector participation in non-basic services in the near term and developing an action plan to secure private investment in basic services in the medium term; (b) commercializing and corporatizing the national operator responsible for providing basic telecommunication services2/; (c) expanding capacity and improving service "uality for the national network. 2/ For purposes of this reporz. basic telecommunications services means local, long distance. and international tlephone, telex, and telegraph services. Non-basic telecomnmWnication services means all other services other than basic telecommunication services (i.e. including pay phones, private networks, celular tlephony, value added services, paging, vsat, etc.). GOT's TiMETABLE FOR SECTOR DEVEPMENT (Mid Term) Component 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Expected Project 1ictiveness a) Establish Regltoy EIw roumt - Statemnd of Sector Policy - Draft New Tlecom Law _ (allovs prwiae investment) - Split Regulations from Oper. - Estabish Regulatory Capability *.. - Issue Lcense - Non Basic Serv. o Cellular o Other J2 - Action PIan on Private Invest. I b) haWtiod (Res&udr* - Split Post & Telecom 3 - Corporal*zel- .C - Det Non-Core Actvmes o Motor Voh., Print, Cont. - Create Pit & Cost Centers - Insa New Biiiing Syem -Fkinc Restructuring KEY Is c) Ezpad & hnae Nat Nehw : Coted ;Project MW-TeRm " I l _ - ERiuate 0 * - Project Condition MEMO. ... a On-Going Action 8 ' ~r~iwnt .15 Schdule 10 * 5 *1 0 Loan EHf. uTh Year -4 - 1.07 Toward this end, the GOT has approved key action items with specific dates for completion that were agreed during negotiations (see above table). As indicated on the table, all of the actions are scheduled to be cot apleted prior to the Project Mid Tenn Review and are an integral part of the review. Commitment of contracts under Phase 11 of the project (US$ 25 million) are subject to satisfactory results in the Mid Term Review. (Funds being invested by SIDA will be tranched with similar perfonnance conditions as those of IDA). Priae Investment In tbe Sector 1.8 TPTC has authority to issue licenses for non-basic telecommunication services on behalf of the GOT. TPTC is currenly negotiating with several interested international cellular operators to provide cellular telephony in Tanzania. To enable such private investment in non- basic services, the GOT will require the regulator to take all steps necessary to issue a license for cellular operations by December 31, 1993 and for two other non-basic telecommunication services by December 31, 1995. Customer demand for services and the related interest of private firms to invest will determine in which market segments licenses will first be issued.3/ 1.9 Under the existing environment, there appears to be XLbest limited interest from experienced and reputable private firms to invest or operate basic telecormmunication services in Tanzania. To enhance private investor interest in TPTC, the GOT and IPTC have actively begun to commerciaize and corporatize TPTC and streamline its operations with the key goal of providing TPTC with sufficient autonomy to operate in a commercial manner. 1.10 The GOT will not seek immediate privatization of TPTC. The main reasons for this are a) the GOT has given higher priority to privatizing operations in other sectors which can be privatized without changes in Tanzanian law; are more easily privatized; and are of more interest to investors in their exisdng state; and b) 1 - 3 years are required to take legislative and regulatory actions to effectively privatize basic telecommunication services. A Re trv Framework 1.11 Currently, telecommunication regulation and operations are both carried out by a public monopoly, TPTC. The current legal structure does not, however, allow for private operators in basic services, nor is there a regulatory framework or body in place with experience in market oriented regulation. 1.12 To begin the process of establishing a market oriented regulatory and policy enviromnent, GOT has approved a measure that will separate the policy and regulatory fumctions from operations. Toward this end, the government has given approval for the establishment of the regulator to be responsible for, inter alia, licensing, establishment of technical standards, and rules for operators. The GOT will commission a consultant study to determine the detailed form and functions of a regulator and will draw upon the study's recommendaftons in their action plan to restructure the sector. TPTC will continue to be in charge of operations, with greater autonomy and flexibility to engage the private sector. yI M61ay, while she regulatot is buing its regulatoiy capabiies, key tems (service obg8ations, perfomtance targes, as wel as connecon a_m , fequn spectRum allocaton, et.) will be embodd to dte lice. - 5 - Institutional Retrui: Cor2oatzadlo and Commerciaization of TPTC 1.13 Under the new teleconummunications law, TPTC will be established as a legally separate corporation; similarly posts would be established as a public company or a separate corporation. Effective conunercialization of TPTC requires substantially enhanced institutional, managerial, planning, technical, operational, and financial capacity. A pre-requisite to building TPTC's institutional capacity is provide TPTC with administrative and financial autonomy and accountability together with technical capacity for planning and day-to-day management of their operations. A Ministerial Directive (MD) and Memorandum of Understanding (MOU) were signed by the GOT and TPTC in March. 1992 which establishes a performance contract between the Ministry of Transport and Communications (MOC) and TPTC and provides this autonomy. In addition, in the past eighteen months, TPTC was restructured, domestic tariffs were increased 300-500% and international tariffs were reduced by approximately 15%, a plan for delegation of authority and accountability was instituted, and a productivity and cost cutting incentive program was introduced for staff and management. Initial results of the program indicate approximately 10-15% gain in productivity in the last six months of 1992. In the near term, TPTC will focus its efforts and will be accountable for managing its on- oin core business, i.c. the opetation of the telecommunications network. A technical assistance and training component is included in the project to build TPTC's managerial, planning, financial, and operational capabilities. Under the MOU, specific, quantifiable performance targets effectively track the improvement in TPTC's performance and progress in becoming financially profitable and self-reliant. 1.14 TPTC will contract out and establish a contract with a private firn who will be accountable for supervision of procurement and installation of the new works under the investment program. In addition, TPTC will divest of non-core activities, including printing, motor vehicle repair, building construction and maintenance, sale and installation of customer premise equipment, and equipment repair. Independent consultants will perform an Annual Efficienc Audit to assist MOC in evaluating TPTC's performance. As part of IDA's on-going supervision, IDA will monitor TPTC's performance through these annual audits and through the mid-term review in the 4th quarter 1995. Rehabilitation and Exoamnon of the Basic Telecommunications Network 1.15 The growing customer demand requires that the geographical coverage of the network be expanded to urban and rural areas, that the capacity within regions be increased to support business and residential customers more fully that the variety of services available be expanded, and that the quality of services be substantially improved. The Government, with assistance from consultants, defined a US$ 448 million program for expanding and rehabilitating the network over the next five years. This investment was subsequently downsized so that TPTC would have the technical, financial, and managerial capacity to implement the program. A contr with an external firm to manage the new works procurement and installation (see para. 1.14 ) and turn-key contracts with suppliers will be used to expand TPTC's absorptive capacity substantially and increase the rate with which telecommunication demand can be satisfied. The revised program of US$ 220.1 million provides capital investment to (i) expand telecommuication services to priority (primarily business) subscribers in urban and rural areas, particularly in Dar-es-Salaam, and (ii) rehabilitate the existing network to improve quality of service and thus improve the profitability of the network. -6- Resource Mobilization and Cost Recovery in the Secor I .16 At the encouragement of IDA and as a result of GOT's clear commitment to reforming the sector, a number of donors have agreed to invest in the sector. Multi-lateral and bi-lateral donors and IDA will provide funds to cover US$189.7 million in foreign costs within the invesiment program. TPTC will fund local costs of approximately US$30.4 million. 1.17 From 1985 - 1990, TPTC's operating profit on telecommunication activities increased 250%. Due primarily to unhedged foreign exchange losses and non-increases in tariffs, however, their net income was negative. Extremely weak accounts receivable collection performance and poor operational performance also contributed to their losses. In preparation of this project, TPTC has taken several steps to re-establish their solvency. These include: (a) establishing a tariff policy consistent with cost recovery; (b) taking measures to begin to improve TPTC's operational efficiency; (c) determining specific quantifiable performance targets; (d) introducing an employee incentive program to increase productivity and to introduce a customer orientation. Quantifiable performance measures have been established to evaluate TPTC's and staff performance. 1.18 In 1992, TPTC's operating profit again improved noticeably. As a result of large foreign exchange losses on existing debt, however, TPTC's net income remained negative. At negotiations, GOT and TPTC agreed to take the following measures to improve TPTC's fiancial position: (a) introduce more rigorous financial, cost cutting, and efficiency improving controls throughout the organization; (b) improve accounts receivable collections by agreed levels each year; (c) improve the quality of service and the number of working lines by agreed levels each year; (d) evaluate methods to charge large customers (embassies, etc.) in hard currency; and (e) convert $US 34 million of old TPTC debt to equity (effective as of February 1994) and invest $US 90 million of the credit into TPTC as equity to reestablish TPTC's capital adequacy and solvency, improve its liquidity position, and reduce its foreign exchange exposure. Previous World Bank Involvement in the Sector 1.19 IDA, in cooperation with other donors, has financed two previous telecommunications projects in Tanzania. While implementation of the first project was successful overall, a number of problems were encountered in the physical imlementation and institutional development of TPTC during the second project. These problems were interpreted in the light of experience gained in the supervision and project completion work done for this project as well as IDA and World Bank telecommunication projects worldwide. The following issues as related to TPTC have been identified: Sectoral (a) a lack of clarity in the roles and responsibilities for regulation and policy operations between the concerned Ministries and TPTC; and (b) a lack of private sector involvement and competition to encourage sector efficiency, profitability, and customer responsiveness, to encourage investments in new technologies, and to maximize capital investments; (c) tariff policies based on social and political rather than economic considerations; (d) weak financial controls and audits particularly in billing and collections; (e) an unhedged foreign exchange position leading to accrued losses by 1991 of Tanzanian Shilling 7.8 billion; Operational (f) a lack of autonomy of TPTC's board and management to take critical decisions on tariffs, personnel policies, and financial policies necessary to achieve stated objectives; (g) a lack of accountability as a result of loosely defined operational (and financial) objectives and performance targets for TPTC management and staff; (h) operational inefficiency exacerbated by increasing numbers of staff with low productivity; (i) shortage of skiled staff and appropriate training courses in management, finance, planning, marketing, computers, and modem technologies; Proiect InMlementation/Procurement (j) limited leadership in TPTC to coordinate donor investments. Consequently a myriad of technologies were introduced resulting in an expensive, poorly configured network with a low quality of operation that required highly skilled staff to operate; and (k) poor donor coordination which resulted in exchanges being purchased for which there was no outside plant. Rationale for World Bank Involvemt 1.20 IDA has an important catalytic role. Several donors have indicated willingness to invest in this project provided IDA takes a lead role to a) coordinate donor funding to ensure a coheren investment program, and b) oversee institutional and sectoral reforms and monitor project implementation. Also, IDA has significant sectoral experience, particularly in Africa. Further, such involvement is based upon and will reinforce IDA's support to the overall adjustment process in Tanzania. - 8- 1.21 Through advice and investments, IDA will assist the GOT in their efforts to a) establish a regulatory framework, b) restructre and commercialize TPTC, including promoting private sector participation, and c) assist TPTC in the urgently needed rehabilitation and expansion of the network. IDA conditionality is tied to GOT and TPTC fulfillment of these efforts. IDA is actively working with the GOT to a) coordinate donor investments, b) rationalize the network design, and c) encourage donors to allow competitive bidding for equipment and thus make prices competitive. Approximately 80% of the program will have some form of competitive bidding. The latter is important given the history in Tanzania of donors investing in the sector on an ad hoc basis and as a result a proliferation of equipment and a poorly designed network. The urgent requirements for telecommunications and the very real potential for other donors to invest in an uncoordinated fashion are the main reasons why investments in equipment are not being delayed until a regulatory framework is established and private sector investment is secured. -9. II. THE TELECOMMUNICATIONS SECTOR A. INTRODUCTION 2.01 The strategic importance of the telecommunications sector rests on the growing importance of fast, easy, reliable, and cost effective communication capabilities to the competidve positioning of a firm and a country. The communication patterns of business and residential subscribers necessitate a quality local, national, and international network. Business customers (producers, distributors, and end users) depend on telecommunications as a method to communicate effectively and to receive information. B. CUSTOMER REOUIREMEN 2.02 In comparison with its neighbors in Sub-Saharan Africa, the state of Tanzania's network is poor. As of December 31, 1991, approximately .3 of every 100 people in the country had telephones. The average telephone density in industrialized countries is 120 times higher. The estimated fault rate in Tanzania is above 60% compared with a world average of less than one percent. For a residential subscriber, the waiting period for a telephone can exceed 20 years. The extremely limited capacity of the network and its dilapidated state results in a highly dissatisfied customer base. The main concerns that customers have relate to a) access to service, b) quality of service, c) costs of service, and d) the rapidly growing demand for services. 2.03 As of December 31, 1991 Tanzania had about 78,000 direct exchange lines (DEL) available for subscriber use. Approximately four times this number of people, however, would like to have telephone service (see para. 2.09 - customer demand). Business subscribers, who are typically given priority access, can wait more than one year for telephone service. Government subscribers wait a period of weeks for a phone while residential subscribers can wait more than 20 years. The existing facilities are not only inadequate, but there is an imbalance between urban and rural areas. Telephone service is concentrated in Dar-es-Salaam and in the other 25 regional capitals, which accounts for about 80% of the total lines, but only 15% of the population. These cities have an average telephone density of 1.4 lines per 100 inhabitants, compared to the national average of 0.3 lines per 100 inhabitants. The scarcity of telephones outside major cities inhibits the development of other sectors. The rural density is only about 0.05 lines per 100 inhabitants. As of December 31, 1991, there were 100 telegraph offices providing automatic telex service to approximately 2,300 subscribers. 2.04 Under the existing structure, customers have no choice in where they obtain telecommunication services. Service is provided exclusively by TPTC. Historically, however, TPTC has not had a customer service orientation, and customers must deal separately with the engineering, finance, and billing departments at the local office and Dar-es-Salaam to resolve a problem. Consequently customers are frequently frustrated in their efforts to obtain or retain adequate service and often give up without receiving a satisfactory response. - 10- ExisWn Fadlities 2.05 As of December 31, 1991, TPTC operated 188 telephone exchanges consisting of 28 automatic exchanges and 160 mamal exchanges. The total installed exchange capacity reached 104,460 lines with 85,260 automatic lines and 19,200 manual lines (about 82% of the lines were served from automatic exchanges). The capacity utilization for telephone exchanges equalled 85%. There is a backbone transmission microwave system crossing the country from east to west and from north to south, with connections to neighboring countries of Malawi, Zambia, and Kenya. The north-south systems form part of the PANAFTEL network. Direct terrestrial connections to Uganda, Rwanda, and Burundi are operational. There is no domestic satellite network since it has not been cost-justified to do so. The majority of the international services are provided through a Standard B Earth station at Dar-es-Salaam which has been operating at full capacity since 1983, and via a terrestrial link to a leased satellite circuit on a Standard A Earth station (Atlantic Ocean Satellite) at Nairobi. A Standard A Earth station is in service close to Dar-es-Salaam and provides additional capacity. A new international exchange was installed in Dar-es-Salaam in 1991. Details of all existing facilities are given in Annex 2-1. The telex service is fully automatic and is provided through four exchanges located in Dar-es-Salaam, Arusha, and Dodoma. The total capacity of the exchanges is 4,350 lines, with 2,300 subscribers connected which is a capacity fill of 53 %. Other services provided by TPTC include leased circuits to a number of private and public institutions. ualitv of Service 2.06 The quality of service is very poor. Approximnately 35% of the subscribers have installed telephones which do not work. This is primarily due to line problems in the local network. These problems can take weeks or months to resolve. In general, the network is congested both at the local exchange and trunk levels throughout the day. In most exchanges, it takes several minutes before a dial tone is received. The completion rate for inter-urban calls is only 25 %, compared to an acceptable rate of about 60%. The main reason for the congestion in the network is a result of a much higher demand for services than the network was designed to handle. Faulty, obsolete equipment and deteriorated outside plant also contribute to the congestion. In addition, lack of spare parts, transportation, and experienced manpower compound the situation and lead to long repair times. On average, there are about 25 - 30 faults per 100 telephones per month, which is hign in comparison to world averages. Most of the faults are in the local cable distribution network and repairs take an average of 10 days which is unacceptable according to international standards. 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 networks. Service delays of over 4 hours on operator booked calls are frequent, leading to cancellation of more than 50% of the booked calls. In addition, about 70% of traffic is lost in the transmission network due to faulty or inadequate facilities. Outgoing international calls (semi-automatic) have an effective rate of 68% compared to a target of 80% but only 25% of the incoming international calls are successful. TPTC's management is fully aware of the problems that have contributed to the poor quality of service. 2.07 Customers have difficulty in ensuring that their telephone lines continue to operate. Of particular frustration is i) the frequency with which telephone lines are cut by technicians repairing the network, and ii) difficulties in receiving and paying customer bills. Bills are often sent out 1-2 months late, inaccuracies in the bills are frequent, and payments are often misposted. Customers can thus be disconnected even though they have actually paid their bill. These - 11- problems have resulted in a collection rate of 65% of subscriber accounts versus a target of 85% in TPTC's performance agreement with the Ministry. In 1991, TPTC's subscriber accounts receivables reached 6.8 billion Tanzanian Shillings or approximately US$22 million. 2.08 In general, the prices for services historically have been quite low. The average price of a one minute national call is 0.02 cents. The average cost per minute in Europe or the United States is between 10 - 25 cents per minute. This low rate encourages subscribers to call more, thus further congesting the network and reducing service quality. International charges, however, are some of the highest in the world at approximately US$6.40 per minute. As part of the restructuring process, tariffs are being realigned to be more economically sound. Demand for Service 2.09 The total demand nationwide as of November 30, 1991 was about 153,000 potential subscribers, which is about 200% of the supply of about 78,000 DELs at that period. According to a demand assessment study funded under the PPF, the Total Demand Potential (TDP = connected subscribers, applicants, and unexpressed demand) in Tanzania in 1990 was 302,000 (see Annex 2-2). The unexpressed demand portion of the TDP includes many would-be applicants who have been discouraged from applying for telephone service because of: (i) the long average waiting time for connection (exceeding five years) due to lack of facilities; and (ii) the poor quality of service (para. 2.07). This is common in many countries in Sub-Saharan Africa. 2.10 Demand forecasts indicate that the demand for telecommunication services is projected to grow by at least 10% per annum through the year 2000 and beyond. Growth will be fastest in urban areas. Tanga, Dodoma, and Mwanza are expected to grow at rates of 14.1%, 13.9%, and 13.8% respectively. Other areas of rapidly expanding demand include Arusha (13.2%), Mbeya (11.7%), Morogoro (11.4%), Iringa (11.1), Moshi (10.8%), and Dar-es-Salaam (10.1%). During the five year period covered by this project, the total demand is conservatively expected to grow at about 10% per annum reaching about 490,000 at the end of 1996. However, because of overall macro resource constraints and implementation capacity of TPTC, meeting demand is not a realistic policy option for the foreseeable future. C. SECTOR STRUCTURE AND REGULATORY FRAMEWORK 2.11 The MOC's mandate is to ensure that good quality, fairly priced telecommunications and postal services are available to meet demand at economic prices in Tanzania. Within the existing structure, MOC is responsible for setting policies. It has delegated responsibility to TPTC for carrying out regulatory functions such as licensing of private operators, setting equipment standards, and granting equipment type approvals. In addition, TPTC is responsible for providing all telecommunication services within Tanzania. Under this current structure, the role of the Ministry and the operating entity is blurred; the regulatory functions are quite limited and lack a commercial orientation; there is insufficient accountability to ensure sound financial performance; and there is virtually no possibility for private sector involvement. 2.12 The current sector structure and institutional environment is a result of the previous centrally planned economy and is inappropriate for market-oriented operations. As noted earlier, the Government recognizes the need establish a market-oriented regulatory framework to legalize and encourage private sector involvement and competition. - 12 - 2.13 The MOC has drafted a policy statement of its intentions to restructure the sector. The statement indicates that the Ministry would be wholly responsible for policy matters. They would be responsible for incorporating the Government's economic and social objectives into telecommunication policy. The existing teleconmumications law will be revised by March 31, 1994 to allow for market oriented activities including private investment and competition. A specialized agency independent of TPTC will be established which will be responsible for regulating activities in the telecommunications sector under a market-oriented structure. An autonomous operating entity(ies) would be responsible for providing telecommunication services according to sound commercial principles. This entity(ies) would be regulated by the regulatory body. Private sector participation will be legalized and encouraged in basic and non-basic services. As part of a study on private sector participation, appropriate incentives to encourage private investment will be defined. 2.14 The Government recognizes the need to clarify and separate the roles of the Ministry and TPTC. In addition, the Government recognizes the need to comnercialize TPTC's operations. In March 1992, a Ministerial Directive (MD) and Memorandum of Understanding (MOU) were signed between the Ministry and TPTC. In addition to clarifying the roles of the Ministry and TPTC, these directives outlined elements for the commercialization of TPTC. The main goal of commercialization is to improve the efficiency, quality, financial viability, and customer responsiveness of TPTC's operations and ensure that TPTC becomes financially self- reliant in its operations. The directives give TPTC autonomy in personnel policies, salaries, procurement, and management of its financial affairs, etc., and in return, making it accountable for its performance. (Annexes 2-3 and 2-4). 2.15 Specific financial, technical, operational, and service quality objectives are outlined in the MOU and will be updated on an annual basis. Perfonnance targets agreed at negotiations are outlined in Annex 2-4. TPTC's compliance with these objectives will be monitored through efficiency audits done by independent consultants on an annual basis (para 3.38). These efficiency audits will be monitored by GOT and will be reviewed during IDA supervision). Outlined below are details on the current situation within TPTC. D. THE OPERATING ENTITY 2.16 TPTC is a monopolistic, government-owned insfitution responsible for planning, management, and development of domestic and international public telecommunications and postal services (see Annex 2-5 for an Organization Chart). Telecommunications services include local, long-distance, and international telephone, data transfer, fax, telex, and telegraph services for business, residential, and government subscribers. In addition to the public teleconummications services, dedicated networks exist to meet the specialized requirements of the police, military, railways, and civil aviation. Other private users also operate radio link services in areas inadequately served by the public network. Tanzania has no telecommunications manufacturing industry. 2.17 Though most telecommunication operating firms in the world are highly profitable, since 1986, TPTC has had a negative net income and in 1989 was insolvent. The main causes for this insolvency were: r - 13- 1) inadequate tariff policies and massive devaluations of the Tanzanian Shilling, 2) poor billing and collections performance, 3) progressively deteriorated audit controls, and Management and Operational 4) inconsistencies in the lines of authority in the sector and weak management, 5) weak management systems and computeztion, 6) inadequate training, rising staff levels, and low worker compensation, 7) a lack of a customer orientation. Substantial progress has been achieved in 1990 -1991 in resolving these problems in preparation of the Third Telecom project. Tariff PoliCv 2.18 Historically, the tariff policy has been ad hoc and based primarily on political rather than economic considerations. The need to account for inflation within the economy and hedge liabilities against devaluation was not considered when deter_mng tariff levels. Tariffs for the 1985 - 1990 period increased an average 300% versus inflation of 1000% and devaluation of 1200%. Consequently, TPTC's net income declined from TSh 435 million in 1985 to ne,ative TSh 10,295 million in 1989 in current terms. This led to a lack of foreign exchange for spare prts and thus a deterioration of the operational performance of the telecommunications network. 2.19 Throughout the 1985 - 1991 period, local and long-distance tariffs have not compensated for the economic cost of providing service. In 1991, domestic tariffs were well below world averages while iternonal tariffs were some of the highest in the world. In 1991, the average cost of an international call was US$6.41. A negative imbalance of inpayments and outpayments to foreign administrations, however, resulted in an outflow of foreign exchange. In addition, the high international tariffs led to increased efforts by subscribers to avoid being charged for or paying for international calls. It is estimated that by 1991, over thirty percent of international traffic went umbilled. TPTC, however, is sdll required to pay for calls made through foreign adninistrntions. Thus TPTC's financial position is further worsened. 2.20 Given the importance of adequate tariffs in ensuring TPIC's financial viability, as part of TPTC's restructurin in 1991, it was agreed that TPTC would raise individual tariffs approximately 300-600% to cover the true economic cost of providing telecommunication service. In March 1991 local and long-distance tariffs were raised to the agreed upon levels. International tariffs were reduced approximately 25 %. In addition, in March, as part of the M!nisterial Directive (MD) and Memorandum of Understanding (MOU) signed by the Government, the Ministry, and TPTC, it was agreed that without furter authority, TPTC would raise tariffs on a - 14 - semi-annual (or quarterly) basis to account for inflation and devaluation. TPTC raised tariffs in September, 1992 by 15%. BMlhin= and Collection 2.21 TPTC's billing system is antiquated and wholly inadequate to meet its evolving requirements. The current software was written in the 1970's. Work done under the second project to improve the system was moderately successful. Subsequent to this, TPTC has installed several exchanges with non-IDA funding, which for technical reasons, are not compatible with the existing system. To exacerbate the problem, previous TPTC management insisted that work done on the billing system be done by internal staff despite their acknowledged unfamiliarity with the new technology. A laborious process was established to produce international bills. Further, TPTC's transaction volume has outgrown the hardware capacity and rural bills in several areas are produced on unsecured PC's. The end result is that the existing billing system is wholly inadequate to support TPTC's billing and accounts receivable activities. 2.22 Under supervision from IDA under funds provided by SIDA, an interim solution to the billing problem was recently developed. In addition, consultants have begun preparation of the functional requirements for a new billing system and are evaluating pre-packaged billing systems available internationally. As a condition of effectiveness, a billing system will be selected. Successful implementation of the billing system by March 31, 1995 is a key performance target in the mid-term review. 2.23 TPTC has begun to enforce their disconnection policy which requires subscribers to clear their bills within 14 days of the billing date, otherwise service will be disconnected without any notice. TPTC's Statement of Affairs was recently completed and accepted by TPTC and the MOC who verified TPTC's financial position and analysed subscriber revenues. Under this project, technical assistance is being provided to a) introduce improved financial controls and processes, and b) reduce accounts receivables. Audit. Audit Controls, and Financial Accounts 2.24 TPTC's accounts are currently audited by the Tanzanian Audit Corporation. The auditors have been slow in actually producing the audited financial accounts. Under the MOU and MD, the Government confinned that TPTC would hire independent, certified auditors to audit the accounts. TPTC will utilize the services of private auditors if delays persist. TPTC has indicated a willingness to do this should it be necessary. 2.25 As part of the restructuring process, new organizational units were established and functions within departments were redistributed. New financial, management, and audit processes and controls need, therefore, to be established which more closely reflect the current organization structure. These controls will also need to be revised after the split of the postal and telecommunication activities through advice from consultants. 2.26 TPTC prepares accounts both on a cash and commercial basis. External consultants were employed under the second project to assist TPTC in the separation of the postal and telecommunication accounts and to implement a new accounting system. With the assistance of the consultants, the financial and accounting systems have improved and TPTC closed its annal financial accounts within four months of the end of the 1991 fiscal year. Iitial indications in the - 15 - preparation of the 1992 accourts, however, indicate that TPTC may be encountering new problems in this area. Technical assistance will be provided to guide and train staff in the preparation of the accountL . Receipt by IDA of audited financial statements for TPTC for 1992 are a Condition of Effectiveness. Computer support will be provided in a project to complete the automation of the accounting system. Starting with the 1992 accounts, postal and telecomnmunication accounts will be presented separately. 2.27 The appointment, compensation, and retention of the Director General of TPTC has not been under the control of the Ministry of Communications nor the Board of TPTC. Consequently, in an attempt to ensure effective management of TPTC, the Ministry and TPTC's Board became involved in the planning and day-to-day implementation activities of TPTC. For example, financial expenditures, already approved in the annual budget, were subject to Board review. In addition hiring, compensation, and firing of staff were also subject to Board approval. This involvement resulted in substantial delays (as much as 6-12 months) in completing tasks and significantly reduced the accountability, effectiveness, and motivation of management. 2.28 As part of the overall parastatal reform within Tanzania, the GOT and the Ministry have delegated the responsibility of selecting the Director General of TPTC to TPTC's Board of Directors, subject to Ministerial approval. This delegation of authority and the change in tariff policy are clear moves on the part of the Government and the Ministry to commercialize TPTC and provide TPTC with significantly increased autonomy and accountability. TPTC recently introduced a memorandum delegating authority to line managers in the zones and regions as well as headquarters. The Ministry and Board are currently in the last stages of recruiting a new Director General with extensive international experience and a strong familiarity with the telecommunications sector in Tanzania. The appointment of a highly qualified Director General will be one of the primary contributing factors to the success of the project implementation. ManEmnt System and ComIuterization 2.29 TPTC lacks proper management systems and procedures essential to manage it as a commercial enterprise. In addition, TPTC's management reporting is fragmented and no formal and uniform structure for the flow of information exists. TPTC's performance is not closely monitored, and formulation of corrective actions and utilization of information processing capacities are inadequate. This has contributed to weaknesses in planming, operations and maintenance, financial management, billing and collection, procurement, and project management. TPTC will hire consultants to assist it in its efforts in these areas. 2.30 A comprehensive review of TPTC's current computer strategy is underway. Consultants are assisting in this process and will propose a computerization strategy, priority systems and an implementation plan. Acceptance of the consultant report by TPTC and IDA is a condition of effectiveness. Consultants will also assist in implementation, including actually purchasing pre-developed software, or if necessary, developing software. The purchase of a new billing program and a financial management system will be the highest priority systems purchased. - 16 - M Training. and Competion 2.31 Inadequate training of key staff contributed to weak fiscal and operational performance and the degradation of financial, techmical, and audit systems, processes, and controls over time. TPTC has a training center in Dar-es-alaam which offers instruction and training programs in most of TPTC's operational activities. These in-house trining facilities are supplemented by established national training institutions and staff assignments with overseas telecommunications administration, universities, and manufacturers. The annual training volume is currently about 7,621 student weeks per year. However, this is still inadequate to meet TPTC's needs. TPTC plans to expand training to deliver 9200 weeks by 1992. The types of courses covered in the staff training college are contained in Annex 2-6. 2.32 TPTC has no regular program for managerial, administrative, financial, or computer training. Training in these areas is done on an ad-hoc basis using external institutions such as the multinational training institutions in Arusha and Nairobi. A detailed training plan and consultancy services required to train trainers has been developed. 2.33 Telecommunications administrations in developed countries employ 5 to 8 staff per 1,000 DELs. As of December 31, 1991, TPTC employed a total staff of about 8,620. The staff employed exclusively for telecommunications services was about 4,860 which is equivalent to a staffing ratio of 69 per 1,000 DELs, which is high. The staffing ratio would be 76 staff per 1,000 DELs if the common support service staff are included. The number of staff per 1,000 DELs over the past three years has been growing rather than falling as is the case in most developing countries where the Bank has been involved. Moreover the increase in staff has been in administrative areas. In the key areas of engineering and finance, where there is a shortage of trained staff, the growth has been very low or in some cases negative. In 1991, however, the number of authorized staff within the organization was frozen and has been adhered to for telecommunications staff. As part of the restructuring process areas requiring particular attention were identified and the level of technical assistance reqwired was estimated. This study was undertaken as part of a technical assistance program and the recommendations from the study will be substantially implemnented within the first two years of an investment program. Completion of this study will be an item in a mid-term review (para. 5.02). To improve staff efficiency, targets have been set for reducing the staff ratio and will be closely monitored in the annual efficiency audits. 2.34 As a result of limited working capital, staff salaries have not kept pace with inflation. Wages and salaries as a proportion of operating costs were decreased from 19% to 13.3% from 1985 - 1989, despite an increase in the number of staff employed. As a result of low wages, staff became increasingly demoralized and inefficient, thus further reducing operational effectiveness and the quality of service provided. This also led to increasing number of staff seeking alternative means - frequently to the detriment of TPTC - to augment their total compensation. As agreed in the Ministerial Directive and Memorandum of Understanding, staff salaries were almost doubled in early 1992. Further, in July 1992 TPTC introduced an employee incentive plan that rewards staff based upon measurable performance indicators. To meet the staff ratio targeted, TPTC will need to improve staff productivity by 12% annualiy. Early results from the incentive scheme indicate strong efficiency gains. - 17- 2.35 TPTC currently lacks a customer orientation. In order to provide a higher quality, more individualized service to their customers and to maximize profits, TPTC needs to improve the services offered in the customer service department. This department should provide the single contact point in the operating entity to which customers direct their inquiries. The departm should ensure that customers have access to i) flexible blling serviks, ii) a customer code so that customers know what services they can expect, the price of the service, and mechanism available to them to comphin for unsatisfactory service, iii) fill account information, and iv) specialized services which they may reuire (particularly for high revenue generating subscribers). The customer service department would draw upon the skills of the technical, billing, and finance depattments as required to respond to subscriber inquires. In addition, the customer service department would be responsible for analyzing subscriber demand patterns and profiles to develop a coherent view of the customer base. In particular, they would identif high revenme generating subscribers and establish specific customer accoi. managers to more effectively service these customers and maximize the revenue they generate. Technical Assistance will be provided to help improve the services offered in the customer service department and to develop a subscriber profile. - 18- m. THE PROGRAM AND PROJECT A. THE PROGRAM 3.01 TPTC and the MOC, with consultant assistance, identified a US$ 448 million telecommunication recovery program to be implemented between 1993 and 1997. The program's main objective was to meet the most urgent medium-term requirements of customers for telecommunication services. The program was subsequtnly downsized to US$ 220.1 million to take into account TPTC's managerial, financial, and technical absorptive capacity. TPC's implementation capacity has been maximized through the effective use of consultant support. The viability of this program is contingent on: (a) the new works procurement and implementation being maaged by external consultants and detailed implementation being undertaken on a turney basis; (b) appropriate tariff increases throughout the project; (c) the availability of foreign financing; and (d) restructuring of the existing Government debt to TPTC. Stens Alreadv Taken 3.02 To ensure the program's success, the GOT has worked actively with TPTC to improve its financial viability. The GOT converted US$34 million of TPTC's debt to equity to improve their debt servicing capacity. During negotiations, it was agreed that the Government will invest US$ 90 million of project funds into TPTC as equity to strengthen the balance sheet and that, without IDA approval, TPTC shall not incur any debt, if after incurring such debt the ratio of debt to equity shall be greater than 60 to 40. In addition, TPTC has authority to raise tariffs as required to cover inflation and devaluation and to retain 35% of its foreign exchange revenue to fund foreign costs (spare parts, equipment, etc.) During negotiations it was agreed that TPTC shall not undertake any investment with an estimated cost in excess of $2 million without prior approval of .the Association. 3.03 The total program for the period 1993-1997 consists of. i) almost completed ongoing works from IDA Credit 1810; and ii) the proposed project. The cost of the program is estimated US$ 220.1 million including foreign cost of about US$ 189.7 million (Annex 3.1). B. TE PROJECT Project Oblectives 3.04 To support the Government's development strategy in the sector (para. 1.05 and 1.06) and the overall economic recovery of the country, the project has the following physical and institutional development objectives: - 19- (a) to establish a market oriented regulatory and policy framework; introduce private sector participation in non-basic services in the near term; and permit and develop an action plan to secure private investment in basic services and evaluate opportunities for competition in non-basic services in the medium term; (b) to support strengthening of the institutional framework and facilitate commercialization and corporatization of TPTC; to improve TPTC's financial performance; and maxiniize TPTC's absorptive capacity through effective use of consultants; and (c) to expand basic services, particularly to business subscribers, so as to satisfy the most urgent demand and remove a constraint to the economic development of other sectors; to rehabilitate the long-distance and national networks and existing, non- operational lines; to improve the quality of service and system efficiency through, inter alia better utilization of existing facilities, reducing faults and increasing call completion rates; and over time, increase availability of a range of high quality, value-added services to satisfy customer demand. Proiet Descipidon 3.05 The Telecommunication m project design is described in detail in Annex 3-2. It includes the following components: Part A - Reuulatorv and Policy Framework 3.06 The Government and the MOC are committed to establishing a market-oriented regulatory and policy framework. The Government's main policy aims are to ensure that: a) basic and non-basic services are extended to as many subscribers as is economically viable; b) service quality is improved; c) services are provided efficiently and cost effectively in part through competition; and d) resources available to the sector are maximized through private sector involvement. The Government has drafted a Telecommunication Policy Statement (see Annex 1- 1) which outlines their intention to: (a) limit Government's role to primarily policy formulation and representation with other Governments and international organizations; (b) establish a separate, independent regulatory body to regulate telecommunication activities in Tanzania by March 31, 1994; (c) draft a new teleconmmnications law which permits private sector participation and investment in basic and non-basic telecommunication services by March 31, 1994; (d) take all actions necessary to have a cellular operator license issued on the basis of competitive bidding procedures by December 31, 1993 and by December 31, 1995 ensure that licenses to private sector operators or investors are issued for two other non-basic services; (e) require that TPTC commercialize and corporatize its operations, split postal and telecommunication activities, and divest of non-core functions. -20- Submission of the policy statement to IDA is a condition of Credit Effectiveness. 3.07 The regulatory body would be responsible for establishing overall telecom tariffs, defining and monitoring operator compliance with service standards, licensing selected services4/, monitoring spectrum frequency allocation, granting licensos to operate telecommunication services, authorizing interconnection and revenue sharing arrangements, and promoting the development of competition and private sector involvement. 3.08 In the Investment Program, US$ 950,000 of technical assistance will be made available to the Ministry of Communications and the Regulatory Body to a) conduct a review of the current strategy for establishing a regulatory framework, b) define an implemenation plan with clear milestones and assist in implementation to establish a regulatory body; and c) assist in the training of regulatory staff and transfer of knowledge (US$ 200,000 of the total $950,000) (see para. 1.12). In additon, the MOC will have external consultants perform an annual efficiency audit of TPTC to ensure that performance targets are met (25 staff montis over five years). The efficiency audit will review quantifiable financial, technical, and operational performance targets (see Annex 2-4). The technical assistance provided to the MOC will be coordinated with a Regional Telecommunications Policy Study. 3.09 Technical assistance wil be provided to a) identify options for private sector involvement and competition, b) identify a plan to catalyze that involvement; and c) assist in its implementation. The recommendations of the study on private sector involvement and an action plan, taking into account the Association's comments, wiUl be provided to IDA by the Mid Term Review. :art B - Institutional DeveoMe and ProLect Impleeaon 3.10 lnstitutional Development. To restructure TPTC effectively, build the institutional capacity of TPTC in a susainable manner, and maxuimzing TPTC's absorptive capacity wiUl require a comprehensive technical assistance package. Approximately US$ 14.02 million of foreign technical assistance (of which $2.1 million is for a performance contract - (see para. 3.14, 3.30(b)) and US$ 2.8 million of training will be provided. The institutional development portion of the program is intended to revise the institutional processes and procedures within the organization following the recent implementation of the first phase of the reorganization of TPTC along more commercial lines (see para. 1.13). TPTC management and staff will focus their efforts and be accountable for their on-aoing core ctivities. The technical assistance and training is intended to develop the staff capabilities within TPTC so that, over time, TPTC can become self-reliant. Staff training and development wiUl be done in conjunction with substantial increases in staff salaries (implemented in spring 1992), implementation of a performance based incentive program (July 1992), delegation of authority to line managers (spring, 1992), and clearer definition of roles and accountability of staff (first phase to be completed by 1994 and second phase, after split of posts and telecommunications, by 1995). 3.11 A second phase of the restructuring will occur over the next two years with the split of posts and telecommunication activities. Subsequent work will need to be done in the areas of I/ nhe MOC, as an isue of policy, s likely to retain the audhority to isse licenses whkh will have a substhi-e impac on the sector. Mh reguaor would be expectd to monitor compliance with the license. - 21 - management, finance, customer service, manpower, and operations to ensure the successful implementation of the second phase of the restructuring process. The size of the technical assistance package is, in part, due to the low emphasis of technical assistance in previous projects (see Previous World Bank Involvement (para. 1.19). 3.12 The institutional development component of the project provides for 745 staff months of consultants and experts to assist TPTC in the tasks specified below and staff months training for trainers as well as 280 staff months of fellowships for overseas training of TPI;C's personnel. The technical assistance under the project is as follows: (a) studies required to implement the institutional reforms. The main studies will be i) a manpower study to develop a comprehensive human resource and training strategy and an implementation plan, ii) a computerization strategy study and implementation, and iii) organizational structure study for the telecommunications firm after the split of posts and telecommunications (31 mm) (see paras 2.30, 2.33); (b) corporate planning activities related to the split of posts and telecommunications activities, establishment of profit centers in zones, development of management reporting capabilities, investment and resource planning, contract administration, and project accounting related to project implementation; (50 mm) (para. 2.32, 3.32); (c) network planning related to overall planning, optimization, and coordination of the national network, as well as traffic engineering, and materials standardization (90 mm) (para. 2.28, 2.33, 3.34); (d) operations and marketing related to subscriber services at headquarters and the zones, operation and maintenance control centers, and maintenance procedures (108 mm) (para. 2.35); (e) financial planning and controls related to design and implementation of financial management systems and procedures, including: installation of new financial systems and processes and introducing improved financial and audit controls; split of post and telecommunication accounts; and improvement of budgeting, forecasting, cost control. A full time financial controller will be retained to implement the financial reform of TPTC. A total of 156 staff months is required over four years, of which the financial controller would require 48 staff months (pans. 1.13, 2.24, 2.27, 2.29); (f) provision of experts in manpower and training to develop a human resource plan, a staff performance incentive scheme, a career development program based on the existing staff profiles, and a hulman resource data base (72 staff months over four years), (parm. 2.33); (g) instruction of trainers in the staff college, development of new courses, and teaching of initial courses in the following areas: management, end user computing, mnarketing and customer service, (4 staff months over four years), (para. 2.33); and (h) provision of training fellowships to TPIC staff primarily in local or regional training institutions for courses not available through the staff college, (para. 2.33). - 22 - 3.13 In support of the technical assistance component of the program, TfTC will: a) identify and nominate counterpart personnel for each task and inform IDA prior to issuing the letter of invitation to consultant for proposals; and b) TPTC and IDA will each year review the impact of the technical assistance, including counterpart staff training, and agree on the implementation objectives for the following year. Appointment of consultants for project management, computer, and financial management consultants is a Condition of Credit Effectiveness. 3.14 Proiect Imnlementation. To increase TPTC's implementation capacity (thus speeding up the implementation process and eliminating technical bottlenecks more quickly), TPTC will retain an external firm to be accountable for procurement and installation of new works under the program (see para. 3.30). In addition, all equipment contracts will be implemented on a turnkey basis. All contractors will be evaluated and compensated on performance based, output oriented results. A US$ 2.1 million has been allocated for the performance contract. Part C - Rehabilition and Exuansion 3.15 This component comprises the new works in the revised investment program for 1993-1997, including: 1. rehabilitation of existing switching, transmission, power, and air conditioning equipment including the provision of spare parts, modules, tools, and test equipment to repair and refurbish them, (paras. 1.06, 2.06); 2. supply, installation and commissioning of (see para. 1.06, 1.15, 2.03): (a) 91,000 lines of switching equipment including 44,000 lines in the Dar-es- Salaam and 47,000 lines in the Regional Centers. Cities with a high growth in demand have been given priority. These include Tanga, Dodoma, Mwanza, Arusha, Mbeya, Morogoro, Iringa, and Moshi; (b) complementary external line plant to match item (a) above and extnal line plant for exchanges requiring additional cabling; (c) digital microwave radio systems and fibre optical systems to interconnect the exchanges included in item (a); and (d) power and air condidoning equipment for above mentioned switching and transmission. 3. provision of 20,000 telephone instruments and 500 pay phones for replacement of unserviceable instruments and connecting new subscribers; 200 teleprints and 500 fax machines; 4. provision of 50 motor vehicles for planning, construction, and maintenance works; 5. construction of buildings to accommodate equipment and for office and residential purposes; - 23 - 6. acquisition of ancillary equipment, computer hardware and software; 7. acquisition of postal equipment and vehicles; and 8. rehabilitation and expansion of the telecommunications network to be financed by IDA, will be divided into two phases as follows: (a) Phase I - Spare parts for existing switching, external line plant and transmission - Upgrading of Earth station with digital IDR fauility - External line plant in Pugu Road and Wageni (both in DSM) to provide connection capacity for existing exchanges - Long distance transmission with digital microwave systems (spurs in Phase II): DSM-Dodoma and DSM-Zanzibar-Pemba-Tanga-Moshi - Power and air conditioning equipment for above mentioned transmission routes - Terminals: telephone sets, teleprinters, and fax machines. (b) Phase I * Switching in Arusha, Morogoro, Zanzibar, Chake Chake, Wete and Mkoani, and in 20 mral locations - External line plant in Arusha, Morogoro, Zanzibar, and in the above mentioned 20 rurl locations - Long distance transmission with digital microwave systems: Moshi-Arusha - Small radio transmission related to above mentioned rural locations - Spur links related to the long distance transmission routes DSM-Dodoma and DSM-Zanzibar-Pemba-Tanga-Moshi-Arusha - Power and A/C for above mentioned switching and transmission. Probet C9 3.16 The total cost of the project is estimated at US$ 220.1 million with a foreign exchange cost of about US$ 189.7 million (86% of the total cost). The costs of equipment and consul are based on TPTC's contracts for ongoing works and experience in other countries with adjustments up to June 1992. Project cost estimates are outlined in Annex 3-1. - 24 - TANZANIA POSTS AMTQ1U.OMMLUNarICA1ONCOFMRAflO TELECMMUNMC IONS RESFRICUFRU WFLCC Investme t Pom (11- 1s5 in Mli us USOdi * Eac rate 300.00 T.S148. (AW wON L US# MILUO i1s9-i196 1o91 - oo Local Foreign Total LOC Foreign Total A. TELEPHONEEXCHANGES A.1 Local exchan 550.00 t729937 7.880. 1.64 24.33 2.17 A.2 Transit Exchange 60.00 130.00 690.00 0.20 2.10 2.30 A.3 Spare Parts 0.00 300.00 300.00 0.00 1.00 1.00 B. LOCAL CABLE NETWOK 9.1 ELP 1,778.40 16,005.60 17.764.00 5.93 53. 59.28 9.2 Spare Parts 0.00 60000 600.00 0.00 2.00 2.00 C. TRANSM4ISS1O C.1 Optcal Fibre 162.00 460.0 612.00 0.S4 1.50 2.04 C.2 Radio Systems 2,439.00 13,581.00 16,02.00 8.13 45.27 53.40 C.3 Upgrade S9d. A Earth 0.00 150.00 150.0 0.00 0.50 .50 C.4 Spae 0.00 420.00 420.00 0.00 1.40 1.40 D. TLHONEE& . 0.00 684.00 68.0 0.00 2.26 228 E POWE&AC 150.00 1,06.00 1,2000 0.50 30 4.00 F. BUILINQ 900.00 0.00 900.00 3.00 0.00 3.00 Q VEHIaES 30.00 45000 4Q00 0.10 1.50 1.60 H. COMPUTE1S 0.00 1,716.00 1,716.00 0.00 5.72 5.72 LA CONSULTANCY-TOTPTC 798.00 4,206.00 5,004.00 2.66 14.02 1.68 LB CONSULTANCY- TOMOC 30.00 22.00 25.00 0.10 0.75 0.8S J.A TPAINN-TO TPTC 510.00 84000 1,3500 1.70 2.80 4.50 J.0 TPAIM - TO MOC 0.00 60a.O 00 0.00 0.20 020 K MISC. & ANCILWIARY EOUIUE 510.00 84000 1.00 1.70 2.80 4.50 :- SE COT 7*18S30 49.506MO7 67,426?: 26.39 - 102 111.42 Physcal Contingency 395.91 2,475.36 2,871.26 1.32 8.26 9.57 Prie Coningency 791.83 4,9570 5.7425 2.64 16.50 1M14 1TAP~JCCS ,... 9,106.04......................... . 60,3.02 6,3.0 30* ae?s; 1i7# 201 - 25 - 3.17 Physical contingencies are 5 % on local and foreign costs for equipment and services. Price contingencies are based on amual domestic inflation rates for local costs at 17% in 1992, 14% in 1993, 12% in 1994, and 10% thereafter; and intemational inflation rates for foreign costs at 4.4% for 1992- 1996 and 4.1% thereafter. It is assumed that the exchange rates will vary during the period to adjust for the difference between local and foreign inflation. The average unit cost for switching equipment is $265 ($285 including local costs) and $360 ($400 with local costs) for external line plant. These estimates are based on actual contracts secured by TPTC and world-wide trends. Cost estimates for transmission are based on the costs consultants received from projects elsewhere since digital transmission equipment was not purchased in the previous telecom project in Tanzania. The cost estimates of $2000 per direct exchange line is in line with project cost estimates for other recently prepared projects in Africa and Asia (see Zimbabwe and Nepal). Pro3ect Financing 3.18 Donor contributions are detailed in Annex 3-3 and sunmarized in Table 3.1. IDA has taken the lead in coordinating donor funding. Specific atention was given to limiting the number of donors (10+ donors have fumded projects in the past several years). Donors are funding whole segments of the project (including switching and transmission equipment and external line plant [ELPI) on a geographical basis to a) ensure that compatible types of equipment are purchased in a particular region, b) that equipment is not purchased that cannot be used (switches that have no outside plant), and c) the level of training and maintenance required of TPTC staff is minimized. Donors were also encouraged to allow competitive bidding for equipment and technical assistance. Consequently, a large portion of the project wiUl be procured under International Competitive Bidding (ICB). Finally, in cases where aid is tied, donors were strongly encouraged to consider international pricing when costing their projects. 3.19 The IDA credit of US$ 74.45 million (US$ 73.5 million of which will be provided to TPTC) will meet about 40% of the foreign cost requirement. TPTC will be required to finance all the local cost requirements amounting to about US$ 30.4 miflion. Table 3. Protect Fnancng Local Porein Total SonScoUS$ Million Equivalent- IDA 74.4 74.4 Cofinanciers 115.4 115.4 TPTC 30 4 30.4 TOTAL 30.4 1. 22Q.1 3.20 The IDA credit of US$ 74.45 million equivalent would be made to the GOT. US$ 20 million would invested by GOT into TPTC as equity. US$ 53.5 million would be on-lent to TPTC at 8% interest rate for 20 years including a five year grace period. Approximately US$ 70 million of additional equity will be provided by co-financiers (see para. 4.06(i)). During negotiations it was agreed that the Government will invest a total of US$ 90 million into TPIC to achieve a debt equity ratio of 60:40 by the first year of the project and that the Government will - 26 - take all steps necessary to maintain this ratio thereafter. Funds from co-financing sources not going in as equity are assumed to be on-lent by the Government to TPTC at 8% per annum for five years including five years grace on principal repayment. TPTC will bear the foreign exchange risk on the IDA credit and other funds that are invested into TPTC as debt. 3.21 TPTC has been meeting the local costs of their ongoing telecommunications development program. TPTC will be required to meet its local cost requirement for the investment program which is estimated at about 8.7 billion Tanzania Shilling through internal cash generation. C. PROCUREMENT AND IMPLEMENTATION Procarent 3.22 Procurement arrangements for the proposed project are summrized in Table 3.2. Contracts for about US$ 135 million for goods and services would be awarded according to ICB using IDA's or ADB's procurement guidelines. Goods and services for US$ 17 million to be financed by EEC will be procured according to limited international bidding from EEC member countries. Contracts for goods and services to be financed by DANIDA and JICA (about US$ 10 million) will comply with the guidelines of the individual donor country. Buildings (US$ 3.5 million) financed by TPTC will be procured through Local Competitive Bidding (LCB) in accordance with the government public procurement procedures. Selection of consultants financed by IDA and SIDA will be in accordance with their respective guidelines. 3.23 Goods (equipment, installation, specialized training by suppliers) worth about US$ 62 million to be financed by IDA will be procured through ICB in accordance with IDA's procurement guidelines. It was agreed at negotiations that the Bank's standard bidding documents will be used under the Project. IDA financed investment component wiUl be divided in 10-15 bid packages based on equipment category: switching, transmission, external line plant, terminals (telephones, fax machines and teleprinters), power and air conditioning equipment (see Annex 3-2 for details on the program). Proprietary items totalling US$ 6 million covering spares, rehabilitation and upgrading of existing equipment (spare parts for switching and transmission and upgrading of a Standard A Earth station) will be financed by IDA and procured by direct negotiations with the original suppliers. Negotiated prices for these items will be based on the ICB prices from bids received under the earlier IDA financed telecommunications projects taking into account a reasonable adjustment. Small quantities of postal equipment totalling US$ 2 million will be financed by IDA and procured by direct negotiations. Selection of IDA financed consultants (about US$ 4.1 million equivalent) will be in accordance with IDA guidelines. Conas for consultants employed under PPF advance (US$ 0.8 million), or 6 % of total consultancy contracts under the project, have already been or are being executed in accordance with IDA guidelines. TPTC is the principal implementing agency responsible for carrying out the project, including all procurement. This is the third similar project in the sector, and the staff of TPTC have acquired experience from earlier projects. Consultants are and will continue to assist TPTC in the preparation of bidding documents, evaluation of tenders, contract negotiations, and supervision of the project implementation. 3.24 All IDA financed conracts for goods for more than US$ 250,000 equivalent each will be subject to IDA's prior review as well as contracts for consultants for more than US$ 100,000 each. This is expected to involve about 85% of the total value of IDA financed contracts. The smaller IDA financed contracts will be subject to post-award review in accordance with Appendix 1 of IDA proment guidelines. - 27 - Table 3.2 PROCUREMENT ARRANGEMENTS (US$ tmilion) Negotiated Prolect Item ICB Purchase NBF Other Total Switching 26.0 1.2 4.4 2.3 33.9 (5.5) (1.2) (6.7) Ext.Line Plant 45.3 - 18.3 6.9 70.5 (13.2) (13.2) Transmission 49.2 2.2 4.6 10.0 66.0 (32.5) (2.2) (34.7) Terminals 1.7 0.6 0.3 - 2.6 (1.7) (0.6) (2.3) Power & A/C 4.0 - - 0.6 4.6 (4.0) (4.0) Buildings - - 3.5 - 3.5 vehicles 1.7 - - 0.1 1.7 (1.2) (1.2) Computers 6.6 - - - 6.6 (3.8) (3.8) Consultancy-TPTC - - - 18.45 18.45 (2.45) (2.45) Consultancy-MOC - - - .75 .75 (.75) (.75) Training - TPTC - - - 5.2 5.2 (1.0) (1.0) Training - MOC - - - .2 .2 (.2) (.2) Postal - Equipment - 2.0 - 1.5 3.5 (2.0) (2.0) Postal-Construction - - - 1.7 1.7 (1.2) (1.2) PPF - - - .88 .88 (.88) (.88) TOTAL 134.5 6.0 31.1 48.6 220.1 (61.9) (6.0) (6.5) (74.4) NOTE: Figures in parentheses are amounts to be financed by the IDA Credit. ICB = International Competitive Bidding NBF = Not Bank Financed Negotiated Purchase - e.g. purchase of spare parts from original suppliers Other = e.g. TPTC's local cost, selection of consultants. - 28 - Pb1mnt 3.25 The IDA credit of US$ 74.45 million would be disbursed against 100% of foreign expenditures for equipment, vehicles, training and consultancy services, as shown in Table 3.3. Table 3.3: Disbursement of Proposed Credit Amount % Financed by Category (US$ Million) IDA 1. Equipment under: 100% foreign expenditure (a) Phase I of 28,000,000. Part C.8 of the Project (b) Phase II of 25,000,000. Part C.8 of the Project 2. Vehicles, computers 100% foreign and office equip- expenditure ment: (a) Computer & 3,300,000. office equipment (b) Vehicles 1,000,000. 3. Training 100% foreign expenditure (a) For Part A 200,000. of the Project (b) For Part B 900,000. of the Project 4. Consultant's 100% foreign Services expenditure (a) For Part A 750,000. of the Project (b) For Part B 1,920,000. of the Project 5.(a) Postal equipment 1,800,000. 100% foreign and vehicles for expenditures Part C.7 of the Project (b) Consultant's 1,000,000. 100t foreign services and training expenditures for Part B.7 of the Project 6. Refunding of 880,000. 100* foreign Project Preparation expenditure Advance 6. Unallocated (Contingency) 9,700.000. Total 74.450,000. - 29 - 3.26 The estimated disbursement schedule is shown in Annex 34 and includes disbursement in FY93 for the PPF. The disbursement profile is based on IDA's standard disbursement profile for Telecom projects worldwide. Steps are being taken, however, to speed up the disbursement process. TPrC will establish a petfc-mance contract with consultants to be responsible for project implementation and all equipmevt contracts will be executed on a turnkey basis to accelerate project implementation. It is expected 'Sia- aiplementation and disbursements would be completed by December 30, 1997. A special foreign rurrency account of US$ 4 million equivalent will be established by TPTC in a commercial bank on termis and conditions acceptable to IDA. This amount represents four mondts of estimated payments to contractors and consultants directly by TPTC during the peak implementation period of 1994 - 1996 from the IDA credit. The special account would be used for disbursements against all eligible expenditures and it would be replenished by IDA on application by TPTC. For large contracts, TPTC will apply for direct payments to the suppliers or for letters of credit. All disbursement applications would be fully documented with the exception of applications relating to expenditures under contract valued less than US$ 250,000 equivalent, which would be disbursed on the basis of a Statement of Expenditures (SOE). 3.27 TPTC will maintain separate accounts in accordance with accepted accounting principles to maintain records of all expenditures specific to the IDA project, comnmitments, reimbursements and the status of project funds. Staff in the project monitoring/donor coordination unit in the corporate planning department will be responsible for managing the accounts and for supplying reports to IDA. With respect to the amount withdrawn on the basis of Statements of Expenses, TPIC will prepare and maitain records such as contracts, invoices, and evidence of payments readily available for inspection. During Negotiations it was agreed that Special Accounts, Project Accounts and SOE's will be audited by independent auditors acceptable to IDA and the reports will be submitted to IDA with audited finaneial accounts for each fiscal year. 3.28 Disbursement for the equipment portions of the IDA component of the project will be done in two phases. Disbursement under Phase I of the Project (approximately US$ 28 million + 15% contingency - see Category (1)(a) in Table 3-3) will be carried out after TPTC has employed a consulting firm with qualifications and experience satisfactory to IDA to be responsible for the supervision of the procurement and implementation of capital construction activities under the Project. Payments under Phase II of the project (approximately US$ 25 million + 15% contingency - see Category (1)(b) in Table 3-3) can be made subject to nodfication from IDA once TPTC has gained sufficient impementation capacity to successfully implement the second phase. The specific items to be included in each phase were agreed at negodations and are outlined in Annex 3-5. TPTC Mnagement and Project Implementation 3.29 Implementation of the project will be a complex undertaking. Approximately six or seven donors are expected to contribute to the program and the execution of the program will involve a nber of different suppliers. The investments will be spread over the entire country and will involve all of the fimctional areas witiin TPIC. 3.30 A key goal of the program is to build the institutional capacity of TPTC staff to manage and operate their core business activities effecdvely over time, and to maximize the - 30 - implementation capacity within the organization. Consequently, during negotiation, it was agreed that: (a) TPTC would focus their efforts and would be accountable for managing TPTC's o- going core business, i.e. operation of the teleconmnunications network; (b) TPTC will contract out with a private firm (independent of suppliers) who will be to be responsible for supervision of procurement and installation of the new works under the investment program. This firn will be responsible for new works procurement and will oversee the implementation of the turn-key contracts. All firms will be evaluated on output oriented quantiflable performanc taryets. Where appropriate TPTC will "farm out" or release staff to work for contractors. The firm overseeing the project implementation will be accountable to the Deputy Director General, Telecommunication; (c) TPTC will establish a "financial review" contract with a private firm to (i) establish new finance and accounting, audit, and logistics systems procedures and controls, and (') install new information systems (including billing and collections, accounting and financial management, and payroll); (d) When seeking private sector participation TPTC will attempt to commit the investor(s) to providing relevant "know how"; (e) TPITC will divest of non-core activities. Functions to be divested include printing, motor vehicle repair, building construction and maintenance, sale and installation of customer premise equipment, and equipment repair; (f) TPTC will contract out some services which are non core but on-going in nature. The specific services to be contracted out will be determined as part of the institutional restructuring plan. These services will include maintenance of hardware and software of the information systems (inter alia billing, accounting, and payroll) and customer collections/accounts receivable as separate contracts. 3.31 The letters of invitation for the supervision consultants and financial Review consultants under (b) and (c) above will be floated as soon as possible and the tender documents will be evaluated and contracts negotiated by Credit Effectiveness. 3.32 A Project Monitoring Unit (PMU) in the Corporate Planning Department will be responsible for the overall coordination of the project. Draft Terms of Reference for technical assistance are available in the project files. The key responsibilities of the team will be to a) consolidate reports from the Deputy Director General Telecom and the Department Directors on the progress of the project; b) coordinate technical assistance across functional areas; c) oversee and participate in contract administration; d) maintain the financial accounts for the project; e) ensure that documentation required by the donor community is prepared in an accurate and timely manner; and f) monitor the transfer of know-how in the technical assistance. The size of the team in the Corporate Planning Departnent will need to be expanded. Two consultants will be retained to work with counterpart staff within the PMUJ. These consultants will assist the Director in reviewing all procurement documents prepared by the consulting firm responsible for supervision of project implementation and ensure compliance with donor requirements. - 31 - 3.33 The physical and institutional comnponents of the project will be managed by the Deputy Director General Telecommunications (Project Director). The firm responsible for supervision of project implementation will be accountable to him or his designate. Where appropriate and rnutually agreeable, TPTC staff will be employed by the contractors for the actual project impletmentation. See Annex 3-5 for a summary description of the project implementation plans. A detailed implementation plan is contained in the project f;les. 3.34 The Deputy Director General Telecommunications and his senior staff managing a) network design and project engineering; b) building design and supervision; c) major works construction; d) customer services; and e) planning and resource scheduling as w0.! as the heads of finance, audit, human resources, and computers will be responsible for the management of on-going activities. In addition, the appropriate departments will be responsible for acceptance testing and confirming commissioning of equipment installed by contractors. 3.35 The Deputy Director General Telecommunications will have monthly reports prepared on the progress of the project implementation for both technical assistance and capital investment construction and will convene regular monthly meetings to discuss these reports. The Project Director (DDGT), assisted by the Project Management Teamn Leader (Director Corporate Planning) will prepare and issue consolidated quarterly progress reports for the Director General. The quarterly reports, including executive summaries, will be submitted to IDA and other donors. 3.36 A project review group will also be established that will be composed of the heads of the finctional departments involved in the implementation of either the technical assistance or capital construction and will be chaired by the Director General. The group will meet regularly to resolve outstanding issues. 3.37 The efficient implementation of the management consultancy services is critical to the success of the project. To ensure timely appointment of these consultants, the selection of the project management and financial consultants will be a Condition of Credit Effectiveness. Performance Idicators 3.38 TPTC will prepare annually for IDA's review a comparative analysis of its actual performance against the target indicators as agreed to by GOT and TPTC in the MOU signed in March 1992 and the additional targets agreed to between TPTC and IDA at Negotiations (see Annex 24). These indicators relate to technical, operational, and financial performance, subscriber connections, service quality, and staffing. While targets for later years are indicative, those for 1993 have been agreed upon as representing desirable and feasible levels of attainment. The target for subsequent years will be agreed jointly between TPTC and IDA by October 31 of the preceding year, together with any corrective actions necessary. In addition, all firms responsible for capital construction, including the consulting firm selected to supervise the overall implementation and those implementing turnkey projects, will be evaluated on out_ut oriented, quantifiable performance targets. An Efficiency Audit carried out by independent consultants will evaluate TPTC's performance and is intended to assist TPTC in improving its management and allow timely corrective actions to be taken when necessary. TPTC will report progress against technical and operational indicators in the quarterly progress reports to be submitted to IDA within six weeks of the end of each quarter, and against financial indicators in annual financial statements. A Mid Term Review of the project will be conducted in the 4th quarter of 1995. The review wi1l be based primarily on the results of the Efficiency Audits. - 32 - Re2on Cood, aton 3.39 From a regulatory and policy perspective, the current project is being carefully integrated with a World Bank sponsored African Telecommunications Policy Study. Lessons learned from other countries will be incorporated into the implementation of a regulatory framework and vice versa. From a technical standpoint, under the IDA II project, regional and international telecommunication linis had been inproved and expanded to satisfy existing demand. The current project builds the domestic capacity to access regional and international destinations. D. ENVIRNMENTAL AND HEALTH EECTS 3.40 The proposed project is expected to have no major adverse environmental and health effects. On the contrary, more efficient use of telecommunications will substitute for personal transporation and correspondingly reduce environmental pollution and promote energy conservation. In addition, improved telecommunication services would facilitate dispersion of health services and emergency care. 3.41 Outlined below are specific issues which may arise. Air Pollution - In some project buildings, air conditioning is necessary. Some CFC gases could be leaked to fte atmosphere Land Loss - It will be necessary to construct microwave towers in the rural areas and thirty new buildings will be constructed. Wildlife - Tanzania has rich and abundant wildlife populations in numerous national parks and wildlife reserves. The towers could increase the number of bird deaths from collisions with the new towers. Sail Eros - Towers will be constructed on hills and the construction of access on the steep slopes could create soil erosion hazards. Landscape Values - The microwave towers on high hills are not aesthetically appealing. Specific mn-asures to mitigate and manage these issues are outlined in an environmental mitigation plan (see Annex 3-6). - 33 - IV. EINANCIA AND ECONOMIC ANALYSIS A. Fundal ast Fiaca Peronnanee 4.01 During the peniod between FY8S-89 the financial performance of TPTC has been poor both in terms of cash flows and profitability. TPTC's deterioration in performance is highlighted by the change in earnings during this period. From a net profit of Tsh 435 million in 1985, profitability declined to a net loss of Tsh 10,295 million in 1989. Outlined below is a summary of TPTC's income for the period. See Annex 4-2 for historic financial statmens. Income Statements (TShs Million) 1985 1986 1987 1988 1989 Telephone 1,148 1,343 2,420 3,536 4,909 Telex 170 276 560 1,019 1,934 Telegraph 27 87 53 77 78 Other Revenue 8 301 101 224 227 Teleca Opuat Revenue 1,353 2,007 3,134 4,855 7,148 Telecoms Operatg Expenses 631 1,624 2,453 3,701 5,173 Net Telecoms Opera_ng Income 722 383 681 1,155 1,975 Net Postal Operating Income (Loss) 26 (34) 7 10 (37) Less: Interest on Loans 14 56 309 255 3,615 Foreign Exchange Gain (Loss) (48) (2,328) (3,705) (2,650) (5,269) Net Profit (Loss) 435 (2,146) (4,666) (6,272) (10,295) The main reasons for TPTC's poor performance were: First, the continual devaluation of the Tanzanian Shilling resulting in massive foreign exchange losses. Given tht large (almost 80%) foreign currency component of their capital expendime this has been the most bidg ecternal constaint to TPTC's financial deterioration. in TPTC, foreign exchange losses as a result of currency devaluation increased from TSh 48 million in 1985 to a staggering TSh 5,269 million in 1989. Due to TPTC's high foreign currency debt burden, which is revalued annually to adjust for currency devaluation, debt servicing costs in local currency terms increased substantially. Scn_d, the lack of appropriate tariff adjustment measures to overcome the high rate of inflation and the devaluation of the Tanzanian Shilling reslting in declining profitability. Whereas inflation over the 6 year period 1985-90 was around 1000% and the Tanzania Shilling devalued from an exchange rate of Tsh 16.50 = US$1 in 1985 to TSh 196.6 = US$1 - 34 - in 1990, tariff increases resulted in an increase of only 300% during the same period. Similarly, as a result of the high inflationary trends, operation and maintenance expenses increased from 14% of gross operating revenues (GOR) in 1985 to around 40% in 1989. Third, high bills receivables as a result of the poor collection performance have been a major bottleneck to the liquidity position of the organization. in 1987, bills receivables amounted to the equivalent of 569 days of revenues, resulting in a negative intenmal cash generation situation of TSh 3,064 nmillion. The shortage of liquidity and short term financing led to negative working capital during the period 1988-90, which has in turn impeded maintenance and routine operations. The shortfall in working capital is reflected by the declining current ratio from 2.3 in 1985 to 0.6 in 1989. In addition, there is a high level of non-billing. It appears that at least 30% of the traffic goes unbilled. As one of the objectives of this project, technical assistance will be provided to institute stringent controls on the billing and collections process. In addition, a new billing system will be instal[ed to resolve this issue. 4.02 In addition to currency devaluatioai, a negative balance in foreign exchange flows between TPTC and Foreign Administrations, coupled with increasing costs (in local terms) of imported spare parts further exacerbated the foreign exchange losses. In 1991, with changes in operating procedures and tariff structures, a positive balance in foreign exchange flows was achieved. Through technical assistance additional measures will be taken to improve this. 4.03 It is worth noting that though operating expenses increased, expenses on salaries and wages actually declined from 19% of gross operating revenue in 1985 to 13.3% in 1989. Interestingly the size of the work force has increased during this period. The failure to increase staff compensation in the face of hyperinflation led to a demoralized work-force and therefore substantial inefficiencies crept into the organization which further affected the organization's performance. Revenues were also affected by low capacity utilization, low call completion rates, and a high fault rate resulting from poor maintenance of facilities, lack of availability of spares, and inefficient inventory controls. 4.04 The fmancial situation of TPTC reached its lowest ebb in 1989, when it was technically bankupt. The Organization had a net negative equity of TSh 19,456 million comprised primarily of accumulated losses amounting to TSh 22,734 million. B. Financial Projections and Restrcturin Strategy Fiaca Gol 4.05 The paramount financial aim of this project is to create a sound financial base for the sector, especially for TPITC. The GOT has, on the advice of IDA, embarked on a restructuring effort for the sector. The goal of the strategy for the sector is primarily for TPTC to achieve financial self sufficiency on a sustainable basis. K Steps Necessary for Imurovement of Flnancial Performance 4.06 Implementation of the financial and restructuring strategy will involve concerted actions in the following key areas: - 35 - (a) Capital Restructrin: As a first step of the restructuring process, the Government in 1990 absorbed a major portion of TPTC's foreign currency debts. By doing so, it has assumed both debt servicing and foreign exchange liabilities from TPTC. However, TPTC still retains about US$55-60 million equivalent of long Term debts which will require US$10-12 million of servicing (including repayment) annually. In addition, it has to bear losses due to currency devaluation which is expected to continue, at a decreasing rate. For this reason, the GOT has agreed to invest a portion of the IDA loan in TPTC as Equity. The injection of funds in TPTC in the form of Equity will have two major implications on the entity. First, it will provide TTPTC with the much needed funding to overcome its current financial situation of near bankruptcy. In addition, TPTC will not have to pay debt service charges or bear foreign exchanges losses due to currency devaluation, which here to fore have been the two most binding constraints to TPTC's profitability. Second, investment in the form of equity will create a satisfactory capital base for the organization. A sizeable capital base is an essential step towards privatization, as it will provide for an effective dispersion and exchange of shares. It was agreed in negotiations that the equity investment would be such that the Debt to Equity ratio is maintained at least a 60:40 level. 5/ To nmaitain this 60:40 Debt to Equity ratio, the likely distribution of loan and equity investments is: Loans Equrui US$ million Tsh million US$ million Tsh million 1993 - - 11.46 4,583 1994 23.11 10,168 53.92 23,727 1995 49.32 23,873 26.56 12,854 1996 22.36 11,907 2.49 1,323 Total 94.79 45,948 94.43 42,487 The consequential Debt to Equity Ratios would be: 1994 1995 1996 1997 D/E ratio 61:39 60:40 61:39 59:41 The precise figures for injections of equity by GOT into TPTC will need to be determined annually based on the actual project disbursements. Funds provided by EEC (approximately US$ 30 million) and SIDA (approximately US$ 40 million) will be invested as equity. It was The original Disbursement schedule was as folows: Loans US$ million TSh millions 1993 11.46 4,583 1994 77.03 33,895 1995 75.88 36,727 1996 24.85 13,230 Total 189.70 88,435 -36 - therefore agreed at negotiations that US$ 20 million of IDA funds would be passed to TPIC as equity. (b) Tarff increases: In order to achieve the expected growth and expansion on a sustinable basis it is imperative that tariffs are adjusted in accordance with the nwcro- economic changes. It was agreed in negodations that tariffs will be adjusted according to inflation/devaluation on a semi-annal basis. (c) Reduction in Operational costs: It is expected that there will be a substantial but gradual decline in operational costs relative to increase in revenues. At the current time TPTC is overstaffed and inefficient. The target for increasing efficiency is to cut operating costs gradually from 65% (of total revemnes) to 45% in 1995 to around 40% in 1999. The IDA m project will provide for sufficient manpower and managerial trainig to increase labor efficiency thereby reducing the staffing ratio considerably. In accordance with the performance targets agreed to in the MOU and MD, the ratio between staff to DELs will decline given the planned expansion under the project. (d) Fixed Assets Revaluation and Statement of Affairs: TPTC has had prepared by an external accounting firm, a Statement of Affairs for the entity for the year ended 1991 which is currently being reviewed. In addition, a fixed assets revaluation exercise was completed in July 1992. The purpose of this exercise was to ascertain the financial position of the company with a reasonably high level of accuracy, given that the audit report for the past two years have had qualified remarks from the external auditors of the company. A key goal of the Statement of Affairs was to accurately determine the level of debtors of the company. (e) Financial Performance: As agreed at negotiations, TPrC will maintain at a minimum a rate of return on revalued net fixed assets of 15% and a liquidity ratio of not less than one. Tariff and traffic engieing policies will be adjusted to ensure an inpayment/outpayment ratio of not less than one each year. TPTC will generate sufficient cash to fund all local costs for capital investments. A new comprehensive billing and accounts receivable system will be installed within 18 months of project effectiveness. Accounts receivable (days in billing) will be reduced from more than 120 days in the first year of the project to 45 by the fifth year. Financial controls will be introduced and collection staff appropriately trained to ensure that a collection rate of 80% is achieved by 1994, 90% by 1995 and maintained thereafter. C. F Proji 4.07 The financial implications of the project are included as Annex 4-2 (assumptions are also included)f/. The impact of the restructuring exercise is evident from the second year of the project. As a result of the collections effort and improvement in the billing systems it is expected that there will be a considerable recovery in the liquidity of the organization. The strong cash flow situation is characterized by the internal cash generation ratio of 35% in the second year which §/ At negoas. the MOC confie that $34 of TPrC's debt would be cowerted to equity and that $20 million of the new nvesonenz would be invesed as equy; thus s_tngn TPCs balance sheet nd reducing tbeir debt service requirements. Financial projecuons incorpomrng thee changes are hIcluded in Annex 4-3. With the infusion of equity. the FRR on the project is 28.2% and the ERR 54.1%. - 37- continues to rise for the period of the project. The debt service coverage ratio is more than 2 during the same period. 4.08 Because there is a gradual increase in the expansion program and because the program envisions an improvement in all the elements of the sector, the projections do not reflect any unusually large increases in profitability from one year to the next. On the other hand, the overall implications are considerable. Return on Revalued fixed assets increase from 15% in 1992 to over 60% after 1997. The interest coverage ratio increases from 1.3 in 1992 to 7.9 in 1997. The cash position of the organization improves considerably and, according to the projections, future expansion using internal cash generation seems realistic. 4.09 Actions to improve foreign exchange earnings will need to be introduced to ensure that there is sufficient foreign exchange to meet TPTC's requirements. Recent measures adopted by the Government towards a liberalized market is expected to provide an adequate availability of foreign currency. In the event that this proves insufficient, it is being recommended that collections for international calls will be made in foreign exchange from establishments having access to foreign exchange (e.g. embassies, large hotels etc.). This strategy has been successfully adopted in some other countries such as Zambia. D. Financial and Economic Rates of Returns 4.10 The base case Financial Rate of Return (FRR) to the project is 27%. This FRR is based on TPTC's cash flow generation assuming the project's efficiency objectives and the projected traffic are realized. A rate of return of 27% is high but considered realistic. The calculation of the FRR is based on the projected incremental cash flow of TPTC. The reason why an incremental cash flow has been considered is that TPTC is an ongoing corporation and therefore it already has a cashflow and will continue to do so even without the proposed project. The underlying assumption of the incremental method is that, as a result of this project, there will be a positive effect on the efficiency of existing works (due to improved manpower skills, maintenance, improved morale, etc.) which will improve the entity's performance to at least break-even level. The financial rate of return has been calculated for the cashflow generated as a result of the incremental infusion of new capital. 4.11 The base case economic rate of return (ERR) is 52%, which is considered quite good. Differences in the base case FRR and the ERR reflect the relative distribution of the economic benefits of the project between TPTC its customers and Tannnia's economy. The ERR is a clear indication that the project is expected to have a high positive effect on the economy of the country especially to the National exchequer as a result of the increase in direct and indirect taxes from TPTC. Additional benefits to the economy which are inevitable as a result of improvement of telecommunications has not been accounted for in this calculation. - 38 - Sensitivity Analysis 4.12 The following is a table of the sensitivity of the proposed Project: FRR (a) Increase in Project Cost (i) 10% 22% 43% (ii) 20% 16% 36% (b) Traffic Growth (i) Down 10% 25% 48% (ii) Down 20% 22% 43% (c) Non Collections (i) 20% 5% 25% (ii) 25% 1% 18% 4.13 The sensitivity analysis above has considered the three variables namely, traffic, project cost and collections which are critical to the success of the project. Variation of up to 20% in these key variables still provides an adequate rate of return, thus indicating the robustness of the project and affirming its financial and economic viability. 4.14 The break-even goint of the pnroiected nerformance is when traffic is 20% less than the base case and non-collection amounts to 20%. 4.15 The project will reduce a major infrastructural constraint to economic development and adjustment in Tanzania by upgrading and expanding telecommunication services. It will maximize resources available to the sector by enabling private sector investment and will improve quality and access to services by promoting competition. hnproved telecommunication services will provide major benefits across all sectors by improving the flow of information and enhancing communication. It will lay a new technological base for the industrial sector as a precondition for successful long-term development of the economy. Furthermore, institution building and commercialization of TPTC will result in full cost recovery, improved financial viability, more efficient operations, and improved quality of service to subscribers. 4.16 Specifically, the project will foster the development of a market-oriented economy by: (a) establishing a regulatory and policy framework that ensures private sector participation in telecommunications; (b) selling non-core business functions; and (c) allowing for private sector involvement in basic and non basic services, such as cellular telephones, data transmission, etc. - 39- 4.17 The project's restructuring activities and improved financial controls will ensure that TPTC regains solvency and attains financial profitability and improved operational performance. Specifically, the project will ensure: (a) Access to Service: The number of telephones available will increase 70% from 107,600 in 1992 to 183,000 by 1997 (see MOU, Annex 2-3, page 15) and priority access will be given to large volume subscribers who will promote economic development in other sectors. The number of lines in Dar-es-Salaam will be increased by 38,300, and by 37,100 in other areas. (b) OUalty of Service: The percentage of working lines will increase from 66% of connected lines L- 90%, putting a total of 30,000 of the existing 105,000 lines back into operation. The call completion rate will improve from approximately 25% of all calls placed to 40% in 1997. Average faults cleared in 24 hours will increase from 65% to 75% by 1997. (c) Financial Performance: As a result of the restructuring effort and the planned expansion, TPTC will be cash generative and profitable to: (i) cover its operating costs, including an adequate provision for maintenance of its operational and infrastructure assets; (ii) meet its debt service obligations; (iii) generate a sufficient cash-flow to cover futre rplacement investmnents in operating assets to maintain and expand its effective capacity; and (iv) prepare the sector for eventual privatization. (d) Operational Performance: An MOU and an MD signed in March 1992 and covenants in the IDA project agreement provide for significantly increased operational autonomy for TPTC, including setting operational plans and budgets, appointing and remunerating staff, increasing tariffs to cover inflation and devaluation, and selecting the Director General. A manpower development plan with career planning and performance based compensation will be implemented. The number of staff per 1000 DEL will be reduced from 76 in 1992 to 40 in 1997 (see MOU, Annex 2-3, page 15). As indicated above, the number of working connected lines will increase to 90% while the number of available lines used by subscribers (exchange fill) will increase progressively throughout the project and beyond. RW 4.18 The principal risk in the sector is the effects of non-collection of revenues. As has been mentioned, there are some indications that a considerable amount of traffic both for national and intenational calls is not being billed. The financial projections are based on historical revenues, which excludes all non-billed traffic, and is therefore a conservative estimation. However, if non- collections continue to increase over the project period, the financial viability of the project may be pi . Calculations indicate that if non-collections exceed 25% of the projected revenues, the financial rate of reurn will become negative. One of the main objectives of this project is to institute controls in the Management Information System (MIS) and billing systems, and therefore it is exected that the non-billing will not be an issue in the future. 4.19 The other risks that this sector in particular and all other sectors in general face in Tanzania is that of devaluation of currency. Since this risk is a factor of many macro economic variables, it is not possible for the telecommunications sector to control this risk. However, all - 40 - possible measures are being taken by TPTC (e.g. tying international calls to the $US DoLar) to safeguard against this constaint. In addition, the Internal Rate of Return (IRR) and Economic Rate of Return (ERR) is an indication that the project is financily sound and will be able to withstand further flucuation of up to 20% (in addition to the devaluation aleady considered). Least Cost Sodion 4.20 The investment program is the least cost solution for providing the service levels planned, within the constraints imposed by the existing configuration and technology of the telecommunication network. The timing and dimensioning of elements in the system are based on accepted engineering practices for the selection of technology and equipment. A careful review of different types of technology (radio, wire, satellite, etc.) was made by the consultants and detailed consideration was given to the price of technology internationally, in Africa, and in Tanzania. Wherever possible for the project is based on contract prices between TPTC and suppliers under ICB. Technological solutions and costs were balanced to find the least cost solution for the technological standard required. - 41 - V. AGREMENS REACHED AND RECUMMNIO 5.01 Agreements Reached at Negotiations include: (a) By March 31, 1994, the GOT shall (a) establish a regulatory body for telecomunications and transfer responsibility for regulation of the teleconmunications sector to this body; and (b) take all actions necessary to permit private sector involvement in Basic and Non Basic Telecommunications services (paras. 1.07, 1.12). (b) The GOT shall: (a) by Decenber 31, 1993, take all actions necessary to issue or cause to be issued at least one license for a cellular operator on the basis of competitive bidding procedures, satisfactory to IDA; and (b) by December 31, 1995, take all actions necessary to issue licenses to private sector operators or investors for two other Non-Basic Telecommnications services (para. 1.08, 1.09). (c) The GOT shall, by no later than March 31, 1994, take all necessary measures to establish two new entities to be responsible respectively for TPTC's postal and telecommunications functions (pam. 1.07). (d) The GOT shall, by the date of the mid-term review: (i) furnish to IDA for its review and comments the recommendations of a study on the scope and extent of private sector involvement in the telecommunications sector; and (ii) prepare and submit to IDA an action plan, taking into account IDA's comments, for the involvement of the private sector in the telecommunications sector (para. 3.09). (e) TPTC, on behalf of the GOT, will prepare annually, for IDA's review, a comparative analysis of the actual performance of TPTC against the performance indicators in the MOU and as indicated in Annex 2-4 (para. 1.13, 3.38). (f) The GOT and TPTC, shall by not later than December 31, 1995, carry out jointly with IDA and the Donors, a mid-term review of the Project. Such review shall include, inter alia, an assessment of (i) satisfactory compliance with the Project implementation schedule, (ii) satisfactory compliance with the performance indicators. (iii) the establishment of a legal and regulatory framework for teleommunications, (iv) operation of the regulatory body for telecommunications, (v) issuance of licenses to private sector operations, (vi) operation of the new telecommunications entity, (vii) progress in the divesture of the activities of TPTC agreed to, and (viii) progress in the installation of a comprehensive billing system for telecommunications. Two months prior to this review, the GOT, with assistance from TPTC, shall prepare and furnish to IDA and the Donors, a report, including, inter alia, a review of the results of the efficiency audits and the status of actions implemented in accordance with the Program, as well as progress made in implementation of the Project (paras. 1.07, 3.28). (g) TPTC shall take all necessary actions to divest: (a) by December 31, 1993, its motor vehicle repair, printing and building construction works; and (b) by December 31, -42 - 1994, its customer premise installations, and sale of customer terminal equipment and equipment repair activities (para. 1.14). (h) TPrC shall by December 31, 1994, create profit and cost centers for its network installations, bill collections and staff college (para. 1.14). (i) TPTC shall, but not later than March 31, 1995, complete installation of a comprehensive billing system for telecommunications services tisfacory to IDA (para. 2.22). () TPTC shall by the date of the mid-term review fimish to IDA its time bound action plan satisfactory to IDA to implement the reomndations of the GOT to inoduce private sector participation into basic services for telecounications (pam. 3.09). (k) TPTC shall not undertake any investment estimated to cost in excess of the equivalent of $2,000,000 without the prior approval of IDA. (I) TPTC shall adjust tariffs semi-annually by March and Septembaer in each year to cover inflation and devaluation, in accordance with the formula in the Minsteria Directive and Memorandum of Understanding (para. 1.19, 2.20). (m) TPIC shall maintain a debt equity ratio of 60:40 by the end of the first year that the project is effective and maintain this level throughout the project life (para. 1.18, 4.06(i)); 5.02 The Conditions for Credit Effectiveness will be: (a) the selection of consultants for a the efficiency audit, and financial review completed (para. 3.31); (b) that the Subsidiary Loan Agreement has been executed on behalf of the Borrower and TPIC; (c) TPTC shall have submitted to IDA audited financial staem for 1992, acceptable to IDA (para. 2.26); (d) TffC shall have selected and commenced procuemt of a comprehensive billing system, acceptable to IDA, for all telephone, telex, and telegraph services (para. 2.22); (e) the GOT will have submitted to IDA a Letter of Sector Policy (paras. 1.04, 3.06); and (f) TPIC will have selected a Financial Controller with qualfications and experience, and under terms and conditions of employment satisfactory to the Association (para. 2.33). 5.03 The Conditions for Disbursement will be: -43- (a) Paymns mde for eenditurs under Category (1Xa) can be made once TPTC has employed a firm with quafications and expie saifactory to IDA to be responsible for the supervision of the prourm and implemeion of capital constucdon activities under the Project (see par. 3.28); (b) Payments for etures under Category (1)(b) can be made after IDA notifies TPTC tOat it may enter into comtmets in respect of works and equipmet under Phase H. 5.04 Subject to these provisions, the proposed project constitutes a suitable basis for an IDA Credit of SDR 35.6 million (US$ 74.45 million equivalent) to the United Republic of Tanania. * ANNEXES I- Annex 1-1 Page 1 t TANZAIA POSTS AND TELECOMMUNICATIONS CORPORATION THE TELECOMMUNICATION POLICY OF THE UNITED REPUBLIC OF TANZANIA NOVEMBER 1992 Annex 1-1 Page 2 CONTENTS L11 COAM= OE NAUQO= DEXA)M ELAM.................................. 2 T. PoS = QBMDO ........Q ........................ 4 V. EQF OF OP10R ................................ 1 VIV. POI_SBEC2RE .................4 VM. PIVAE SC CnNGmA ...0 .. 9 X. _U LI eC M 0Cn _M L A ......... 10 XL nfRNAMOALOOKi&Of .........0......1 I ... .. .. .. .. .. .. .. .. 10 Annex 1-1 Page 3 ERP Economic Recovery Progmme ESAP Economic and Social Action Pogmmme GDP Gross Domesdc Product GOS Grade of Sevice INMARSAT Intenation Maritme Sate gt iio ITU Teleommunicato Union INEISAT Interatonal Telecommunication Satelite Or n NESP National Economic Survival Progamm PATU Pan African Telecommunication Union R&D Research and Development SAP Strucual Adjustment Programme Annex 1-1 Page 4 TELECOMMUNICATIONS POUCY ABSTRACT The development of any sector requires arfly determined stateges in order to achieve maximum resuts in the particular sector. The stategies however must be based on clearly defined sectr objective(s) which must be ralistic and prActiCal. The foundations of such development are normally contained in a national sector policy for the sector concerned. Ihis paper presents such a policy for the sector of Telecommunications. Annex 1-1 Page 5 I. AND NAIAL 1. Telecommunications is now widely considered to be a stratic investment to maintin and deop competve advantage at all levels - national, regional, firm. Telecommunications consttutes the core of, and provides the infrastructure for, the informaton economy as a whole. Telecommunicatons facilitates maret entry, improves customer service, reduces cot and incres productivity. It is an intega part of finanew services, commodities markets, media, transportation, and tourism, and provides vita links among anufacturers, wholesalers, and retailers. Moreover, industr and commercial competiive advantage is now not only influenced by avaabilbt of telecomm facilites, but also by choice of network altratives and control to recfigu and manage networks in line with changes in corpote objectives. Countries and firms that lack access to modern telecommunicstions systems cannot effecdvely pardcipate in the global economy. This applies to the least developed countries as much as to middle-income counties, which aspire to become developed countries in the next decade or so. 2. Telecommunications sec are eefore essential for business subscrs in Tanzania to enable them to effectively compete in local, regnal, and intratnl market. 3. Agricuture is a main sector of economic activity in Tanzania. Telephone services are therefore required in rural areas to support agricultural production and distribution. Telecommunications i r is required at al stages of activity beginning with conveyance of weather report, timely delivery of fetizers, to tsportation. of the produce from the farms and marketing of the produce witiin and outside the country. 4. In the case of inadequacy or absence of tem ons, fam have to make watefu tdps looking for ferdlizers, fuels and other sies as a result of imperfec informaon. The present tuaton in Tannia is that in the rual agriculual areas, tephone services are not well provided to enable farmers to obtain timely market infomaton, cumnt prices, information on harestng techniques and instctin on crop protction. S. Telecommnications complements transport services. An efficient telemnin network reduces the need for travel and reduces the costs assoiated With physical traspr The costs involved are partclay those related to use of energy, especially fuel, in the trsport sctor and the ime invested in travel from place to place. By cordinating trps, through telecommunicons services, fuel cosumpdon can be conserved, cargoes can be picked in fme, breakdowns can be quicldy reported, and bulk haulage can be soecred. Such benefits help individuals, companies and the community at large to earn more income and also reduce cos that could have been icurred; thus ontributing more to national development and reducing the most burden to the nation. Annex 1-1 Page 6 -2- II. OVERV=W OF NAT1Q DEVELOPIENT NAM A. The Long Term PerWective Plan 6. The first long trm perpectve plan was implemented from 1964/65 - 1980/81. During this plan, limited emphasis was accorded to telecommunications improvement. 7. The current second long term plan (1981-2000) has a major emphasis on expansion and consolidation of the nation's economic base. During this petiod mining, manufng, transport and communications sectors will increase their contribution to GDP. The ntribution of transport and communicadon is envisaged to increase from 6.3% in 1980 to 8.4% by the yeaw 2000. . The main sectoral objective for telecommunications is to introduce tlephone seices in as many areas as possible. 9. During implemet of the current long term pspective plans, there have been undertaen two five year development plans (1981/82 - 1985/86 and 1988/89 - 1992/93). In between, prgrammes like Nationa Economic Survival Programme (NESP) between 1981 - 1982, Structal Adjustment Proramne (SAP) between 1982/83 and 1984/85, Economic Reowvery Programme (ERP 1) between 1986/87 and 1988/89 and Economic and Social Acdon Progamme (ESAP and ERP II) between 1989/90 and 1991/92 were undaen . B. SAAdiustment L fgamme (SAP 10. Under the SAP priority was given to stuctcu adjustment and epanson of producdve sectors. C. Ecoomic R= Pgmme f AM -SA; 11. One of the major obectives of the economic recovery progamme was to rehabilitate the physical in6fas of the country in support of directy productive activities. Limted progess was made under the BRP and ESAP to imve maintenance and expand capacity of the tecomm network. D. The Second Union Five Year Dvelom en no 12. During this perod, emphasis continued to be given to economic services, especialy to transport and communications. High pority was given to mant and rehilittion of the otanspo and c infra . In so far as teleommun is concaned the main objecdve was to extend these services with the aim of reachng more areas aid people as well as controling fr-equent servie ine ttios Annex 1-1 Page 7 -3- m. PO PMANE OF wECOMMUDlATS,lONS OPE3RATOR A. oh 13. Currently telecommunicaton services are provided by a state owned monopoly coporato- the Tananian Posts and Telecommunications Corporatioa (T. Ihe main services provided are teephone, telex, telegraph, facsimile, and data transmission. 14. Telephone service is one of the media of commun n which is etensively used in Tanzania. 15. Under the Mgnt of TPTIC, telephone service has been expandd to cover mainly the urban cente of the country. Most urban centers have been provided with automatic switching systems. Telecommunication services have also been provied in a limited number of rural areas. 16. The Grade of Sevice (GOS) and the service quality is poor. Ths is demo ed by poor call completion rates and the frequent long dution faults that have become a common phenmena in the networks. 17. Gradual and stmatic introduction of digital switching and transmion is yielin some positv results. However, the situain is still far from satisfactory. Service demand is more than double the number of connected bscribers, and is rapidly grwing. B. Telex Smzim 18. Telex service is being provided though th main tele echnges located in DSM, Arws and Dodoma. Telex service has atacted a lot of stomers and is extensively used in business However,, the quality of service offered bas not been up to the required . The demand for this service is on the increase despite the short fails. C. S 19. Ibis s a ew and fast grwing srvice in the countty. It has attacted many cusomers and the demand is very high. As in the tlephone service the quality of sevme offered is not satisfactory. D.gmmtoEbomof3 Annex 1-1 Page 8 -4- 20. The poor tlecommunicadon serce offered in the country can be attributed to: - Severe congeston at some exchanges and junction circuits. - Congeston in the trunk network caused by inadequat ansmission facilities and degraded system performance. - High percentage of faulty equipmt and derored outside plant On the average there are about 30 fuls per 100 teephon per month with mos of the fauts ocuing in the local network - Unavalabi of spare pa for the old analog equipment. - Poor financial managent. IV. POCY OVSCM 21. The Government is committed to ensuring that te problem are resolved and to ensuring gt the sctor op es more efficiently. The Government's main policy aims are to ensue that: (a) service is provided to as. many people as is economically and socialy justified in both urban and rual areas; (b) a full ne of basic and value-added sevices are provided on a tmely basis to salis cus_to demand; (c) telecommunication services are efficiently and cos-ectively provided in part tirough the introducin of competitn; (d) resurc avaUable to the sco are maximizedtugh privat set involvement; (e) tehia sltndards for telons equipment and servc are developed and complwid with; (f) tariff polcies are libelized over time in appwpriate market segmen; (g) telecommunications manufacturing is encouraged only in ea where it is economically jusified; Annex 1-1 Page 9 (h) reliable communications media for information for such sevices such as TV, radio, etc; (i) R & D in telecommunicadons is encouraged; and Gj) regional and international coopetion in temmu s is enhanced in a search for common development stfategies and network stndrds. To this end, the Government will: (a) limit the Government role in the sector to seting sector policy; 0) establish a polically independent regulatory body which will be appointed by the Government. The functions of this body are outlined in secdon VI of this document; (c) require the commerdaizaton and co n of TPTC to operate with a market orientation. The performace of TPTC will be monitored through formance contrats; (d) legalize and require that the reguary body foster the involvement of private companies m basic and value added serc; (e) establish a policy, regulatory, and resource mobizaon stategy which will provide for the rehabilitation and expion of the basic telecommuntions network in urban and rral areas; (f) require a regulatory body to esblish and monitor operator compliance with service quality standards; (g) enhance the sector's capaity to not only reowver costs but mobilize fiscalsorces thrugh, taxes and dividends and as a reslt improve its net contdbution to the national budget; (h) reure that a reuy body implement policies and prov licenses to promote the introducton of modern telecommunication t gies including digital, fiber optc, satellite, and rdio technologies in the swithg and tmn systems and the exter line iplant Partcular emphasis will.be placed on new technologies that can be used economicaly in nral atias. In addition, emphasis will be given to ensming the intoduction of new seMces such as cellular mobile, paging, elcuonic mil, cordless tele , csimile conferencing, vdeoconferencing, videotex, and piate and alternave netw . A regulaty body will be rquired to establish and fulhll targets to Annex 1-1 Page 10 -6- enur private as well as public sector participaton in the provision of these services; and (i) review and revise existing laws, acts, and govenment prcedures. V. ROEQ OFQEz!BAt 22. Once a reguatory body has been establised the sector iies, which remain exclusively the province of the Government, are to: (a) define the sectoal policy (resource mobiliatin, den level, and policy for mrual telecommunications) and a that the policies are imp>lemented; (b) interact with other relevant Government dqatments on all qwesi dealing with national security and any other concems of the Goverment in the area of teeomuicaions; (c) prent the Government within regional and in nt m un n bodies aling with quesons of general sdctod policy, and conclude atisa, agreements, conventions and intenat regulations i this aea; and (d) define a mechanism by which the use' views could be periodically obtained, for instance once a year. VI. S13=CI IL&2IQN 23. A poitically independent rguatoy body, apointed by the Govemma, *will be established. Its authorit will include monitring of all issues related to telecommunications and enforcing comliance with the Govenmet's policy. The main funcins of this unit will be t: (a) define te taiff policy and apr the rates for basic rvices laid down under this polcy. TPTC, however, would retain the ight to a lly inase tariffs on a semi-amual bais to cover inflato and devaluation; (b) define the indicator of sevice quaIt and the financial return exwecd from the opeating bodies, and monitor coml with ths standards; (c) aLocate the frequenies and administr the radio pcrm tchnicl ma_Igement in an efficient and ordely manner and monitor the radio frequenies to avoid channel intef and maximize the ulizatio of available frequencies; Annex 1-1 Page 11 -7 - (d) grant licenses to operate telecommunications linhks, private networks or value- added services to all operators of telecommunications services and devices (public and pnvate). Procedures for licng and type approval will be issued by the reguatory unit and will be made public; (e) grant licenses for subscrbers' instllations, networks and equipment to qualified private contractors, approve subscribers' equipment and terminals, and authorize sale and conntion to the network, of such equipment by private licensees. The technical complexity of a telecommunications network requires that each part should operate within specified technical parameters. The regultory unit will ensure that all suppliers of equipment and service providers connecting to the public network meet the required technical standards; (t) promote the development of competition; and (g) review interconnection and revenue sharing arrangements. 24. Existing laws, acts and Govenment procedures will be reviewed as requred to inorporate policy requrements. Where appropriate new acts and laws will be implemented. VIL 3 5 ROLE OF 0P 1A\G ENTlE A. 3= 25. TPTC has been the only network operating entity in the country with the sole authority to provide public telecommunicaion seices. Pursuant to this policy, however, other operating entities incuding those from the prvate sector wilU be allowed to opate networks and provide basic or specialized services. 26. TPIC is a public corpadon which opates within the laws and regulations set by the Govemnment. TPrC is presided over by a Board of Directors, chosen for their competence, and should be composed of representatives of the Government, the private sector, and the user community. The Govemment wiUl ensure that TPIC operates efficiently and commercaly in order for its services to be competitive in a libaled oprating envirnet. 27.. In this regard, TPIC will act within the legal ftamework of the 1977 TPrC Act (as revised), the Public Corporation Act No. 2 of 1992, the Memowandum of Undertanding between TPTC and the Government and the Ministerial Directive No. 1, both dated 31.3.1992. These documents provide TPTC with autonomy and accountability for its operations and defines specific performance targets. Annex 1-1 Page 12 8 28. Existng laws and directives will be amended where it will be recognized that such amendment will facilitate implementation of this policy. Non-core funetions within TPTC will be divested including printing, motor vehicle repair, and construction by December 31, 1993. Postal and Telecommunications activities would be separated by December 31, 1993. 29. Furdier studies will be made in order to improve the efficiency of TPTC and to raise the necsary capital for the expansion of the telecommunications networ B. Others 30. Other private and possibly public opertng entities will be allowed to provide value added and, where approriate, basic telecommunications services under these policy guidelines. Procedures for application of licenses, conpliance with technical smandards, and other opeAtg condifions and guidelines will be issued by the reguatory unit. They will be required in particular to: (a) manage and operate the telecommunications services under teir control in a completely professional manner, in accordance with methods and procedures in force in the sector and in observance of the principles of economy and efficiency; (b) stay abreast of trends in demand, plan the introducton of new services or the extension of exsting ones; design, prepare and implement extensions or upgrades to the infrastuctu on the basis of the most advantageous technical and economic approach; (c) manage their personnel autonomously, including hiring and dismissals, in accordance with the law and the regulations in force; make prposals for changes in pay levels and pay-scales, and provide introductory and ongoing staff taining; (d) manage their own financial resowurces and cash flow autonomously and in acordance with the systems and procedures applicable to similar enterprises; contract loans and isue bonds; however, TELECOM would receive compensaton from the Government, the amount of which would be agreed upon in the Program Contract, for non-profitable services to be provided upon Government's requests. (e) prpare annual and multi-annual investment plans and operating.acounts; (M. define and propose revisions to the level and struct of tarif for basic sevices, and define and iniate rates for new servies, and changes in rates for services not under the control of the Govemment Annex 1-1 Page 13 9- (g) conclude contra for equipment and services in accordance with procedures applicable to similar enterprises; (h) bring actions or go to court, if necessary, in the event of disagreements with tiird pardes; (i) suspend or cancel service to users who do not meet their obligations; and 0j) tkoe part in regional and itenaional conferences, commitle and workng groups dealing with tchnical, adminitatve and operational matters in the field of telecommunications. VUL _ COAND 31. Private sctor involvement and competition can promote opeatonal efficiency and also attract investors to provde the necessary investment capital in telecommunicauons. In considem tion of the need to extend the network and pwvide the basic services, the Government will promote a competitive environment within the telecommunicons sector. 32. Private sector ticip and compeiion is a process which will be determed by the need to extend services to the population and the necesity to meet r e ts of specfi groups such as busnesses. 33. Private sector paricipaion and compettion will be expanded starting with network terminal equipment such as telephone sets and telex teminals, subsber prmises wiigt provision of value added services such as public access information services and speciaized communication services such as mobile services followed by basic telecommunication services. 34. The introduction of private sector p on and competition will inmcrease the scope for competition in telecommunication and motivate network opwatr and suppliers of equipmnt to perffom efficiently and econom;ically. The public will also benefit from the wider range of telcommu equipment and services available on the market. 35. General priciples covering interonnton and detmining teronnectin fees will be establshed by the reguatory unit and made public. IX. ICIN 36. Operating entities will use iternationally recognized accounting pincpls applicabl to the busness. 37. Taiffs to be adopted will have to meet the criteria of defidenq and omdi Annex 1-1 Page 14 - 10- 38. The regulatory unit will have responsibility for setting tarffs, though in time and in competitive market segments it may choose to allow prces to be market determined. 39. Tariffs will be increased by sufficient amount to ensure an adequate return on asset as well as to enable replacement of assets, out of its intemally generated cash flows. 40. TPTC will tin the right to adjust tadffs to compensate for inflation or exchange rate fluctuations whenever required but an allowance for inceasing efficiency should be included. X. RURAL M&CMUCADOM DEOP 41. One of the goals of the sector policy is to extend basic serices to the rWal areas in order for the majority of the population to enjoy the benefits of telecommunications and also to suport economic development. Opratng entities will provide services to rura areas where such services are commeyvabe 42. Where the Government, in fulfilling national development goals, may require the provision of telecommunications serices to non-viable rural areas, the loss will be calculated and the opwerating entity will be compensated appropriay by the Government within the geed period. 43. A rurl telecommuimcations development fund will be established for the etension of the network to rurl areas. Fund contrbutions will be calculated seaely from the tariffs and made explicit to the financing of rural telecommunications. Funding is epected to ome from service users, operating entities, the Govemment, etc. XL INTERNATINQAL AQOPERAION 44. The Govemment and Opating Entities will ensure a close monitoring of developments in the teecommunications field worldwide by coopating closely with such int tional and regional aizions such as T[U, INTELSAT, IMARSAT, PATU, etc. 45. Furthermore, operating entities, in addition to being members of such izaions where considered appropriae, will paricipate in seminars, conferences and other activities of such o ons in order to enhance their understanding and acquaint thmselves with developments in the sector. XII. CONC 46. The proposed sector policy will enable fister development of tle telecom ications infriatucture coupled with improved quality of service to telecommications tomers The intduction of competition and the private sector ent which is contained in the Annex 1- 1 Page 15 - 11 - policy will remove exisig inefficiencies and bureaucracy associated with monopolistic opeations. Con t, long overdue servces and networks can be established that meet the needs of spedalized grups or the public in general. 47. Furthermore, the technological aspects of the policy augurs well wth such an opeing ennnt as it sets out clarly the guiding principles of opaaon thus, minimi;ing network incompaibilites This particular aspect of the policy is furter enhaned by the proposed regulatory unit which will closely supise and monitor its observance. 48. Last but not least, the policy provides the necessary incenthi to increase telecommunicaion investments in the nual areas of this country. A mechanism for funding Of runr networks has been proposed which is eWected to act as a stimulant for funther funding by the public and private sectors. Annex 2-1 UNITED REPUBLIC OF TANZANIA TAMIANIA POST AND TELErCQMMUNIC;ATIONiS CORPORATIONi THIRD TELECOMMUNICATIONS PROJECT TELECOMMUNICATIONS FACILITIES AS OF DECEMBER 31. 1991 1. Loc Teleaobnn Capacity of telephone exchanges, lines 104.460 of which automatic lines 85,260 of which manual lines 19,200 Number of automatic telephone exchanges 28 Number of manual telephone exchanges 160 Annual growth in DELs (last 4 years) percent 6 Number of subscriber connections 78,000 Average exchange fill, percent 75 Unsatisfied demand, number of waiting list 153,000 II. Lona Distance Telephone Total number of long distance circuits 6,430 (microwave, VHF, UHF, HF, tropospheric scatter, line-carrier) Number of Radio call Service Subscribers 263 Number of Radio call Control Centers 3 m11. broteggrarph and Teleo Number of telegraph offices 104 Number of telex offices 2,300 Unsatisfied demand for telex subscription, 2,900 number of waiting list IV. Intemational Facilities (extending circuits to Kenya and Uganda) Number of telephone circuits 119 Number of telex circuits 81 Number of telegraph circuits 13 B. Staff Total telecommunications staff 5,078 Number of staff per 1,000 DELs 65 TOTAL DEMAND POTENTIAL 60 .TANZANIA 1990 - 2005 *1000 DEL 140_ * 1990 120 1995 . ~~~~~~~~~~~~~~~~~~LECIEND: 2000 . Ltuba 100_ b 2005 so 60 lloosb.p ve 1 | I 11 A1 ." I~~~~~~~~~~~~~aeMu 60 ~ ~ ~ ~ ~ IC MB1a swe...SW ZSlYlUlT B Timra TCcnre 40 TOL T.' 20 diIiI 0 ARU BKB DOD 1RG KGM MB? minI MOR MS~M MMA SBy TORI TG.A isa Primary C.enIrsS ANNEX 2:2 Page 2 of 2 ESTIMATED GROWTH IN DEMAND FOR TELEPHONE SERVICES ESTIMATED ANNUAL INCREASE (%) PRIMARY CENTER NAME LOCATION 1990 - 1995 1995 -2000 2000 - 2005 Arusha 13.2 13.8 14.2 Bukoba 9.1 9.0 8.7 Chake - Chake 7.9 6.6 7.0 Dodoma 13.9 14.2 14.5 DSM 10.1 9.7 9.5 Iringa 11.1 9.5 9.6 Kidatu 3.0 3.0 3.0 Ki;oma 9.7 9.7 10.1 Kilosa 5.0 3.3 3.0 Korogwe 4.8 4.2 3.8 Undi 7.5 6.2 6.4 Lushoto 4.0 3.8 3.6 Masasi 2.9 3.0 3.0 Mbeya 11.7 12.6 10.8 Morogoro 11.4 9.7 7.8 Moshi 10.8 12.0 12.9 Mtwara 8.2 7.0 6.0 Musoma 9.4 8.5 8.7 Mwanza 13.8 11.3 11.5 Newala 2.7 3.0 3.0 Njombe 3.9 3.7 4.0 Same 3.6 3.9 3.6 Shinyangs 9.2 8.2 7.0 Singida 8.2 6.4 6.6 Songea 7.8 7.5 6.9 Tabora 10.4 9.7 8.7 Tanga 14.1 11.6 11.7 Tukuyu 4.3 4.6 4.6 Zanzibar 9.1 9.4 9.6 GRAND TOTAL Tanzania 10.7 10.4 10.4 Annex 2-3 Pane 1 of 17 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ii . ' - Ul1Tm D IIEP R3LWC 0F tAZA Im Y OF COMMlCATIM AND BWWoR M INI AL DIRECTIVE NO,* 0I.a.. .dated. .. 1992 UW TDNZAIU POSTS AND TELEXOMICAIQS COMFORAfIM AC?. 1977 (No.5 of 77) Z4WISTERIAL DIRFCTIVE .Made ander Sction 12 1. This Ministerial Directive may be cited as the TPTC Ministerial Direotive No.J.... of 1992... and dsll cOMe Ito effect as frau lst Jarsary, 1992. 2. In aecordance with the prov8isins of the anzai Posti eud ?eec ations Corporation Act the Mnlister is desirus that the TPTC provides adequate and reliable teleo90 mmcation services on an efficient and commercial basis. 3. To that end, the Government intends pursuant to the TPTC Act and this Directive to clarify the role and powers of TPTC# to assist TPTC to establish an appropriate corporate plan ed to aet out certaLn obligations and practices, which will enable TPTC to adbalnister its undertaklng on the basis of sound business principles with a view to generating through sustained efficient and commercial operations Income suffi- cient to meet its expenditures and earn a rdto of return or: Its assets sufficient to sustain efficient and commercial operations and return a profit to the shareholders. 4. To ensure that the Corporation Improves its performance the Govenment shall set with TPTC long-teon objectives for TPTC including monitorable indicators alinst which TPTC's performance shall be judged. TPTC's performance in meeting ... *0 Annex 2-3 Page 2 of 17 .... 2/ such objectives and targets shall be evaluated and reviewed anualy tbrough on id t efficiency audit. IS TPTC achieves a positive net Lneome before depreciation, taxes- and nterest, the Go0rrment will appre a bonus of not less than 15% of the net ince a before depreciation, taxes, and interest. If TPTC fails to meet the obJectives and targets the Government may impose appropriate sanctions including but not limited to, ordering the reduction of payment incetives to 7% of the net income before depreciation and taxes to employees, reducing payment incentives to top uanagement, and instructing the Board to replace employees In key management positiso. 5. Sections 13 and 14 of the TPTC Act set forth some or the functions and powers of the Corporation to be exercised by the Board and by the Director General respectively. Without deropting from the generality of the foregoing the role of the Boadt shal inolude the following:- (a) Highaighting policy issues for TPTC for decision by Government in such areas as sector diverstiture, joint vetures and regulatory requirements. (b) Providing strategic uidace to TPTC's management and monitor performance within the overall framework of longterm obaectives of the Government for the sector. (a) Ensuring that -the working relationship between the Board and t1he Management is conducive tothe smooth fuctioning of the comenial operations of TPTC. 6. Under Section 21 of the TPTC Act, TPTC shall not be required to provide services to any authority either pmtuitously or at a rate or charge whlih is insufficient to meet the cost involved In the proviion of such services, .0... Annex 2-3 Paqe 3 of 17 ...~~~~~~~. 3 wiess the aihority @omerned undertakes to make good the amot of ute loas Icurd by reasos of the provision of mob services. In order to ensure compliance with this (a) Hereby permits Tfl to ad3 t its tariffs with such y a TPTC considers comrcal ly P:d.nt to aneuttaUe the effect of e "eo rate changes o loca Inflation nd to coer its ful costs under effiLeLnt operating conitLons as detezuined by the ageed performance Indicators and inludin an apprWriate provisLan for rate of return on the aversge current net value of P'TC's Fixed Assets; and (b) undertakes to make good any loss icured by TPTC by rean of provision of telecoimtuncatious servicesg iuvesteets or facilitLes at the directi of the Goverment. 7, Aa part of the vector restruturing process1 the goe- ment wil esabsh a regulatory body within the Minlstr of Commmications and Transport for the teleomst sector. S. It Is further directed that La orler to operatLonalize and expand ths Directive, the PrincLpal Secr.:tary shal after osultation with the MinLister, from time to tle, enter Into a perfoasce agreent, memorandu of waderstanLtng, or other instrument with TIc, consistent with the provisions of this Diretive and the TPTC Act. MmISm FOR COWEUNICATIOS$S AND TRANSPORT 'UR. ,AM! '311! WAR=, 192 Annex 2-3 Page 4 of 17 TANZA POSTS AND TIC CATIOiS NKSTRTURIWSG P AM MMOnum 0tr UDSaTANING, dated. 3P. A3... 1992 TE O Of TtE UtITED REPUBLIC OF TANZANIA THE MINISTRY. OF COMMUNICATIONS AND TRANSPORT (UCT) AtND TANZANIA POSTS AND TKLKCONNUNICATIONS CORPORATION (TPTC) 1. The Government. consistent with the Tanzania Posts and Telecommunications Corporation Act fbereinafter referre~d t- iS t.he TPTC Act; and the Ministerial Directive No.-....... dated.3t.3.92 is desirous that TPTC provides postal and telecommunications services, regulates and nontrols radio communications on an efficient and nommercial basis. 2. Tn conformity with this TPTC will tndertake all necessary actions within its powers. inter alia. to: (^a closely plan its level and pattern of services to meet the changing needs of its customers: and (b) manage its operations so that services are provided efficiently and in a cost effective manner. 3. TPTC will carry on its operations and conducz its affairs in accordance uith soind administrative. financial and operations management assisted by competent staff in adequate numbers. To that end. TPTC will implement: l a the revised corporaze organisational strufture set forth in Attachment 1: and IbI the manpower requirements schedule set forth in Attachment 2. Number of employees incluies permanent and casual staff. Annex 2-3 Pae 5 of17 73 -2- 4. The Governmet shall revise TPTC's capital structure so as to eliminate the financial losses arising from retranslation of foreign loans followins the devaluation of the Tanzaniaz currency. 5. In carrying out its operations and financial affairs, TPTC will use its best efforts to achieve the operational taets as well as rates of return on total capital employed set forth in Attachment. 3. It is understood that such performance shall be subJect to review and to amendment, pursuant to the provisions of paragraph 20. further, it is understood that the rates of return on capital employed specified in Attachment 3 shall be subject to amendment to take account of the revaluation of assets to be undertaken as parz of the Telecommunications Restructuring Project. For purposes of this Memorandum. capital employed means the sum of capital provisi.Az.s lontdg term and short-term debt, accumulated profits and losses and any revaluation surplus. Profits to be taken into account in determining the rate of return shall be profits before interest on debt but after depreciation. 6. The Government shall support and provide all the facilities and other resources required by TPTC in the implementation of the revised corporate organisation and capital struczure referred to in paragraphs 3 and 4 respectively. To ensure that TPTC can continue tc adapt iTs manpower .evels to changing commercial conditions, as provided in the Directive, TPTC may reduce its staff complement as necessary for efficiency and commercial. purposes. Accordingly TPTC shall implement the manpower restructuring as shown in Attachment 2. 7. Pursuant to sections 21 and 101 of the TPTC Act, the Government affirms the principle tbat TPTC in costing its services shall make full provision for the realia-.:!or. 'f a rate of return on its net fixed assets as periodically revalued sufficient to cover its financing charges on existing assets plus a provision for depreciation and profits. Further to paragraphs 2 and 3 of the Directive, efficient operation means that TPTC shall meet, the technical, operational and financial targets as shown in Attachment 3. S. Pursuant to section 21 of the TPTC Act. lsses incurred by TPTC in the provision of serrices at the directicn cf the Government will be determined on a semi-annual basis by TPTC and presented to the MfinistrY of Finance. Payments to TPTC to make good such losses will be made to TPTC pursuant to appropriate Government budgetary procedures as decided by the Ministry of Finance. The Government will make such payments not later than sixty days after presentation of the seMi-annual assessment of the losses. Such payments will be subject to audit, and adJustments will be made on the basis of such audits. Po other losse1 incurred by TmTC in its operations shall be r6imbursed by the Government. Annex 2-3 Page 6 of 17 -3 9. The Government hereby permits TPTC to undertake investmnts in support of its comercial operations subject only to submission to the Ministry of Communications and Transport, as part of the annual capital budgeting process, of technical economic and financial evaluation of any investment exceeding OSS2. 0 million which it proposes to undertake outside of the planned programme of investments under the Proposed Telecommunications Restructurins Project. It is understood that this later figure will be subject to review on an annual basis taking into account changes in the prices of telecommunication services assets. 10. To support TPTCs ability to maintain an efficient level of operating performance, the Government shall:- (a) ensure that the list of items eligible under the open General Licence System at any point covers all categories of items likely to be imporzed by TPTC for use in its maintenance activities. (b) permit TPTC to retain in foreign exchange Accounts under its control not less than 35% of its revenue which is paid in foreign exchange including inpaymnts from foreign administrations. 11. TPTC shall prepare by 15th August every year beginning 1992 and furnish to MCT a report for the period January - June setting forth, inter alia; (a) its performance as against the operational targets set forth in Attacbment 3; (b) its profit and loss and cashflows for the six months and, if relevant, revised proJections for the financial year as a whole: (c) statement of Progress on key capital proJects tinder implementation and compared to those contemplated in its capital budget approved by KCT; and (d) any actions which it proposes to take to remedy and major deviations which have been identified in the said report. Annex 2-3 Faoe 7 of 1? -4- 12. Promptly at the end of each TPTCs financial year and in any event not later than three months after sucb year end, TPTC shall prepare and furnish to MCT a report on its performance against the targets set forth in Attachment 3 to this Memorandum, a preliminary statement of its financial position, a narrative report on the causes of deviations of actual performance from the agreed performance, proposals for revisions of the original targets, statement of progress on key capital project under implementation -and compared to those contemplated in its capital budget approved by MCT, and recommendations on corrective actions which should be taken by TPTC or MCT to remedy any maJor deviations from the agreed targets. 13. Pursuant to paragraph 4 of the Directive, the Government will not later than 15 March each year beginning 1993 appoint an independent team of at least two consultants to carry out an efficiency audit of the performance of this Agreement. The efficiency audit shall be based on the reports prepared by TPTC under paragraphs 11 and 12 of this Memorandum and any other information as the consultants may require. TPTC shall furnish to the committee all additional information, documents and explanation necessary to finalize the evaluation reports. The report of the Consultants shall set forth: (a) their findings on the performance of TPTC against the targets shown in Attacbment 3 of this Agreement; (b) causes of significant deviations of actual performance from the agreed targets; and (c) their recommendations concerning actions that ought to be taken by MCT and TPTC to remedy major deviations identified in the said report. 14. Immediately after the completion of the efficiency audit but in any event not later than 15 April each financial year, the findings and recommendations of the consu.tants shall be reviewed by a Committee composed z' 3 representatisves appointed one each by T?TC Board, MCT and the Ministry of Finance. After review of the efficiency audit report, the Committee shxall: (a) decide any action to be taken by TPTC and NCT to implement the findings aLud recommendations identified in the efficiency audit report. (b furnish to the Minister and TPTC Board recommendatio' for improving TPTC's performance. e a Annex 2-3 rage R of 17 -5- 15. After review by NCT of each of the reports referred to in paragraphs 11 to 14 of this Memorandum, the finister %halL determine any actions he deems necessary for improving the nmgement of T?TC's affairs with respect to the ensuing financial year. Based on their performance. .TPTC's Board and magement will be rewarded or penalized, fith the possibility of dismissal. 16. The Government permits TPTC to determine its own personnel policies including, inter alia. pay, incentives and conditions of service wbich will enable TPTC to attract and retain appropriately qualified and experienced staff. These policies will take precedence over existing, regulations.. 17. TPTC shall redommend to tCT by 1 June, 1S92 ar. action plan for spliting TPTC into separate ;ostal and telecommunications Corporations. The split shall take effect on January 1, 1994. 18. The Government and TPTC shalL cooperate fully to assure tha% the objectives of this Memorandum are accomplished. To that end, the Goverment or TPTC, as the case may be, will promptly inform each other of any condition which interferes with or threatens to in.terfert with %: i- achievement of the objectives *.f this Heracre:.e:U. 19. This Memorandum shall become effective as from January Ł. 1992 and shall be continuous except that there shall be a major review of the obJectives and targets every five years. 20. Any amendements to this Memorandum or the Attachments thereto shall be effected by mutual agreetent cf th' parties through an exchange of letters. ~~~~~. . . . . ... ----... ............*---* l On behalf of MlCT TPt77.. Dated. Allj..199-1. - .a.. . Źfi P§ItrIPAL SECREARY IAO AO d CIF THE C0ARD r tlINISTBRY OF COIMtMlICATIOlNS OF DIRECTORS AND TRANSPORT TANARt& P011AN LIII I"TOV CRt0MflOu APDSOVS OSGtIUTIQR IT8UMUU %a I~~~~~~~~~~~~~~~~~~~ ................................. ~ 4 ~I ..-- -..-- -.--. -. -- 4 * * D(VEWP VET MID TRAINING 3A *AWE I * . I **- -~~~~~~~~~~~~~~~~~~~I A II ,.9 II a s 9 W 1 I C en 11 A... Sg MC4@.6 36 RD#@A1 I I" M I I I "J. 6I *ome * -ymuiinsissi III ITNICIlIM. '.*6 *lan & 6 *im IIIom"o *- IOU A I 0- 11MAENU3II Ł ___I ______ i* S SOSavPPATIOS I6CU*39 x 9S66I II ii .6~~~~~~~~~~~~~~~~~ 8o-6U33TI3AT1UA S5ATI6AMADI IT WOM I II * I4 CCIPA SI ------'A. __________4C 65f I' 665nITI ut-: MA.:MS..A& A*O 5IC .*....... . fita-- I-MI __________r_ . s-a-a--, * I LAN ŁUW1VU I OAIAJ$ II ~9SA 10JlA * ~W UMCA AUNSM TASP t mVA * I UTWAb ____*1 . H-I~~~~~~~~~~~~~~:MILN Il kI1 7fS IAO A*ArnvCoIO _____1___0 Ca Cliff-?LLJLOJLS -J LLJW ItI * -* t9 . Banv acos. t ICMDIlII molit ivljff"lx rdmamAI hA 0A?bOISALA MSM hd~Imhc.r4. 4tgAtv I CP I GCOMIIES I rAtt. ..VL.t I 2I@m tk.OWE, ~ agezt1u1i*@b33It i . I . I- . * . . I S~~~~~~~~~~~~~~~1- INDtIaIIAIOUS .I, aci* . aa * * cpc S I~~~~~~~~~~ofw" IL ratoomli tWali~~~~~~~~~~~~~~~~~~~~ DOD I I PVNAINS I ~ ~ ~ ~ ~ ~~A Cif 4CWI S I ?~~OEAIMZGNI8CS 71 M1A D|>t-IS - St Slots - |m A W-11t 1 0lJ l t 9 1V I 4 VIXtVOI Iy IC . Y S IU I m n . I , t . ;og .* .*-,_ --t= W ISVIlq Idowfir 17 . ., i , . * * _~~MUS"I I _W vao $- * i | * o,e~~~~V, 11i I . VW SI u: # |* .14 || tnt t~~~~~~~~~ i memos I n tolva VI 1 PC AW46OWS|*_-g- w ., ~ ~ ~ 1 =IMIJ$ II I *o w i1 imm sm-oi vt# 5 !x t° !. a a, - * a , , _ - * lswl ottrPAtg"ob It i O |j( It Annex 2-3 Page 13 of 17 Attachment 2 'If 90010 llER XElTUFRXIG PLAN 1990 1991 1992 1993 1994 1995 Staff pr 1000 DU..* 76 76 70 58 53 46 * PerbeZt and casual staff Annex 2-3 PaiTWe 1 of 17 kttachwent 3 TPTC agrees to meet the folloutng performance targets: 1.0 - Serve and Prsint T n zat g9gi igs9 t94 toss 1.1 ?f2*h9l a) Exchanre Capacity: Dar es Salaam 34200 37400 47800 48800 46800 76800 Other 49259 68858 80600 8060n 8n6no 10168 Total 83459 106258 1 28400 1`9400) ":94s'I 1184'lo) b) External Line Plant (ELP) Capacity (Ill) pairs) Dar es Salaam 53590 68320 68320 80800 111440 139790 Others 77190 88010 94050 -116540 128070 174990 Total 130780 156330 162370 197390 2.16890 286350 c) Connected DELs Yeatr ettd: Dar es Salaam 30724 32490 36930 40915 50980 59930 Other 42287 45510 50070 59095 64020 73070 Total 73011 78000 8700n 100010 115000 13300n d) Exchange Fill (%) Oar es Salaai 90 87 74 84 93 70 Other 86 63 61 i5; ZR Total 87 71 66 73 *- e) Workiug DELs Year-end Dar es Salaam 19971 21443 26950 32732 37725 44348 Other 27487 30492 371052 47276 47375 54072 Total 47458 51935 64002 74007 85100 98420 f) Percentage Lines Working Dar s S1a.laAm 66 74 Rr Other 65 67 74 8 ( 6r Total 65 67 74 80 85 .90 g) Number of STD 6430 6430 6430 8390 8390 8390 Circuits h) International E.xchange Capacity 380 .o2n000 200(0 200n.' tt V 4. ) Annex 2-3 UQte 15 of 1V 2 ? 1.) Aierage 1u1ber of Faults/DEL wr yer Katiojnal 2.7 .3.0 2.5 . a 1.5 1.0 Dar es Salams 2.7 3.0 2.0 1.5 1.0 1.0 J) t of Faults cleared (Jlatfonl) Wlthiln 24 hours 27 50 60 65 TO 75 WIthin, 48 hours 43 60 70 75 80 es Within 30 days so. 80 65 90 95 97 k) Dial Tone S Within 3 sec. - Rational 75 75 8s 8e 90 95 Dar es Salaaa 75 80 85 90 90 90 1) Call Completion Rates tnternational- Outgoing 68 60 6S 65 6S pC rnternational - rncoming 25 20 25 30 35 4f; tational C STD) 30 35 40 4' 5 so Nati-onaa (Manual) 70 70 7S fIt, 8,a RIational Local 69 70 75 75 75 T raocal - DSU 59 60 65 70 75 7 *- Average Operator Answer Time X within 10 seconds International 70 80 65 90 95 Inland 50 50 55 of; 65 7f 1.2 Telex a) Exchange Capacity 2350 4350 4350 4350 43'O 435( b) Subscriber Lines Year-end 78fn 2300 t76f 3?nO 3900 VWfl. Exchange EFll(%) 76 53 63 Ts 9s 1.3 Staffins a) Staff per 1,000 DWLS - t. 76 76 70 58 '3 46 b) Total Telecoums Staff 4660 5078 5271 548t 5692 594 -1/ Includes cas˘ual loft ee and suport stff fot telecoS operatiOS. Annex ?-3 'Fa'e lf of 17 3 1,99 1991 1292 1993 1994 1995 1.4 Training Program by Fuzictiou and Wfeeks a) Telecowns Engine.- ring 4,455 5,964 6,332 5,790 6,010 6.390 Courses b) Telecomm Operation Courses .1,830 3,397 3,097 2,580 2.910 2,480 c) fanageent Courses 752 981 1.910 . 2,350 2.550 1.5 WI~,~n nat a) Revenue in milliong US! D Dar es Salaam 20.7 25.9 23.: 30.4 39.8 522. ' Others 22.4 28.1 25.A 32.f6 43.'2 v.6.4 Miscellaneous 0.3 1.4 1. : ." 6 I 2.1 2. Total 43.4 55.4 49.4 64.6 84.1 1il.: b) Rate of Return on net fixed Assets 12.1 9.4 4. 3 9.1 Z1 . 2 40.4 c) Current ratio 1.4 1.5 2.8 3.n ?.2: 3. d) International inpayment/ 1.0 1.0 1.! 1.2 1.4 1.' outpayunt e) Dividend payable as X of profit 50 50 50 -5 s 5( f) AccOlutz receivable .25 25 2r 20 20 2 as % of bills 8) Billing delays 90 90 60 4!, 4 i (days) h) Collection Rate (Collectable debts) 85 90 90 92 95 95 * 1 u;D = TSbs. 4*0/c Annex '-3 "as-e 17 of 17 Attaclbmt 4 Definition of Terms and Abbreviations AbbreLatiOM: DEL a Direct Exchange Telephone Line MCT a Ministry of Communications and Traport STD - Subscriber Trunk Dialing TPTC * Tanzania Posts and Telecommunications Corporation Definition of Terms: 1. Return on revalued not fixed assets is the ratio of the net operating income before taxes plug depreciation 1/over tho revalued assets and is as follows: OR a INol + D + T)/RA where ROR - return on revalued assets o01 - net operating Income - (operating revenue minus operating expense) D * depreciation T a corporate income tax RA a revalued net assets a average exchange capacity X U882, 000 x weighted average (by exchange capacity) exchange rate for the year. 2. Call completion rate is the percentage of successful call attempts from subscriber terminal to subscriber terminal. I/ Tax and depreciation are excluded from this formula on the basis that management either has no control over taxation or could arbitrarily alter depreciation rates. ANNEX 2 Page 1 PERMANC IMCAI Tbe pformance targets oudined in Attache 4 of the Memorandum of Understanding are subject to negotiation between the Ministy of Trnsport and Communications, TPTC's Board, and TPTC's managemen. Therefore as agrmed at negotaions, at a minimum, TPTC agrees to meet the performance targes outlined below. (a) maintain quidity atio of nt less than one; (b) mainain an aual internional inpaymentoutpayment ratio of not less than one; (c) make dividend pamet of 25% of profit after tax. Such payment is subject to maintaining fiancia viability of TPTC to meet its acrent financial obligations; (d) meet all its financ obligatons including servicing its debts; (e) achieve a coiLecdon rate of at least 75% by December 31, 1993, 80% by December 31, 1994, 90% by September 30, 1995, and maintain the rate at that level threafter; (f) reduce acounts receivable in accordance with this timetable: Deceb 31 1993 1994 1995 1996 Acounts Receivable 120 90 60 45 (Days in Billiog) (g) achieve the following: (i) Excge C city 110,000 126,000 147,000 170,000 (ii) Connected DELA 86,000 95,000 107,000 123,000 (Hii) Woddrg DELs 71,000 81,000 93,000 111,000 (iv) Faults cleared 65% 70% 75% 75% wli 24 hours (v) Cal Completion Rate 1/ 30% 35% 40% 40% (vi) Staffper 100 60 S0 40 40 connected DEL (O) produce and send to IDA on a quarterly basis an 80/20 analysis of revenues and receivables; and (i) send to IDA by April 15 of each year, a copy of the Efficiency Audit referred to in section 13 of the MOU. (j) Generate a te intnal fods to finance 100% of the local costs required for its annual capia expenditu aft meeting its cumnt financial obligations; (k) Eam a reun on revalued fixed assets of not less than 15% (Atahment 7); 1_Incoming nenatona Answer Seizure Ratio (ASR) as recorded by foreign operator. Pormula for Automatic Tariff Ad The formula for caculating the uomatic sem-aual tariff nrs to be made by TPIC on April 30th and Oober 30th of each year to offet the effect of inflation and devalation shall be determined by the following formula: Tariff Increase = xA + yB - k where x = semi-annual inflion rate since previous tariff increase as determied by the National Burau of Statistics (GDP deflator at factor costs). y = semi devaluation rate A = percepge of TPTC local costs (30%) B = peretage of TPTC foreign costs (70%) k = the rate set to provide incentive for cost effiiency. Te rate wil be 2%. 3% and 5%, for the first, second and third years, respectively. x will be determined from a price index of TPTC inputs y will be deterned from govemen published fiur A and B will be detmined from TPTC's acounts due account taken of the impact of effiiency improvements eized. A.NNE2 I!al4 I of 2 TP1C ORGANCTON CEAR OF DIREtrMSJ r~~~~~~~~~, - ZOA .MANA'ER __ I~~~~~~~~~ I_ a lii') ifI Ii ~~~it ˘~~ IEe . F F F 0~~~~~~ aF > S g|~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~bI I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~sr ANNE 2-6 PAGE 1 1. Current Oganizion Stuctre. 2. STATUS OF 1 ORGANZATON The key posts of the organizaton structre have been completed. Appointments of lower rnks is still continuing. 3. Training of Staff: YEAR NO. OF COURSE NO. OF TRAINEES NO. OF WEEKS PLANND CONDUCTED PLNND CONDUCTBD PLANNED CONDUCTED 1990 325 1 28S 3763 1 2779 14651 11460 1991 247 221 234 2140 9200 7671 4. TYEPS OPFCQUSES 4.1 TELECOMS ENGINEERING 4.1.1 SwiWhtch Section (a) Introduction to Tanzaia Telecoms Network (b) Basic Crossbar (X-Bar) (c) Elements of Swiching (d) Strowger Adjustment (e) Basic Step by Stp (SXS) Switching (f) Basic Stored Programme Control (SPC) (g) E Pac (h) Advanced SXS Switching (i) C400 X-Bar Cruitry 0) C23 X-Bar Circuitry (k) Introducion to Digital Switching (1) Digital Switching Sysm Opeai and Maintenance Part I and I. (m) OKI PABX ANNEX 2-6 PAGE 2 4.1.2 TRANSMISSION SECION (a) Line Transmission and Multiplex Theory (b) Transmission Measurements (c) Introduction to PST 12L Telettra (4) Introduciton to SG GTE MP 25 MUX (e) Introduction to VFT S+DX Teletron (f) Rural Carrier System (g) Advanced SC GTE MP 25 MUX (h) Advanced SG GTE (i) Fujitsu Multiplex D Type Equipment () Advanced VFT S+DX Telecton (k) PCM L1E M5/NL 143 (O) Introduction to TDM (m) Basic Telegraph (n) OKI Type 4500 TP Maintenance (o) SIEMENS TIOOO TP Maintenance (p) SIEMENS T1000 TP Maintenance (q) OKITEX 500 TP Maintenance 4.1.3 RADIO SECTION (a) Radio Communication Principles and Systems (b) Basic Radio Measurements (c) FM Multichannel Measurements and Analysis (d) VHF Radio Equipment (e) UHF Radio Equipment (i) Microwave Theory (g) Basic Microwave Equipment (h) Advanced Microwave Equipment (i) Digital Microwave Radio 4.1.4 EXENAL LINE PIANT SClO (a) External Plant Construction (b) Cable Jointing (c) Basic Cable Fault Location (d) Pre-Planning (e) Extenal Plant Planning II (f) Advance Overhead and Underground Testing I ANNE Z PAGE 3 4.1.5 SUBSCRtIER APPARATUS SC (a) Elementary Subscriber Apparatus (b) Subscriber Automatic Telephones (c) 2/Type Switchboards (d) Subscdber Automatic Switchboards (e) Electrnc PMBX (f) Call Offices and Payphone (g) DIAVOX and Telephones (h) NEC Telephones (i) Subscriber Auto Telephones Inital 4.1.6 POWER PLANT SECIIN (a) Power Plant Testing and Fault Finding 0p) Power Plant Routine Maintenance (c) Air conditioning Plant (d) lletonic Control Cubicle (e) Radio System Power Supply (f) Elcronic Power Supply (g) Solar Power Supply 4.1.7 LECOMS TECEINOLOGY SEN (a) DC Electronics (b) AC Electrnics (c) Semiconductor Devices (d) Electonics Circuits (e) Digital Electronics (f) Microprocessors (g) Programming (h) Microcomputers Technology 4.2 TELECOMS OPERATIONS 4.2.1 T .TRAFFIC AND OPERATIONS SECIIN (a) Telecommunications Controller Course 4.2.2 PHONE OPERATIONS SE (a) Minor Manual Exchange Opera (New entrants) (b) Minor Manual Exchange Operator Refresher (c) Group Centre Exchange Operator (New Entrants) (d) Group Centre Exchange (Upgrade) ANNEX 2 PAGE 4 (e) Grop Centre Exchange Refeher (f) Enquiry Opetor (g) Exchange Clerical Duties (h) Telephone Supervion I (i) Telephone Supernsion 11 0) Telephone Exchange Administaon (k) Minor Manual Exchange Operator Incharge (1) Telephone Exchange Management (m) PBX Operator 4.2.3 TELEGRAPH OPERATION SECIION (a) Telegraph Assistant (b) Telegraph Assistant Reiesher (c) Telegraphist Refresher (d) Telegraphist Refersher (e) Telegraph Supervision (f) Telegraph Supervion Refersber (g) Telegraph Adminisrion (h) Telegraph Office Manaement (i) Telegraph Clerical and Enquis 5j) * Public Telex OpeAtor NB: * Mainly for customers 4.2.4 TEECOWS SALS AND MARETI SECTIONS (a) Basic Sales (b) Intermediate Sales (c) Sales Refresher (d) Advanced Sales (e) Advise Note (A.N.) Surrey & Sales Stategy (f) Sales Office Aministration (g) Sales Supervision Rdfesher (h) Tariff and Traffic Accounting 4.3 POSTAL SERVICES 4.3.1 Postal Managemt Section (a) Postal Administration I (b) Postal Adminision II (c) Postal Mangment (d) Postal Planning and Development (e) Postal Statistics PAGE 5 (t) Head Postmaster's Course (g) Postal Controllers 4.3.2 CQTM= SEICESS N (a) Public Counter Duties (b) Cash Accounts (c) Geneal Correspondance and Writing Work (d) Postmaster's Responsibility 4.3.3 MAIL OQ MATIONSBIIQN (a) Postal Assistant New Entrants (b) Postal Officer New Entrants (c) Internadonal Mails Operations and Accounting (d) Expedited Mail Services (EMS) 4.4 MANAGEMENT STUDIES 4.4.1 _AL MANA1GES_NT (a) Basic Supvry Management (b) Instructors' course (c) Office Management (d) General Clerical (e) Typist Refresher Training 4.4.2 COMUTER USER TRAINING SECTION (a) Introduction to PC (b) Wordpocssing Basic (c) Wordprocsing Advanced (d) Spread Sheet Progamming Basic (e) Spread Sheet Progamming Advanced (f) Datbase Programme - Basic (g) Database Progamme - Advanced (h) Data Entry Basic on the VS 5 (i) Graphic Basic PAGE 6 EA_LUMAYAUA= AT STrAFF COLLEGE (1) Training Workshop and Laboratory 0ii) Class Rooms, Libraries and Boarding facilities (iii) Administative Building (iv) Electricity (v) Tap Watr (vi) Telephone (vii) Fire-fighfting appliances (viii) Medical care (Treatments done at Corporation's Dispensary) (ix) Games and sports staff _ _ _ _ _ _ _ _ _ _ _ YEAR TEECOMNS POSTAL OTHERS TOTAL STAFF 1990 4860 2073 981 7914 1991 4860 2108 1043 8011 TANZANA POSTS AND TEECOMWAUNICATIONS CORPOMTION Annex 3-1i TELOMNIATIONS8 UCTURINPROjECT Page 1 knwtmet Progam (1991- 1996) In Mlns US DO"ars Exch. rate 300.00 T.SH8 (MI WON) L US$ (MI WON) 1991-1995 1991-1995 Local Foreign ToW Local Foreign Total A. TELEPHONE EXCHANGES A.1 Local Exchanges 550.90 7,299.37 7,850.27 1.84 24.33 28.17 A.2 Transit Exchanges 60.00 630.00 690.00 0.20 2.10 2.30 A.3 Spare Parts 0.00 300.00 300.00 0.00 1.00 1.00 B. LOCAL CABLE NETWORK 9.1 ELP 1,778.40 16,005.60 17,784.00 5.93 53.35 59.28 5.2 Spare Parts 0.00 600.00 600.00 0.00 2.00 2.00 C. TRANSMISSiON C.1 OptW Fibre 162.00 450.00 612.00 0.54 1.50 2.04 C.2 Radio Systems 2,439.00 13,581.00 16,020.00 8.13 45.27 53.40 C.3 Upgrade Std. A Earth 0.00 150.00 150.00 0.00 0.50 0.50 C.4 Spares 0.00 420.00 420.00 0.00 1.40 1.40 D. TELEPHONE& TE S 0.00 684.00 684.00 0.00 2.28 2.28 E POWER&AfC 150.00 1,050.00 1,200.00 0Q50 350 4.00 F. BULD ING 900.00 0.00 900.00 3.00 0.00 3.00 G. VEHICLES 30.00 450.00 480.00 0.10 1.50 1.60 H. COMPUTERS 0.00 1,716.00 1,716.00 0.00 5.72 5.72 LA CONSULTANCY - TO TPTC 798.00 4,206.00 5,004.00 2.66 14.02 16.68 LB CONSULTANCY - TO MOC 30.00 225.00 255.00 0.10 0.75 0.85 J.A TRAINNG-TOTPT 510.00 840.00 1,350.00 1.70 2.80 4.50 J.B TRAiG -TO iMOC 0.00 60.00 60.00 0.00 0.20 0.20 MISC & ANCLUARY EQUIPMEN 510.00 840.00 1,350.00 1.70 2.80 4.50 SABE T 7,918.30 4*,506.97 5 w7 2639) 166.02 191.42 Physical Contingency 395.91 2,475.35 2,871.26 1.32 &25 9.57 Prie Contingency 791.83 4,950.70 5,742.53 2.64 16.50 19.14 Ws.: ..;. 6.....2.. t- .W . . : Annex 3-1 Page 2 TPTC - TELECOMMUNICATIONS RESTRUCTURING PROGRAM Foreign component In mflions of USS IDA ADB EEC SIDA DANIDA JICA TOTAL A.SWITCHING 5.79 12.02 3.82 5.83 27.46 B.EXT.LINE PLANT 11.6 16.64 7.13 11.04 6.91 1.91 55.33 C.TRANSMISSION 30.2 10.65 4 3.92 48.67 D.TERMINALS 2 0.26 2.28 E.POWER&AIRCOND. 3.5 3.5 F.BUILDINGS 0 G.VEHICLES 1 0.5 1.5 H.COMPUTERS 3.32 2.4 6.72 L.CONSULTANCY 3.55 11.22 14.77 a) TPTC 2.8 b) MOC 0.75 J.TRAINING 1.1 1.9 3 a) TPTC 0.9 b) MOC 0.2 KMISCELLANEOUS 2.8 2. TOTAL 64.76 39.91 14.95 36.31 7.19 1.91 165.03 CONTING. 15% 9.714 5.98665 2.2425 5.4465 1.0786 0.2865 24.7545 GRAND TOTAL 74.474 45.86 17.1925 41.75 8.265 2.1965 189.7845 TPTC - TELECOMMUNICATIONS RESTRUCTURING PROGRAM Annex 31 P-age 3 IDA FUNDING (MILUONS OF U8S) Lo1a Forein Total A.SWITCHING 0.36 5.79 6.16 Arusha 0.08 1.06 1.14 Morogoro 0.02 0.27 0.29 Zanzib 0.08 1.06 1.14 Chake Chake 0.03 0.4 0.43 Wete 0.02 0.27 0.29 Mkoani 0.01 0.13 0.14 Smalt excnes 0.06 0.8 0.86 Rural exchaes 15 0.06 0.8 0.86 Spare pafts for exdstexche 1 1 B.E)CTERNA. UNE PLANT 1.06 11.5 12.56 Pugu Road 20% (Japan 80%) 0.05 0.47 0.62 Wagenl 0.17 1.51 1.68 Tabata (already compbeed) Arusha 0.11 1.01 1.12 Morogoro 0.11 0.97 1.06 ZanzIar 0.32 2.84 3.16 Rural locations 0.3 2.7 3 Spare parts 2 2 C.TRANSMISSION 5.9 30.2 36.1 Earth SttIon 0.5 0.5 OSM-Dodona 14OMb/s spurs 2 9.6 11.6 Mosh-Arusha 140 Mb/s +spurs 0.6 3 3.6 Tanga-Moshl 140 MbIs .spurs 1.1 5.7 6.8 DSM-Zanzlbar-Pemba-Tanga 140 bbs 1.2 6 72 Smal radlo 15 pc (Netherl) 1 4 5 Spare parts for elsttransm. 1.4 1.4 D.TERMINALS (telophones.telprinters) 2 2 E.POWER AND AIRCONDmONING 0.5 3.5 4 F.BUILDINGS 3 3 G.VEHICLES 0.1 1 1.1 H.COMPUTERS (Corporate) 3.32 3.32 I.a) CONSULTANCY TO TPTC 0.3 2.8 3.1 PPF 0.1 0.88 0.98 Corp. PlanningStdies 0.1 0.42 0.52 Finance 0.1 1.5 1.6 I.b) CONSULTANCY TO MOO 0.1 0.75 - 0.85 J.a) TRAINING TO TPTC 0.7 0.9 1.6 J.b) TRAINING TO MOC 0.2 0.2 KMISCELLANEOUS (Post 1.7 2.8 4.5 IDA TOTAL 13.72 64.76 78.48 TO TA L ind. contngen5es 15% 15.778 74.474 90.252 Annex 3-1 TPTC - TELECOMMUNICATIONS RESTRUCTURING PROGRAM Page 4 ADS FUNDING (MILLIONS OF US$) Local Foreign Total A.SWITCHING 0.95 12.02 12.97 DSM Tertiary Switch 0.2 2.1 2.3 Central 0.2 2.65 2.85 Kariakoo 0.12 1.53 1.65 Upanga 0.07 0.95 1.02 Magomeni 0.06 0.81 0.87 Mwanza 0.12 1.59 1.71 Musoma 0.04 0.53 0.57 Dodoma 0.12 1.59 1.71 Shinyanga 0.02 0.27 0.29 B.EXTERNAL LINE PLANT 1.88 16.84- 18.72 Central 0.4 3.6 4 Kariakoo 0.29 2.59 2.88 Upanga 0.18 1.58 1.76 Magomeni 0.16 1.4 1.56 Mwanza 0.31 2.81 3.12 Musoma 0.11 1.01 1.12 Dodoma 0.38 3.42 3.8 Shinyanga 0.05 0.43 0.48 C. TRANSMISSION 1.37 10.55 11.92 DSM-Upanga FO 140M 0.09 0.25 0.34 DSM-Kariakoo FO 140M 0.09 0.25 0.34 DSM-Magomeni FO 140M 0.09 0.25 0.34 'Dodoma-Mwanza 140 1 + spur Shinyanga 1.1 9.8 10.9 Extelcoms-Tel.house fibre cable provided by BT 10/92 D.TERMINALS 0 E.POWER AND AIRCONDITIONING 0 To be included in switching supply. F. BUILDINGS 0 TPTC provides for all locations (refer IDA) G.VEH1ICLES 0.5 0.5 H. COMPUTERS 0 I . CONSuLTANCY 0 J . TRAINING 0 K . MISCELLANEOUS 0 ADS TOTAL 4.2 39.91 44.11 T 0 T A L incl. contingencies 15 * 4.83 45.8965 50.7265 TPTC - TELECOMMUNIC.TIoNS RESTRUCTURING PROGRAM Annex 3-1 EEC FUNDING (MILLIONS OF US$) Local Foreign Total A.SWITCHING 0.28 3.82 4.1 Iringa 0.1 1.32 1.42 Mbeya 0.09 1.19 1.28 Songea 0.04 0.53 0.57 Suubawanga 0.02 0.32 0.34 Tukuyu 0.01 0.19 0.2 Njombe 0.02 0.27 0.29 B.EXTERNAL LINE PLANT 0.79 7.13 7.92 Mbeya 0.26 2.3 2.56 Iringa 0.28 2.52 2.8 Songea 0.08 0.72 0.8 Sumbawanga 0.06 0.58 0.64 Tukuyu 0.04 0.36 0.4 Njombe 0.05 0.43 0.48 lafinga 0.02 0.22 0.24 C-*TRANSMISSION 0.5 4 4.5 Dodoma-Iringa-Mbeya 34M Iringa-Njombe 34M1 D.TERMINALS 0 E.POwER AND AIRCONDITIONING 0 F.BUILDINGS 0 G.VEHICLES 0 H. COMPUTERS 0 I.CONSULTANCY 0 J.TRAINING 0 K.MISCELLANEOUS 0 -------_---_____-----------------__------------------------__ EEC TOTAL 1.57 14.95 16.52 T 0 T A L with contingencies 15 * 1.8055 17.1925 18.998 NOTE: containers, power and airconditioning included in switching Sonega and Sumbuwanga served by existing analog radio links and Tukuyu by a digital one Closing of tenders Nov. 6, 1992 Implementation as a turn-key project, EEC will also provide consultants to supervise the implementation. TPTC - TELECOMO(WICATIONS MESTRUCTUR=G PORAM Annex 3-1 SIDA FUNDING (XILLIONS OF USS) Lal Local Foreign Total A.SWITCINC o0.44 5.83 6.27 Ubungo 0.08 1.06 1.14 Kurasini 0.08 1.06 1.14 Mbezi+Wazo+Kunduci 0.1 1.32 1.42 Kimara 0.02 0.27 0.29 Kijitonyama 0.1 1.32 1.42 Kibaha 0.02 0.27 0.29 Mbagala 0.04 0.53 0.57 B.EXTEENAL LINE PLANT 1.24 11.04 12.28 Ubungo 0.23 2.05 2.28 Kurasini 0.21 1.87 2.08 Mbezi 0.28 2.52 2.8 Kimara 0.06 0.5 0.56 Kijitonyama 0.31 2.77 3.08 Kibaha 0.04 0.32 0.36 Mbagala 0.11 1.01 1.12 C.TRANSKISSION 1 3.92 4.92 DSM-Kijitonyama FO 140N 0.09 0.25 0.34 Magomeni-UbungO FO 140K 0.09 0.25 0.34 Kijitonyau-Mbezi FO 140K 0.09 0.25 0.34 Pugu Road-Kurasini 34M 0.08 0.32 0.4 PUgu Road-Mbagala 34K 0.08 0.32 0.4 Pugu Road-Kimara 140M 0.08 0.4 0.48 Wazo Hill-Kimara 140M 0.08 0.4 0.48 Wazo Hill-Kbezi 140K 0.08 0.4 0.48 Wazo Hill-Wazo 8 K 0.08 0.25 0.33 Wazo Hill-Kunduchi 34K 0.08 0.32 0.4 Kimara-Ubungo 140M 0.08 0.4 0.48 DSM-Kibaha 34K 0.09 0.36 0.45 D . TERBaNALS 0 * POWER AND AXRCONDITIONING 0 F. BUILDINGS 0 G.VEHICLES 0 H.COMPUTERS 2.4 2.4 I.CONSULTANCY 2.36 11.22 13.58 Requlatory issues (KCT) 0.17 0.17 Corporate Planning 0.11 1.9 2.01 Project Management Unit 1.2 5.2 6.4 Human Reuource/Training 1 3.7 4.7 Supplies 0.05 0.25 0.3 J.TRAINING (short term) 1 1.9 2.9 K.KISCELLANOUS SIDA TOTAL 6.04 36.31 42.35 T 0 T A L incl. contingencies 15* 6.946 41.7565 48.7025 Annex 3-1 Page 7 TPTC - TELECOMMUNICATIONS RESTRUCTURING PROGRAX DANIDA FUNDING (MILIONS OF US$) Local Foreign Total A. SWITCHING 0 .EXTERNAL LINE PLANT 0.77 6.91 7.68 Tanga 0.26 2.38 2.64 moshi 0.34 3.02 3.36 Chake Chake 0.08 0.76 0.84 Wete 0.06 0.5 0.56 Mkoani 0.03 0.25 0.28 C. TRANSMISSION 0 D.TERMINALS Payphones 0.28 0.28 E. POWER AND AIRCONDITIONING 0 F. BUILDINGS 0 G . VEHICLES 0 H COMPUTERS 0 I . CONSULTANCY 0 J.TRAINING 0 K * MISCELLANSOUS 0 DANIDA TOTAL 0.77 7.19 7.96 JAPANt FUNDING (MILLIONS OF US$) B.ELP Pugu Road 80% (IDA 20%) 0.21 1.91 2.12 T 0 T A L inml. contingencies 15% 0.2415 2.1965 2.438 Annex 3-2 TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION Page 1 TELECOMMUNICATIONS PRESTRUCTURING PROGRAM Detaied Project DescriptIon A. EXCHANGES A.1. DAR-ES-SALAAM Additional FUNDING (MILLIONS US$) istIn Replacement Capacity -P ------ LEG EXCHANGE Capacity CapacIty 1997 LOCAL FOREIGN TOTAL DONORS 1. National Transit 2,000 6,000 6,000 0.20 2.10 2.30 ADB 2. Central 22,000 10,000 30,000 0.20 2.65 2.85 ADB 3. Ubungo 3,000 4.000 6,000 1.06 1.14 SIDA 4. Karlakoo 0 5,760 5,760 0.12 1.53 1.64 ADS 5. Upanga 0 3,584 3,584 0.07 0.95 1.02 ADB 6. Magomenl 0 3.072 3,072 0.06 0.81 0.88 ADB 7. Kurasinl 2,000 4,000 4.000 0.08 1.06 1.14 SIDA 8. Mbezl 800 5,000 5,000 0.10 1.33 1.43 SIDA 9. Klmara 0 1,000 1,000 0.02 0.27 0.29 SIDA 10. Kijltonyama 5,000 5,000 10,000 0.10 1.33 1.43 SIDA 11. Kibaha *- 600 1,000 1,000 0.02 0.27 0.29 SIDA 12. Mbagala 0 2,000 2,000 0.04 0.53 0.57 SIDA TOTAL TRUNKS 2,000 6,000 6,000 0.20 2.10 2.30 TOTAL UNES 33,400 44,416 71,416 0.89 11.77 12.66 SUB TOTAL 1.09 13.87 14.96 ) Includes RSS In Wazo (500) and Kunduchl (1000). * ) Kibaha belongs to COAST region, but here it Is Included In DSM Annx 3-2 TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION Page 2 TELECOMMUNICATIONS RESTRUCTURING PROGRAM A.2 OTHER REGIONS (SWITCHING) CAPACITY FUNDING (MAI S US$) EXISTING (ADDTIONAL& CAPACIT --- -------- -------- Pledging EXCHANGE REGION CAPACITY REPLACEMENT) 1997 LOCAL FOREIGN TOTAL Donors 1. Arusha Arusha 5,000 4,000 7,000 0.08 1.06 1.14 IDA 2. Mwanza Mwama 5,0000 6000 8,600 0.12 1.59 1.71 ADS 3. Irlnga Iringa 1,000 5,000 5.000 0.10 1.33 1.43 EEC 4. Mbeya Mbeya 2,300 4,500 6.300 0.09 1.19 1.28 EEC S. Songea Ruvuma 1.000 2,000 2000 0.04 0.6 0.57 EEC 6. Sumbawanga Rukwa 300 1,200 1,200 0.02 0.32 0.34 EEC 7. Tukuyu Mbeya 200 700 700 0.01 0.19 0.20 EEC 8. NJombe Irlnga 500 1,000 1.000 0.02 0.27 0.29 EEC 9. Musoma Mara 1,000 2,000 2,000 0.04 0.53 0.57 ADB 10. Dodoma Dodoma 4.000 6,000 9.000 0.12 1.59 1.71 ADS 11. Shinyanga Shinyanga 1,400 1,000 2,400 0.02 0.27 0.29 ADB 12. Morogoro Morogoro 3,000 1,000 4.000 002 0.27 0.29 IDA 13. Zanzibar Zanzibar 4,000 4,000 8,000 0.08 1.06 1.14 IDA 14. Chake Chake Pemba 1,000 3,000 3,000 0.06 0.80 0.86 IDA 15. SMALL CAPACIrY EXCHANGES 3,000 3,000 0.06 0.80 0.86 IDA 5 UNITS (500- 100L) 16. RURAL EXCHANGES 15 UNITS 3,000 3,000 0.06 0.80 0.86 IDA (100- 300L) TOTAL 29,700 47,400 66,200 0.95 12.56 13.51 A.3 SPARES Spare parts for exIsting exchanges 0.00 1.00 1.00 IDA * Includes RSS In Wete (1000) and Mkoani (S00) TANZANIA POSTS AND TELECOMMUNICATiONS CORPORATION Annex 3-2 TELECOMMUNICATIONS RESTRUCTUIPNG PROGRAM Page 3 B. LOCAL CABLE NETWORK (EXTERNAL UNE PLANT - ELP) 8.1 EXPANSION OF LOCAL CABLE NETWORK(ELP) Existing MDF Paira MOF Pair FUNDING (MILLIONS US$) LOCATION REGION MOF Pair (Additlona Capacity - --- Pledging Capacity & Replacement) 1997 LOCAL FOREIGN TOTAL Donors 1. Pugu Road-1 Dar-es-Salaam 2,560 5300 7860 0.21 1.91 2.12 JICA 2. Pugu Road-2 Dar-es-Salaam 640.00 1300 1940 0.05 0.47 0.52 IDA 3. Wageni Dar-es-Salasm 2.475 4.200 4.200 0.17 1.51 1.68 IDA 4. Moshi Klllmanjaro 2,800 8,400 9,800 0.34 3.02 3.36 DANIDA 5. Tanga Tanga 3,500 6,600 10,100 0.26 2.38 2.64 DANIDA 6. Central Dar-s-Salaam 29,600 10,000 39.600 0.40 3.60 4.00 ADS 7. Ubungo Dar-es-Saaam 2,700 6,700 8,400 0.23 2.05 2.28 SIDA 8. Kariakoo Dar-es-Salaam 0 7,200 7,200 0.29 2.59 2.88 ADB 9. Upanga Dar-es-Sa-aam 0 4,400 4,400 0.18 1.58 1.76 ADB 10. Magomeni Dar-es-Salaam 0 3,900 3,900 0.16 1.40 1.56 ADB 11. Kurasinl Dar-es-Salaam 1.300 5,200 5,600 0.21 1.87 2.08 SIDA 12. Mbezi Dar-es-Saiaam 0 7,000 7,000 0.28 2.o2 2.80 SIDA 13. Kimara Dar-es-Saiaam 0 1,400 1,400 0.06 0.50 0.56 SIDA 14. Kljitonyama Dar-es-Saiaam 6,360 7,700 14,000 0.31 2.77 3.08 SIDA 15. Arusha Arusha 7,240 2,800 9,800 0.11 1.01 1.12 IDA 16. Mbeya Mbeya 2,400 6,400 8,800 0.26 2.30 2.56 EEC 17. Mwanza Mwanza 4,240 7,800 12,000 0.31 2.81 3.12 ADB 18. Irlnga Irlnga 600 7,000 7,000 0.28 2.52 2.80 EEC 19. Songea Ruvuma 2,000 2,000 2,800 0.08 0.72 0.80 EEC 20. Sumbawanga Rukwa 325 1,600 1,600 0.06 0.58 0.64 EEC 21. Tukuyu Mbeya 130 1,000 1,000 0.04 0.36 0.40 EEC 22. Njombe Irlnga 550 1,200 1,200 0.05 0.43 0.48 EEC 23. Musoma Mara 675 2.800 2,800 0.11 1.01 1.12 ADB 24. Dodoma Dodoma 4,800 9,500 12,600 0.38 3.42 3.80 ADS 25. Morogoro Morogoro 2,900 2.700 5,600 0.11 0.97 1.08 IDA 26. Shinyanga Shinyanga 3,200 1,200 3,400 0.05 0.43 0.48 ADB 27. Zanzibar Zanzibar 4,600 7,900 11,200 0.32 2.84 3.16 IDA 28. Chake Chak* Pemba 2,800 4,200 4,200 0.17 1.51 1.68 DANIDA 29. Kibaha Dar-Es-Salaam 620 900 1,400 0.04 0.32 0.36 SIDA 30. Mafinga Iringa 0 600 600 0.02 0.22 0.24 EEC 31. Mbagala Dar-Es-Salaam 0 2800 2800 0.11 1.01 1.12 SIDA 32. Rural Areas 7,500 7,500 0.30 2.70 3.00 IDA TOTAL 89,015 148,200 221,700 5.93 53.35 59.28 B.2 SPARES Procurement of spare parts for dsting cable network 0.00 2.00 2.00 IDA Items I to 5 represent MDF pairs needed to utilize the exiting switching capacity. TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION Annex 3-2 TELECOMMUNICATIONS RESTRUCTURiNG PROGRAM Page 4 C. TRANSMISSION FUNDING (Millorns US$) Pledging -______------- -------- Donors C.1 OPTCAL FIBER CABLE SYSTEMS LOCAL FOREGN TOTAL 1. DSM Central - Upanga 3km 140 Mb/s 0.09 0.25 0.34 ADB 2. DSM Central - Karlakoo 2km 140 Mb/s 0.09 0.25 0.34 ADB 3. OSM Central - Magomenl 4km 140 Mbhs 0.09 i.25 0.34 ADB 4. DSM Central - Kijltonyama 11 km 140 Mb/s 0.09 0.25 0.34 SIDA S. KiJitonyama-Mbezi 140 Mb/s 0.09 0.25 0.34 SIDA S. Maoneni-Ubungo 140 Mb/s 0.09 0.25 0.34 SIDA TOTALS 0.54 1.50 2.04 C.2 RADIO SYSTEM 1. Dodoma-Mwanza 140Mb/s + spurs 1.10 9.80 10.90 ADS 2. DSM-Dodoma 140Mb/s * spurs 2.00 9.60 11.60 IDA 3. Tanga-Moshl 140Mb/s + spurs 1.10 5.70 6.80 IDA 4. Moshi-Arusha 14OMb/s 0.60 3.00 3.60 IDA 5. DSM-Zanzibar-Tanga 140Mb/s 1.00 6.00 7.00 IDA 6. OSM MULTi EXCHANGE AREA a) Mbezi - Wazo Hill 140 Mb/s 0.08 0.40 0.48 SIDA b) Wazo Hill - Wazo 8 Mb/s 0.08 0.25 0.33 SIDA c) Wazo Hill Kunduchl 34 Mb/s 0.08 0.32 0.40 SIDA d) Wazo Hill - Kimara 140 Mb/s 0.08 0.40 0.48 SIDA e) Kimara - Pugu Road 140 Mb/s 0.08 0.40 0.48 SIDA 1) Ubungo - Kimara 140 Mbits 0.08 0.40 0.48 SIDA g) Pugu Road - Kurasini 34 Mb/s 0.08 0.32 0.40 SIDA h) Pugu Road - Mbagala 34 Mb/s 0.08 0.32 0.40 SIDA 7. Kbaha-DSM 34Mb/s 0.09 0.36 0.45 SIDA 8 Dodoma-lringa-Mbeya 34Mb/s 0.50 4.00 4.50 EEC 9. 15 Small Capacity Systems 2/8 Mb/s 1.10 4.00 5.10 IDA TOTALS 8.13 45.27 53.40 C.3 UPGRADE STANDARD "A" EARH STATION 0.00 0.50 0.50 IDA C.4 SPARE PARTS FOR EXISTING TRANSMISSION SYSTEMS 0.00 1.40 1.40 IDA D. TELEPHONE AND TELEX TERMINALS 1. Procurement of20,000 Telephones 0.00 0.50 0.50 IDA 2. Procurement of500 Payphones 0.00 0.28 0.28 DANIDA 3. Procurement of 200 Teleprinters and 500 fax machines 0.00 1.00 1.00 IDA 4. Spare parts for subscriber apparatus and payphones 0.00 0.50 0.50 IDA TOTALS 0.00 2.28 2.28 E. POWER AND AIRCONOMONING EQUIPMENT Power supply and air-conditloning equipment for Switching and Transmission Systems 0.50 3.50 4.00 IDA F. BUILDINGS Buildings for Switching and Transmission Systems 3.00 0.00 3.00 TPTC G. VEHICLES 0.10 1.50 1.60 IDAIADS Annex 3-2 PageS H. COMPUTERS 0.00 5.72 6.72 IDA/SIDA l.A CONSULTANCY - TO TPTC Manmonths 1. PPF Consultants 40 010 0.88 0.98 IDA 2. Studies 2S 0.10 0.42 0.52 IDA 3. Finance 108 0.10 1.50 1.60 IDA 4. Corporate Planning 168 0.11 2.07 2.18 SIDA 5. Project Management Unltleecoms 372 1.20 5.20 640 SIDA 6. Human Resource/TraIning 264 1.00 3.70 4.70 8iDA 7. Supplies 18 0.05 0.25 0.30 SIDA TOTALS 99S 2.66 14.02 16.68 I.B CONSULTANCY- TO MOC: Eff. AudiURegulatory 44 0.10 0.75 0.85 J. TRAINING 1. LongTerm coursesO7Months) 300 0.70 0.90 1.60 IDA 2. Shorttermcourses(TiMonths) 160 1.00 1.90 2.90 SIDA 8, To MOC 1S 0.00 0.20 0.20 IDA TOTALS 460 1.70 3.00 4.70 K MISCELLANEOUS Mlsculiansou and Ancillary Equipment 1.70 2.80 4.50 IDA L GRAND TOTAL FOR THE PROGRAMS (A+B+C+D+E+F+G+H+l.J.+I 26.39 165.02 191.42 05g~ ~ ~ ~ ~ ~ ~ ~ ~~~zf 2 fti. C t; &§31 fl j5 '1", §f 35 ' t~~~~~~~~a t an ' ........... .,Cb"" " ................. 4 '! 2;S w 14"ob "" " "" "." . M~~~~~~~~Cw 1is t ! 8 i "" g " *"0 X w ~~ ~ ~ ~~~~~~~~~~0 n0Ca as~~~~~~~t OT SL 0ls tw 8 ~~~~~~ - -- -- - - -- -- -- -- -- - - - - - - - - - - -- - ---- - -- -- - 2 V | g | § " a P N n | | N " t " | @; g D4 C C,~~~~~~~~~~~~~~~~~~~~~~~~~~~C * ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 C a - tA T~~~~~~~~~~~~0 0) I2. A)%, 4f 000' go go I s- - - - - --- - - - - - - - - - - - - - - - - - - - - - - - M- -.3 3 -- --- - - - - - - - - - - - ---4-4-4 - 4- - 4-- - - - - - - - - - - - - 41- C a- __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ :- - - -- -- - -- - *-. 8 **..- - - - - - - - - - - - - - - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Annex 3-2 Page 7 fT_w lm,.d.| TOW P mam 75 180 45 300 _ _i ew1 35 35 70 cI I II 120 280 70 470 Mu 40 160 70 270 IaghuebM 200 200 100 5 gos9 90 90 270 Supplim X20 20 20 60 Amp.s 50 120 30 200 Ira Ce_sgs o10 200 200 460 comp 3100 31o0 1SAIh 710 4385 6 5 Hyla en*NamY 43 263 38 343 PA" C _amugay 64 395 56 5 LT;w 817 SM3 719 57 D~06-M9 NisimTtm Annex 3-2 Page 8 TANZANIA - TELECOMMUNICATIONS RESTRUCTURING PROGRAM POSTAL REQUIREMENTS ITEM QUANTITY PRICE 1. TRAINING (Split of P&T) 356,000 2. CONSULTANCY (Split of P&T) 660,000 . EQUIPMENT 3.1 PC Computers & Software 20 80,000 3.2 Compur System Hardware & Softwae 450,000 3.3 Key Blanks 200,000 450,000 3.4 Franidng Machines 40 60,000 3.5 PABX 21 210,000 3.6 NEW SERVICES (Fax, Copy, Telex) S0 150,000 4. TRANSPORT 4.1 Motor Cycles (Mail Delivery) 20 40,000 4.2 Vehicles (Mail Delivery) 21 315,000 5. SPARE PARTS 40,000 TOTAL - Foreign Exchange 2,800,000 ANNEXa 3-3 PROJECT FINANaNIN PLAN (IUSD millons) Source Lor Foreign IRW ADB 45.9 45.9 DANIDA 8.3 8.3 EEC 17.2 17.2 IDA 74.4 74.4 JICA 2.2 2.2 SIDA 41.7 41.7 TPTC 30.4 30.4 Total MA 18.7 g220.1 AtME 3-4- TANZANh POEM AND nLEOM BURWMS m RESIRUClllUNG ROEI Sdbdl of Dsbureents IBRD Cumuative Bank's Profiles FY/Semester Disbursement Through For all sectors Telecom Sector Ending in Semester 1/ Semester in West Africa World Wide FY93 Dec. 31, 1992 0.4 0.4 0.0 0.0 June 30, 1993 0.4 0.8 0.0 0.0 FY94 Dec. 31, 1993 0.8 0.8 0.8 0.8 June 30, 1994 1.2 2.0 3.5 2.0 FY95 Dec. 31, 1994 3.7 5.7 8.1 5.0 June 30, 1995 6.2 11.9 13.1 10.0 FY96 Dec. 31, 1995 7.6 19.5 19.3 16.2 June 30, 1996 8.4 27.9 25.9 23.1 FY97 Dec. 31, 1996 9.5 37.4 32.3 30.9 June 30, 1997 9.9 47.3 39.0 39.0 FY98 Dec. 31, 1997 7.5 54.8 45.1 45.2 June 30, 1998 10.6 65.4 51.4 54.0 EY99 Dec. 31, 1998 3.3 68.7 56.7 56.8 June 30, 1999 5.7 74.4 60.8 61.9 FY2000 Dec. 31, 1999 0.0 74.4 65.1 65.3 June 30, 2000 0.0 74.4 65.8 68.8 FY2001 Dec. 31, 2000 0.0 74.4 70.5 69.9 June 30, 2001 0.0 74.4 72.8 72.7 FY2001 Dec. 31, 2001 0.9 74.4 73.6* 73.6 * Difference between Telecom III disbursements and West Afiica and Telecom Sector disbursements reflect a $US 0.8 for the PPF. i/ Specific measures are being taken in the project to speed the disbursement cycle. AN33 3-5 Page 1 of 3 1 1993 1994 1 1995 1 1996 t 1997 E15C I I t Switchling T------C -- - ------ -O Transmission T C ----I --- - 0 ELY T- ---C - I- I-- - - - -- -- ADB Phase I . Switching |T--C---_S--e Transmission IT---- --------- ---0 ELP IT ---- C---I ----- _____-O ILl~~~~~~~~~~~~~~ II ADB Phase SI I I I I i TSransm=sson I T-- -C----- I- ----Do lSP T----C-------- -------------0 Transmission SIDA Phase I switching I Transmission ZLP T T----C- -I ----- --- SID Phase I I I I 1 . Switching C-------- - O TransmissLon I 3SCasmiso I Wc T--C----I---- NOTB8z T - SItnbhing (invitatLons to tsnder out) C - Contract (Contract awarded) I - anstallation (Installation start) O - OperatLon (Network ready for operatlon) LP - lxternal Lim Plant AMNEX 3-5 TANZANIA TELECOM II - PROJECT IMPLEMNTATION CHDULE Page 2 of 3 1 1993 1 1994 1 1995 1 1996 1997 DSM (ADDB+SDA) t switching T----C------- --------O Transmission IT----C--- --I ----O ELP T ---- C--I- ----O M U8HA (IDA) | I switching T- C----------I--------0 ERLP I T---C-----I----------- DODONA (ADD) I I t Switching T- -C-------I------O Transmission T ----C--------I--------O ELP T S--C -------- I----------- -O IRINGA (NEC) I t switching T------ C …- -- ---------O Tranamission T- ----C----I--- ------O NLP T……C----I------ -…---O NARA (ADS) | | I I | I Switching I T----C--------- - --- ELP I T----C------I-----___o I I I I I MEYA (NEC) I I I I 1 Switching T------C---------I----------O Transaission T------C----I----------O P T…------…C---I----------------O NOROCORO (IDA) I | switching I T----C-----I---O EL? | T- -C--I--------… …… -O KOSHI (DANIDA) I I I I I NLP ---o MWANZA (ADD) | I I t switching T- C-----------I- O TraAJ disaion I T-C ---I- … -O ELP I --C- …--- - ----- -O_ RUXWA (NEC) I I I 1 1 switching T----- ---I---------- ELP ?------C--- ------0 RUVUMA (UEC) i I I switching T- CI ------ EL? S-- …C---! …--- -- SHINYANGA (ADS) I _ I I I I Switching --C-- -- -I--O Transmission I T----C ------I --------O Z P T----C--------- TANGA (DANIDA) 1 1 1 I ELP T--.C T C---1I-----O ZANZIBAR (IDA,DANIDA) I I 1 1 Switching J ----I- ----I------O Transmission 1 T-------------……-o ELP 1 T----C----O- ----O 1 t 1 1 t I ANNMl 3-5 Page 3 of 3 TANZANIA TELECOM III - PROJECT SNPLEMENTATION SCHEDULE | 1993 1 1994 1 1995 t 1996 1997 BA-roMn TaAN8"z8StoN Dodoma-Mwanza (ADS) T-------- ----0 t Dodoma-Mbeya (EEC) T----C-- --------- I DSM-Dodoma (IDA) T----C----I---------O DSR-Zanzibar-Tanga (IDA) T----C-1----- --O Tanga-Moshi (IDA) T C -- --------- Moshi-Arusha (IDA) T-----C----I--------O NOT8s: T - Tendering (Invitations to tender out) C - Contract (Contract awarded) I - Installation (Installations start) 0 a Operation (Network ready for operation) ULP - External Line Plant PHASING QO IDA COMPONENT IDA Phase -I is connected to Mid Term Review (MTR) in 1995S - the Bank and TPTC agreed during negotiations certain conditions for Phase U - if these conditions are not fulfilled by MTR, the Bank will cancel or postpone the credit allocated for Phase U1 - Phase II contraats will not be approved by the Bank until the conditions have been met a) PHASE I - Spare parts for existing switching, external line plant and transmission - Upgrading of earth station with digital ZDR facility - External line plant in Pugu Road and Wageni (both in DSM) to provide connection capacity for existLag exchanges - Long distance transmission with radio links (spurs in Phase TI)s OSM-Dodoma, DSM-Zansibar-Pemba-Tanga-Moshi - Terminals: telephone sets, teleprinters, fax machines - Power and A/C for above mentioned transmission routes b) phsE it - Switching in Arusha, Morogoro, Zanzibar, Chake Chake, Wete and Mkoani, and in 20 rural locations - External line plant in Arusha, Morogoro, Zanzibar and in the above mentioned 20 rural locations - Long distance transmission with radio links: Moshi-Arusha - Small radio transmission related to- above mentioned rural locations - spur links related to the long distance transmission routes DSM- Dodoma and DSM-Zanxibar-Pemba-Tanga-Moshi-Arusha - Power and A/C for above mentioned switching and transmission In addition to above mentioned items IDA iL financing also following items: - vehicles - COputers - Consultancy to TPTC and MOC - Training to TPTC and HOC - Postal equipment and consultancy AM=X 36 Page 1 TANZANIA THIRD TELECOMMUNICATIONS RESTRUCTURING PROJECT ENVIRONMETAL SUMnARY In summary, the third telecommunications restructuring project, like most telecommunication projects worldwide, is expected to have minimal effects on the environment. The project will have a very limited impact on the land and no impact on waterways. It can be expected to have a positive impact on air pollution since telecommunication services will reduce the need to communicate by car or truck within Dar Es Salaam and other urban areas (i.e. Tanga, Moshi, etc.). Outlined below are the specific effects anticipated from the project on the environment. New Construction To expand the existing telecommunication infrastructure it is necessary to construct approximately 30 new buildings for the switching and transmission equipment in rutal areas as well as in Kariakoo, Upanga, Magomeni, and Kimara. Buildings for switching equipment will be situated in towns and villages and will be constructed from locally produced materials such as cement and wood. Buildings will be designed and developed in accordance with local and national building codes. The building designs will be similar to others in the area so as to be aesthetically pleasing. They should have a minimal environmental impact on the land, water, or air. All oter equipment will be accommodated in existing buildings. Buildings for transmission microwave equipment will be located on mountain tops in the countryside. To minimize the impact on wildlife, the building have been located away from national parks and other protected areas. Fences around the buildings will be small and on confined areas. Buildings will be built near exisdng roads to reduce road construction. The building and road construction may have a minor disruption effect on humans, the land and local wildlife during the construction period but should have no long term impact on the land, water, or wildlife. Solar energy, which has no environmental effect, will be used to power the microwave systems on most sites. E3uipment Telecommunication cables will installed and/or replaced in most cities within Tanzania. Existing cabling ducts will be used in viAtually all cities. This will substantally reduce the need to dig up and subsequently rpair roads within urban areas. When appropriate, road work will be coordinated with the road, energy, and water Page 2 departnents in the cities to ensure that damage is not caused to power, fuel, or water lines. The need to install interurban trnsmission cables (primarly copper) is quite limited since microwave links are being established between aU major towns included in the project. Where it is necessary to draw cables, consideration will be given to finding the least obtrusive path for people and for the envuronment in a cost effective manner. In buildings where air-conditioning equipment is necessary, I leakage refrgear elements will be used. This will limit the entry of CFC-gasos into the air since thie gases can deplete the ozone layer. All other equipment including switching exchanges and transmission lines should have no environmental impact ANNEX 3-6 Page 3 TANZANIA THRD TELECOMMICATIONS RESTRUCTURING PROJECT Envionmental Mitgion Plan I. Identiication and Summary of Potentia Adverse Impacts lTere are no major environmental issues in this project. Oudined below are specific issues which may arise. Air Pollution - In some project buildings, air conditioning is necessary. Some CFC gases will be leaked to the atmosphere land Loss - It will be necessary to construct microwave towers in the rural areas and thirty new buildlings will be constructed. Wildlife - Tanzania has rich and abundant wildlife populations in numerous national parks and wildlife reserves. The towers will increase the number of bird deaths from collisions with the new towers. Soil Erosion - Towers will be constucted on hills and the constucon of access on the steep slopes will create soil erosion hazards. X andsc=Yalm yA - The microwave towers on high hills are not esthetically appeafing. H. Desiption of Mitigation Meawres Air Polutn - Low leakage refrigerator elements will be used for all air conditioning units to limit the escape of CFC gases into the atmosphere. Land Im1 - The thirty buldings will be cnsucted in both urban and rural areas. These buildings, constructed from local materials, will be built on unoccupied lots. so that involuntary resettlement will not be a project issue. Microwave towers will be constructed on unoccupied hill tops. The towers ate of a new slender design so that the land required for construction is reduced in area. Solar energy, which will not occupy a large area will be used to power the microwave systems on most sites. Wildlif - None of the microwave towers will be placed in national parks or preserves. Bird collisions with the towers will be less than with standard towers owing to the slender design, but collisions can noi be completely avoided. ANNEX 3-6 Page 4 soil eni.n - The contract documents for access road construction will contain soil erosion control clauses. In addition, every effort will be made to site the towers as close to existing roads as possible in order to reduce thpe amount of access road constructon. In addition, existng cable ducts will be used in urban areas which will substantially reduce the need to dig ditches to bury cable. Where it is necessary to use copper cable, the routes will parallel existing roads where possible. Landsc=e Values - The new slender design will be less visible than standard towers. The towers will not be placed in areas of high tourist activities such as national parks and wildlife reserves. mL Intiutional Arrangements The executing agency, Tanzania Posts and Telecommunications Corpoation (MMPC) will have the responsibility for carrying out the mitigation plan. As most of the mitigation measures are straight foward enghieering and planning techniques, it is not necessary for TPTC to establish a special environmental monitoring unit for the activities. Staff planners can verify that tower locations will not be in protected areas and will not result in involuntary resettlement. Staff engineers will take the responsibility to make sure tat constrction contractors pay close attention to erosion control meaes on access roads. It does not require special training to recognie erosion on access roads. Costs for the measures have already been included in the project budget (slender towers) and no addition staff are necessary. IV. Implementation Schedule Implementation is obviously a part of project implementation and a separate disussion of schedule is not necessary. V. Monitoring and Reporting Site visit reports will contain a check-off staement on erosion at the site and on access reports. The reports can also have check-off statements rerding potential environmental problems at building sites (clean up, storage of fuel, fuel spillage, etc). The fact that statements are present on the form increases the environmental awareness of the TPrC staff and contractors which has desirable long term effects beyond the scope of the telecommunications project. Page i I -s x''[Fel I I'!' I [l f9" . . .. .. .. . . . . . . . . . . . . . . . . ...... . . .. . .. ..... .. . 0. :~~~~ X ................................................ .................................... ......... .... ........... ~~~~~~~~~~~................... .. ... .... ... ..... .... . - , t ! }X I ig. ot :k IZE i I M I -t19 ... .............................. ...... . . .... .... . ....... ......................... .. U. E Xx' U| 8il *. .I I... ........... .............................. . ~ . .wI ............:,,,:,;. ......... A4NNEX 4-1 Pag.e 2, .. ~ ~ ~ ~ ... ..... 1 . . . . . .. . . . . . . .. . ..I m * !U vi8 x t i Xi1X* ., | a. a . . . . . . . ,:3 U- * . i 1X1 s g3} l Tabe 4.2 Seleted Fiancia Perormance Indkator:s (TSh inions) t990 1991 1992 1993 1994 1995 196 1997 t1998 1999 200 x Key Data Revenues X TebFhons . 8,094 9,538 13,248 20,139 27,548 37,624 51,788 66,084 77,172 87,598 100,036 Telex 2,685 4,008 8,150 13,003 18,281 25,162 33,252 41,264 49,415 57,649 67,275 Telegraph 78 82 86 90 95 100 105 110 115 121 127 Other Revenue 250 263 276 289 304 319 335 352 369 388 407 Telecoms Operating Revenue 11,107 13,891 21,759 33,522 46,227 63205 85,480 107,810 127,072 145,756 t67,845 Total Operating Expenses 7,234 8,897 14,043 17,886 21,569 27,865 36,313 44,269 51.441 58,458 66,601 Net Operating Income (loss) 3,873 4,517 7,441 14,941 24,281 34.617 48,400 63.054 74,640 86,593 99,995 Less. Interet on Loans 1,456 1,448 2,013 2,303 2,772 4,327 6,148 7,062 7,313 7,352 7,327 Foreign Exchange Gain (Loss) (1,924) (1,152) (4,593) (3,177) (1,557) (2,579) (3,774) (6,573) (7,029) (7,104) (7,124) Tax 500 676 157 3,870 8,498 11,887 16,607 21.378 26,089 31,193 36,955 Net Proft (LOsS) . (228) 826 0 2,825 6,768 9,366 13,065 16,944 20,881 25,223 30,180 Net Fixed Assets 3,804 6,244 9,480 11,972 18,614 29,822 39,657 47,986 53,249 55,749 55,960 Work in Progress 2,245 0 0 3,344 22,666 36,899 33,678 25,259 18,944 14,208 10,656 Accounts Receivables 6,054 6,814 10,742 13,847 15,308 15,721 21,28 17,910 21,117 24,228 27,906 Total Curret Assets 9,766 14,169 20,428 33,097 57,531 80,552 111,617 137,476 163,035 181,733 214,229 ToW Assets 16,754 21,352 30,847 49,351 99,750 148,212 185,891 211,659 236,166 252,629 281,783 Capital Reseve 514 514 514 5,097 28,823 41,678 43,001 43,001 43,001 43,001 43,001 Accumn. PoRt(Loss) (14,118) (13,705) (13,705) (12,293) (8,909) (4,226) 2,307 10,778 21,219 33,830 48,920 Not Equity (10,747) (10,334) (10,334) (4,339) 22,771 40,309 48,164 56,636 67,076 79,688 94,778 Loans 15,428 16,414 22,074 25,116 35,540 60,484 75,709 80,276 80,928 80,908 80,075 Total Curen Uabditles 12,072 15,270 19,105 28,572 41,437 47,417 62,016 74,745 88,160 92,031 106,928 Total Equlyand Labilities 16,753 21,350 30,845 49,349 99,748 148,210 185,889 211,657 236,164 25227 281,781 Key Statis0cs RoR on Revalued Assets 15% 27% 39% 46% 51% 1Give 72% 89% 109% DebtIDebt+EquIty) Ratio 330% 270% 188% 121% 61% 60% 61% 59% 5S% 60% 46% DobmServiceCoverage 4.4 1.0 0.8 1.5 2.2 2.4 2.6 2.1 2.4 2.6 6.5 Curent Ratio(Tnes) 0.8 0.9 1.1 1.2 1.4 1.7 1.8 1.8 1.8 2.0 2.0 AccountRecelables(Days 8ing) 201 160 180 150 120 90 90 60 60 60 s0 lneres Coverage Ratio 1.19 2.04 1.17 4.74 7.81 7.11 7.00 7.73 893 10.43 12.21 To Exchange Capacity 83,459 104,660 107,600 110,000 126,000 147,000 170,000 183,000 183,000 163,000 183,000 Income Statements p4 (TShs Million) EST <--- Forecast -- - - - - < TELECOMS REVENUE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 x Telephone 8,094 9,538 13,248 20,139 27,548 37,624 51.788 66,084 77,172 87,598 100,036 g Telex 2,685 4,008 8.150 13,003 18,281 25,162 33,252 41.264 49,415 57,649 67,275 ZTelegraph 78 82 86 90 95 100 105 110 115 121 127 Gross Telecomns Operating Reven 10,857 13,628 21,484 33,232 45,924 62,886 85,145 107,458 126,702 145,368 167,438 Other Revenue 250 263 276 289 304 319 335 352 369 388 407 Tetecoms Operating Revenue 11,107 13,891 21,759 33,522 46,227 63,205 85,480 107,810 127,072 145,756 167,845 Telecoms Operating Expenses Salaries 1,434 1,723 2,922 3,653 4,476 5,665 7,190 9,154 '1,689 14,972 19,235 Operation and Maintenance 3,974 4,531 6,656 7,558 8,115 9,910 12,658 14,800 16,112 16,918 17,764 Others 1,452 1,686 3,109 4,875 6,506 8,619 11,301 13,651 15,559 17,228 19,137 Depreciation 373 957 1.366 1.801 2.471 3.670 5.164 6.664 8.081 9.340 10.466 Total Operating Expenses 7,234 8,897 14,043 17,886 21,569 27,865 36,313 44,269 51,441 58,458 66.601 Addn to Prov for B.debts (477) (275) 694) l 737) (487) (991) ff (1.249 Net Operating income 3,873 4,517 7,441 14,941 24,281 34,617 48,400 63,054 74,640 86,593 99,995 Net Postal Operating Income (Loss (254) (416) (486) (861) (1,067) (1,297) (1,575) (1,913) (2,323) (2,819) (3,421) Less: Interest on Loans 1,456 1,448 2,013 2,303 2,772 4,327 6,148 7,062 7,313 7,352 7,327 Net Non-Operating Gain (Loss) 33 Foreign Exchange Gain (Loss) (1,924) (1,152) (4,593) (3,177) (1,557) (2,579) (3,774) (6,573) (7,029) (7,104) (7,124) NET INCOME (LOSS) 272 1,502 348 8,600 18,885 26,415 36,904 47,506 57,975 69,317 82,122 Staff lncentive Bonus 192 1,906 3,619 5,162 7,232 9,185 11,005 12,901 14,987 Tax 500 676 157 3.870 8.498 11.887 16.607 21.378 26.089 31.193 36.955 Net Profit (Loss) (228) 826 0 2,825 6,768 9,366 13,065 16,944 20,881 25,223 30,180 Net Proflt (Loss) - US (1) 4 0 7 15 19 25 30 36 41 47 _11 Operating costs split based on DETECON's report.. Funds Flow - (TSh Mill Forecast P. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 4 Internal Cash Generation l -Net Income Before Interest 1,228 2,274 2,013 5,127 9,540 13,693 19,212 24,006 28,194 *32.576 37,507 . -Depreciation 439 957 1,356 1,801 2,471 3,670 5,164 6,664 8,081 9,340 10,466 -Foreign Exchange Loss 0 0 0 *0 0 0 0 0 0 0 0 Internal Cash Generation 10,511 3,231 3.370 6.928 12,010 17,363 24.377 30,670 36,274 41,915 47,973 Loans 2,281 2,869 7,889 5,494 13,120 27,911 18,488 12,228 8,765 8,904 (833) Equity 93 0 0 4,583 23,726 12,855 1,323 0 0 0 0 TOTAL SOURCES 12,885 6,099 11,259 17,005 48,857 58,129 44,188 42,898 45,040 50,819 47,140 APPUCATIONS Capital Expenditure 1,716 1,152 4,593 7,636 28,435 29,112 11,779 6,573 7,029 7,104 7,124 Investments 123 0 0 0 0 0 0 0 0 0 0 Debt Service Long Term Debt -Intetest 1,456 1,448 2,013 2,303 2,772 4,327 6,148 7,062 7,313 7,352 7,327 -Pncial 957 1,883 2,229 2,452 2,697 2,967 3,263 7,661 8,113 8,924 0 Total Debt Service 2,413 3,331 4,242 4,754 5,469 7,293 9,411 14,723 15,425 16,276 7,327 Dividends 0 413 0 1,412 3,384 4,683 6,632 8,472 10,440 12,611 15.090 Change in Working Capital 8,633 1,204 2,424 3,202 11,569 17,041 16,466 13,130 12,144 14,827 17,599 APPLICATIONS 12,886 6,099 11,259 17,005 48,857 58,129 44,188 42,898 45,040 50,819 47,140 Balance Sheets - - Forecast ' ASSETS 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 * Gross Fixed Assets 7,871 11,268 15,860 20,152 29,265 44,145 59,144 74,137 87,481 99,321 109,997 4 Accumulated DepreciatIon 4,067 5,024 6,380 8,181 10,652 14,322 19,487 26,151 34,232 43,572 54,038 Tota Fixed Assets 3,804 6,244 9,480 11,972 18,614 29,822 39,657 47,986 53,249 55,749 55,960 Work In Prgress 2,245 0 0 3,344 22,666 36,899 33,678 25,259 18,944 14,208 10,656 nvkesbtmet 938 938 938 938 938 938 938 938 938 938 938 Current Assets: -Cash andEankDePsOts 543 2,658 1,902 7,533 26,183 42.761 60,737 82,072 98,268 108,117 130,197 -Accounts Recehiables 6,054 6,814 10,742 13,847 15,308 15,721 21,286 17.910 21,117 24,228 27,906 Less Prov. for Doubtul Accts. (477) (752) (969) (1.072) (1,101) 41.490) (1.254) (1.478) (1,698) (1,953) -Foreign Administration 1,974 2,469 4,352 6,704 9,245 12,641 17.096 21,562 25,414 29,151 33,589 -Othr Receivables 101 1,363 2,148 3,323 4,592 6,289 8,515 10,746 12.670 14,537 16,744 -Invntory 1,094 1,343 2,036 2,659 3.274 4,240 5,473 6,440 7,044 7,396 7,766 Total Current Asset 9,766 14,169 20,428 33,097 57,S31 80,552 111,617 137,476 163,035 181,733 214,229 TOTAL ASSETS 16,754 21.352 30.847 49.351 99,750 148.212 185,891 211,659 236,166 252.629 281,783 U TLIflES Capilal Rese 514 514 514 5,097 28,823 41,678 43.001 43,001 43,001 43,001 43,001 Reseres 2,857 2,857 2,857 2,857 2,857 2,857 2,857 2,857 2,857 2,857 2,857 Accurn. Profit (Loss)* (14,118) (13,705) (13,705) (12,293) (8,909) (4,226) 2,307 10,7M 21,219 33.830 48,920 Total Equity (10,747) (10,334) (10,334) (4,339) 22,771 40,309 48,164 56,B36 67,076 79,688 94.778 Loans 15,428 16,414 22,074 25,116 35,540 60,484 75,709 80,276 80,928 80,908 80,075 Current LabUlits -Payable Foreign Administrations 4,808 6,013 7,616 11,733 16,180 22,122 29,918 37,733 44,475 51,015 58,746 -Account Payables 2,319 6,352 8,881 10,272 13,793 10,145 7,831 7,521 8,672 9,824 11,227 -Taxes Payable 723 676 157 3,870 8,498 11,887 16,607 21,378 26.089 31,193 36,955 -Current Portion of LTD 4,222 2,229 2,452 2,697 2,967 3,263 7,661 8,113 8,924 0 0 Total Current Liabilities 12,072 15,270 19,105 28,572 41,437 47,417 62,016 74,745 88,160 92,031 106,928 Total Equity and Uabilites 16,753 21,350 30,845 49,349 99,748 148,210 185,889 211,657 236,164 252,627 281,781 AUdt AdjusUnentl n 1989 of 8,845 0 2 2 2 2 2 2 2 2 2 2 ROR before I on total assets 10.31% 13.82% 7.66% 2Z.09% 21.71% 20.74% 23.16% 25.78% 27.64% 30.35% 31.74% Working Capital (2,306) (1,100) 1,323 4.525 16,094 33,135 49,601 62,731 74,875 89,702 107,301 Change in Working Capital 8,631 1,206 2,424 3,202 11,569 17,041 16,466 13,130 12,144 14,827 17,599 Performance Indicators _ -_ - - Forecast 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 PO 1 Operating Revenue/DEL Constant ('89 Prices) 125,337 129,843 171,303 222,927 250,244 264,581 277,513 284,125 292,371 304,948 319,314 . Current (TShs) 151,157 182,429 274,374 399,907 493,802 574,301 662,608 746,236 844,683 969,120 ***** x Curent (US$) 751 812 844 1,000 1,122 1,187 1,245 1,335 1,439 1,572 1,725 1 Telsphone RevenuelDEL Constant ('89 Prices) 93,437 90,873 105,633 135,093 150,111 158,298 168,793 174,730 178,078 183,761 190,775 Current (TShs) 112,686 127,676 169,191 242,342 296,210 343,602 403,022 458,918 514,480 583,989 666,908 Current (USS) S60 568 521 606 673 710 757 821 877 948 1,031 1 Telex Revenue/Subscriber ('000s) Constant ('89 Prices) 1,267 1,474 2,292 2,848 3,200 3,600 3,985 4,223 4,478 4,749 5,038 Current (TShs) 1,528 2,072 3,671 5,109 6,315 7,814 9,514 11,092 12,936 15,091 17,611 Current(US$) 8 9 11 13 14 16 18 20 22 24 27 1 Cash Operating Cost/DEL Constantcog Prices) 78,446 84,765 111,978 119,985 117,531 117,235 118,355 117,049 118,702 122,631 127,013 Current (TShs) 94,606 119,094 179,354 215,240 231,922 254,472 282,592 307,421 342,940 389,720 444,010 Current (US$) 470 530 552 538 527 526 531 550 584 632 686 2 Proporation of Ca8h Op Costs -Payroll (%) 24% 19% 21% 20% 21% 20% 20% 21% 23% 26% 29% -ther Operating%) 26% 19% 22% 27% 30% 31% 31% 31% 30% 29% 29% 2Operatlng Ratio (%) 67% 65% 66% 64% 47% 44% 43% 41% 41% 40% 40% 2 Net Intemal Cash Generation(%) 665% -7% -30% 36% 36% 35% 73% 174% 307% 363% 571% 2Rateof ReturnonNFA(GOPINFA) 102% 72% 78% 125% 130% 116% 122% 131% 140% 155% 179% Rate of Return on NFA (PATINFA) -6% 13% 0% 24% 36% 31% 33% 35% 39% 45% 54% 2AccountReceivables(DaysBilling) 201 180 180 150 120 90 90 60 60 60 60 2 Bad Debt Provision (% of Billng) 2 tnventory/Av. DEL TSh. 15,231 17,976 26,000 32,000 35,200 38,720 42,592 44,722 46,958 49,306 51,771 Inventory/Av. DEL US$ 76 80 80 80 60 80 80 80 80 80 80 2 Current Ratio (Tirnes) 0.8 0.9 1.1 1.2 1.4 1.7 1.8 1.8 1.8 2.0 2.0 2Quick Ratlio (Tnes) 0.7 0.8 1.0 1.1 1.3 1.6 1.7 1.8 1.8 1.9 1.9 2Debtf(Debt+Equity) Ratio 330% 270% 188% 121% 61% 60% 61% 59% 55% 50% 46% 3 Debt Service Coverage 4.4 1.0 0.8 1.5 2.2 2.4 2.6 2.1 2.4 2.6 6.5 3 RoR on Revalued Assets 15% 27% 39% 46% 51% 61% 72% 89% 109% Working Capital & Funding b"Aftwiin_iWCI)rL) (8,846) (9,280) (11,688) (6,683) 16,0"9 3$,136 41,S4) qS,9) PW) ($608§4) t141,61) cDebt/EquityRatio ******* ^*****^ ****** ***^^^* 156.07% 150.05% 157.19% 141,74% 120.65% 101.53% 84.49% d Debt I Total Assets 164.15% 148.39% 133.50% 108.79% 77.17% 72.80% 74.09% 73.24% 71.60% 68.46% 66.36% elnterest Coverage Ratio 1.19 2.04 -1.17 4.74 7.81 7.11 7.00 7.73 8.93 10.43 12.21 CALCULATION OF FINANCIAL AND ECONOMIC RATE OF RETURN X Internal Rate of Return 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 K Deflator 0.86 1.00 1.14 1.28 1.40 1.54 1.70 1.87 2.06 2.26 2.49 Cap. Expendture - In cwrent ters 4,593 7.636 28,435 29,112 11,779 6.573 7.029 7,104 7,124 - deflated capital costs 4,029 5,961 20,246 18,844 6,931 3,516 3,418 3,141 2,863 IcenlOperatin Costs - In current terms 1,542 4,068 7,630 12,698 20,422 25,536 28,486 32,372 36,882 - In constant terms 1,353 3,186 5,433 8,219 12.017 13,660 13,853 14,312 14,823 Incremental Operatn R_ev s - In curent terms 2,360 7,568 16,246 28,658 47,883 61,986 70,164 60,500 92,722 - In constat trms 2,070 6,920 11,567 18,649 28,176 33,159 34,121 35.589 37,266 NET BENEFITS (3,312) (3,247) (14,111) (8,513) 9,229 15,983 16,650 18,136 19,579 Intemal Rate of Retum 26.87% Economic Rate of Return 1990 i991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Deflator 0.86 1.00 1.14 1.28 1.40 1.54 1.70 1.87 2.06 2.26 2.49 o Cap. Ex. (ess duties & Taxes - 10%) - in current terms 4,133 6,873 25,592 26,201 10,601 5,916 6,326 6.394 6,412 - deflated capita coasm 3.626 5,383 18,221 16,959 6,238 3.164 3,077 2,827 2,577 Incremental Operatng Costs - in cutrent terms tess Inc. Tax) 2,061 355 3,002 9.310 15,701 20,765 23,775 27,268 31,119 - In constant terms 1,808 278 2.137 6,026 9,239 11.108 11,562 12,055 12,507 Incementa Operatn Revenues - In current terms 2.360 7,558 16,246 28,658 47,883 61.986 70,164 80.500 92,722 - In constant terms 2,070 6,920 11,567 18,549 28,176 33,159 34,121 36,569 37,266 NET BENEFITS (3,364) 259 (8.791) (4.436) 12,699 18.887 19,482 20,707 22,182 Economic Rate of Return 51.58% Sensitivity Analysis 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 0 ' 1. With 10% increase in Cap. Exp. N Cap. Ex +10% in constant terms 4,432 6,579 22,271 20,728 7,624 3.868 3,760 3,455 3,150 . Net benefits (3,715) (3,845) (16,136) (10,398) 8,536 15,631 16,508 .17.822 19.293 X IRR 21.46% tap. Ex +10% In constant terms 3,988 6,921 20,044 18,655 6,862 3,481 3.384 3,109 2,835 Net benefits (3,727) (279) (10,614) (6,132) 12,075 18,670 19,175 20,424 21,924 Eco. Rate of Return 42.84% 1 With 20% Increase In Cap. Exp. Cap. Ex +20% In constant terms 4,834 7,177 24,295 22,612 8,317 4,219 4,102 3,769 3,436 Net benefits (4,118) (4,444) (18,161) (12,282) 7,842 15,279 16.166 17,508 19,007 IRR 16.86% Cap. Ex +20% Ion consant tems 4,351 6,459 21.866 20,351 7,485 3,797 3,692 3,392 3,092 Net benefits (4,089) (818) (12,436) (7,628) 11,452 18,254 18,867 20,142 21,666 Eco. Rate of Return 35.81% 2. WIth 10% ncrease In Oper. Exp. Oper. Ex +10% in constant terms 1,944 596 2,681 6,848 10,441 12,474 12,948 13,486 13,989 Net benefits (3,500) (60) (9,335) (5,258) 11,498 17,520 18,097 19,276 20,699 Eco. Rate of Return 45.24% 3. With 10% increase in Oper. Revenues Revenues +10% in constant terms 2,277 6,512 12,724 20,404 30,994 36,475 37,533 39,148 40,992 Net benefits (3,157) 851 (7,635) (2,581) 15,517 22,202 22,895 24,266 25,908 Eco. Rate of Return 66.45% 4. With a 20% non-collections rate Incremental Revenues -20% in current terms 1,888 6,047 12,997 22,926 38,307 49,589 56,131 64,400 74,177 Incremental Revenues in constant terms 1.656 4,736 9,254 14,840 22,541 2X,527 27,297 28,471 29,813 X Net benefits (3,726) (4,431) (16,425) (12,223) 3,593 9,351 10,025 11,019 12,126 IRR 5.29% Net benelits (3,778) (925) (11,105) (8,146) 7,064 12,255 12,658 13,589 14,728 ERR 24.52% 5. With a 25% nion-cobectlons rate Incremental Revenues -20% in current terms 1,770 5,669 12,185 21,493 35,913 46,490 52,623 60,375 69,541 Incremental Revenues In constant terms 1,552 4,440 8,675 13,912 21,132 24,869 25,591 26,692 27,949 Net benefits (3,829) (4,727) (17,003) (13,151) 2,185 7,693 8,319 9,239 10,263 IRR -0.59% Net benefits (3,882) (1,221) (11,683) (9,073) 5,655 10,597 10,952 11,810 12,865 ERR 17.86% 6 TraftI growth down 10% Incremental Revenues In curent tems 2,341 7,455 15,939 27,983 46,503 59.650 67,394 76,943 88,184 Incremental Revenesin constant terms 2,054 5,839 11,348 18,113 27,364 32,016 32,774 34,016 35,442 Net benefits (3,326) (3,321) (14,312) (8,915) 8,478 14,920 15,588 16,654 17,849 IRR 23.79% Net benefits (3,422) 95 (9,115) (5,001) 11,713 17,537 17,956 18,949 20,146 ERR 46.59% o 7 Traffic growth down 20% , Incremental Revenues in current terms 2,323 7,354 15.640 27.333 45.183 57,828 64,796 73,638 84,008 Incremental Revenues in constant terms 2.038 5,760 11,136 17,692 26,587 30,935 31,511 32,555. 33.764 X Net benefits (3,341) (3,392) (14,507) (9,301) 7,762 13,915 14,406 15,278 16,258 w IRF1 20.77% x Net benefits (3,478) (65) (9,428) (5,543) 10,774 16,266 16,532 17,325 18,285 ERR 41.80% 8 Traftc growth down 20% Non-Colecffons Down 20% Net benefits (3,728) (4,544) (16,734) (12,840) 3,744 7,728 8,104 8,767 9,505 IRR 0.00% Net benef0ts (3,886) (1,217) (11.655) (9,081) 5,456 10,079 10,230 10,814 11,632 ERR 15.91% ,, TANZANIA POSTS & TELECOMMUNICATIONS CORP. - TELECOM III Basic Data and Asmpto 03 al4 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 .2000 1 GENERAL DATA: l Population(Mill) 24.7 25.4 26.2 26.9 2. 28.5 29.4 30.2 31.1 32.0 32.9 x Local Inflation 20.6% 16.5% 14.0% 12.0% 10.0% 10.0% 10.096 10.0%6 10.0% 10.0% 10.0% 0 Local Price (1989=100) 121% 140% 160% 179% 197% 217% 239% 263% 289% 318% 350% FX Price Index (Tanzania) 6.9% 4.4% 4.4% 4.4% 4.4% 4.4% 4.1% 4.1% 4.1% 4.1% 4.1% FXPrice(1989=100) 107% 112% 117% 122% 127% 133% 138% 144% 150% 156% 162% Exchange Rate 201.3 224.7 325.0 400.0 440.0 484.0 532.4 559.0 687.0 616.3 647.1 11 TELEPHONE CAPACITYICONNECTIONS: Total Incremental Exchange Capacity -Dar EsSalaam 1,000 3,000 1,500 1,300 10,000 12,000 10.000 5,000 0 0 0 -Other Areas 161 18,201 1,440 1,100 6,000 9,000 13,000 8,000 0 0 0 Total 1,161 21,201 2,940 2,400 16,000 21,000 23,000 13,000 0 0 0 Total Exchange Capacity -Dar Es Salaam 34,200 37,200 38,700 40,000 50,000 62,000 72,000 77,000 77,000 77,000 77,000 -Other Areas 49,259 67,460 68,900 70,000 76,000 85,000 98,000 106,000 106,000 106,000 106,000 Total 83,459 104,660 107,600 110,000 126,000 147,000 170,000 183,000 183,000 183,000 183,000 Average Exchange Capadty -Dar Es Salawn 33,700 35,700 37,950 39,350 45,000 56,000 67,000 74,500 77,000 77,000 77,000 -Other Areas 49,179 58,360 68,180 69,450 73,000 80,500 91,600 102,000 106,000 106,000 106,000 Total 82,879 94,060 106,130 108,800 118,000 136,500 158,500 176,500 183,000 183,000 183,000 Growth Rate (of Total Cap) -Dar Es Salaam 3.01% 8.77% 4.03% 3.36% 25.00% 24.00% 16.13% 6.94% 0.00% 0.00% 0.00% -Other Areas 0.33% 36.95% 2.13% 1.60% 8.57% 11.84% 15.29% 8.16% 0.00% 0.00% 0.00% Total 1.41% 25.40% 2.81% 2.23% 14.55% 16.67% 15.659% 7.65% 0.00% 0.00% 0.00% Incremental DEL - Connected -Dar Es Salaam 1,086 2,241 1,310 2,200 6,000 10,000 8,000 5,000 0 0 0 -Other Areas 1,285 1,148 2,490 3,600 8,000 9,000 11,000 7,000 0 0 0 Total 2,371 3,389 3,800 5,800 14,000 19,000 19,000 12,000 0 0 0 Direct Exchange Unes - Connected -Dar Es Salaam 30,249 32,490 33,800 36,000 42,000 52,000 60,000 65,000 65,000 65,000 65,000 -Other Areas 42,762 43,910 46,400 50,000 58,000 67,000 78,000 85,000 85,000 85,000 85,000 Total 73,011 76,400 80,200 86,000 100,000 119,000 138,000 150,000 150,000 150,000 150,000 Average Lines - Connected -Dar Es Salaam 29,706 31,370 33,145 34,900 39,000 47,000 56,000 62,500 65,000 65,000 65,000 -Other Areas 42,120 43,336 45,155 48,200 54,000 62,500 72,500 81,500 85,000 85,000 85,000 Total 71,826 74,706 78,300 83,100 93,000 109,500 128,500 144,000 150,000 150,000 1N5,000 Excharnge Fl - Tot. Cotnected 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 -Dar Es Salaam 88.4% 87.3% 87.3% 90.0% 84.0% 83.9% 83.3% 84.4% 184.4% 84.4% 84.4% -Other Areas 86.8% 65.1% 67.3% 71.4% 76.3% 78.8% 79.6% 80.2% 80.2Vs 80.2% 80.2% P Total 87.5% 73.0% 74.5% 78.2% 79.4% 81.0% 81.2%. 82.0% 82.0% 82.0% 82.0% c Growth Rate - Tot. Connected 4 -Dar Es Salaam 3.72% 7.41% 4.03% 6.51% 16.67% 23.81% 15.00% 15.00% 10.00% 0.00% 0.00% K -Other Areas 3.10% 2.68% 5.67% 7.76% 16.00% 15.52% 16.00% 12.00% 0.00% 0.00% 0.00% X Total 5.09% 4.64% 4.97% 7.23% 16.28% 19.00% 15.97% 8.70% 0.00% 0.00% 0.00% Incremental DEL - Working (Estimated) -Dar Es Salaam 1,472 1,472 4,300 5,000 6,000 8,000 9,257 4,500 0 0 0 -Other Areas 3,005 3,005 4,300 5,300 8,000 9,000 13,108 6,300 0 0 0 Total 4,477 4,477 8,600 10,300 14,000 17,000 22,365 10,800 0 0 0 Direct Exchange Unes - Working (Est.) -Dar Es Sala;m 19,971 21,443 25,743 30,743 38,743 44,743 54,000 58,500 58,500 58,600 58,500 -Other Areac 27,487 30,492 34,792 40,092 48,092 57,092 70,200 76,500 76,500 76,500 76,500 Total 47,458 51,935 60,535 70,835 84,835 101,835 124,200 135,000 135,000 135,000 135,000 Averaqe Liria - Working -Dar Es Salaam 19,613 20,707 23,593 28,243 33,743 40,743 49,372 56,250 58,500 58,500 58,500 -Other Areas 27,074 28,990 32,642 37,442 44,092 52,592 63,646 73,350 76,500 76,500 76,500 Total 46,687 49,697 56,235 65,685 77,835 93,335 113,018 129,600 135,000 135,000 135.000 Exchange Fill - Tot. Working -Dar Es Salaam 66.02% 66.00% 76.16% 85.40% 87.48% 86.04% 90.00% 90.00% 90.00% 90.00% 90.00% -Other Areas 64.28% 69.44% 74.98% 80.18% 82.92% 85.21% 90.00% 90.00% 90.00% 90.00% 90.00% Total 65.00% 67.98% 75.48% 82.37% 84.84% 85.58% 90.00% 90.00% 90.00% 90.00% 90.00% Growth Rate - Tot. Working -Dar Es Salaam 3.72% 7.37% 20.05% 19.42% 19.52% 21.77% 20.69% 8.33% 0.00% 0.00% 0.00% -Other Areas 3.10% 10.93% 14.10% 15.23% 19.95% 18.71% 22.96% 8.97% 0.00% 0.00% 0.00% Total 3.36% 9.43% 16.56% 17.01% 19.76% 20.04% 21.96% 8.70% 0.00% 0.00% 0.00% 1n 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 | TELEPHONE TRAFFIC TELEPHONE TRAFFIC VOLUME (Historical and Projections) n' a) International Outgoing (Minutes) 3.4 3.7 4.6 5.7 7.4 9.5 12.5 15.4 17.4 18.7 20.2 b) Intemational Incoming (Minutes) 4.9 5.4 6.6 8.3 10.6 13.7 17.9 22.2 25.0 27.0 29.2 c c) National x -Trunk (Minutes) 5.5 6.2 7.7 9.8 12.8 16.9 22.5 . 28.4 32.6 35.8 39.4 0 -STD (Units) 650.0 707.9 921.2 14291.2 1,759.5 2,320.9 3,091.3 3,899.4 4,468.1 4,914.9 5,406.8 TELEPHONE TRAFFIC VOLUME/ AV. DEL (Historical and Projections) a)InternatioalOutgoing(Minutes) 71 75 81 87 94 102 110 119 129 139 160 b)lnternationallncoming(Minutes) 103 108 117 126 136 147 159 171 185 200 216 c) National -Trunk (Minutes) 116 124 136 150 165 181 199 219 241 265 292 -STD (Units) 13,696 14,244 16,381 19,657 22,606 24,866 27,353 30,088 33,097 36,406 40,047 GROWTH TELEPHONE TRAFFIC VOLUME (Historical and Projections) a)IntermationalOutgoing(Minutes) 25.56%9 9.95% 22.21% 26.15% 27.98% 29.51% 30.78% 23.85% 12.50% 8.00% 8.00% b)internationallncorming(Minutes) 9.00% 9.95% 22.21% 26.15% 27.98% 29.51% 30.78% 23.85% 12.50% 8.00% 8.00% c) National -Trunk (Minutes) 10.69% 12.05% 24.47% 28.48% 30.356% 31.91% 33.20% 26.14% 14.58% 10.00% 10.00% -STO (UnIs) 7.17% 8.91% 30.13% 40.17% 36.27% 31.91% 33.20% 28.14% 14.58% 10.00% 10.00% GROWTH TELEPHONE TRAFFIC VOLUME/ AV. DEL (Hitrcal and Projections) a) Interational Outgoing (Minutes) 21.5% 5.0% 8.0% 8.0% 8.0% 8.0% 8.0% .0% 8.0% 8.0% 8.0% b) Internatnal lncming (Minutes) 5.56 5.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% .0% 8.0% 8.0% c) National -Trunk (Minutes) 7.1% 7.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% -STD (Units) 3.7% 4.0% 15.0% 20.0% 15.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% TELEPHONE TARIFF INCREASES AND UNIT PRICES: Installation 6,600 6,600 20,000 23,951 26,346 28,980 31,878 33,951 36,157 38,508 41,011 Rental 545 545 1,500 1,796 1.976 2,174 2,391 2,546 2,712 2,888 3,076 International Charge 0 1,289 1,439 1,000 1,231 1,231 1,231 1,231 1,169 1,111 1,055 1,002 In 185 206 299 367 367 367 367 349 332 315 299 National -Trunk 5.8 5.8 12 13.4 14.8 16.3 17.9 19.7 21.6 23.8 26.2 -Direct Dial 3.0 3.0 5 5.0 5.5 6.1 6.7 7.4 8.1 8.9 9.8 Other 11 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 it TELEX CAPACITYICONNECTIONS: Incremental Capacity 0 2,000 0 0 0 0 0 0 0 0 0 Incremental Subscribers Connecte 85 270 300 350 350 300 250 200 0 0 0 Total Installed Exchange Capacity 2,340 4,340 4,340 4,340 4,340 4,340 4,340 4,340 4,340 4,340 4,340 V4 Subscribers Connected 1,800 2,070 2,370 2,720 3,070 3,370 3,620 3,820 3,820 3,820 3,820 3 Exchange Fill 76.9% 47.7% 54.6% 62.7% 70.7% 77.6% 83.4% 88.0% 88.0% 88.0% 88.0% Average Unes 1,758 1,935 2,220 2,545 2,895 3,220 3,495 3,720 3,820 3,820 3,820 Incremental Subscriber 85 270 300 350 350 300 250 200 0 0 0 Growth Rate 5.0% 15.0% 14.5% 14.8% 12.9% 9.8% 7.4% 5.5% 0.0% 0.0% 0.0% TELEX TRAFFIC VOLUME (Hlstorical and Projections) a) International Outgoing (Minutes) 4.12 5.4 7.2 9.2 11.5 14.1 16.9 19.7 22.3 24.5 27.0 b) International Incoming (Minutes) 2.00 2.4 4.7 6.2 8.1 10.4 13.0 15.9 18.8 21.6 24.9 c) National (Units) 3.80 4.2 9.6 13.2 18.0 24.1 28.7 33.6 38.0 41.8 46.0 TELEX TRAFFIC VOLUMEI AV. SUBSCRIBER (Historical and Projections) a) International Outgoing (Minutes) 2,344 2,813.1 3,235.0 3,623.3 3,985.6 4,384.1 4,822.6 5,304.8 5,835.3 6,418.8 7,060.7 b) Intemational Incoming (Minutes) 1,138 1,251.8 2,128.0 2,447.2 2,814.3 3,236.5 3,721.9 4,280.2 4,922.2 5,660.6 6,509.7 c) National (Units) 2,162 2,162 4,324 5,189 6,227 7,472 8,220 9,042 9,946 10,940 12,034 GROWTH TELEX TRAFFIC (Historical and Projections) a) lntemational Outgoing (Minutes) -8.4% 32.1 % 31.9% 28.4% 25.1% 22.3% 19.4% 17.1% 13.0% 10.0% 10.0% b) International Incoming (Minutes) 22.0% 21.1% 95.0% 31.8% 30.8% 27.9% 24.8% 22.4% 18.1% 16.0% 15.0% c) National (Units) -1.6% 10.1% 129.5% 37.6% 36.5% 33.56 19.4% 17.1% 13.0% 10.0% 10.0% GROWTH TELEX TRAFFIC VOLUMEI AV. SUBSCRIBER (Historical and Projections) a)InternationalOutgoing(Minutes) -19.1% 20.0% 15.0% 12.0% 10.0% 10.0% 10.0% 10.0% 10.0% O 10.0% 10.0% b) Intemational Incoming (Minutes) 7.7% 10.0% 70.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% c) National (Units) -13.1Ya 0.0% 100.0% 20.0% 20.0% 20.0% 10.0% 10.0% 10.0% 10.0% 10.0% TELEX TARIFF INCREASES AND UNIT PRICES: a) Installation 30,000 30,000 8,500 10,179 11,197 12,317 13,548 14,429 15,367 16,366 17,429 b) Rental 10,260 10,260 2,700 3,233 3,557 3,912 4,304 4,583 4,881 5,199 5,536 c) lntemational Charge 0 480 536 775 954 1,050 1,154 1,270 1,333 1.400 1,470 1,544 In 151 168 244 300 330 363 399 419 440 462 485 d) National 52 104 141 169 188 205 225 240 256 272 290 e) Other TELEGRAPH SERVICE 1 Annual Growth Rate (%) 0.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 9 5.0% 5.0% 5.0% L OTHER REVENUE 1 Postal Revenue Growth Rate (%) 8.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 20ther-Revenue Growth Rate (%) 10.1% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% , BILLING EFFICIENCY (%). 1 Telephone u 2Telex a BAD DEBT PROVISION 1 Bad Debt Provision 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%6 7.0% 7.0% 7.0% x 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 n STAFFING Telecom Staff 4,046 4,046 3,700 3,500 3,250 3,250 3,250 3,250 3,250 3,250 3,250 Postal Staff 2,227 2,487 2,777 3,101 3,463 3,868 4,319 4,823 5,386 6,015 6,717 OtherStaff 2,113 2,113 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 Staffing Ratio 75 72 63 56 46 38 32 28 27 27 26 Real Increase in Unit Staff Cost 0.30 0.00 0.50 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 Telecoms O&M Cost (US$ per Av. 238.2 214.4 193.0. 173.7 156.3 150.0 150.0 150.0 150.0 150.0 150.0 Telecoms Other Cost (% Cash Op 24.8% 11.0% 12.0% 13.0% 14.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Taxation 45% 456 45% 45% 45% 45% 45% 45% 45% 45% 45% CAPITAL EXPENDITURE: TOTAL = Local Component 0 0 0 1,022 3,768 3,768 550 0 0 0 0 Foreign Component 0 0 0 3,437 23,110 22,765 7,455 0 0 0 0 Future Program Depreciation (% of GFA) 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% LOANS AND DEBT SERVICE: Foreign Loan 0 0 0 4,583 44,063 60,600 25,136 0 0 0 0 Interest 1,456 1,448 2,013 2,303 2,772 4,327 6,148 7,062 7,313 7,352 7,327 Prindpal 957 1,883 2,229 2,452 2,697 2,967 3,263 7,661 8,113 8,924 0 Outstanding Debt 15,428 16,414 22,074 25,116 35,540 60,484 75,709 80,276 80,928 80,908 80,075 FX Loss (Gain) 1,924 1,152 4,593 3,177 1,557 2,579 3,774 6,573 7,029 7,104 7,124 WORKING CAPITAL: AccountsReceivables(DaysOp. R 180 180 180 150 120 90 90 60 60 60 60 Recievables from For Admin as % 17.8% 17.8% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Other Receivables (% of Op Rev) 7.5% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%, 10.0% 10.0% Inventory per DEL (US$) 90.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 Accounts Payables (% Cash exp.) 90.0% 80% 70% 50% 30% 20% 20% 20% 20% 20% 20% Payables to For. Admin. as % Sale 43.3% 43.3% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Working Capital Requirements (TSh) Accounts Receivables 3,027 3,407 5,371 5,769 5,103 3,930 5,322 2,985 3,520 4,038 4,651 Other Receivables q4 .t 0 Breakdown ot Revenues 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 N Telephone Revenue l - National 2,821 3,066 6,733 10.024 14,604 20,861 29,866 40,292 49,606 59,316 71,019 K - International Collection 4,370 5,363 4,555 7,072 9,051 11,722 15,329 18,035 19,275 19,777 20.291 Inpayment 903 1,108 1,959 3,042 3,893 5,041 6,593 7,757 8.290 8,506 8,727 Total 5,273 6,472 6,514 10,114 12,944 16,763 21,922 25,792 27,566 28,282 29,018 - Total Telephone 8,094 9,538 13,248 20,139 27,548 37,624 51,788 66,084 77,172 87,598 100,036 Telex revenue - National 417 683 1,432 2,339 3,485 5,085 6,658 8,281 9,936 11,616 13,583 - International Collection 1,966 2,918 5,568 8,798 12,110 16,298 21,405 26,314 31,210 36,047 41,635 Inpayment 302 408 1,150 1,867 2,686 3,779 5,189 6,669 8,270 9,986 12,058 Total 2,268 3,325 6,718 10,665 14,796 20,077 26,594 32,983 39,479 46,033 53,692 - Total Telex 2,685 4,008 8,150 13,003 18,281 25,162 33,252 41,264 49.415 57,649 67,275 Telegram Revenue 78 82 86 90 95 100 105 110 115 121 127 TOTAL TELECOMS REVENUE 10,857 13,628 21,484 33,232 45,924 62,886 85,145 107,458 126,702 145,368 167,436 Income Stateent ET Tes Miion) EST < Forecast - - - TELECOMS REVENUE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Telephone 8,094 9,538 13,248 20,139 27,548 37,624 51,788 66,084 77,172 87,598 100,036 . Telex 2,685 4,008 8,150 13.003 18,281 25.162 33,252 41,264 49,415 57,649 67.275 X IG Telegrah 78 82 86 90 95 100 105 110 115 121 127 Gross Telecoms Operating Reven 10,857 13,628 21,484 33,232 45,924 62,886 85,145 107,458 126,702 145.368 167,438 Othr Revenue 250 zM 289 S 319 335 352 n 388 407 Teocom Operating Revenue 11,107 13,891 21,759 33,522 46,227 63,205 85,480 107,810 127,072 145,756 167,845 Tefecoms Operating Expenses Sales 1,434 1,723 2,922 3,653 4,476 5,665 7,190 9,154 11,689 14,972 19,235 Operation and Maintenance 3,974 4,531 6,656 7,558 8,115 9,910 12,658 14,800 16,112 16,918 17,764 Otes 1,452 1,686 3,109 4,875 6,506 8,619. 11,301 13,651 15,559 17,228 19,137 Depreciation 373 957 1j 1.801 2.456 3.579 5.008 60 7.940 9.217 10.364 Total Operating Expenses 7,234 8,897 14,043 17,886 21,554 27,773 36,156 44,114 51,300 58,335 66,500 Addn to Prov for B.debts lOm 12Th) (l 377 l7na) 767 ZM LafI L 1L24) Net Operating Income 3,873 4,517 7,441 14,941 24,296 34,709 48,557 63,209 74,780 86,716 100,097 Net Postal Operating Income (Loss (254) (416) (486) (861) (1,067) (1,297) (1,575) (1,913) (2,323) (2,819) (3,421) Less: Interest on Loans 1,456 1,448 2,013 2,303 2,340 3,891 6,292 7,262 7,547 7,592 7,571 Net Non-Operating Gain (Loss) 33 Foreign Exchange Gain (Loss) (1,924) (1,152) (4,593) (3,177) (1,557) (1.56 (3,877) (6,808) (7,288) (7,370) (7,396) NET INCOME (LOSS) 272 1,502 348 8,600 19,332 27,959 36,813 47,205 57.622 68,934 81,708 Staff Incentive Bonus 192 1,906 3,619 5,314 7,217 9,150 10,986 12,862 14,947 Tax 500 676 157 3.870 L87 12.581 16.5 21.242 25.93 31AZ 36.Zl Net Profit (LoSS) (228) 826 0 2,825 7,014 10,063 13,030 16,813 20,726 25,052 29,993 Not Prol (LOSS) - US$ (1) 4 0 7 16 21 *24 s0 35 41 46 _11 Operating costs split based on DETECON's report. Funds Flow (TSh Mi) - Forecast - - -- Sources 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Intemal Cash Generation Est. -Net Income Before Interest 1,228 2,274 2,013 5,127 9,353 13,954 19,322 24,096 28,273 32,644 37,564 x,3, -Depreciation 439 957 1,356 1,801 2,456 3,579 5,008 6,510 7,940 9,217 10,364 -Others 0 0 0 0 0 0 0 0 0 0 0 -Prior year's adjustment 8,845 Intemal Cash Generation 10,511 3,231 3,370 6,926 11,809 17.533 24,33 30,605 36,213 41,862 47,928 Loans 2,281 2,869 7,889 5,494 2,952 39,018 19,905 12,654 9,043 9,191 (791) Equity 93 0 0 4,583 35,017 0 0 0 0 0 0 TOTAL SOURCES 12,885 6,099 11,259 17,005 49,778 56,551 44,234 43,259 45,256 51,053 47,137 APPUCATIONS Capital Expenditure 1,716 1,152 4,593 7,63 27,247 28,096 11,882 6,808 7,288 7,370 7,396 Investrnws 123 0 0 0 0 0 0 0 0 0 0 Others 33 0 0 0 0 0 0 0 0 0 0 Debt Service Long Term Debt -Interest 1,456 1,448 2,013 2,303 2,340 3,891 6,292 7,282 7,547 7,592 7,571 -Principal 957 1.883 2,229 2,452 2,697 2,967 3,263 7,851 8,322 9,154 0 Total Debt Seice 2,413 3,331 4,242 4,754 5,037 6,858 9,555 15,133 15,869 16,746 7,571 Dividends Paid K 0 413 0 1,412 3,507 S,031 6,515 8,407 10,363 12,526 14,997 Change In Working Capital 8,657 (909) 3,179 (2,428) (6,926) (387) (964) (8,129) (4,049) 5,221 (4,468) APPLICATIONS 12,909 3,987 12,014 11,375 28,864 39,597 26,986 22,219 29,471 41,864 25,496 Changs In Cash (24) 2,113 (755) 5,630 20,914 16,954 17,246 21,040 16,785 9,189 21,641 Opening Cash Balnce 69 545 2,658 1,902 7,533 28,447 45,401 62,647 83,687 99,472 108,660 Closing Cash Balance 545 2,658 1,902 7,533 28,447 45,401 62,647 83,687 99,472 108.660 130,302 2 (S59) 809 (4,051) 4,602 13,699 11,062 15,739 23,601 24,3 19,894 44,825 (565) (1,717) (3,296) 2,142 24,295 (10,923) (8,022) (5,846) (1,755) (1,821) 8,187 Margin s lntenalCashGenas %oflmnves -7.20%^ ^ -11.23% 14.62% 16.07% 20.37% 76.65% 308.14% 99.98% 86.11% Fs Flow M(TSh M * ~~~~ForeC˘a 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Internal Cash Generation -Net Income Before Interest 1,228 2,274 2,013 5,127 9,353 13,954 19,322 24,096 28,273 32,644 37,564 x <| -Depreciation 439 957 1,356 1,801 2,456 3,579 5,08 6,510 7,940 9,217 10,364 -Foreg Exxchange Loss 0 0 0 0 0 0 0 0 0 0 0 Intemal Cash Generation 10.511 3,231 3,370 6,928 11,809 17,533 24,330 30,605 36,213 41,862 47,928 Loans 2,281 2,869 7,889 5,494 2,952 39,018 19,905 12,654 9,043 9,191 (791) Equiy 93 0 0 4,583 35,017 0 0 0 0 0 0 TOTAL SOURCES 12,885 6,099 11,259 17,005 49,778 56,551 44.234 43,259 45,256 51,053 47,137 APPUCATIONS Capial. Expeure 1,716 1,152 4.593 7,636 27,247 28,095 11,882 6,808 728 7,370 7,396 InvesmenXt 123 0 0 0 0 0 0 0 0 0 0 Debt Sevic Long Term Debt -Interest 1,456 1,448 2,013 2,303 2,340 3,891 6,292 7.282 7,547 7,592 7,571 -Principal 957 1,883 2,229 2,452 2,697 2,967 3,263 7,851 8,322 9,154 0 Total Debt Servime 2,413 3,331 4,242 4,754 5,037 6,85B 9,555 15,133 15,869 16,746 7,571 DMidends 0 413 0 1,412 3,507 5,031 6,515 8,407 10,363 12,526 14,997 ChaneInWorkingCapital 8,633 1,204 2,424 3,202 13,988 16,567 16,282 12,911 11.736 14,410 17,173 APPUCATIONS 12,885 6,099 11,259 17,005 49,778 56,551 44,234 43,259 45,256 51,053 47,137 Balnc Sheet (TSh MM) - - ~~~Foroast - - -- -- ASSETS 1990 191 1992 1993 1994 1996 1996 1997 196 1999 2000 Gross Fbied Asets 7.871 11,26 15,660 20,162 26.968 42,6 57.544 72,647 66.156 98,192 109,087 Acm,4td Deprecaton 4,067 5,024 6,380 6,181 10,37 14.26 19,223 25.733 33,673 42,891. 53.254 ToWtFbted Asset 3.804 6,244 9,40 11,972 18,331 26,392 38.321 46,914 52,483 55,301 55,633 WorkinProgroess 2,245 0 0 3,344 21,775 36,231 33,177 24,883 16,662 13,997 10.497 _nvestments9 93 9us 93u 938 9s 938 9 9 m 938 m Curnt Asses -Cash and Ebnk Deposit 543 2,656 1,902 7.533 28,447 45,401 62,647 83,667 99,472 108,660 130,302 -Accounts ReceIvabies 6,054 6,814 10,742 13,847 15,38 15,721 21.266 17,910 21.117 24,228 27,906 Less Prov. for Doubtfut Accts (477) (752) (96) (1.072) (1,101) (1.490) (1.254) (1.478) (1.696) (1,953) -Foreign Administration 1,974 2,469 4.352 6,704 9,245 12,641 17,096 21,562 25,414 29,151 33,569 -Other ReceIvabls 101 1,363 2.148 3,323 4.592 629 8,515 10,746 12,670 14,537 16,744 -Invenory 1,094 1.343 2,036 2,659 3,274 4,240 5.473 6,440 7,044 7,396 7,766 ToWt Current Asset 9,766 14,169 20,428 33,097 59,795 83,191 113.527 139.090 164,239 182,276 214.333 TOTAL ASSETS 16,754 21.352 30,847 49,351 100.840 148,753 185,963 211.825 236,322 252,513 281,601 LUALMES Capital Reserve 514 514 514 5,097 40,114 40,114 40.114 40,114 40,114 40,114 40.114 Reserves 2,857 2.857 2,857 2,857 2,857 2.857 2,857 2,857 2,857 2,857 2,857 Accum. Protit (Loss) * (14,118) (13,705) (13,705) (12.293) (8,786) (3,754) 2,761 11,167 21,530 34,056 49,053 Total Equity (10,747) (10,334) (10,334) (4,339) 34,185 39,217 45,732 54,136 64,501 77,027 92,024 Loans 15,428 16,414 22,074 25,116 25.371 61.423 78,064 82,867 83,588 83,625 82,834 Current Uabilti -Payable Foreign Administrations 4,808 6,013 7,616 11,733 16,180 22.122 29,918 37,733 44,475 51,015 568,746 -Account Paysbles 2,319 6,352 8,881 10,272 13,436 10,145 7,831 7,521 8,672 9,824 11,227 -Taxes Payable 723 676 157 3,870 8,700 12,581 16,566 21,242 25,930 31,020 36,769 -Current Portion of LTD 4,222 2,229 2,452 2,697 2,967 3,263 7,851 8,322 9,154 0 0 Toal Curent Labiites 12,072 15,270 19.105 28,572 41,282 48,112 62,165 74,818 85,231 91,858 106,742 To Equity and Labi!lities 16,753 21,350- 30,845 49,349 100,838 148,751 185,961 211,823 236,321 252,511 281,600 AuditAdjustmentin1989of8,845 0 2 2 2 2 2 2 2 2 2 2 ROR before I on total assets 10.31% 13.82% 7.66% 22.09% 21.49% 21.41% 23.18% 25.72% 27.86% 30.31% 31.70% Working Capital (2,306) (1,100) 1,323 4,525 18,513 35,079 51,361 64,272 76,008 90.418 107,591 Change In Working Capital 8,631 1,206 2,424 3,202 13,988 16,567 16,282 12,911 11,736 14,410 17,173. ASSETS 1990 1991 1992 193 1994 199S 1996 1997 1998 19 200 Gross Fixed Assets (Per Del: 40.040 50.724 82,781 104.448 124.608 158,558 202,625 236,801 257,798 270,688 284,222 Accumulated Depreciation 21,052 26,670 43,524 54,916 65,516 83,366 106,482 124,504 135,543 142,321 149,437 TotalFbxed Assets 18,988 24,055 39,257 49,532 59,092 75,192 96,042 112,297 122,254 128,367 134,785 x U Work in Progress Investments 938 938 "m 938 936 938 938 936 98 m m Current Assets: -Cash and Bank Deposits 543 2,658 1,902 7,533 28,447 45,401 62,647 63,687 99,472 108,660 130,302 -Accounts Receivables 6,054 6,814 10,742 13,847 15,308 15,721 21,286 17,910 21,117 24,228 27,906 Less Prov. for Doubtful Accts. (477) (752) (9) (1.072) (1,101) (1,490) (1,254) (1,478) (1,698) (1,89) -Foreign Administration 1,974 2,469 4,352 6,704 9,245 12,641 17,096 21,562 25,414 29,151 33,569 -Oher Receivables 101 1.363 2,148 3,323 4,592 6,28 8,515 10.746 12,670 14,537 16,744 -Inventory 1,094 1.343 2,036 2,659 3,274 4,240 5,473 6,440 7,044 7,396 7,766 Total Cwrrent Assets 9,766 14,169 20,428 33,097 59,795 83,191 113,527 139,090 164,239 182,276 214,333 TOTAL ASSETS 16,754 21,352 30,847 49,351 100,840 148,753 185,963 211,625 236.322 252,513 281,601 UABIUTIES Capita Resrve 514 514 514 5,097 40,114 40,114 40,114 40,114 40,114 40,114 40,114 Reserves 2,857 2,857 2,857 2,857 2,857 2,657 2,857 2,857 2,857 2,857 2,857 Accum. Proft (Loss) (14,118) (13,705) (13,705) (12,293) (6,786) (3,754) 2,761 11,167 21,530 34,056 49,053 Less Prior Year Adjustment Tota Equity (10,747) (10,334) (10,334) (4,339) 34,185 39,217 45,732 54,138 64,501 77,027 92,024 Loans 15,428 16,414 22,074 25,116 25,371 61,423 78,064 82,867 83,588 83,625 82,834 Current Uabilitis -Payable Foreign Administrations 4,808 6,013 7,616 11,733 16,180 22,122 29,918 37,733 44,475 51,015 58,746 -Account Payables 2,319 6,352 8,881 10,272 13,436 10,145 7,831 7,521 8,672 9,824 11,227 -Taxes Payable 723 676 157 3,870 8,700 12,581 16,566 21,242 25,930 31,020 36,76 -Current Portion of LTD 4,222 2,229 2,452 2,697 2,967 3,263 7,851 8,322 9,154 0 0 Total Current Uabiltes 12,072 15,270 19,105 28,572 41,2 48,112 62,165 74,818 66,231 91,858 106,742 Total Equity and Uabilities 16,753 21,350 30,845 49,349 100,838 148,751 185,961 211,823 236,321 252,511 281,600 0 2 2 2 2 2 2 2 2 2 2 D/E ratio 330% 270% 188% 121% 43% 61% 63% 60% 56% 52% 47% Receivables (%) 55% 49% 49% 41% 33% 25% 25% 17% 17% 17% 17% NET INCOME: WITH 1990 1991 1992 1993 1994 1995 199 1997 1996 1999 2000 REVALUED DEPRECIATION -- - _ - -- - - NET TELECOAS INCOME 3,873 4,517 7.441 14,941 24.296 34,709 48,557 63.209 74,780 86,716 100,097 ' LessStan Bonus 0 0 (i1 (1,966) (3,619) (5,314) (7,217) (9,150) (10,966) (12,862) (14,947) w - _- _e __ - - --. - - - - K @ 3,873 4,517 7.249 13,035 20,677 29.394 41,340 64,059 63,614 73,854 85,151 co Pkus Depr. from US 373 957 1,356 1,801 2,456 3,579 5,008 6,510 7,940 9,217 10,364 -- -… 4.246 5,474 8.606 14,836 23,133 32,973 46,348 60,569 71,754 83,072 95,514 Lefst Ro De fromw BS (2,402) (3,043) (4,967) (6,26) (7,476) (9,514) (12,151) (14,208) (15,468) (16,241) (17,053) Nt Ilncome Before Taxes 1,644 2,430 3,63S9 SSS 15,657 23,460 34,196 46,361 56,286 66,831 78,461 Taxes 174 442 731 2,820 5,993 8,808 12,557 17,585 21.933 26,657 31,901 Net Income 1,669 1,988 2,907 5,749 9,664 14,654. 21,639 28,775 34,358 40,173 46,61 ROR (Sef. ntres on Tout Assmes) 10.10% 9.24% 9.18% 12.95% 17.79% 21.83% 25.27% 27.62% 29.29% 32.06% 35.39% Table 4.1: S Table 4.2 Selected Finanil Perman Indicato (TSh Muon) 1990 1991 1992 1993 1994 1995 1 1997 198 1999 2000 Net Revenue 11,107 13,891 21,759 33522 46J7 63,205 85,460 107,810 127,072 145,766 167,845 c aTota Operating Cost 7,234 $7 14,043 17,686 21,4 97,773 36,156 44,114 51,300 6,3835 6650 Net Operatng Income (Loss) 3,73 4,994 7,716 15,635 24,674 35,432 49,324 63,6 75,m 87,421 101.34 Interest 1,456 1.448 2,013 2.303 2,340 3,691 6,292- 7,28 7,547 7,9 7,571 Oth encome(LOsS) 33 0 0 0 0 0 0 0 0 0 0 Foreign Excg Loas (1,924) (1.15) (4.53) (3.177) (157 (1,562) (3.877 (6.60 (7.288) (7,0) (7,36 Tax 500 67 157 3,870 8.700 12.581 16.566 21,242 25,93 31,020 36,769 Net Income (Loss) (228) 626 0 2,825 7,014 10,063 13,030 16,613 20,726 25,052 29,993 CURRENT PRICES Telcxms RevenuelDEL 151,157 182,429 274,374 399,907 493.602 574,301 662,608 746,236 844.683 969,120 1116254 Telephone Revenue/DEL 112,686 1?7,676 169,191 242,342 296,210 343,602 403.022 458,918 514,460 586,989 66,6906 Cash Operating Cost/DEL 94,606 119,O0b' 179,354 215,240 231,762 253,635 281,372 306,348 342,002 368,902 443,330 CONSTANT PRICES Tekbowns Revenue/DEL 125,337 129.643 171,303 222,927 250,244 264,581 277,513 284,125 292,371 304,948 319,314 Telephone RevenuDEL 93,437 90,873 105,633 135,093 150,111 158,288 168,793 174,730 178,078 183,761 190,775 CashOperatingCost/DEL 78,446 84,765 111,978 119,985 117,450 11 6,850 117,844 116,640 118,377 122,374 125,818 Net Internal Cash Genation 665% -7% -30% 36% 39% 39% 74% 16% * ^ Rate o Retun (NFA) 102% 72% 78% 125% 133% 122% 127% 135% 142% 157% 179% AccountsRecelvables(DaysBll) 201 160 10 150 120 90 90 60 60 60 so Current Ratio 0.8 0.9 1.1 1.2 1.4 1.7 1.8 1.9 1.9 2.0 2.0 Debtf(Debt+Equity) Ratio 330% 270% 188% 121% 43% 61% 63% 60% 566 52% 47% Debt Servioe Coverage 4.4 1.0 0.8 1.5 2.3 2.6 2.5 2.0 2.3 2.5 6.3 No inestme projected In ths years CALCULATION OF FINANCIAL AND ECONOMIC RATE OF RETURN internal Rate of Retum 1990 1991 192 1993 1994 1996 1996 1997 198 1999 2000 K ~peflator 0.86 1.00 1.14 1.28 1.40 1.54 1.70 1.87 2.06 2.26 2.49 " 'Cap. Expe_ tUre - In current terms 4,596 7,636 27,247 28,095 11,882 6.808 7,286 7,370 7.396 - deflted capital costs 4,029 5,981 19,400 18,185 6,992 3,642 3,544 3,258 2.973 Incremental Operating Costs - In cturent terms 1,642 4,068 7,625 12,65p 20,333 25,447 28,408 32,304 38,6825 - In constant terms 1,353 3,186 5,429 8,192 11,965 13,613 13,815 14,282 14.800 IncremenW Operating Revenues - in current terms 2,360 7,558 16,246 28,658 47,883 61,966 70,164 80,500 92,722 - In consUant terms 2,070 5,920 11,567 18,549 28,176 33,159 34,121 35,589 37,266 NET BENEFITS (3,312) (3,247) (13,262) (7,828) 9,220 15,904 16,762 18,049 19,493 Internal Rate of Return 28.19% Economic Rate of Return 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Deflator 0.86 1.00 1.14 1.28 1.40 1.54 1.70 1.87 2.06 2.26 2.49 Cap. Ex. (ess dties & Taxes - 10i%) - in current terms 4,133 6,873 24522 25,286 10,694 6,127 6,560 6,633 6,65 - deflated capital costs 3,626 5,383 17,460 16,367 6,293 3,278 3.190 2,913 2,675 x Incremental Operating Costs - in current tems (essinc. Tax) 2,061 355 2,796 8,775 16,349 20,770 23,721 27,214 31,077 - in constantetrms 1,806 278 1,990 5,60 9,620 11,111 11,536 12,031 12,490 Incremental Operaing Revenues - in current terms 2,360 7,558 16,246 28,658 47,883 61,96 70,164 80,500 92,722 - in constant terms 2,070 5,920 11,567 18,549 28,176 33,159 34,121 35,589 37,6 NET BENEFITS (3,364) 259 (7,883) (3,497) 12,263 18,770 19,396 20,625 22,100 Economic Rate of Reurm 54.13% SensMt Analysis 1990 191 1992 193 1994 1995 199 1"7 198 1999 2000 1. With fIO% IreasinCap. Exp. Cap. Ex +10% In constant terms 4,432 6,579 21,340 20,004 7,691 4,000 3,899 3,584 3,270 Net beneffts (3.715) (3,84S) (15,202) (9,647) 8,520 15,540 16,407 17,723 19,196 | IRR 22.64% | Cap. Ex +10% iconscant tems 3,98 5.921 19,206 18,003 6,922 30 309 3.226 2,943 Net bnefits (3.727) (279) (9,62 (5.134) 11,634 18,442 19,077 20,332 21.833 Eco. Rate of Reurn 45.01% 1 With 20% increase In Cap. Exp. Cap. Ex +20% in constua terms 4,834 7,177 23,280 21822 8.390 4,370 4,253 3,910 3,567 Net benefits (4,118) (4,444) (17,142) (11,465) 7,821 15,176 16,053 17,397 18,898 IRR 17.93% Cap. Ex .20% In constant terms 4,351 6,459 20,952 19,640 7,551 3,933 3,828 3,519 3,210 Net benefits (4,089) (818) (11,375) (6,770) 11,005 18,115 18,758 20,039 21.565 Eco. Rate of Retun 37.70% 2. With 10% Increase in Oper. Exp. Oper. Ex i10%Inconstantterms 1,944 596 2,533 6,499 10,817 12,472 12,917 13,459 13,970 Net benefits (3,500) (60) (8,426) (4.316) 11,067 17,409 18,014 19,197 20,620 Eco. Rate of Return 47.53% 3. With 10% Increase In Oper. Revenues Revenues +10% In constant terms 2,277 6,512 12,724 20,404 30,994 36,475 37,533 39,148 40,992 Net benefIs (3,157) 851 (6,727) (1,642) 15,081 22.06 22,808 24,164 25,827 Eco. Rate of Retun 69.61% 4. With a 20% non-collections rate Incremental Revenues -20% In current terms 1,888 6,047 12,997 22,926 38,307 49,589 56,131 64,400 74,177 , Incremental Revenues in constant terms 1,656 4,736 9,254 14,840 22,541 26,527 27,297 28,471 29,813 o Net benefits (3,726) (4,431) (15,575) (11,538) 3,584 9,273 9,937 10,931 12,040 IRR 6.11% Net benefits (3,778) (925) (10,197) (7.207) 6,628 12,138 12,571 13,507 14,647 x ERR 26.08% 5. With a 25% non-collections rate Incremental Revenues -20% in current terms 1,770 5,669 12,185 21,493 35,913 46,490 52,623 60,375 69,541 Incremental Revenues in constant terms 1,552 4,440 8,675 13,912 21.132 24,869 25,591 26,692 27,949 Net benerds (3,829) (4,727) (16.154) (12,465) 2,175 7,615 8,231 9,152 10,176 IRR 0.10% Netbeneffts (3,882) (1,221) (10,775) (8,134) 5,219 10,480 10,865 11,728 12,784 ERR 19.20% 6 Traffic growth down 10% Incremental Revenues In current terms 2,341 7,455 15,939 27,983 46,503 59,850 67,394 76,943 88,184 Incremental Revenues inconstant terns 2,054 5,839 11,348 18,113 27,364 32,016 32,774 34,016 35,442 Net benefits (3,326) (3,321) (14,312) (8,915) 8,478 14,920 15,588 16,654 17,849 IRR 23.79% Net benefits (3,422) 95 (9,115) (5,001) 11,713 17,537 17,956 18,949 20,146 ERR 46.59% 7 Traffic growth down 20% Incremental Revenues in current terms 2,323 7,354 15,640 27,333 45,183 57,828 64,796 73,638 84,008 N Incremental Revenues in constant terms 2,038 5,760 11,136 17,692 26,587 30,935 31,511 32,555 33,764 0 Net benefits (3.341) (3,392) (14,507) (9,301) 7,762 13,915 14,406 15,278 16,258 IRR 20.77% * Not beneits (3,478) (65) (9,428) (5,543) 10,774 16,266 16,532 17,325 18,285 x a ERR 41.80% 8 Trafi growth down 20% Non-Colections Down 20% Net beneftis (3,728) (4,544) (16,734) (12,840) 3,744 7,728 8,104 8,767 9,605 IRR 0.00% Net benefits (3,888) (1,217) (11,655) (9,081) 5,456 10,079 10,230 10,814 11,632 ERR 15.91% C iMJo A To' 2 > | _ >Kii i 3O GA IBRD 237 ) V > E <\ ~~~~~kUANi QA 5 M t t n oa \Bukoba K IAENYA RWANDA RIURUNIJ ZAIRE M S IE[ 8 on this mop do no t implK on the z t r anga Y i TANZANIA 40 THIRD TELECOMMUNICATION PROJECT Ira PRIMARY EXC A RNGE A ~ SECONOAIVRYJERIRY EXCI{ANGE MAIN MICROWAVE ROUTES/CA.PACIny NEW EXCHANGE CAPACRY Mpa a (I 10 D~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AR ES SAAIM TOTrAL MAIN ROADS p- kuv ~~~~~~~~~~~~~~~~~~~SECONDARY ROADS RAILWAYS mb it~~~~~~~~~~~~~~~~~~~~~~~~~~ EGION COMMTAl NATIOl4Q CAPTtAL REGION BOUNDARIE -INTERNATIONA BOIRNDARIES Th;. -p h., b- pmp-d ~~~~~~~~~~~~~~~~~INDIAN sod food, oo. 32 360 -2-OCEAN olt$ldl.lly~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -d h f., th. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~' We-l ~~~~~~~~~~~~ d 'rh. W-ld B-k ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ JNLR 19