Report No. 917a-TH

Appraisal of theSecond Telecommunications Project: ThailandApril 9, 1976

East Asia and Pacific Projects Department IFILE CO:lPYEast Asia and Pacific Regional Office

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS -/

Currency Unit Baht (B)B 1 US$o.o487

US$1 = B 20.5B 1,000,000 = US$h8,780US$1,000,000 = B 20,500,000

MEASURES EQUIVALENT

1 kilometer = 0.6214 miles1 mile = 1,6094 kilometers

LIST OF ABBREVIATIONS AND ACROTYMS USED IN THE REPORT

BTM : Bell Telephone I'%anufacturing Co. of BelgiumCIF : Cost Insurance and FreightEGAT : Electricity Generating Authority of ThailandESCAP : Economic and Social Council of Asia and PacificGDP : Gross Domestic ProductIBM) : International Bank for Reconstruction and DevelopmentIDA : International Development AssociationITU : International Telecommunications UnionQ45 : KilometersLME : L.M. Ericsson of SwedenXAC : National Audit Council

ESDB : National Economic and Social Development BoardPTD : Post and Telegraph DepartmentSTD : Subscriber Trunk DiallingSWEDTEL: Swedish Telecommunication Consulting ABTOT : Telephone Organization of ThailandTUHF : Ultra High Frequency Radio SystemUNDP : United Nations Development ProgramVHF : Very High Frequency Radio System

TELEPHONE ORGANIZATION OF THAILANDFISCAL YEAR

October 1 to September 30

P/ par value of Baht is B 20 = US$1. However, for export-import purposesthe selling rate varies around B 20.45 = US$1. For purposes of thisReport, the currency exchange rate is rounded off to B 20.5 = US$1.

FOR OFFICIAL USE ONLY

APPRAISAL OF

THE SECOND TELECOMMUNICATIONS PROJECT

THAILAND

Table of Contents

ChapterNo. Title Page No.

SUMMARY AND CONCLUSIONS (i - ii)

I INTRODUCTION 1

II THE SECTOR 2

Background 2Access to Service 2Sector Objectives 3Investment Program 5

Sector Constraints 5Future Plans 6

III THE PROGRAM AND THE PROJECT 7

Background 7The Program 7Ongoing Works and Future Works 8First Telecommunications Project 8Second Telecommunications Project 8Project Costs 9Contingencies 10ItanF for Bank Financing 10Procuremcent 11Project Execution 11Disbuirsements 12

IV PROJECT JUSTIFICATION 13

General 13Local Telcphone Service 13Long-Distance Telephone Service 14Least Cost Solution 111Return on nrivestment 15

V THE BORROWER 16

Legal Status and Authority 16Organization and Management 16Coordination with PTD 16

This report wap prepared by Messrs. D.F.D. Joshi and J.M. Vance basedon their findings during an appraisal mission to Thailand in April-May1975 and on updating information supplied by the TOT in February 1976.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Ch.apterN__o. Title Page No

V THE BORRO01ER (Continued)

Consultants 17Staff and Tra_ning 17Accounting and Audit 18Insurance lr

VI FINTANCES 19

Background 19Tariffs 19Past Operations 20Payments to Govarrment 20Bonuses 20Cc'lections 21Present Financial Position 21Financing Plan 22Future Finances 2,'Debt Li m tation Cov^nant 2Fi cal Imract 2LPerformance Indicators 2

VII RlECOrfEENDATIONS 2r

AnnexNo. Title

1 Int3rnationa' Telephone Statistics2. Existing Telecommun!cation Facilities3. 5Qualit-r of' Local ancd Long-Distance Services in Bangkok

MNetropolitan Area2s. Telecommunications Facilities tc be Added TJnder the

1972-70 Progran5. Program and Proiect Costs - Summary6. Annual Investment Prcgram - :_' 7-7?,7. Allocat on of Foreign Costs ef the Program Between

Different Loans and Credits8. Revi-sed Allocaticn of Loan 864-TH9. Contingency Provisions in Project Costs Estimates10. Local and Long-Distance Telephone Development Targets:

175-7911. Estimatod Schedule of Disbursemnents12. Growth of Local Telephone System (Table)13. Growth of Local Telephone System (Diagram)1)L. Return on Investment15. Organizational Chartlt. Classification of Man-Power17. Summar,. of T-ohephon- Tariffs1ll,. Actual and Forecast Income Statements* 1971-198119. Actuial and Forecast Balance She>.ets: 1971-198120. Forecast Sources and Applications cf Funds: 1976-198121. Notes and Assumptions cn Financial Statements22. Bond Issues23. Fiscal Impact of TOT's Operations on Government24a. Performance Indicators

MAP High Capacity Transmissicn .Systems (Map Nc. IBPD-11703)

APPRAISAL OF

THE SECOND TELECOMMUNICATIONS PROJECT

THAILAND

SU1MUFY AND CONCLUSIONS

i. This report covers the appraisal of the Second Teleconmuuni-cations Project in Thailand for which a Bank loan of US$26 million isproposed. The Borrower and the Beneficiary would be the TelephoneOrganization of Thailand (TOT), a state enterprise responsible fordomestic telephone services.

ii. Telephone services in Thailand are at present deficient bothin quality and in ability to meet the demand for service. The telephonedensity at end of 1975 was only 0.76 telephones per 100 population, withservice largsly concentrated in urban areas. The unsatisfied demand inthe country for new telephone lines exceeded the working lines by 19%.Due to overloading of the available facilitieF in the local network andthe need to rehabilitate the old plant, over 53% of local call attemptsby subscribers are unsuccessful. On long-distance calls, facilities aremainly available at the main centers and even where service is availablethere are delays due to shortage of circuits and manual boards.

iii. To overcome the deficiencies in the telephone services and tomeet thm demand in part, TOT has drawn up an d-year (FY72-79) develop-ment Progran with the following near-term. sector objectives: (a) to reha-bilitate the network and relieve traffic bottlenecks; (b) to expand thelocal network in both urban and rural areaF; and (c) to imprc2ve the existinglong-distance service, introduce subscriber trunk dialling (STD) andextend service to many new areas.

iv. The Program incorporates the following: (a) a carry-forwardof works initiated prior to FY72; (b) the first Bank-financed Telecoruruni-cations Project (FY72-76) under Loan 864-TH (US$37 million) now underexecution; (c) thie proposed Telecommunications Project (FY76-79) identifiedfor a second Bank Loan to TOT; and (d) future works. Thp total investmentunder the Program is estim.ated at B 7,826.60 million (US$381.79 million)with a foreign exchange content of B 3,272.75 million (US$1f9.64 million).The average annual capital expenditure which wa- only US$17 million priortc the Program and US$19 million in FY72-75 will rise to US$76 million inFY76-79. Even then, the average annual investment in telecommunicationsin FY76-79 will cnly be 0.22% of GDP, which is low compared to the O.5%proposed by ESCAP a.- a rainimaum for developing countries in Asia.

v. The Project will increase local systen capacity by 15% and allow50,0O0 new subscribers to be connected. In rural areas, 42 small townsand villages will be connected to the telephone services for the first time.The number of telephones per 100 population will increase by 7h% to 1.3&by end of FY79; even so the unsatisfied demand in the country at end of

- ii -

FY79 will be 5% higher than at end of FY75. The long-distance facilitieswill be expanded by 53 new systems; addition of 6,500 channel ends fcr long-distance circuits on existing and new sys tems and the introducticr of STDwill improve the speed and quality of long-distance corr.unicetion.

vi. The estimated cost of the Project is B 1,929.67 million (US$94.13million) with a foreign exchange content of B 979.00 mrillion (UkLY4.76million). The proposed Bank loan of US$26$ million will meet 54% of theforeign costs, the balance of the foreign costs Is to be coveredl by theJananese bilateral credits. The Project would be executed by the TOTand Is technically and financially sound. The works under this Projectcombined with those of the First Telecommunications Project form a viableand balanced package; they will also crealte a satisfactory physical,financial and managerial base for more adequate and sustained delvelopmentof telephone services in the 198 0's, including deeper penetration of tele-communication in all areas of the country. In order to facilitate this,the Bank is participating in an economic study to assess the developmentaFpect of telecommunications in Thailand.

vii. All procurement under the proposed loan would be subject tointernational competitive bidding in accordance with the Bank Grcup's"Guidelines for Procurement," except for the procurement of trunk auto-

matic exchange equipment costing about US$9 million which is to be addedto small local exchanges in rural areas. The trunk equipment in eachstation should, it is proposed, be procured from the supplier of thelocal exchange equipmert previously selected through international bidding.This is prudent in terTns of standardization of equipment, organization ofmaintenance and spare parts, and training and deployment of personnel, andis the least-cost solution.

viii. TOT'r management and organization are generally satisfactory. TOTis takir.g steps to moderni2e and improve its accounting system to providebetter ranagement information.

ix. TOT'F past operating results have been satisfactcry and its presentfinancial position is sound. However, in order to meet local currency fundrequirements during FY76-79 TOT intends to raise B 1,150 million in respectof Phases I and II of the Program and B 300 million in respect of futureworks. TheFe funds would be raised through borrowings consisting of bondsto be purchased by future subscribers as a condition of obtaining service,from bonds sold to the public and/or loans arranged through goverrnment.There is also a provision for a Government equity investment of B 300 mil-lion as set out in Loan Agreement 864-TH. On this basis, forecasts showthat TOT's financing plan is viable, that TOT would be financing a reasonableporticn (3%2 ) of capital expansion from internal sources and wou'llmaintain a satisfactory financial position while carrying out the expansionprogram. The i nternal financial rate of return is estimated at 19%.

x. -ilith thi afreeerrents infiieated in Chapter VII, the Pro-jectforms a ouitable basis for a Bank loan of US$26 million equivalent to theTOT for a term of 20 years including a four-year grace period.

APPRAISAL OF

THE SECOND TELECOMMUNICATIONS PROJECT

THAILAND

I: Introduction

1.01 On behalf of the Telephone Organization of Thailand (TOT),the Government of Thailand has requested the Bank for assistance infinancing the foreign exchange costs of the second phase of TOT'splans for development of domestic telephone services in Thailand.

1.02 TOT is executing an 8-year (FY72-79) Program which comprises:(a) the ongoing works spilling over into this period; (b) a developmentplan for FY72-79 for rehabilitation and expansion of domestic telephoneservices with particular emphasis on development in rural areas; and(c) future works. The development plan is divided into two overlappingphases. Phase I (FY72-76) constituted the First TelecommunicationsProject financed by the Bank through Loan 864-TH for US$37 million andis now under execution. A major part of this phase will however becarried out in the FY76-79 period due to past slippages. Phase II(FY76-79) constitutes the Second Telecommunications Project identifiedfor the proposed second Bank lending operation in the telecommunicationssector. The estimated cost of the Program is B 7,826.60 million (US$381.79laillion) with a foreign exchange content of B 3,272.75 million (US$l59.64million).

1.03 The Project now proposed for Bank financing complements theFirst Project for development of telephone services and will particularlyimprove telephone communications in rural areas. The proposed Projectprovides for: (a) replacement of the old worn-out equipment and cableswhich will reduce faults; (b) expansion cf the local networks to provideabout 50,00 new connections to meet partially the telephone demand andextend service to new areas in the hinterland; and (c) expansion of thelong-distance facilities and introduction of nationwide subscriber trunkdialling which will greatly improve the quality and speed of long-distanceservice and particularly ben-fit the rural areaF. The estimated costof the Project is B 1,929.67 million (US$94.13 million) with a foreignexchange content of B 979.00 million (US$47.76 million).

1.04 A Bank loan of US$26 million is propcsed which would meet 54%of the foreign costs of the Project. The Borrower and the Beneficiarywould be the TOT.

1.05 This report was prepared by Meesrs. D.F.D. Joshi and J.M. Vancebased on their findings during an appraisal missicn to Thailand in April-May 1975 and on updating information supplied by the TOT in February 1976.

II: The Sector

Background

2.01 The public telecommunications facilities in Thailand arestate-owned. The Telephone Organization of Thailand (TOT), a stateenterprise under the Ministry of Communications, is responsible formanagement, operation and development of domnestic local and long-distance telephone services (paras. 5.02 to 5.04). The Post andTelegraph Department (PTD), a government department under the sameMinistry, is responsible for telegraph, telesx and all internationaltelecommunications services.

2.02 In Thailand, three-fourths of the population of 4O milliondepend on agriculture for a living, and agriculture makes the largestcontributicn (30%) to GDP. Rice, the staple food of the people, isproduced throughout the country and is the rnain export. Productionof other major export items such as sugar, cassava, rubber, maize andtin is widely dispersed over 514,000 sq. Ions. of the country's area.This geographic spread of export items, the development of industry indifferent regions, the efforts being made to achieve greater equalitybetween urban and rural areas through increased allocation of resourcesto rural areas, the 'tambon' program involving decentralization ofdecision making to village levels, the development of tourism (fourthlargest foreign exchange earner in Thailand) and effective use oftransport facilities, all place special demELnds on telecommunicationsfor the quick flow of essential agricultural, business and adninistra-tive information between industrial, commercial and agricultural centers.

Access to Service

2.03 Conpared with some other countries at similar stages of develop-ment, the quality and the quantity of telephone services are poor. Annex 1gives relative figures for telephones in service in some countries inJanuary 1975. Telephone facilities existing in Thailand at the end of FI75are given in Annex 2.

2.04 The availability of telephones, th.at is, the ratio of workingtelephones to total telephone demand (defined as the sum of working linesand unsatisfied demand) is very low, particularly in areas cther thanBangkok, as shown below for the end of FY75:

Working Unsatisfied TelephoneLines Demand Availability

Bangkok Metropolitan 170,300 139,400 O.55Area

ReFt of Thailand 48 60C 120,800 0.29Total 261,900 0746

The telephone density in Thailand of only o.76 telephones installed per100 population is low compared to 2.21 in NaLaysia, 1.3C in Papua New Guineaand 1.09 in the Philippines. The proportion of urban telephones in thenearby Asian region has been given by ESCAP as 63%. Against this, 80%

- 3 -

of the telephones in Thailand are installed in Bangkok (which has only11% of the country's population). Even then, Bangkok's telephone densityof 5.5 per 100 population is much lower than for other comparable citiesin the same region of the world (Hong Kong: 22.8, Manila: 21.7, Singapore:12.5). The telephone density in rural areas is only 0.2 and is also lowerthan in rural areas of many comparable countries in Asia and Africa (Syria:0.5, Egypt: 0.6, Zambia: 0.6). In fact, many areas in the hinterland ofThailand are without any access to telephone service.

2.05 The proportion of telephone lines installed in business premisesin Bangkok is about 48% of the total whereas in rural areas it is about82%. Though the remaining telephone lines are installed in residentialpremises, these are primarily used for business or commercial calls. Rec-ognizing this fact, the TOT has abolished the distinction in tariffs ap-plicable to the business and residential categories from September 1975.

2.o6 In local networks, 53% of the call attempts by subscribers areunsuccessful (Annex 3). Approximately 68% of the call failures are dueto called numbers being busy, a situation caused by inadequate exchangecapacity and consequent shortage of working lines to meet the demandl.0f the remaining call failures, the major part is due to old cables andwires interrupted by too many joints, and a large number of old and de-fective telephone instruments.

2.07 All major centers of the country are provided with back-bonetrunk routes through high-capacity microwave, UHF and VHF radio systems.However, the number of active circuits in these systems is only a fractionof the available capacity. The shortage of trunk circuits vis-a-vis eventhe present traffic demand is further compounded by shortage of manualboards to operate the available circuits, resulting in delayF of severalhours on long-distance calls in peak traffic periods. About 15% of thecalls booked are subsequently cancelled by callers because of unacceptabledelays. The shortage of circuits, poor quality of service, and lack ofspur trunk routes feeding deeper into the countryside, result in poorexploitation of the traffic and revenue potential of the available long-distance facilities.

Sector Objectives

2.08 A country-wide development plan for local and long-distanceservices was evolved in 1972 covering the 5-year period FY72-76. Startingfrom a low physical base, and with the resources available, this plan wasof necessity of an interim nature. Sub3equently, in 1974, the plan wasenlarged to incorporate nationwide subscriber trunk dialling (STD); theplan period was also extended by three yearF to FY79. The near-termobjectives in the sector are: (a) to rehabilitate the network and providerelief to traffic bottlenecks; (b) to enlarge the acceFs to telephone ser-vice in rural areas and, in the process, improve the utilization of theavailable capacity in the long-distance network; (c) to expand the localnetworks in both the Bangkok Mletropolitan area and the rural areas which,

- 14 -

while not fully satisfying the derland for new connections, will preventa further build-up of congestion; and (d) to provide a speedy andefficient long-distance service. The works under the Program and thestudies noui being undertaken (para, 2.17) are designed to create asatisfactory base for a balanced, rapid and sustained development oftelephone services in the 1980's.

2.09 The quality of service will be improved through rehabilitationor replacerierlt of old and defective equipment and cables and throughrelief of traffic bottlenecks by addition of equipment at critical pointsof congestion. However, traffic congestion due to heavy use of individualtelephones would continue because of TOT's inability to meet tLe totaldemand.

2.10 While the Program provides a 66% eNpansion of lccal systemcapacity in the It-year period FY76-79, even at a conservative estimate of9.5d, average annual growth in demarnd fcr new telephone connections, thetotal unsatisfied demand in the country will be higher by 51 at end ofFY79 than at end of FY75. In Bangkok the increase in unsatisfied demandwill be 1%; however, in rural areas it will be 1Q0 due to generation ofadditional demands with increaFe in economic activity, the increased rateof telephone development, and extension of service to 52 new areas throughnew long-distance spur routes. The number of towns and villages havingtelephone service will increase by about 52% during the 4-year periodFY76-79. The speed and quality of long-distance service will also beappreciably improved through introduction of subscriber trunk dialling(STD) service in the long-distance network which will provide subscriberswith an irirmediate and efficient long-distanze service.

2.11 Expected changes in some important p2rameters reflecting avail-ability of telephone service between FY75 and FY79 are surmmarized below.

End of End ofFYY75 FY79 Increase

Telephone DensityThailand 0.76 1.36 74%Bangkok 5.54 9.11 6lRural Areas 0.17 0.35 106%

Telephone AvailabilityThailand 0.46 0.60 30%Bangkok 0.rf5 0.69 25%Rural Areas 0.29 0.L- 52%

Unsatisfied DemandThailand 260,200 273,500 5%Bangkok 139,400 1),1,000 1%Rural Areas 120,800 1:32,500 10%

5

Investment Program

2.12 To implement the sector objectives during the 8-year (FY72-79)development period, the Progran contemplates a total investment of US$381.79million with a foreign exchange content of US$159.64 million. Even withthe increased investments in telecommunications during the last four yearsof the Program, the average annual investment as a percentage of the GDPis only 0.22% compared to the figure of 0.5% proposed by ESCAP as a minimumfor the developing countries in Asia. The broad distribution of investmentbetween the local networks in urban and rural areas and the long-distancenetwork which primarily benefits the rural areas, is as follows:

Total PercentageCost of Total

(US$ Miillions)

Local Network (rehabilitation) 3.3 0.9Local Network (expansion)

Urban Areas 200.6 52.5Rural Areas 60.6 15.9

Long-Distance Network (expansion) 93.3 24.4Consultancy, Vehicles andIMiscellaneous 24.0 6.3

Total 381.T 100.0

Sector Constraints

2.13 The telecormrurnications sectcr in Thailand has been developingwithout Government budget support or local borrowings for capital expansion.Consequently, expansion haF been tied to TOT's capacity to generate fundsfrom internal sources and to borrou externally.

2 .14 The average annual capital investrent in the past was US$17million during the four-year period FY68-71 and US$19 million during thenext four years FY72-75. For the period FY76-79, TOT'. annual invest-ment will be US$76 million. This increased rate of annual investmentis made possible because of higher revenues from increased and improvedquality of service, frcm new tariffs which are estimated to increase revenuesby some 20%, and by a higher level of external borrowings. Subscriber trunkdialling, a particularly lucrative source of revenue, will have an impact onTOT's revenues only from FY79 onwards and will thereafter be an irmportantfactor in further increasing TOT's revenues in the 1980's. The internalcash generation for the four-year period FY76-79 is estimated to bethree times that of the four-year period FY68-71, and will allow TOT tc self-finance 30% of their FY76-79 investm!ent program, which is more than threetimes larger than that of the previous fcur years.

2.15 External borrowings form a large portion of TOT'F investment require-ments for the FY72-79 Program. These include the first Bank loan of US$37million and the proposed loan of US$26 million and Japanese bilateral creditEof US$74 million, largely untied (para. 3.19).

-6-

Future Plans

2.16 During the 1980s, afte!r the completion of the current Program,it is expected that an even greater level of internal cash generationwill provide a solid financial base for the development of the telecommuni-cations sector.

2.17 To improve upon the definition of sector objectives and the qualityof investment decisions, the TOT in collaboration with the National Economicand Social Development Board (NESDB) of Thailand and the Bank is undertakinga study of the economics of telecommunications in Thailand. The study willestimate the incremental costs of different types of service (urban, rural,long-distance, international), define the nature of telecommunications usageand the incidence of its benefits, and examine the possibilities for cross-subsidization among user categories with particular attention to providingaccess to new consumers. Through a more scientific assessment of the develop-ment impact of telecommunications in the country, the TOT will be better ableto give a more purposeful direction to its future development activities andinvestments.

- 7 -

III: The Program and the Project

Background

3.01 In 1972, the Government of Thailand had approved a planprepared by the TOT for development of domestic telephone servicesin Thailand during FY72-76. The total investment for the plan wasthen estimated at US$168 million with a foreign exchange componentof US$87 million. Phase I of the plan constituted the First Telecom-munications Project in Thailand under Bank Loan 864-TH (US$37 million).The works under this Project are indicated in Annex )4 (Col. 3).

3.02 At a very early stage, TOT's development plan was overtakenby the world price increases in 1973-74 (particularly of copper) andincreases in the local costs due to inflation. Political conditionsand changes in the government also caused delays in the early stages.In 1974, TOT reassessed and revised its plans to fit in with the newsituation. The revised plan incorporated all the essentials of theearlier plan. In addition, it provided for introduction of nationwideSTD service. Because of initial delays and introduction of a majornew element in the plan, the plan period was extended by three yearsto FY79. The plan was divided into two phases, Phase I for the periodFY72-76 and Phase II for the period FY76-79.

The Program

3.03 TOT's FY72-79 Program comprises the following:

(a) Ongoing works, that is,works under execution in FY71spilling over into FY?2-79 (para. 3.06);

(b) Phase I (FY72-76) works constituting the First Tele-communications Project (paras. 3.07 and 3.08);

(c) Phase II (FY76-79) works constituting the proposedSecond Telecommunications Project (para. 3.09);

(d) Future (Phase III) Works (para. 3.06).

3.Ol The telecommunication facilities to be added under the Prograiare detailed in Annex L4. The sizes of expansion of local telephone net-workE in the Bangkok Metropolitan area and in the Provinces have beenunchanged from those proposed in the earlier plan (para. 3.01). The sizeof expansion of the lonp-distance network has been increased t mEe^-t therequirements of a nationwide STD service. The target dates fcr all theseworks have been extended to FY79.

3.05 The total estiuiated cost of the Program is B 7,326.50 million(US.381.,9 million) with a foreign exchange content of B 3,272.75 million(US$159.64 million). A sunmary of the local and foreign costs of thedifferent components of the Program (para. 3.03) and the loanF and credits

available or required for financing the foreign costs are indicated inAnnex 5. The annual investment program for different items is atAnnex 6. The sources of financing of the! foreign costs of differentitems of equipment and services in the Program are indicated in Annex 7.

Ongoing Works and Future Works

3.06 The ongoing works are works undLer execution in FY71 spillingover into the Program period. These primarily provide for expansion oflocal telephone networks in Thailand and are expected to be completedby end of FY75. The estimated cost of the ongoing works is B 455.81million (US$22.24 million) with a foreign exchange content of B 53.24million (U1S$2.60 million). The future works are works to be undertakenduring the Program period as part of the next phase (Phase III) of TOT'sdevelopment plans. The estimated cost of the future works is B 1,205.00million (US$58.78 million) with a foreign exchange content of B b.50.00million (US$21.94 million).

First Telecommunications Project

3.07 Phase I (FY72-76) of the Program constituted the First Tele-communications ProJect now under executicn though ovter one year behindschedule. The delay was caused by general political conditions inThailand, delay in finalizing the Japanese bilateral credit which wasto finance the local network expansion in. Bangkok and the transmissionequipment in the rural areas, and domestic inflation leading to signifi-cant increaseF in estimated prices especially for all civil works, andto the ccnsequent unwillingness of the contractors to continue work onearlier cuoted tenders which had to be renegotiated.

3.08 Thr estimated revised cost of the First TelecommunicationsProject is B 3,857.08 million 'US$188.15 million) with a foreign exchangecontent of B 1,790.51 million 'tUS$87.34 million). The revised costs arebeing met by rephasing of investments under the TOT's Pro-ram4 a chanoein allccation of the Bank loan due to financing of the transmission equip-ment from the Japanese credit instead of the Bank loan, and a redistribu-tion of costs because cf drop -.n copper prices since 1'97a. The realloca-tion of the proceeds of the loan to the different categories as proposedby the TCT has since been approved by the Ban1 (Annex 8). The realloca-tion took into account the higller costs encountered on items alreadyprocured under the Bank loan and possible price increa.ses on the Bank-financed items still to be procured.

Second Telecommunications Pro_ ect

3.09 The Second T-lecommunications Project (FY76-79) identified forthe proposed seccnd Bank loan to TOT comprises the following works:

a) Installation of )46,416 lines cf additional capacity inlocal exchanges and associated cables and subscriberfacilities in the Bangkok Metropolitan area for givingabout 41,OC00 new connections.

- 9 -

b) Installation of 9,518 lines of additional capacity in localexchanges and associated cables and subscriber facilibies irthe Provinces for giving about 9,000 new connections.

c) Replacement of (i) 2,090 lines in manual exchanges and576 lines in mobile exchange7 by automatic exchanges,(ii) 28,100 pair kilometers of telephone cables andwires, and (iii) 17,000 telephone sets.

d1) Installation of 53 new long-distance transmission systemsai.d provision of 6,500 channel-ends for long-distanefcircl1its on the existing and new systeme.

e) Installation of 10,8CO lines of trunk exchange equipmentto provide nationwide STD service.

Project Costs

3.10 The estimated cost of the Project is 1 1,929.67 million (UJS$94.13million) with a foreign exchange content of B 979.00 million (US$47.76million). The schedule below sets olit the costs of different items of thePrc.ject.

CostsItem B MillionF US$ Millicns

Local Foreign Total Local Foreign TotaLocal NetworkLocal Exchange Equipment 61.50 217.71 279.21 3.00 10.62 13.62Cables 115.21 220.17 335.38 5.62 10.74 16.36Subscriber Facilities 11.28 30.75 42.03 0.,5 1.50 2.05

SuL-totR], ~~~~~167.99 46863 656.62 9.17 77 32.CSub-total .6 3 9.17 22 320

Long-Distance NetworkTrunk Exchange Equipment 59.86 184.50 241X.36 2.92 9.00 11.92Message Accouinting and Nunber 41.00 102.50 143.50 2.00 5.00 7.00

Identification EquipmentTransnission Equipment 64.37 118.29 182.66 3.14 5.77 8.91

Sub-total 16523 70.52 W07 19.77 773

Other ItemsLand and Buildings 224.48 - 224.48 i0.o9, - l0.9s'Vehicles 41.00 - 41.00 2.00 - 2.00Upgradation of local Network 67.64 - 67.64 3.30 - 3.30Project Implexientation and 82.00 - 82.00 4.00 _ 1X.00Miscellan3ous

Sub-total 415.12 - 1415.12 20.25 - 20.25

Basic Costs 768.34 873.92 1,642.26 37.48 42.63 80.11

ContingenciesPhysical 15.20 16.61 31.81 0.74 o.81 l.5rPrice 167.13 88.47 255.60 8.15 4.32 12.47

Sub-total 182.33 105.08 287.41 *1T= 5.13 1b.02Total Project 950.67 979.00 1,929.67 46.37 47.76 S9713

- 10 -

3.11 The local costs of land, buildings and installation are basedon TOT's recent experience. The foreign costs of equipment and cablesare based on prices encountered in recent international tenders forsimilar items. A Bank loan of US$26 millicn to the TOT is proposed tofinance 54% of the foreign costs of the Project. The balance of the foreigncosts are covered by Japanese bilateral credits.

Contingencies

3.12 Telecommunication development is a continuous process thatoccurs through new installations or plant expansion at hundreds oflocations in any year. Because of this, additional requirements ofequipment and cables at some points are generally compensated byreductions at others; hence, the risk of cost increases due to physicaloverrun is small. A physical contingency provision of about 2% of thelocal and foreign costs of the new works has been included, amounting toB 31.81 million (US$I.55 million) with a foreign exchange component ofB 16.61 million (US$0.81 million).

3.13 In teleconmmunication equipment contracts, it is usual to havefirm prices through the period of delivery. To cover possible increasesin price up to the date of contract for international procurement, aprice contingency provision of B 88.4L7 million (US$4.32 million) equiva-lent to about 10% of the foreign costs of the Project hap been included.To cover likely increases in the local costs due to increase in wagesand costs of civil works, a price contingency of B 167.13 million (US$8.15million) equivalent to 21% of the local costs of the Project has been in-cluded. Details of the contingency provisions are shown at Annex 9.

Items for Bank Financing

3 .14 The allocation of the proposed Bank loan of US$26.00 million tothe Project items to be financed by Bank and the allocation of the Japanesebilateral credit to thr rernaining items under the Project are given below:

US$ MillionsIBRD Japanese

_ ~- Loan Bilateral Credit

Local Excharge Equipment - 10.62Local Cables 6.20 .54Subscriber Facilities 1.5() -TrunI Exchange Equipment 9.00Message Accounting and TNumber 5.00 -Identification Equipment

Transmission Equipment - 5.77Contingencies .30 - 1/

Total 26.00 20.93

1/ Contingencies on equipment financed under the Japanese Creditestimated at abcut US$0.b3 million will be financed frcm TOT'sown fund.s, if needed.

- 11 -

Procurement

3.15 Except for the trunk switching equipment, all items to befinanced through the proposed Bank loan will be procured through inter-national competitive bidding in accordance with the Bank Group's guide-lines applicable to such procurement. A 15% preference or the prevailingcustoms duty whichever is lower will be allowed to local manufacturers.TOT would also be allowed to procure locally off-the-shelf items forimmediate requirements. The cost of each such item will be limited toUS$5,000 and the total such purchases under the Bank loan limited toUS$100,000.,

3.16 TOT proposeE to procure through negotiations from suppliei-sof existing equipment about 10,800 lines of trunlc switching equipmentat a cost of US$9.00 million subject to prices being satisfactory tothe TOT and the Bank. These 10,800 lines of trunk switching equipmentare to be installed in 132 provincial towns throughout Thailand. Theaverage size of trunk installation per location will be only 80 lines.These towns are now equipped with local telephone exchanges varyingfrom 40C to 2,000 lines. The equipment for each of these local ex-changes was originally supplied by either Bell Telephone ManufacturingCo. (BTM) o. Belgium or L.M. Ericsson (LME) of Sweden after inter-national competitive bidding. Thp trunk switching equipment to beinstalled at each station will be only about 10% of the total (localplus trunk) switching equipment in each station. The correct solutionin terms of least cost, standardization, training and deployment ofpersonnel, and organization of maintenance and. spare parts iF for thesmall quantity of the trunk switching equipment to be added at eachstation to be of the same make and procured from the same supplier asthe local exchange equipment now existing in that station.

3.17 The foreign costs of trunk switching equipment to be procuredfrom the two suppliers of the local exchange equipment is estimated atUS$9.00 million or 34.6% of the proposed loan amount. Wlhile this ishigher than in other telecommunications projects, it is due to the wayin which procurement outside international competitive bidding has beenapportioned between the Bank-financed items in Phase I and Phase II.Under the first loan, procurement outside international competitivebidding was agreed to for an amount up to US$3.50 million (or 9.5% of theloan amount). The total procurement outside international competitivebidding under that loan and the proposed Bank loan taken together wouldbe US$12,.50 million or 20% of the total of the two loans. IBRD/IDA haveagreed in the past to procurement outside international competitive biddingup to this Jevel in other telecommunications projects.

Project 'rxec.tion

3.18 TOT staff has the canability of planning, detailed engineeringand installation of all works under the Project including local and trunkexchange equipment, cables, subscribers facilities and the long-distancetransmission systems. However, for administrative reasons, TOT proposes

- 12 -

to have the microwave radio equipment in rural areas and junction cablenetwork in Bangkok (both financed by the Japanese credits) installed bythe equipment and cable suppliers. The annual local and long-distancetelephone d1evelopment targets are at Annex 10.

Disbursements

3.19 The proposed Bank loan would be disbursed at the rate of (a) 100%against the CTn costs of the directly imported items, (b) l0C% against theex-factory costs, net of local taxes, for locally manufactured items, and(c) 65% of total expenditures for imported items procured locally. Theschedule of quarterly disbursements is at Annex 11. As the proposed Pro-ject is part of a continuing development program for the telecommunicationssector, it is proposed that any unused balances sholuld be applied, afterconsultation with the Bank and under the sane terms and conditions, againstthe costs of goods sirilar to those financed under the Bank loan.

- 13 -

IV: Project Justification

General

.0l1 TOT's FY72-79 Program is designed to provide satisfactory domes-tic telephone services in Thailand to support the national developmentobjectiver in the fields of commerce, industry, agriculture and govern-ment administration, with particular emphasis on rural areas. The Programis modest in scope in relation to the demand because of financial con-straints, but lays stress on improvement in the long-distance service(which is of central importance to rural areas) and on the provision ofservice to areas now without telephones.

4.02 The Program comprises priority works designed to (a) improveconsiderably the present quality of service through relief of trafficbottlenecks and phased replacement of the old worn-out equipment andcables, (b) satisfy a larger proportion of demand through expansion offacilities, and (c) serve a larger segment of the population in ruralareas through extension of facilities to areas now without telephone ser-vice.

Local Telephone Service

4.03 The historical and forecast growth of the total demand and theworking lines are indicated in the table and diagram at Annexes 12 and 13.TOT does not maintain any waiting lists of potential subscribers desiringtelephone connections. Instead, it assesses the demand by block-by-blockfield survey of each area to determine the telephone potential of eachexisting and projected building. TOT has assessed the total demand (work-ing lines plus unsatisfied demand) to increase from about 479,100 at thebeginning of the Project to about 687,000 on its completion. The fore-cast growth in the total demand over the Project period thus averages only9.5% per annum; this is conservative and less than 10-1% obtaining inmost developing countries. The actual demand is likely to exceed the pro-jected growth since TOT's own past experience has shown that, when newfacilities are added in any area, the number of applicants for new connec-tions in that area has been considerably higher than forecast. Hence,there is little danger of over-provision of facilities. Even based onTOT's conservative forecast of growth of demand, and in spite of 66% in-crease in the local telephone system capacity, the unsatisfied demand fornew telephone conrections in the country will rise by 5% from about 260,200,to about 273,500 during the Project period. The availability of telephone /is however expected to increase from 46% to 60% during the same period.

4.04 In the rural areas, the local networks will be expanded to pro-vide ll5% more connections during the Project period (against 80% increasefor the country as a whole). All the remaining manual exchanges will bereplaced by modern automatic exchanges in preparation for the introductionD_ natiorLwiJe STD service. In addition, the number of towns and villageshaving telephone -ervice will be increased by )40% by providing telephoneservice for the first time to 42 new areas. The unsatisfied demand in therural area- will increase from about 120,800 to about 132,500 during theProject period.

1,.o5 In the Bangkok Metropolitan area, the working lines will be in-creased from 170,30C to 309,000 (an increase of 833) during the Project

KL/ Telephone Availability is working lines expressed as a percentage of- total demand (working lines plus unsatisfied demand).

- lb -

period. Thi availability of telephones will increase from. 55'% to 69X';this will reduce the present heavy usage of existing telephones andthereby the nunber of repeat calls clue to called telephones being bu-sy.The unsatis.ied demand in Bangkok will increase from about 139,4C0 tDT41,OC0 dur:Lng the Project period.

I,.o6 The considerable quantities of old telephone cables and tele-phone instrumnents in service cause EL high number of faults. To reducefault incidence and improve service, particularly in view of the STDprogram, TOT has plans for phased replacement of 28,100 pair-kilometarsof old cables and wireF and 17,000 telephone instruments by FY79.

Long-Distance Telephone Service

4.0f'f7 In any country, telephone subscribers in the rural areas usethe telephone facilities largely to make calls to nearby towns and othercenterF which provide administrative, commercial and other services. Thelocal telephone network in the rural areas, particularly in the very smallexchanges, serves primarily as an adjunct to the long-distance telephonenetwork. Therefore, for proper development of the rural areas, an effi-cient long-distance service is of prime impcrtance. The present Projectlays emphasiis on the expansion and extension of the long-distance tele-phone netwcrk in Thailand.

4.08 Al, present, the long-distance service! is me.ager and poor, beingsubject to heavy delays due largely to unbalanc:ed development and existenceof bottlenecks. While the basic long-distance network of' transmissionsqystems is f'airly wide-spread, past investments on this network are notyielding full benefits due to insufficient utilization of available capacityin the transmission systems and lack of terminating equipment and manualboards for operating the circuits. rhe Project aims at providing the balanc-ing items like the multiplex eoquipment for better utilization of the availa-ble transmission systems and the add:ition of 53 new transmission systems forextending telephone service to new a:reas in the hinterland.

4.09 The rumber of channel ends for long-distance circuits will beir,ereased fror 15X,L40 to 11,900 under the Project. Thr ocid1itiori of 10,C.'.-lines of trunk automatic exchange equipment will provide adequate termina-tions for the long-distance circuits and junctions to local networks andenable introducti.on of natiornide STI) service. This service wi1ll extendto TOT the ben-iit of low operating costs and better utilization of long-distance facilities and to subscribers the benefit of an immediate andefficient long-distance service.

Least Cost Solution

4.10 TOT's Program is based on long-term fundamental plans for develop-ment of domestic telephone services in Thailand. These plans are based onaccepted practices in telecommunications and on sound engineering designsappropriate to particular disciplines in telephony.

1/ TO'" has assessed the number cf lcng-di-8-:^ce e!rrn]n and trurk aut-matic exchange eqipment on the basis that 'n converFion of any routefrom urcEent manual working to STD, the nr-'ber of long-distance callswill imr:-Aiqtely increase by three times while sinultaneously theaverage holding time per call will reducp from present average of threeminutes to one and a half minutes.

- 15 -

4 .11 The local exchange equipment and telephone cable network designsfollow accepted practices to minimize costs. Automatic operation of localand long-distance services provides for fast and efficient servaice at leastcost through economy in operation and high usage of available facilities.TOT's decision to provide at each station the trunk exchange equipment ofthe same make as the local exchange equipment installed in that station isalso the least-cost solution on grounds of organization of maintenance andspare parts, and training and deployment of personnel.

4.12 The dimensioning and timing of works under the Program and theProject have been determined by (a) the requirements of improving the ser-vice to existing subscribers, meeting new demands in existing areas and ex-tending telephone service to new areas, and (b) the constraints of availableresources and the capacity for execution.

Return on Investment

4.13 The internal financial rate of return - defined as the discountrate which equalizes the stream of expected revenues attributable to theproject with the capital and operating costs, excluding taxes - is 19%(Annex 14). A sensitivity analysis shows that, under an unfavorable com-bination of the main parameters, the rate of return would be not less than15. The rate of return suggests that on average the price that thetelephone subscribers are required to pay for telecormunications service isconsiderably in excess of the long-run marginal costs.

4.14 The economic rate of return is undoubtedly higher than the fore-going suggests since (a) the prices charged do not adequately measure thefull benefits to the suibscribers, primarily business, industry and agri-culture, and (b) the costs include the full costs of extending the net-work and providing facilities in new areas even though the full benefitswill only obtain in the future when additional lines are connected.

- 16 -

V: The Borrower

Legal Status and Authority

5.01 The Borrower and the Beneficiary would be the TOT, a stateenterprise under the Ministry of Communications constituted through anAct of Parliament in 195la. TOT oiperates along commercial lines withadequate autonomy, but like all state enterprises in Thailand, TOT'sinveFtment plans and annual capital budgets have to be approved by theGovernment.

Organization and Mianagement

5.02 Annex 15 shows the TOT's organizational structure and thefunctional responsibilities of the various departments. TOT is managedby a seven-member Dcard of Directors. It comprises the Chairman (whois the Under-Secretary of the iMinistry of Communications), the ManagingDirector of TOT (who is also its Chief Executive) and five other mem-bers of whom one is the former Managing Director, and two each from thecivil service and the military. The Board lays down broad policy forTOT and delegates full responsibi:Lity with adequate authorityr to theManaging Director for day-to-day operations.

5.03 Recent changes have been made in the TOT's management struc-ture and personnel. While causingr some temporary unsettlement, thechanges are expected to have a positive impact on TOT's operations.A new Managing Director was appointed on January 1, 1975. He is aknowledgeable engineer and a strong manager. The other senior membersof the organization are competent and well-qualified, many having ob-tined c?raduiate degrees and/or training abroad.

.olo TOT has progressively made changes to streamline its organiza-tion for more effective execution of the devolopment programs and opera-tion of its services. The main changes since January 1975 are thecreaticn of a new Department of Plant Engineering, and realignment ofeertain functions between different departments. For examplo, internalaudit has keen strengthened and transferred from the Departmrent ofEconomics and Finance to the Office of Manag:Lng Director as en independ-ent division. These changes are in order and will benefit TOT's opera-tions.

Coordination with PTD

5.o5 lri-hile TOT is responsible for domestic telephone services, thePTD is responsible for telegraph, telex and all international services.Although this separation has some disadvantages, the arrangement hasthus far worked reasonably well ir. Thailand. A joint TOT/PTD committeewas set up in 1973 to coordinate the developmental and operationalactivities of the two entities. With the future plans of both entitiesstressing large scale expansion of their respective services, closecoordination between them will be essential to ensure econoaric develop-inent and efficienm operation of the public telecommunication services.During negotiations, assurances were obtained that the TOT will maintain,and strengthen as necessary, the existing arrangements for coordinationbetween the TOT and the PTD, and that the Government will review thesearrangements to ensure satisfactory coordination and consultation be-tween all agencies concerned with public telecommunication services inThailand.

- 17 -

Coneultants

In March 1973, the "Swedish Telecommunications Consulting AD"(S&4EDTEL) were appointed to aFsist the TOT in implementation of itsFY72-76 Development Program and in reorganization. The contract requiredSWEDTEL to provide 744 man-months of their servicee up to September 1975at n cost of US$1,971,000. The cerformance of the consultants has so farbeen satisfactory and as per eurrent program of work, the consultants wouldhava. nomnleted by March 1976 part of their assizned tasks equivlaent to 302 man-months out of 744 man-months provided in the contract. TOT haF prepareda revised schediule of work to conplete the renaining tasks which wereoriginally expected to use up the balance 14142 man-months in the contractby extending the contract period up to December 1978. The original con-tract price was based on the rate of USQ2,650 equivalent per man-monthduring the contract period 1073-75. Because of the extension cf coritractperiod, the consultants have now proposed an escalation in the rate perman-m,onth for period 1976-78 based on 9% annual increase in consumer priceindex in Sweden during 1973-75 and anticipated 8% annual iricrease during1976-78. Without reduction irn the balance 4l,2 man-months for carryingout the remaining taslcs, the proDosed eacalation would raise the cost ofconsultants' services by 40% and total contract amount to US$2,441,577equivalent. During negotiations the revised proposals of the TOT andthe consultants were discussed. It was the Bank's view that TOT wouldbe able to get the tasks completed within the original price ofUS$1,971,000. It was agreed that the TOT would discuss the suibject fur-ther with the ccnsultants keeping in mind the Bank's view Anrd end thedraft of the proposed revision to the contract to the B-n} for reviewbefo.e finalization.

Staff and Training

.C7 TOT employs a staff of pp.roximately 8,400 which will increaseto about 13,500 by end of the Project. Annex 16 gives the category dis-tribution of staff as existing now and as anticipated during the Projectperiod. At present, the number of ermployees per 1,000 telephones is 28(which is less than in most other developing colntries). TOT expectsthis number to reduce to 21t by end of the Project period because of in-creaFed productivity, economies of scale (increased size of unit instal-lation) and reorganization of maintenance and construction.

5.08 There is a well-equipped national training center in Bangkolconstructed under a UNDP Project with the assistance of the InternationalTeleconnunication Union (ITU). The Trairing Center has a capacity fortraining bOO personnel of different gradec at a time in different disci-plines. Thirtyr-two of the 57 teaching staff members have received train-ing ahroad. The Center trains new recruits, and runs special and re-fresher courses for staff in service, inrluding a course for instructorsin teleconmunications. In addition, it provides selective training infinance and management. Apart from the naticnel training center, eachprovincial headquarterstown has its own small training center for train-ing telephone operators and junior line staff. TOT supplements the

- 18 -

training oi a selected nunber of senior staff with training abroad orin the factories of manufacturers whenever new designs of equipment areintroduced in the system. The training facilities are adequate to caterto the additional staff to be recruited for execution of the Project andfor operation of the expanded network.

Accounting and Audit

5.09 The main weaknesses in TOT's accounting systen are that it lacksa proper chart of accounts, the works order accounting systen needs im-proving and the budgetary system needs to be nore fully integrated withthe accounting system. Br correcting these deficiencies, the managementwill be better able to follow up on the progress of the projects and tobetter neer're perforrnance against planned objectives.

5.10 TOT, recognizing these weaknesses, requested its consultants(SWE5DTEL) appointed under the First Telecoimnuriic'ations Project to in-clude in *ts terms of reference a review of the TOT financial operationsin order to make recommendations for improving the system and to guideTOT in the implementation process. This review has been completed andrecommendations, which are sound, have been made. TOT, after some delayduring the time of senior management change, is now implenenting thersco=mendations under the direction of the Director, Finance with assist-ance of the consultants. Progress on the izplementation will be reportedby TOT to the Bank as part of the reporting requirements on the Project.

5.11 The TOT Act stipulates that the National Audit Council (NAC)will perform TOT's annual audit. In the past, the NAC audit had beenweak. In order to assist the NA.C in meeting tho Bank's audit require-ments, the Bank -orovided a description of the type ard scope of auditthat should be -er:orred and which should be covered in NAC's arnnalaudit re?ort on TOT.

5.12 The efforts of both the TOT and the 1WAC over the past two yearsto improve the audit have been considerable as evidenced by the vastimprovement in the 1974 and 1975 audited financial statemente over theprevious years. The auditor's report, the financial statements and thesupplementary data are well constructed and informative. While thereare still a few areas of the audit that need attention and on which theBank has advised both the TOT and the NAC, the 1974 and 1975 NAC auditbased on the financial statements and supplementary data provided byTOT meets the Bank's requirements. The present; audit arrangementsdescribed in Loan Agreement 864-TIT will continue under the proposed loan.

Insurance

~.13 The Government and TOT have not ir the past seen fit to pur-ch-ase insurEnce against losses on TOT's fixed assets from typhoons oroth'r catastrches or from the-more ncrral risks sueh as fire and theft.Cost of thi.s type of insurance is very high and TOT'F management feelsthat th- wide geo-raphical spread of its assets provides r-asonable dis--ersion of risk. This is reasonable for TOT and in line with the approachadopted by many telecommunications entities in TOT's position.

- 19 -

VI: Finances

Background

6.01 TOT's past operating results have been satisfactory and itspresent financial position is sound. The main change taking place is

in the pattern of financing. During the past five years, TOT financedsome 65% of its requirements from internal sources and 35% from bor-rowings. However, with the increase in amount of investment necessaryfor maintaining a reasonable growth rate and for improving the facili-ties, TOT will be using debt to a greater extent than in the past. Fore-casts show that 66% of capital requirements over the next four yearswill be financed with borrowings and that the debt/equity ratio will rise

fron a conservative 27s73 in 1975 to 60:40 in 1978 and 1979 after whichthe ratio is shown to improve. While this ratio is on the high side, theterms and interest rates of the debt are quite favorable and TOT shouldnot have difficulty in servicing the debt while carrying out its expan-

sion program.

Tariffs

6.02 The tariff policy as stated in TOT's Act stipulates that in-come shall be adequate to meet expenses, including maintenance and depre-ciation, and provide surpluses for debt service and capital expansion.

6.03 As part of the First Project, TOT undertook a review of itstariffs in order to correct certain weaknesses in the tariff structure,more specifically: (i) to bring Goverrmient tariffs in line with thoseapplicable to the public; (ii) to remove the free call allowance, reducethe montly charge and assess a charge for each call, thereby more equita-bly relating charges to telephone usage; and (iii) to establish a commonrental for all services, since most service is for business purposes eventhough it may be located in a residence. The review also aimed at esta-blishing a tariff for Subscriber Trunk Dialling at a suitable time beforeSTD is inaugurated.

6.04 During negotiations, it was confirmed that all the above changesexceDt the establishment of tariffs for STD became effective on SeDtember 1.1975. The new tariffs, which are summarized in Annex 17,are satisfactory andestimated to generate about 20% more revenue annually than the former tariffs.The STD tariffs are still being worked out and will be sent to the Bank forreview before being finalized. Since STD is scheduled to be introducedonly in 1978, this poses no problem. During negotiations, agreement wasreached that thle TOT will submit to the Bank for its review not later thanJune 30, 1977, proposals for STD tariffs before submitting such proposalsto the Government for approval, and that the Government on its part will

take such measures as are necessary to enable TOT to implement the STDtariffs not later than December 31, 1977. It was also agreed that beforemaking any further changes in the existing tariffs for local and long-distance service, TOT would afford the Bank an opportunity to comment onthe changes before submitting them to the Government for approval.

_ 20 -

6.05 With the changes introduced in September 1975, the tarifflevel would appear to be satisfactory, with forecasts showing thatTOT would have sufficient revenues to cover operating costs, debtservice, payments to Government (see para. 6.08) and, with subscriberdeposits, would be able to finance 30% of the expansion program. Arate of return ranging between 10.2% and 11.7% would be achieved duringthe period of the construction Drogram.

6.06 During negotiations, agreement was reached that, except asmay be agreed by the Bank, the tariffs will be maintained at a levelto produce revenues, after deducting the payment to Government, suf-ficient to earn a minimum rate of return of 10% on average net plantin service.

Past Operations

6.07 Income statements for 1971-1975 are shown in Annex 18. TOT'soperating results over the past five years have been satisfactory withoperating ratios varying between 67% and 74%. Net operating income as

a percent of average net plant in service ranged from 9.5% to 11.1%.Operating ratios and net operating income, as well as internal cashgeneration, throughout the report are stated on a basis which includesas operating expense payments to Government equivalent to income taxes,and bonus payments (see paras. 6.08 and 6.09). On this basis, TOT hasduring the past five years fnnanced about 65% of its requirements frominternal sources and 35% from borrowings.

Payments to Government

6.o8 TOT makes annual payments to Government in accordance with aCabinet Resolution passed in 1965 that requires state enterprises toreturn to Government an amount equal to the amount of taxeF a privateconcern pays under the Revenue Code. This payment. which is analogousto an income tax, amounts to 30% of net income.

Bonuses

6.09 In accordance with another Cabinet Resolution, pertaining tostate enterprises, TOT pays an annual bonus to its staff and membersof the Board of Directors. The staff's bonus amounts to 9% of net in-come and the Board's to 2%, with the latter not to exceed a total costof B 400,00C (US$19,512). TOT'C management feels that the incentive pro-vided by this scheme is beneficial, giving staff members a personalinterest in the entity's well being. The bonus payments are treated asan operating expense in the accounts.

- 21 -

Collections

6.0o Earlier, while collections from private subscribers weresatisfactory, there was considerable de]ay in settling Goverrnentaccounts for both local and long-distance services. In addition,Government was paying for local service at a I1o% discount on analready concessional tariff applicable to Government subscribers.In respect of local service, the difficulties and anomalies createdby special tariffs and discounts applicable tc Government subscribershare been corr9cted. Government is now paying the rental and localcall charger promptly as a result of arrangements made whereby fundsfor this purpose are earmarked in the Central Budget. With the intro-duction of the new tariffs in September 1975, the discount and theconcessional tariff have been eliminated (see paras. 6.03 and 6.oL).

6.11 For other than rental and local call charges, mainly long-distance service and leased circuits, Government has been in arrears tothe extent that these particular receivables account for some 25% oftotal receivables, whereae with prompt settlement they should accountfor only about 5%. The delay is due to verification of the use oflong-distance calls in Government departments and to funds not beingearmarked in the Central Budget for this purpose. The problem of veri-fication will become even more acute with the introduction of STD. Toovercome this, TOT has accepted the Bank's recommendation to provideMessage Accounting and Automatic Number Identification equipment simul-taneously with th= STD equipment. This will enable TOT to record particu-lars,of all STD calls and thus enable verification of such calls. Tofurther assure prompt payment, TOT has asked Government to apply the samemechanism of earmarking funds in the Central Budget for long-distancecharges as for rental and local call charges.

6.12 During negotiations, it was agreed that the TOT shall bill theGovernment departments and agencies according to tariffs applicable toother users (para. 6.O4) and that the TOT and the Government will establishsuch measures as will ensure settlement by all Government agencies anddepartments of their bills for local and long-distance services on acurrent basis.

Present Financial Position

6.13 Balance sheets for fiscal years 1971-1975 are at Annex 19.The book value of assets is realistic, there having been over the years,with the exception of 1973 and 1974, a high degree of price stability inThailand. Also, a high proportion of the assets are relatively new andreflects current costs. Almost all plant additions have been from TOT'sexpansion programs except assets valued at B 50.5 million transferred fromthe Posts and Telegraphs Department in 1954 at the time of TOT's formation,and microwave routes valued at B 352 million transferred by Government in1966 and 1970. The value of these transfers amounts to about 13% of thevalue of plant in service at the end of fiscal year 1975.

6.14 Depreciation has been computed on a straight-line basis, basedon the estimated life of the various catagories of plant in service. Ratesvary from 2% for buildings to 20% for vehicles, resulting in a compositerate of about 5%. Forecasts assume the same composite rate until 1978 whena rate of 5.5% is assumed; these rates are realistic.

- 22

6.15 TOT's capitalization as of September 30, 1975 is surmarizedasF follows:

TJS$ MillionEFiuity B Million Equivalent %

Government Investment 514.7 25.1 19Subscriber Contribution 4.6 .2 -Retained Earnings 1,520.5 74.2 54

Total Equity 2,039 o 99.5 73

Long-Term Debt

Long-term debt (less 766.0 37.4 27current maturities)

Total Capitalization 2,805.8 136.9 100

6.16 Two main factors contribute to TOT',l conservative capitalstructure wherein debt equals 27% of capitaLization: TOT haF been ableto invest a large part of its earnings in p;Lant expansion and Governmentinr-,estnent in eariier years was provided as equity. Retained earnings haveincreased by 69% over the last fcur years.

Financing Plan

6.17 The forecast of Sources and Applications of Funds for the period1976-19bl,jdetails 'of which are shown in Annex 20, is based on TOT's invest-nent progran given in Annex 6. Following is a summary of the financingplan for the four year project period 1976-1979.

Requirements B Million US$ Million %Development Plan (Phase I) 1/ 2,817.L 1375- 43Development Plan (Phase II) - 1,887.1 92.1 29Ongoing Works, other investments 357.8 17.4 6

and capitalized interestFuture Works 1,205.0 58.8 18'Working capital increase 26h.7 12.9 L

Total Requirements 6,532.0 3j7l. 100

SourcesInternal cash generation 2,4l42.9 119.1 37Less: Debt service 951.5 46.4 14Net internal cash generation 1,491.4 72.7 23

Subscriber deposits 468.9 22.9 7Government investment 281.9 13.7 4

BorrowingsJapanese Credits 12344.7 65.6 21IBPD Loan 864-TIH 512.1 25.0 8Proposed BD lohan 533.0 26.0 8Borrowings - Phase I & II 1,150.0 56.i 18Borrowings - Future Wdorks _ 750. 3.6 11

Total Borrowings 4,289.8 209.3 66Total Sources 6,532.0 318.6 100

1/ US$2 mi-llion eaquivalent for Phase II wasF spent in FY75.

- 23 -

6.18 Included as sources of funds are borrowings of B 1,150

million (US$56.1 million) pertaining to Phases I and II, and B 750million (US$36.6 million) pertaining to assumed future works. The

B 1,150 million are local funds and would be raised through borrowingsconsisting of bonds to be purchased by future subscribers as a conditionto obtaining service, from bonds sold to the public and/or loans arrangedthrough the Government. During negotiations, these financial arrangementspertaining to Phases I and II of the Program were confirmed. The borrow-ings are assumed to carry an annual interest rate of 8.5% and a term of

10 years. The B 750 million borrowings for assumed future workswill be arranged in the later years of the Program and comprise B 300

million as local funds, which would be arranged as described above, and B 1x5O

million as foreign funds, which it is assuned TOT will be able to arrange

as in the past on satisfactory terms. Details of other bcrrowings andfurther information on the bonds are in AnnexeF 21 and 22 respectively.

6.19 Also included as a source of funds is a B 281.9 million Governmentequity investment as part of the total of B 300 million to be providled toTOT as stipulated urder Loan 864-TH.

6.20 Based on the foregoing assumptions, during the four-year period1976-1979 the net internal sources of funds, after providing for debtservice and including subscriber deposits, would be equivalent to 30% ofthe construction costs including capitalized interest, and working capitalincrease; Government equity investment would amount to 4% and borrowings661J, of which the undisbursed portion of IBRD Loan 864-TH and the proposedBank loan would each amaount to B?0. The self-financing of 3C0 of total

requirements is satisfactory, considering that TOT's value of plant in

service is expected to increase by B 4.1 billion (US$0OC :dllion) - anincrease of 1.4 times in four years.

Future Finances

6.21 Forecast income statements and balance sheets for 1976-1981 areat Annex 18 and 19 and notes and assumptions are at Annex 21. A summaryof operating results for the six-year period is given below:

Year Ending Sept. 30: 1976 1977 1978 1979 1980 1981

Revenue (B Million) 945.1 1,086.3 1,381.2 1,787.5 2,144.3 2,540.2

Operating income 227.9 300.0 395."( 555.2 L90.0 6I13.'"Rate of return after 10.2 11.1 11.0 11.7 11.9 12.1payment to Government (%)

6.22 Revenue projections are based on planned average increase in tele-phone connections and traffic forecasts with allowances for additional reve-

nue from STD service scheduled for introduction in 1978. Expenses are

- 24

forecast based on the growth of the system and number of staff, withallowances for increases in wages and cost-of-living allowances andtaking into account past experience. Operating revenues and expensesare estimated to increase at an average annual rate of about 22%. Onthe basis cf the six-year forecast, rates of return are between 10.2%.and 12.1%. This is satisfactory, parti-.ularly when considering thatTOT will be paying part of its net income to Govermnent as the equiva-lent of the income tax normally paid by a private concern. Beforedeductinz this payment, the corresponding rates of return would be be-tween 13.2% and l5.1%. The operating ratio would be satisfactory atbetweern 68% and 76%.

6.23 The forecast financial position is satisfactory. The debt/equity ratio is shown to increaee from 27:73 in 1975 to an acceptab]emaximum of 60:40 in 1978 and 1979. The current position (ratio of currentassets to current liabilities) would be satisfactory as would theannual coverage of debt service byT internal cash generation.

Debt Limitation Covenant

6.24 Loan 864-TH includes the Bank's normal debt limitation covenantwhich permits the Bank to monitor TOT's debt position. ForecaFts showthat TOT may need to seek the Bank's approval for non-Bank debt incurredduring the construction period. Tmhe debt/equity ratio, which should bemaintained below 65/35, will be a major factor in the approval decision.The proposed loan wiJ- continue the same covenant stipulating a 1.5times debt service coverage of maximum future debt service by internalcash generation.

Fiscal Impact

6.25 The fiscal impact of TOT"s operations on Government over theeight-year period (FY72-79) will be favorable. Estimates showi thatGovernment benefits by taking in El 2,2214 million as a result of TOT',operations; this compares with TOT receiving B 282 mrillion fromr Govern-ment (see Annex 23).

Performance Indicators

6.26 Indicators given in Annex 24 will help monitor TOT's futureperf crmance.

- 25 -

VTI: AGREEMENTS AMD RECONI4ENDATIONS

7.01 During loan negotiations, agreement was reached on thefollowing:

a) TOT will maintain, and strengthen aF necessary, theexisting arrangements of coordination and consultationwith the PTD to ensure proper planning, developmentand operation of the public telecommunications services,and the Government will review these arrangements(para. 15.05);

b) TOT will submit to the Bank for its review not laterthan June 30, 1977, proposals for STD tariffs beforesubmitting them to the Goverr.ent and the Governmentwill take such measures aF are necessary on its partto enable TOT to implement the tariffs not later thanDecember 31, 1977 (para. 6.ol):

c) TOT will also send to the Bank for its corments anrproposals for changes in the existing local and long-di5tance tariffs (para. 6.o0);

V

d) Tariffs will be ma-ntained at a level sufficient toearn a minimum rate of return of 10 on average netplant in service after deducting payments to Governmentaouivalent to income taxes (para. 6.06);

e) The Government and the TOT will establish such measureFae will enable these departments and agencies to settletleir accounts with th-e TOT on a clurrent basis(para. ;.12) ;

f) Tinancial arrangements for assuring local funds areavailable to TOT as needed were confirmed (para. 6.18);

I.0? Wlith the above agreements, the project is suitable for aBank loan of U-S$2c million equivalent for a period of 20 years,ircludi.n.r a mrace neriod of four years.

A-pril 9, 1"9 7r

O AILAND

TELEPIIONE 4OITGANIZATION OF THAILAND (IOT)

Internatio-al felepnooe t.taistict

0P401 NArPfoNoJ TELEPHcNES - JAFnJARY 1975

POEJUATION JPrFTAT - 1973 NATTONAJ, IIEI RFr T OF COUNTRY P-RCENTAGE OF NATIONAL (%)

Per Capita Av. o,al

1975 Per Capita Growth Rate Total No. lelepho.n Grtwth Rate Automatic Telephones Telephone elephones TelephonT Cities Rest of Country

COUNTRIY (0's) _2 _ (1965-73) (000'6) Density 0 (1965-75) % (lOO) Donsity 0/ (00's) Density 2 Population Telephones Population Telephones

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

AFRICAAlgeria 16,64o 570 4.3 230 1.38 5.1 79.7 136 7.80 94 o.63 10.5 59.1 89.5 40.9

Egypt, Arab Rep. of 36,730 250 0.8 503 1.37 5.3 96.7 347 4.29 156 0.55 22.1 69.o 78.9 31.0

Ethiopia 27,450 90 1 .6 66 o.24 11.8 88.5 42 0.37 24 0.09 4.2 65.2 85.8 34.8

Maumitiue 850 410 1.4 23 2.68 7.5 77.8 10 7.10 13 1.80 16.6 43.5 83.4 57.5

Morocco 16,730 320 2.5 189 1.13 2.6 82.0 81 4.01 308 0.73 12.1 42.9 87.9 67.1

N geris 71,700 210 8.3 ill o.16 6.3 83.4 47 7.12 64 0.09 0.9 42.3 91.1 57.7

Rhodesia 6,210 430 3.5 172 2.77 6.1 93.4 127 14.83 45 o.84 13.8 73.8 86.2 26.2

South Africa 24,910 1,050 2.0 1,936 7.77 9.7 82.6 1,399 24.18 537 2.81 23.2 72.3 76.8 27.7

Sudan 18,110 130 (-)o.6 5. 0.31 4.7 91.4 37 4.67 19 0.11 4.3 65.2 95.7 34.3

Tunisia 5,628 460 4.9 114 2.03 12.9 92.6 39 3.37 75 1.68 20.7 34.2 79.3 65.8

AMBRICAArgentina 25,200 1,640 2.9 2,374 9.41 4.9 96.8 2,179 18.55 195 1.45 46.6 91.8 53.4 8.2

Nracil 106,100 760 6.o 2,652 2.50 7.6 94.6 805 5.87 1,847 2.00 12.9 30.4 87.1 69.6

Canada 22,700 5,450 3.5 12,454 54.96 5.9 99.7 5,554 58.52 6,900 5i.84 41.4 44.6 58.6 55.4

Mexion 58,300 890 2.8 2,546 4.37 13.4 100.0 1,548 11.72 998 2.21 22.6 60.8 77.14 39.2

U.S.A. 212,000 6,200 2.5 143,427 67.65 5.0 99.9 62,746 84.7 80,721 58.51 34.9 43.7 65.1 66.3

ASIABcglade.hh 72,500 80 (-)1.6 66 °0.7 5.8 83.4 54 n. 12 .. a. n.n. 83.1 .. a. 16.9

China, Rep. of 15,900 660 7.3 901 5.68 19.8 92.5 445 14.93 456 3.53 18.8 49.4 81.2 50.6

India 582,600 120 1.5 1,690 0.29 8.3 82.3 583 3.28 1,107 0.20 3.1 34.5 96.9 65.5

Indonesia 123,800 130 4.5 285 0.23 3.4 63.3 147 1.44 138 0.12 8.3 51.6 91.7 48.4

Tran 33,600 870 7.4 806 2.40 16.1 94,1 406 5.71 4oo 1.51 21.1 5o.4 78.9 49.6

Israel 3,400 3,010 6.7 735 21.57 13.1 100.0 544 32.57 191 11.o4 49.1 74.1 50.9 25.9

Japan 110,700 3,630 9.6 41,905 37.88 13.1 97.4 18,402 47.25 23,503 32.63 35.2 43.9 64.8 56.1

lebanon 2,891 940 3.5 227 7.67 9.1 95.0 n.a. .n. .n. n.a. n.a. n.a. n.a. n.a.

Malaysia 11,720 570 3.7 259 2.21 8.0 96.6 n.a. n.a. u.a. n.a. n.n. una. n.a. n.a.

Ne pal i/ 11,470 90 (-)o.l 9 0.08 19.7 76.2 n.a. n.a. an.a n.a. n. n.a. n.a. n.a.

Pakistan 0/ 66,720 120 2.5 195 0.29 6.2 83.o 140 1.50 55 0.10 14.0 71.8 86.o 10.0

Philippines 40,970 280 2.6 446 1.09 11.4 96.0 337 10.11 109 0.29 8.2 75.6 91.8 24.4

Singapore 2,237 1,830 9.4 280 12.53 13.5 100.0 280 12.53 - 100.0 100.0 - -

Sri Lanka 13,198 120 0.0 68 0.51 19.8 98.6 21 3.20 47 0.40 5.0 30.9 95.0 69.1

Syria 6,740 4oo 3.6 143 2.08 7.7 89.4 121 5.20 22 0.50 34.5 84.6 65.5 15.4

TFAILAN1D i 41,000 270 4.5 312 o.76 15,4 96.7 249 5.54 63 0.17 10.9 79.8 89.1 20.2

EUROSEFrance 52,700 4,54o 5.0 12,405 23.52 8.1 94.0 6,078 53.55 6,327 15.30 21.5 49.o 78.5 51.0

Geraany,Ped. Rep. of 62,040 5,320 4.0 18,767 30.25 8.7 100.0 7,834 46.14 10,933 24.26 27.4 41.7 62.6 68.3

Sweden 8,200 5,910 2.4 5,178 63.32 8.1 100.0 1,252 91.79 3,926 57.43 16.6 24.2 83.4 76.8

Swit-erland 6,400 6,100 3.0 3,790 59.22 5.9 100.0 1,385 82.05 2,405 51.05 26.8 36.5 73.2 63.5

U.K. 56,100 3,o60 2.3 20,342 36.26 7.4 99.9 7,065 52.04 13,777 32.04 24.2 34.7 75.8 65.3

U.S.S.R. 253,300 2,030 3.5 15,782 6.23 8.3 94.8 4,157 17.33 11,625 5.07 9.5 26.4 90.5 73.6

OCEANIAAustralia 13,300 4,350 3.0 5,000 37.49 6.5 95.2 3,477 42.91 1,523 24.58 60.9 69.5 39.1 30.5

New Zealand 3,100 3,680 2.0 1,495 48.12 4.5 92.7 746 55.63 749 42.58 43.3 49.9 36.7 50.1

SOURCES:

1. Telephone and Population Statistics: World's Telephone Statistics by AT&T (1975).

2. GNP Statistics: World Bank Atlas (1975).

NOTES:

1. Informatios in respect of these cn-tries is for January 19714.2. Telephone Density is number of telephones installed per 100 population.

3. These statistics relate to cities vith more than 10,000 telephones except for co,nt-.es in Eorope and Nortb and South America, and for Japan for which statistics are for cities with 100,000 telephones.

4. Talephone statistics for Thailand are for September 1975.

n.a. Not available

March 29, 1976

ANMEX 2PTge 1 of 2 pages

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

EXISTING TELECOMMUNICATION FACILITIES

(As on September 30, 1975)

Bangkok Provinces Total

A. LOCAL TELEPHONE NETWORK

1. Telephone Exchanges

Automatic 27 68 95Manual - 32 32

Total 27 100 127

2. Equipped Capacity (Lines)

Automatic 197,668 -/ 55,228 V 252,896Manual - 10,450 10,450Total 197,668 65,678 263,346

3. Lines Connected

Automatic 170,302 40,096 210,398Manual - 8,487 8,487Total 170,302 48,583 218,885

h. Telephones

Automatic 249,127 52,987 302,114Manual - 10,198 10,198Total 249,127 63,185 312,312

1/ The types of automatic equipmentin use are as follows:

a) C-400 type crossbar of 150,100 - 150,100Nippon Electric Co. ofJapan

b) ARF type crossbar of 23,600 37,o60 60,660L.M. Ericsson of Sweden

c) Pentaconta type crossbar - 16,600 16,600of Bell Telephone Co. ofBelgium (an ITT Subsidiary)

d) Step-by-step equipment 20,000 - 20,000(shortly to be replaced byNEC C-400 type crossbar)

e) Mobile exchanges of 3,968 1,568 5,536different types

AN14EX 2Page 2 of 2 pages

B. LONG-DISTANCE NETWORK

Number of Route DistanceSystems (kms)

1. Transmission Systems

300-Channel Microwave 24 2,513960-Channel Microwave 6 2,401Other systems 10 615

2. Number of Channel Ends 2,162

3. Trunk Switching Equipment 4,534 lines (Distributed over 62exchanges)

March 3, 1976

ANNEX 3Page 1 of 2 pages

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Quality of Local and Long-Distance Services in Ea:ngkok Metropolitan Area

(Statistics for March 1275)

A. LOCAI, TELEPHONE SERVICE

1. Number of successful calls of total. calls dialed 47%by subscribers

2. Number of unsuccessful calls 53%Called number busy 36%No ansnwer from callednmmber : 5%Wrong dialing by caller : 2%Technical faults :101

3. IJumber of complaints per 1,000 lines per month 3)40

4. Number of lines tested faulty per 1,000 lines per month 120

5. N1umber of faults cleared per 1,000 lines per month based 90 2/on subscriber's complaint

Subscriber Sets : 10Drop-wire : 6Cables : 32 31Exchange 1 -Others : 1

6. Time to clear faultsFaults cleared within 24 hours 59%Faults cleared between 1 day and 7 days 39%liaults cleared after 7 days 2%

B. TONIG-DISTMCE SEVICE

1. Namuber of faults on 800 long-distance circuits on 290108 routes

2. Average circuit efficiency 95%

1/ Differrn3es between nuzber of complaints reported by subscribers andnumber of faults cleared on those complaints is due to "repeat" complaintsand complaints due to transient faults which disappeared before the linescould be tested.

2/ This does not include faults detected by maintenance staff on inspec-tions or routine tests. Also, the number of faults cleared is less tharlines tested faulty du3 to large nurnber of transienit faults.

3/ The number of exchange faults cleared on routine test of equipment forthe same perJod was 5 per 1,000 lines per month. 90% of the exchange faultswere cn 20,000 lines of old step-by-step exchange equipment due to be re-placed by end of 1975.

AN1:EX 3Page 2 of 2 pages

B. LONG-DISTA1NCE SERVICE

3. Effective calls (as percentage of calls booked with 85%operators)

4. Delays on trun.k calls Apprcximately1 to 4 hourson main trunkroutes

MIarch <, 1976

ANNEX 4Page 1 of 2 pages

THAILAND

TELEPHONE ORGANIZATION OF THAILAND

Telecommunications Facilities To Be Added Under the FY72-79 Programtacluding Ongoing and Advance Worics)

Phase I: Phase II(FY72-7?) (FY77-79)

Works Under Works UnderFirst Second

Item Unit Project Project Total

A. Local Network -Expansion Works

1. Number of New Exchange Number 8 46 54Location

2. Exchange Capacity] Lines 103,204 55,934 159,138

3. Cables (Local and Pair-Kms 691,980 317,720 1,009,700Junction

4. Lines to be Connected Lines 95,000 50,000 145,000

B. Local Network -Replacement Works

1. Exchange Capacity.W Lines 31,588 2,474 34,o62

2. Cable and Wires Pair-Kms - 28,100 28,100

3. Telephone Sets Number 17,000 17,000

1/Excluding replacement.

2/ Details of Replacement Works: Phase I Phase II TotalIn Metropolitan

reDlace D x Swith crossbar (C 400) 20,000 - 20,000

replace mobile ARFwith crossbar (C 400) 1,000 - 1,000

replace mcbile C 11with mobile C 22 - 384 384

In Provincialreplace mobile C 11, C 22

with crossbar (ARF) 1,568 - 1,568

replace manualwith crossbar (ARF) 8,360 2,090 10,450

replace ARK with ARF 660 - 660

3-l, 3 9 6 2,666 34,062

ANNEX 4Page 2 of 2 pages

Phase I Phase II(FY72-77) (FY77-79)Works Under Works Under

First SecondItem Unit Project Project Total1 2 3 4

C. Long-Distance Network

1. New MicrowaveSystems Number 23 22 45

2. Other TransmissionSystems Number - 31 31

3. Channel Ends Number 3,200 6,500 9,700

4. Trunk SwitchingEquipment Lines L,500 10,800 15,300

31arch 3, 1976

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

PROGRAM AND PROJECT COSTS

Summary

Costs Financing of Foreign Costs (US$ Millions)

Baht (Million) US$ (Million) JapaneseItem Local Foreign Total Local Foreign Total Bilateral IBRD Loans TOT's To Be

Credits 864-TH Proposed Funds Arranged

1. Ongoing Works 402.57 53.24 455.81 19.64 2.60 22.24 2.60 - -

2. Phase I Works - 2,066.57 1,790.51 3,857.08 100.81 87.34 188.15 47.78 37.00 - 2.56 -

First Project

3. Phase II Works - 950.67 979.00 1,929.67 46.37 47.76 94.13 20.93 - 26.oo 0.83 -

Second Project

4. Future (Phase III) 755.00 450.00 1,205.00 36.84 21.94 58.78 - - 21.94

Works

5. Other Investments and 379.04 - 379.04 18.49 - 18.49 - - - -

Capitalized Interest

6. TOTAL PROGRAM 4,553.85 3,272.75 7,826.60 222.15 159.64 381.79 71.31 37.00 26.oo 3.39 21.94

March 3, 1976

I L, LLAND

11Q0101110 0L.l..02110171 12' T7OTLANL (T91

a,nnual Oooeotaesn lrogF5*s* FY1903-70

(U3$ Millions)

FF72-lI ~~~~~~~~~~FY76 FY77 FY7 ---4TOTALItem LocAl Foreig Total L,ocal Foreig Tota] Local Foreig Total Lonal Foneiga Total tonal F n Total Lo al oTotal

ONGOING WC3KS 18.18 2.6o 20.78 1.16 - 1.46 _ - - - - _ - - 19.64 2.60 22.24

PFASE I W03KS

Local E-obosges 2.38 11.35 13.73 1.73 1.58 7.31 120 4.44 5.73 C.29 0.45 0.74 0.09 - 0.09 5.78 21.82 27.60Lol Cables 6.55 5.28 11.83 5.99 5.55 11.54 2.04 1.37 3.11 0.14 - 1.14 0.03 _ 0.03 14.75 12.20 26.95Jotinton Cables o.56 3.18 3.74 1.92 8.17 l.09 6.30 6.12 12.42 1.16 1.54 2.70 _ - - 9.5' 19.31 28.95Civil Wook (Cablet) 5.07 - 5.07 3.4i - 3.41 3.56 - 3.56 0.05 - 7.05 - _ - 12.09 - 12.09SOb-nniber Fa-ilities 2.40 1.25 3.65 1.25 1.79 3.04 0.73 1.12 2.15 o.24 0.96 1.20 0.32 1.10 i.42 4.94 6.52 11.46

Sub-total li)92 39292 30.02 14.30 21.09 35.39 13.32 13.35 27.07 9239 2.95 V3271;1 1.10 1.54;47.50 59.55 107 05

Loag-Di.t-ane NetnorkTrunk Eanbasgos - - _ _ _ _ - - _ _ _ _ _ - _ _ _

Tre2emiatio Oootpscat 029 _ 0.29 1.36 _ 1.36 3.15 5.03 8.38 3.70 9.11 12.81 5.13 690 12.03 13.63 21.24 34.87Sob-total 0.29 .2397- 3315 25 37 9.11 12.8 3926,90 72 2.4 87

0ther Ite-sLand ndi buildings 6.57 - 6.57 6.4o - 6.4o 6.o9 - 6.o9 1.60 - 1.6o o.o4 - o.o4 20.70 - 20.70Iraisiog *nd -oncolt-n.y 0.11 0.78 0.89 o.o4 0.20 0.33 o.04 0.30 0.34 0.04 0.30 o.34 0.05 0.30 0.35 0.28 1.97 2.25Vehtcles 0.42 0.14 o.56 0.52 o.4o 0.92 0.19 - 0.19 - - - - - - 1.13 0.54 1.67Foojeot Iapleentesatio 4.44 - 4.4 1.62 - 1.62 1.12 - 1.12 0.18 - 1.18 - - - 7.36 _ 7.36

aod MiceilaeneoosSub-total 11.54 0.92 12.46 8.58 0.69 9.27 7.44 0.30 7.74 1.82 0.30 2.12 0.09 0.30 0.39 29.47 2.51 31.98

Total Coats 28.79 21.98 50.77 24.24 21.78 46.00 24.51 18.88 43.39 7.40 12.36 1976 266 8.30 13.96 90.60 83.30 173.90

uootisga.cies

Phyistcl - o.48 o.44 0.92 0.49 0.38 0.87 0.15 0.25 o.4o 0.10 .16 o.28 1.24 1.23 2.47Price 1. 0.01 1.20 4.12 0.73 4.85 1.65 1.24 29 .01 0.83 2.84 8-97 2.81 11.78

S.b-t.t.13 0.4 2.12 1.11 5.72 3.29 2.13 0.99 .1 .215

Total Phase 28.79 21.98 50.77 25.91 22.23 48.14 29.10 19.99 49 9. 20 13.85 23.50 7.79 9%29 17.08 100.81 87.34 188.15

PHASE II WORK0 Pro-jct Period

L onal NstbworkLocal EInbaoges 0.24 1.18 1.42 o.48 2.03 2.51 1.13 4.66 5.79 0.94 2.67 3.61 0.21 o.o8 0.29 3.00 io.62 13.62

Lo-l Cabl-c - - - o.i4 0.13 0.27 2.67 6.07 e.74 o.24 - o.24 o.o6 - o.o6 3. 11 6.20 9.31Jor*-ioa Cabls - - - 0.5C 1.41 1.91 0.01 1.71 1.72 2.00 1.40 3.42 - - - 2.51 4.54 7.05Subscribe- Fanilit - - - _ - o.o4 0.26 0.30 0.44 0.93 13 0.07 0.31 0.38 0.55 1.50 2.05

Sub-Lota n t 3W 179 1.2- 1.12 3.57 37 35 Z2.70 1.50 3.4 02784 7l i O 29 0.73 9=;7 887 3

Lo9g-Ditao-e NetookTrunk Excahs-gee - - 0.33 1.35 1.72 1.03 2.83 3.86 0.98 2.84 3.82 0.54 1.98 2.52 2.90 9.00 11,92TolU-ticketing ad Nbmber - - - - - - 1.50 3.90 5.40 0.50 1.10 i.6o - - - 2.00 5.00 7.00

Idsrstif*naboa Equip-estTenosataion Eqoipant o _ _ - .67 1.42 2.09 i.o @ 1.43 1.84 3.27 3.14 .77

-.. i.~~~~~im Eqip-.t R5~~~~_ 1F7 55791.77 Sab-t.tal. - 0 . T92 935 1.7 3.20 8. 15 11.35 5 59 97 7 .2 5.9 872 197 27. 3

ther B adL 0l. 3.61 - 0.61 3.5C - 3.50 5.04 - 5.04 1.61 - i.61 0.19 - 0.19 10.95 - 10.95Vshiblns - _ - 0.5C - 0.50 1.05 - 1.05 o.45 - o.45 _- - 2.00 - 2.00Upgoadstion - - - 0.50 - 0.50 2.50 - 2.50 o.28 - 0.28 0.02 - 0.02 3.30 - 3.30P-oje-t Toplea.station _ _ 0.29 _ 0 0.7 - 0.79 1.47 - 1.47 1.45 - 1.45 4.00 - 4.oo

and MisellansooaSob-tottl o.61 - o.61 4.79 - 4.79 9.38 - 9.38 3.81 - 3.81 1.66 - 1.66 20.25 - 20.25

ToteL Costs 7.85 1.18 2.03 6.28 4.92 11.20 16.43 20.85 37.28 9.95 11.47 21.42 3.97 4,21 8.18 37.48 42.63 80.1S

C..otigencies

Ph7yi- - - 0.13 0.09 0.22 (1.33 0.41 0.74 0.20 0.23 o.43 o.o8 0.08 0.16 0.74 0.81 1.55Pries - - - 0.71 0.10 0.81 2.84 1.72 4.56 3.00 i.46 4.46 1.60 1.04 2.64 8. 4.32 12.47

SOb-totaL - - - 87 ; 0.19 1.03 .127 2.13 5.30 30 9 12 8 5.13 9929

Tstl. Phmss II 0.85 1.18 2.03 7.12 5.11 12.23 19.60 22.98 42.58 13.15 13.16 26.31 5.65 5.33 10.98 4.37 47.76 94.13

3tJTtRE WORMK - 0.25 - 0.25 14.63 4.87 19.50 21.96 17.07 39.03 36.84 21.94 58.78

OR3R IN7E9TMENTS ANE 2.50 - 2.50 3.50 - 3.50 4,54 - 4.54 4.12 - 4.i2 3.83 - 3.83 18.49 - 18.49CAPTr.TTE5 INTEREST

9AL PR0GRAM 50.32 25.76 76 08 3799 27.34 65.33 53.51 42.97 96.48 41.10 31.88 72.98 -33 31 69 70.92 222.15 159.64 381.79

NMgrh 3, 1976

THAILAILD

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Allocation of Loans and Credits(US$ Millions)

Japanese Bilateral Credits IBRD Loans TOT's To BeItem No. 4 TOT-1 TOT-2 TOT-3 OECF 76)4-T7H Proposed Funds Arranged

A. Ongoing Works 2.60 - - - - - - - -

B. Phase I Works

Local Exchange Equipment - 3.48 4.05 _ - 14.29 - - -

Local Cables - - - - - 12.20 - - -

Junction Cables - 3.00 0.21 15.80 - - - - -

Subscriber Facilities - - - - - 6.52 _ _Transmission Equipment - - - - 21.24 - - - -

Consultancy - - - - - 1.97 - - -

Vehicles - - - - - 0.54 - - -

Contingencies - - - - - 1.48 - 2.56 -

Total - _ 4.26 15. 0 21.24 37.00 - -

C. Phase II Works

Local Exchange Equipment - - 10.62 - - - - - -

Local Cables - - - - - - 6.20 - -

Junction Cables - - - 4.54 - - - - -

Subscriber Facilities - - 1 .50 - -

Transmission Equipment - - - - 5.77 - - - -

Trunk Exchanges - - - - - - 9.00 - -

Messag~e Accounting and - - - - - - 5.00 - -

Number IdentificationContingencies - - - 4 357 ° 8

Total 77 0.2 454 57- 27 0-0 0-o-3

D. Future Works - - - - - - - - 21.94

E. Program Foreign Costs (A+B+C+D) 2.60 6.48 14.88 20.34 27.01 37.00 26.00 3.39 21.94

F. Local Costs Financing - 1.03 7.00 - - - -

G. Total Loan/Credit 2.60 6.48 14.88 21.37 34.01 37.00 26.00 3.39 21.94

March 3, 1976

ANNEX 8

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Allocation of Loan 86h-TH

Category Item US$ MillionsOriginal Allo-cation as per I.evisedSchedule 1 of AllocationLoan Agreement (June 1975)

864-TI _

I Telephone Cable 15.11 12.23

II Talephone Exchange Switching 5.90 13.b.5Equipment

III Subscriber Apparatus, associated 6.41 5.10plant and public telephones

IV Transmission Equipment 6.32 -

V Motor Vehicles 0.34 o.56

VI Consultants' Services and Training 1.77 2.01

VII Unallocated (for contingencies) I.15 3.65

TOTAL 37.00 37.00

1/ Transmission Equipment i3 IIow being financed under a Japanese3ilateral Credit.

Marcih 23, 1976

ANNEX 9

TI{AILAND

TELEPHONE ORGANIZATION CF THAILAMD (TOT)

Contingency Provisions in Project Costs Estimates

(US$ Millions)Total Project Costs (FY72-79)Local Foreign Total

Base Costs - 37.L48 42.63 80.11

Physical Contingency 0.74 o.81 1.55

Total - Base Costs plus Physical Contingency 38.22 3.h4 81.66

Price Contingency 2/ 8.15 4.32 12J47

Total Project Costs 46.37 47.76 94.13

Physical Contingency as percentage of 1.97 1.90 1.93Base Costs (%)

Price Contingency aF percentage of Base 21.32 9.9h, 15.27Costs plus Physical Contingency (%)

Assumptions for Annual Increase in Costs Year Ending September 301976 1977 1978 1979

For price increase on Local Costs (%) 1 12 12 12

Fcr price increase on Foreign Costs (g) 10 8 8 8

1/ Local and Foreign base costs for FY72 to FY75 are based on actuals.Those for FY76 to FY79 are estimates based on prices in early 1975.

2/ Price contingency calculations take into account equipment and cablecontracts already awarded and anticipated dates for future awards ofcontractE for the balance requirements of the Project.

3/ Annual price increase factor is computed by cotapounding the rateF ofprice increase in previous years plus one-half the price increasein thb year concerned.

March 23, 1976

ANNiEX 10

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Local and Long-Distance Telephone Development Targets FY75-79

Total

Existing Existing

on Total On

Sept. 30, Installation During Year Ending September 30 Installation Sept. 30,

Item Unit 1975 1976 1977 1978 1979 1976 to 1979 1979

I. LOCAL TELEPIIONE NETWORK

A. Local Telephone Exchanges

1. AutomaticBangkok Number 27 2 2 9 - 13 40

Pr ovinces Number 68 10 17 44 13 84 152

2. ManualProvinces Number 32 (-)15 (-)14 (-)3 (-)32

3. TotalBangkok Number 27 2 2 9 - 13 40

Provinces Number 100 10 2 30 10 52 152

Total Total 127 12 4 39 10 65 192

B. Equipped Capacity

1. AutomaticBangkok Lines 197,668 41,4oo 50,700 46 800 10,000 148,900 326,184

(-)20,000 (-5384 (-)20,384

Provinces Lines 55,228 18,000 14,556 16,408 6,508 55,472 110,700

2. ManualProvinces Lines 10,450 - (-)5,240 (-)4,920 (-)290 (-)io,450 -

3. Total (Net)Bangkok Lines 197,668 21,400 50,700 46,416 1o,ooo 128,516 326,184

)-`rovinces Lines 65,678 18,000 9,316 11,488 6,218 45,022 110,700

Total Lines 263,346 39,400 60,016 57,904 16,218 173,538 436,884

rect Exchange Lines( ine Connec td )

1. AutomaticBangkok Lines 170,302 20,698 19,000 67,000 32,000 138,698 309,000

Provinces Lines 40,o96 15,230 18,975 18,457 11,742 64,404 104,500

2. ManualProvinces Lines 8,487 187 (-)4,975 (-)3,457 (-)242 187 -

(-)8,674

3. Total (liet)Bangkok Lines 170,302 20,698 19,000 67,000 32,000 138,698 309,000

Provinces Lines 48,583 15,417 14,000 15,000 11,500 55,917 104,500

Total Lines 218,885 36,115 33,000 82,000 43,500 194,615 413,500

D. Telephones

1. AutomaticBangkok Number 249,127 30,223 27,740 97,820 50,720 206,503 455,630

Provinces Number 52,987 20,133 25,050 24,360 17,340 86,883 139,870

2. ManualProvinces Number 10,198 260 (-)5,970 (-)4,148 (-)340 260 -

(-)10,458

3. Total (Net)Bangkok Number 249,127 30,223 27,740 97,820 50,720 206,503 455,630

Provinces Number 63,185 20,393 19,080 20,212 17,000 76,685 139,870

Total Number 312,312 50,616 46,820 118,032 67,720 283,188 595,500

II. LONG-DISTANCE NETWORK

A. Transmission Systems

1. Type of SystemsMicrowave Number _ - 16 18 11 45 75

Others Number - - 9 11 11 31 41

2. Channel Ends Number 2,162 - 5,250 3,872 604 9,726 11,888

B. Trunk Automatic Exchange

1. Number of Installations Number 62 - 23 6 - 29 91

2. Equipped Capacity Lines 4,534 2,850 1,646 4,820 5,978 15,294 19,828

March 3, 1976

ANNEX 11

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Estimated Schedule of Disbursements

IBRD Fiscal Year Cumulative Disbursementsand Quarter: at End of Quarter:

US$'000

1976/77

September 30, 1976 2,000December 31, 1976 5,50March 31, 1977 10,000June 30, 1977 13,000

1977/78

September 30, 1977 17,000December 31, 1977 19,000MIarch 31, 1978 20,000June 30, 1978 21,000

1978/79

September 30, 1978 22,500December 31, 1978 23,500March 31, 1979 24,500June 30, 1979 2r',50C

1979/80

Septsmber 30, 1°79 26,000

March 23, 1976

PI-{AILAND

TZLEPT4ONE ORGANIZATION OF THAILAND (TOT)

Growth of local Telephone System

Seotember 3xchange Lines Tncrease Over Fxchange Ratio Telephone Total Telephone 4/

30 of aiuipped Connected Telephones Previous Year (M) Fill_/ Telephones Density2/ Dema2V Availability -

Year Capacity Capacity Lines Telephones (%) to Lines ___

1 2 3 6 7 9 10 11 12

196A L,3,835 }9,941 55,492 - - - 91.11 1.39 0.19 N.A. N.A.

1964 62,165 46,237 65,191 U1.81 15.76 17.47 69.55 1.41 0.22

1965 75,045 53,775 77,733 20.71 16.21 19.23 71.65 1.144 0.25 ,,

1966 83,425 60,209 86,008 11.1 11.96 10.64± 79.17 1.142 0.27 "

1967 85,270 64,561 98,390 2.21 7.2? 14.39 75.71 1.52 0.30

1968 92,1,90 71,868 114,4±19 16.148 11.31 16.29 77.70 1.59 0.31"

1969 107,740 83,o64 134,663 9.97 15.57 17.69 86.37 1.62 0.38

1970 118,1485 95,473 159,959 10.23 14.93 32.07 80.57 1.60 0.142 " "

1971 195,456 136,935 202,02 64.96 43.42 16.41 70.05 1.47 0.55 312,580 43.80

1972 205,050 161,704 235,193 4.90 18.08 8.A7 78.86 1.45 0.61 368,370 46.41

1973 '15,050 175,109 251L,896 3.41 8.?8 6.25 81.42 1.45 o.64 388,258 45.10

1974 247,370 185,531 270,840 15.02 5.95 23.90 74.89 1.45 0.70 433,020 42.84

1975 263,3146 218,885 312,312 6.146 17.98 15.31 83.1? 1.43 0.78 479,100 45.69

1976 302,7146 255,000 36?,928 14.96 16-50 16.21 84.23 1.42 0.89 5214,000 48.66

1977 362,762 ?88,000 409,748 19.82 12.94 12.90 79.39 1.42 0.98 573,000 50.26

1978 420,666 37ns Irf) 527,780 15.96 28.47 28.81 87.96 1.4 ± 1.30 628,000 58.91

1979 436,884 413,500 595,500 3.86 11.76 12.83 94.65 1.44 1.36 687,000 60.19

ProIect Period1980 488,o84 1±5",0n 656,ooo 11.90 9.55 10.16 92.66 1.45 1.146 750,000 60.40

1981 554,881L 1498,5n0 728,00n l.50 10.-04 11.28 89-84 1,46 1.58 800,000 62.50

1/ Ecchange Fill (4) - Lines Connected (Colusnm 3) Eouipped Capacity (Column 2) X 100.

2/ Telephone Density = Telephones (Column 4) per 100 population.

3/ Total Demand = Lines Connected (Column 3) + Anticipated Demand for newr lines.-~~~~~~~~~~~~~~~~~~~~~~~~~~~~

4/ Telephone Availability (%) - Lines Connected (Column 3) . Total Demand (Column 11) X 100.

March 3, 1976

AIJNEX 1.3

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Growth of Local Telephone Network

See attached CMart 9972

March 2,, 1976

THAI LANDTELEPHONE ORGANIZATION OF THAILAND (T.O.T.)

GROWTH OF LOCAL TELEPHONE NETWORK

800

700_

600_

500 r.

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

400~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

20 ow

A~~~~~~~~~~~~~~~~~~

< ~~~~~~~ACTUALS '-f-*|< PROJECTED

T~~~~~~~~~~~

_ / PROGRAM 100 PERIOD

__~~~~~~~~~~~ ~SECOND/ _ ~~~~~~~~~~~~~TELEPHONE_

/ _ ~~~~~ ~ ~~~~~~~~~~~~~FIRST PROJECT:0/ * TELEPHONE

_ ~~~~~~~~~~~~PROJECT

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

1963 1965 1967 1969 1971 1973 1975 1977 1979 1981

YEAR ENDING SEPTEMBER 30World Bank- 9972(R)

ANNEY, 14Page 1 of 2 pages

TlAILAND

TELEPHONE ORGANIZATION OF THAILAND

Return on Investment

Project Period

1. In calculating the internal financial rate of return,a study period has been taken corresponding to the mean life ofthe various items of plant making up the project (Phases I andII), which are assumed to have a composite life time of 20 yearscommencing in 1975.

Costs

2. The estimated project costs exclude import duties andtaxes on TOTK' imports as well as price contingencies. Theaverage rate of import duties is 30% and taxes are paid at therate of 11%.

3. The operating costs were estimated from the incomestatement by assuming that operating expenses, excluding depre-ciation, per exchange line added under the project are attribut-able to the pr,ject.

Revenues

14. The estimates of subscriber deposits are based on thenumber of lines connected under the project.

5. Local service and other revenues were estimated fromthe number of lines connected under the project, and assumingthat the exchange fill relating to these lines would reach 90%.

6. In forecasting toll revenue, it was assumed that theexisting toll plant would be saturated by 1976 and that subse-quent increases in toll revenue, up to the date when the circuitsprovided under the project would be fully utilized, are the re-sult of additions made under the project. The increases in tollrevenue after 1976 have been related to the forecast grcwth intraffic, including the stimulus expected in 1079-80 resultingfrom the introduction of subscriber toll dialing.

ANNEX 14Page 2 of 2 pages

Sunmmary of Costs and Revenues in Constant Prices(Baht Eillions)

Year Const:ruction Operating Subscriber Operating Net CashCosts Costs Deposits Revenues Flow

1972 l.L4 - _ _ (18.4)1973 81.3 - - - (81.3)1974 306.0 - - - (306.o)1975 511.1 2.4 6.8 5.r (501 2)1976 9•1.0 36.9 68.5 72.8 (846.6)1977 965.5 94.9 7U.1 212.5 (773.8)1978 592.1 196.14 160.7 46o.5 (167-3)1979 331.8 272.7 15.7 794.1 205.31980 - 288.0 _ 1,027.3 739.31981 - 283.0 - 1,26C.1 972.11982-9L - 3,74L4. _0 16,381.3 12,637.3

7. The internal financial rate of return on the projectinvrostment is 19% based on this study which equqtes the presentworth of the proiect's construction costs (exc:luding custom dutiesand taxes) and operating costs (excluding depreciation) to thepresent worth of the attributable revenues, including subscriberdeposits.

Sensitivity Analysis

8. A sensitivity analysis was made with the following results:

Rate of Return

10% increase in construction costs 17.3%10% decrease in operating revenues io.5%Combination of the twc variants 15.0%

Mlarch 3, 1976

ANNEX 15

THAILAND

TELEPIIONE" ORGANIZATION OF THAILAND (TOT)

Organization Chart

See attached Chart 9973

-archl , 197I

THAILANDTELEPHONE ORGANIZATION OF THAILAND (T.O.T.)

ORGANIZATION CHART

SCARD CF DIRECTCF1S

MANAGING DIRECTOR

L

DEPARTMENT OF ECONOMICS ANDIDEPARTMENT OF oPERATIoNs DEPARTMENT OF PLANT ENGINEARING I NANCES DEPARTMENT OF ADMINISTRATION OFFICE OF rHE MANAGING DIRECTOR OFFICE OF PLANNING AND PRDJECT

MAINTENANCE AND TECHNICAL CO-ORDINATION ECONOMICS AND STATISTIC l AAEETDVsO ERTRA IIIN lj PLANNING AND PROJECT

MAAGEMENT DIVISION NCETARIAL DIVISIONCONSTRUCTION METHOD CENTER DIVISION DIVISION DIVISION

_ METROPOLITAN OVIN-| BDEOVSOESONLESWITCTIIN AND AUEIT N G OUTSIDE PLANT PLANNING

TELECOMMUNICATION CENTER DIVGSONT RUVNET DIVISION PERSONNEL DIVISION I VANDSADITODIVISION DiVISIN

TELECOMMUNICATION AREA L OG DISTANCE PLANT - REVNUE DIVIS WELFARIE DIVISION DIVISION OUTSIDE PLANT CONSTRUCTION

Il-Al ENGINEERING DIVISION DIVISION~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DiISO

POICATELECMUNICATION OIDN NIERN CONIGOUSO EEOMNCTO OPTRDVSO EEHN WTHN

CENTER DIIINTRAININ CENE NTLAINDVSO

TELECOMMUNICATION AREA TEIADDVELOPMIENT TESROVINTAING DIVISIONLOGDSACPAN

-| CONSTRUCTION CENTER l | WORKSHOP DIVISION S | 1LLING DIVISION

-| COMMERCIAL CENTER l | STORE CENTER

_g LONG DISTANCE PLANT PROCUREMENT DIVISION

| DIVISION

i STORE plVISION 1 World E1nk-99W B

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (T.O.T.)

CLASSIFICATION OF MAN-POWER

Classification Sept.1974 39Pt.1975 Sept.1976 Sep+.1977 Sept.1978 Sept.1979

1. Officers

Technical 756 7i0 848 1,010 1,131 1,208Finance 89 90 100 119 133 1 41Administration 308 312 345 411 460 492

Total 1,13- i;2 yI;7

2, Technicians 2,221 2,280 2,490 2,906 3,323 3,548

3. Telephone Operators 305 313 331 34L 357 369

4. Clerical Staff

Finance 383 393 430 512 573 611Administration 1 550 1 592 1 739 2 070 2 320 2,476

Total 3,0 i 8 7

5. Labor (including semi-skilled) 2,849 2,941 3,102 3,228 4,243 4,675

6. Total Man-powier

Technical 5,033 5,221 5,551 6,018 7,o49 7,912Finance 472 483 530 631 706 752Administrative 2 956 2 997 3 304 3,951 4 785 4 856

Total f,191 10,600 12,4 13,2

7. Number of employeesper 1000 telephones 31 28 26 26 24 23

March 3, 1976

ANlNEX 17Page 1 of 2 pages

THAILAND

TELEPHONE ORGANIZATION OF TIAILAND (TOT)

Suizmary of Telephone Tariffs(Effective September 1, 1975)

B US$

A. RENTAL (per month)

1. Telephone Connections

- Automatic 30 1.46- M¢,anual 50 2.4

2. Telephone Extensions

- Automatic 30 1.L6- Manual 50 2.4t

3. Private Branch Exchanges

- Automatic: 1-2 lines 150 7.32- Automatic: 3-5 lines 300 1b.64- Automatic: 6-10 lines 500 24.39- Automatic: ovrer 10 lines 50 2.44

per line per line

- Manual: 1 line 50 244- Manual: 2 lines 100 4.88- Manual: 3-5 lines 200 9.76- Manual: 6-10 lines 400 19.•1- Manual: 11-20 lines 600 29.27- Manual: over 20 lines 30 1.46

per line per line

B. CALL CHARGE (per call)

1. Telephone Connections

- Automatic 1 O.C5

C. CONNECTION CHARGE

1. Telephone Connections 1,500 73.17(Automatic or Manual)

2. Telephone Extensions

- Tnternal,saxme building 800 39.02- Internal,different buildings 1,000 48.78- External 1,500 73.17

ANNEX 17Page 2 of 2 pages

B US$C. OlflNECTION CILARGE

3. Private Branch Exchanges

- Automatic;. per line 100 4.88r per extension 100 4.88

- MIanual: per line 100 4.88: par extension 50 2.4

D. LONG-DISTANCE CALLS (MANUAL)

Call Charge Between 6 ax.. and 7 p ..

First 3 Minutes Every Additionalor Part Thereof Minute or

Distance Fraction ThereofB US$ B US$

Up to 25 kns 3 0.15 1 0.05Between 25 and 50 lns 6 0.29 2 0.10Between 50 and 75 knms 9 0.44 3 0.15Between 75 and 125 kms 12 0.59 4 0.19Between 125 and 200 lanF 15 0.73 5 0.24Between 200 and 350 kms 18 0.88 6 0.29Between 350 and 600 lcms 24 1.18 8 0.39Between 600 and 900 Ime 30 1.46 10 0.49Over 900 kIs 36 1.76 12 0.59

Note: Duri.ng the night period (7 p.m. to 6 8.r-) the call chargesare half of those during the day (6 a.m. to 7 p.m.).

March 3, 1976

THAIiAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Actual and Forecast Income Statements (1971-1981)(Millions of Baht)

Actual Fore castYear ending September 30: 19721 1972 1973 1974 1975 1976 1977 17 c 1s979 1980 l9ol

REVENUESLocal service 294.9 364.5 407.4 486.2 558.8 722.2 818.5 1,035.1 1,223.5 1,351.2 1,505.6Toll service 86.o 106.6 133.7 146.1 166.5 202.1 243-9 315.7 524.4 745.9 978-7Other 9.5 v 11.6 15.0 16.3 20.8 23.9 0.4 39.6 47.2 55.9Total operating revenues 390.4 480.9 552.7 647.3 7 1. 945.1 1,086.3 1,381.2 1,787.5 2,3 2,540.

EXPENSESStaff remuneration 61.1 76.7 84.8 124.1 205.0 328.8 334.0 408.3 467.8 520.1 620.3Maintenance expense 22.2 24.o 22.0 27.5 35.0 52.1 70.6 90.5 113.6 129.9 152.2Other operating and Admisn. expense 40.6 46.1 67.0 79.2 71.9 74.4 86.7 109.0 135.7 161.9 181.8Bornus pceeeeiLs 9.3 10.6 11.7 13.4 22.8 23.4 24.o 24.2 37.6 48.5 60.9Payment to Gov't equivalent to income taxes 56.5 70.0 71.0 82.6 77.6 77.6 78.7 79.2 124.0 160.2 201.5Depreciation 80.3 115.8 116.3 123.4 136.3 160.9 192.3 274.4 353.6 433.7099Total operating expenses 270. 0 343.2 372.8 4 5-4.6 717.2 7 .. 6 1.232.3 i.3. 1.726 .6

Net Operating Income 120.4 137.7 179.9 197.1 193.0 227.9 300.0 395.6 555.2 690.0 813.6

Other Income (Net) 6.9 4.5 7.7 ih 4.8 (2.) __ L5 0) (5.o) (5.) (4.9)_______ ______ ______225 . 29 .0) ( 6 5.0"et inoume available for fixed charges 127.3 187.6 2116 97 225.9 295.0 390. 550 0 808.7

Fixed charges - interest 4.9 11.7 35.2 40.7 47.9 94.9 133.5 262.1 309.9 338.6 353-7

Lees: Interest charged construction - - 1.8 8.5 8.5 26.7 48.1 36.3 28.5 12.8 2.6

Interest charged to operations 4 . T-9 11.7 32.2 T3 9 135.4 225.8 325 351.1

Net Income 122.4 130.5 154.2 179.4 158.4 157.7 159.6 164.8 268.8 359.2 457.6

Rate of return I 11,1% 9.5% 10.1% 10.5% 9.5% 1Q.2 11.1 11.0 11.7 11.9 12.1Operating ratio 1 69% 71% 67% 70% 74% 76% 72% 71% 69% 68% 68%

Average net plant in service 1,o85.1 1,454.5 1,786.1 1,868.8 2,037.2 2,242.6 2,693.4 3,603.0 4,729.0 5,792.9 6,706.6

/ Ratio of net operating income to average net plant in service.

| Ratio of total operating expense to total operating revenue.

March 22, 1976

TELEPHONE (fRGANlZAlIoIf OF TI!AIfAIN (T' T)

Actual and forecast Balance Sbeetc (1)71-1901)(Millionls of' Balit )

Actua: F'orecast

As of 0eptember 30: 1971 1972 1973 974 7 1976 1977 197 1979 190 19

ASSETSFixed Assets

Plant in service 1,543.3 2,312. 2,426.8 2, 7 05. 4 3,023.1 3,413.2 4,277.9 5,699.2 7,157.9 8,614.2 9,928.8

Less: Depreciation r eserve 415.4 531.' 635.7 758.9 895.1 1,056.o 1 248 3 1,522.7 1 876 3 2,310.0 2 819.9

Set plant in service 1,127.9 1,781.0 1,791.1 1,9I46.5 2,128.0 2,357.2 3,09. 4,176.5 6,304.2 7

Plant under construction 612.6 58.3 170.8 429.5 780.1 1,72 .3 2,842.5 217. 2912.6 2,629.1 2,580.1

Total net fixed assets 7 1,839.3 1,961.9 ,36. 5 .5,872.1 7 H,1 94 2 8 ,933.3 9,689.0

Current AssetsCasli 197.9 276.5 278.0 311.4 156.5 249.7 271.1 255.0 266.1 250-.1 206.6

Subscriber accouwts receivable 93.2 82.8 79.0 127.5 155.4 170.1 166.8 207.5 246.6 304.9 3 4f7. 3

Inventories 65.2 67.3 101.8 81.7 72.5 106.6 122.2 148.1 176.3 195.0 214.1

Other 27.7 33 29.0 8.1 23.7 28.4 41.1 32.3 32.1 27.1 29.6

Total current assets 384.0 8 601.2 642.9 71.14. 837.6

Other Assets 3.6 17.6 14.3 61.3 36.5 41.4 33.3 40.6 48.4 39.7 30.9

TOTAL ASSETS 2,128.1 2,315.8 2,464.o 2,966.0 3,352.7 4.682.7 6.so6.6 7.777-3 8,963.7 1 10.607.5

LIABILITIESEquity

Government investment 513.4 514.7 514.7 514.7 514.7 514.7 593.4 672.6 796.6 814.7 814.7

Subscriber contribution 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6Retained earnings 8s8.o 1,028.5 1,182.7 1,362.1 1520.5 1.678.2 1,837.8 2 002.6 2.2714 2,63o.6 3.088.2

Total equity 1,416.0 1,547.8 1,702.0 1,tt 2, 2,197.5 2,435.8 2, 3,072.6 3,449-9 3,907-5

Long-Term LebtMinistry of Finance 80.0 60.0 40.0 20.0 - - - - - -

Bell Telephone Mrg. Co. 63.4 61.3 54.5 47.7 40.9 34.1 27.3 20.5 13.7 6.9Japan Exim Bank (No. 1) 244.2 264. 1 264.4 254.2 233.8 213.4 193.0 172.6 152.2 131.8 111.4

Japan Exim Bank (No. 4) - 9.8 40.5 47.4 53.2 53.2 49.1 45.0 40,9 36.8 32.7

Japan Exim Bank (TOT 1) - - _ 93.5 120.6 130.0 130.0 130.0 130.0 125.1 115.3

Japan Exim Bank (TOT 2) _- 27.1 99.4 180.5 276.4 299.5 299.5 299.5 288.2

Japani Exim Bank (TOT 3) - - - - 209.6 377.4 438.0 438.0 438.0 438.0

Japan Exim Bank (long-distance) - - - - - - 185.6 481.6 697.2 732.7 732.7

IBRD Loan 864-TIf - - 10.9 82.5 245.3 477.8 632.4 683.1 687.8 656.3 622.5

Proposed IBR1 loanl - - - - - 41.9 346.2 467.7 533.0 533.0 513.8

Borrowinigs - current prograu - - - - - 500.0 1,150.0 1,150.0 1,100.0 1,000.0 900.0

Bor rowinlgs - advance works - - - - - - - 300.0 750.0 1050.0 1435.0

Total long-term debt 387.o 395.5 410.3 572.4 793.2 1,840.5 3,367.4 ', 18.0 7,742.3 510.1 5IB9.6

Less: Current maturities 27.0 26.8 37.0 47.2 27.2 44.2 58.7 110.6 167.7 220.5 30.1

Net Long-Term debt 360.6 368.7 373.3 525.2 76 1,796. 3,308.7 4,077.4 6,6:F 4,?T7,5

Current LiabilitiesAccounts payable 37.6 61.5 26.0 L8.3 67.4 113.9 158.4 121.9 117.4 99.0 107.0

Accrued bonus & Gov't paymernt 65.8 80.6 82.9 96.2 100.4 101.0 i4.o 24.2 37.6 19c.6 262.4

Other liabilities 15.6 15.5 20.2 31.8 43.6 67.6 98.3 125.3 149.3 166.0 184.9

Current maturities 27.0 26.8 37.0 47.2 27.2 44.2 58.7 110.6 167.7 220,5 302.1

Total current liabilities 14404 166.1 223.5 383 9 382.o7 7 3 4 760 r.4

Advance fromi subscribers 81.9 56.4 47.1 14l.2 37.1 10.0 - - - -

Subscriber d.eposits 121.0 155.0 171.4 190.6 266.8 346.9 416.7 630.7 735.7 831.8 945.4

Other liabilities 2.6 3.5 4.1 4.1 4.4 5.3 6.o 7.4 8.8 9.7 10.7

TOTAL LIABILITIES 2,128.1 2,315 8 2,464.o , 96. o 3,352:7 4,682.7 6,506.6 7,777.3 f,3.63-7 575 10,607.5

Long-term debt/equity ratio 20/80 19/81 18/82 ?2 /71 27/73 45/55 58/42 60/40 60/40 58/42 56/44 0

Current assets/current liabilities ratio 2.6/1 2-5/1 2.9/1 2.4/1 1.7/1 1.7/1 1.8/1 1-7/1 1.5/1 1.2/1 1.0/1

March 22, 1976

ANNEX 20THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Forecast Sources and Applications of Funds (1976-1981)(Millions of Baht)

Year ending September 30: 1976 1977 1978 1979 1980 1981

SOURCES OF FUNDS

Internal Cash GenerationNet income available for fixed charges 225.9 2"5-0 39C.6 550-2 585. 8Q8-7Depreciation 160.9 192.3 274.4 353.6 433.7 509.9Total internal cash generation 8 487.3 665. 903.8 1,118.7 1,318.6

BorrowingsJapan Exim Bank (TOT 1) 9.4 - - - - -Japan Exim Bank (TOT 2) 81.1 95.9 23.1 - - -Japan Exim Bank (TOT 3) 209.6 M67.8 6o.6 - - -

Japan Exim Bank (Long-distance) - 185.6 296.0 215.6 35.5 -

IBRD Loan 864-TH 232.5 167.5 78.1 34.0 - -

Proposed Second IBRD Loan 41.9 3,04.3 121.5 65.3 - -

Borrowings - current program 500.0 650.0 - - - -

Borrowings - future works - - 300.0 450.0 300.0 4oo.o

Total borrowings ,074.5 1, 71 7649 335.5 ¶55W

Government investment (equity) _ 78.7 79.2 124.0 18.1 -Subscriber deposits 80.1 _ 69.8 214.0 105.0 96.1 113.6

TOTAL SOURCES OF FUNDS 1,541.4 2,206.9 1,837.5 1,897.7 1,__.4 1,832.2

APPLICATIONS OF FUNDS

Ccnstruction program - current program 1,339.3 1,972.9 1,096.1 654.o - -- future works - 5.0 4oo.o 800.0 1,172.8 1,265.6

Debt ServiceInterest

Bell Telephone Mfg. Co. 2.7 2.2 1.8 1.3 .8 .4Japan Exim Bank (No. 1) 15.7 14.3 12.9 11.5 10.1 8.7Japan Exim Bank (No. 4) 2.9 2.8 2.6 2.4 2.2 2.0Japan Exim Bank (TOT 1) 6.3 6.5 6.5 6.5 6.4 6.oJapan Exim Bank (TOT 2) 7.0 ]1.4 i4.4 15.0 15.0 14.7Japan Exim Bank (TOT 3) 4.2 11.7 16.3 17.5 17.5 17.5Japan Exin Bank (Long-distance) - 3.7 13.3 22.9 27.2 27.9IBRD Loan 864-TH 29.2 41.8 48.2 49.8 48.7 46.4Proposed TBRD Loan 5.6 19.0 35.5 42.7 44.9 43.7Borrowings - current program 21.3 7'0.1 97.8 95.6 89.3 8C.8Borrowings - future works - - 12.8 44.7 76.5 105.6

Total interest 97.59 123.7521 309.9 33 8-6 353.7Less: interest capitalized 26.7 48.1 36.3 28.5 12.8 2.6

Net interest 68.2 135.4 225.5 2T01. 325. 351.1

AmortizationBell Telephone Mfg. Co. 6.8 5.8 6.8 6.8 6.8 6.9Japan Exim Bank (No. 1) 20.4 2D.4 20.4 20.4 2C.4 20.4Japan Exim Bank (No. 4) - 4.1 4.1 4.1 4.1 4.1Japan Exim Bank (TOT 1) - - - - 4.9 9.8Japan Exim Bank (TOT 2) - - - - - 11.3IBRD Loan 864-TH - 12.9 27.4 29.3 31.5 33.8Proposed IBRD Loan - - - - - 19.2Borrowings - current program - - - 50.0 100.0 100.0Borrowings - future works - - - - - 15 .0Total amortizaticn 27.2 42 57 110.6 167.7 220.5Total debt service 122.1 227.7 320.8 420.5 506.3 574.2Less: interest capitalized 26.7 48.1 36.3 28.5 12.8 2.6Net debt service 95- 4 179.6 392, 4 93. 5 571.6

Variation in working capital and otherassets and liabilitiesCash increase (decrease) 93.2 22.4 (16.1) 11.1 (9.0) 39.5Cther than cash increased (decrease) 13.5 28.0 73.0 4o.6 (88.9) (445)Net increase (decrease) 1r7 49.4 5 .7 ) .)

TOTAL APPLICATIONS OF FUNDS 1,541.4 2,206.9 1,837.5 1,897.7 1,568.4 1,832.2

Times annual debt service coverage byinternal cash ganeration 3.2 2.1 2.1 2.1 2.2 2-3

March 23, 1976

ANNEX 21Page 1 of 4 pages

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Notes and Assumptions on Financial Statements

Balance Sheet - Annex 19

Plant in Service and Depreciation

1. Estimated plant in service, 1976-1981, is based on the annualinvestment program detailed in Annex 6 and assumed future works. Thebasis for charging depreciation is stated in para. 6.14 of the report.Assets were transferred to TOT from the Posts and Telegraphs Departmentduring the period 1954-1962 valued at B 50.5 million, and from theGovernment in 1966 and 1970 valued at B 351.9 million. In addition,the Government has over the years provided TOT with funds for investmentamounting to B 112.3 million, making a total Government investmentequivalent to US$25.4 million. Plant retirements are deducted from boththe plant account and depreciation reserve. Salvage from retirement iseither sold or taken to stores. Plant recovered and reinstalled isrecorded in the books at its estimated depreciated value. In the caseof any premature retirement of plant, the plant account and depreciationreserve account will be reduced only to the extent of the estimatedexpired life of the asset.

Plant under Construction

2. The forecasts assume that the amount of plant under construc-tion each year will be the sum of 50% of the plant under construction inthe previous year plus the construction prograia during the current year.This was discussed and apreed with the officinls of TOT'ls PnginoerinRand finance departments.

Cash

3. Forecast cash balances are derived from the Sources andApplications of Funds statement and amount to an average of four months' cashoperating expense.

Subscriber Accounts Receivable

4- Forecasts assume that with improved collections from the

Government, the amount of anuiual subscriber accounts receivable willbe Aquivalent to about six weeks' billings.

Inventories

5. Forecasts assume that inventories will amount to B 450 perconnected exchange line.

ANNEX 21Page 2 of 4 pages

Other Current Assets

6. Other current assets are mainly advances for expenses incurredby TOT staff in connection with the expansion program. Forecasts arerelated to the construction program.

Other Assets

7. Other assets include a deferred charge in connection withconsultancy services, an earlier investment in a telephone equipmentfirm, and funds presently on deposit in a bank to be returned to appli-cants for telephone service.

Government Investment

8. Government investmert consists of funds made available to TOT,assets transferred from both the Posts and Telegraphs Department andGovernment (see paragraph 1 of this annex), and in future from Govern-ment taking up equity in TOT (see paragraph 6.19 of the report).

Subscriber Contributions

9. Subscriber contributions represent a small amount of equip-ment purchased by subscribers which became the property of TOT.

Retained Earnings

10. Retained earnings each year consists of the sum of retainedearnings of the previous year plus net income transferred to retainedearnings in the current year.

Long-Term Debt

11. Long-term debt as of September 30, 1975 amounted to B 7°3.2million equivalent, consisting of outstanding borrowings as follows:

(i) Japan Exim Bank - B 507.0 million (US$24.7 million equiva-lent) at annual interest rates of 5% and 5.75% and termsof 18 and 20 years, including 5 and 7-year grace periods;

(ii) Bell Telephone Manufacturing Comparn - B )40.9 million(US$2 million equivalent) at 8% annual interest and aterm of 10 years;

(iii) IBRD Loan 864-TH - B 2h5.3 million (US$12.0 million equiva-lent) at 7:4% annual interest rate and a term of 20 years,including a 4-year grace period.

ANNEX 21Page 3 of 4 pages

12. Further borrowings during the remaining period of the program1976-1979 are aF follows:

Loans Obtained

(i) Japan Exim Bank - undisbursed balance of B 1,380 million(US$67.3 million equivalent) at interest rates of 4%, 5%,and 5.75% and terms of 18 and 20 years, including graceperiods of 5 and 7 year.

(ii) IBRD Loan 864-TH - undisbursed balance of B 512.1 million(US$25.0 million equivalent) at 74 interest and a termof 20 years, including a 4-year grace period.

Loans/Borrowings to be Obtained

(i) Proposed second IBRD loan - B 533 million (US$26 millionequivalent) at 8.5% annual interest and a term of 20 yearF,including a 4-year grace period.

(ii) Local fund borrowings of B 1,150 million pertaining to PhasesI and II to be raised fromX bonds to be purchased by futuresubscribers and the balance from bonds sold to the public and/orarranged through Government at an annual interest rate of 8.5%and a term of 10 years.

(iii) Borrowings for future works totaling B 75C million (US$36.6million) are assumed to be available as in the past and atsimilar terms (see para. 6.18 of report).

Current Liabilities

13. Current liabilities include accounts payable, accured expenses,the 30% payment to Government and bonus payments for the current year(payable the following year) and other current liabilities. Forecastsassume accounts payable to amount to 15% of the local fund portion of theannual capital investment.

Advance from Subscribers

14. In order to augment funds for capital expansion, TOT hae atdifferent times instituted schemes whereby a new subscriber was requiredto make a lump sum payment. In one of the sch.mes the payment wasB 15,000: B 500 for the cost of connection, B 1,500 set deposit, andB 13,000 as prepaid telephone rental. This scheme was in effect a fewyears when Government abolished it. More recently, in June 197h, TOTinvited applications for telephone service in the metropolitan area wherenew service had become available; an advance payment of B 2,500 was

ANNEX 21Page 4 of;14 pages

required. The number of applicants exceeded the available serviceand TOT is in the process of making a refund to the unsuccessfulapplicants.

Subscriber Deposits

15. This is a non-interest bearing deposit made by each nevsubscriber (B 3,000 in Bangkok and B 1,500 in the provincial areas)and is refundable upon disconnection of service. The annual totalof these deposits is the sum of the deposits at the end of the pre-vious year plus deposits collected during the current year lessrefunds made during the current year.

Statements of Income - Annex 18

Operating Revenue

16. Operating revenue includes (i) local revenue (telephone,rental, call charges, installation fees and rental of auxiliaryequipment); (ii) toll revenue (domestic and international); and(iii) other revenue (yellow page advertising, fees for extra main-tenance and installations). Forecast revenues are based on plannedaverage increase in telephone connections and traffic forecasts ndreflect the new tariffs that became effective on September 1, 19T7.

Operating Expense

17. Forecasts for staff remuneration, maintenance expense, andother operating and administrative expense (wages for temporaryworkers, fuel, and overhead expense) are based on the growth of thesystem and number of staff, with allowances for increases in wagesand cost-of-living allowances and taking into account past experience.Depreciation in the past has been calculated at a composite rate ofabout 5% on average gross plant in service at the end of the year.The same rate is used for the forecast.

Bonus Payments

18. Bonus payments (see para. 6.09) are calculated on net in-come and are considered as part of the remuneration paid thestaff and Board of Directors and are treated as operating expense.

Payment to Government

19. The payment to Government equivalent to income taxes (seepara. 6.08) is assumed to continue at 30% of net income.

Other Income (Net)

20. Other income (net reflects interest earned on TOT's depositso0 cach and foreign exchange loss on long-term debt. After fiscal year19W75, TOT is not expecte>i to have cexcers cash and therefore other incomeis shown to be nil.

March 23, 1976

ANINEX 22

THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TOT)

Bond Issues

Included as a source of local currency funds are TOT bor-rowings of B 1,150 million pertaining to Phases I and II of TOT'sprogram and B 300 million pertaining to assumed future works. Thesefunds will be raised through borrowings consisting of bonds to bepurchased by future new telephone subscribers as a condition toobtaining service, from bonds sold to the public and/or loans arrangedthrough Government. The extent to which the two latter sources areused would depend upon the amount that TOT will be raising from sub-scriber bonds.

TOT in the past has experimented with selling subscriberbonds and is confident that this is a good source of funds to helpfill the local currency financing gap. TOT calculates that withthe number of subscribers to be connected in different parts of thecountry, and with the bonds to be priced at B 30,000 and B 10,000for the Bangkok area depending on whether the purchaser desires tele-phone connection within eight months or later, and at B 1,000 andB 3,000 for the provincial area, depending upon the si~ze of the ex-change, it will be able to raise as much as B 370 million duringfiscal years 1976 and 1977 and B 750 million during 1978 and 1979.Estimates show that the provincial areas would account for about 7%of the total to be raised and the Bangkok area about 93%.

To the extent that subscriber bonds would fall short ofproviding the required local funds, bonds would be sold to thepublic and/or equivalent funds arranged through Governi.ent. Whilethe public bonds would be a new source of funds for TOT, EGAT hassuccessfully issued bonds of this nature in substantial amounts.The procedure has been one where Government has in effect guaranteedthe success of the issue by arranging for a group of financial insti-tutions to accept the entire issue, which is then sold to the publicand any remainder purchased by the institutions.

March 23, 1976

AIEX 23

THAILAND

TELEPHONE ORGANIZATION OF DHAILAND (TOT)

Fiscal Impact of TOT's Operations on Government (1972-1979)

On the basis of forecasts and taking into account the1972-1975 operations, the fiscal impact of TOT's operations onGovernment will be favorable. During the period 1972-1979 GovernmentwiU benefit by taking in B 2,224 minlion as a result of TOT's opera-tions; this compares with TOT receiving B 282 million from Governmentas shown below:

Baht Million

Funds Received by Government

Customs duties and taxes 1,563Annual payment to Government 661

Total 2,224

Funds Received by TOT

Government equity investment 282

Net funds accruing to Government 1,9h2

March 23, 1976

THAILAND

TELEPHONE ORGANIZATION OF TIHAILAND (TOT)

Performance Indicators

Item )$75 1976 1977 1978 1979 1980 1981

Working Connections 218,885 255,000 288,000 370,000 413,500 453,000 498,500

Telephones 312,312 362,900 409,700 527,800 595,500 656,000 728,000

Channel Ends 2,162 2,162 7,400 11,200 11,860 20,000 28,000

Trunk Automatic Exchange 4,534 7,380 9,030 13,850 19,830 27,000 35,oo0(Capacity in Lines)

Total Operating Revenue per 3,668 3,991 4,001 4,198 4,563 4,950 5,339Working Line (average) in Bahts

Total operating Expense (Net of 2,039 2,349 2,188 2,162 2,243 2,356 2,557Depreciation) per Working Line(average in Bahts)

Rate of Return on Average Net 9.5 10.2 11.1 11.0 11.7 11.9 12.1Assets (%)

Operating Ratio (%) 74 76 72 71 69 68 68

Project Period _ _L

March 23, 1976

THAILAND

TELEPHONE ORGANIZATION oF THAILAND (TOT)

Performance Indicators

Item 1975 1976 1977 1978 1979 1980 1981

Working Connections 218,885 255,000 288,000 370,000 413,500 453,000 498,500

Telephones 312,312 362,900 409,700 527,800 595,500 656,ooo 728,000

Channel Ends 2,162 2,162 7,400 11,200 11,860 20,000 28,000

Trunk Automatic Exchange 4,534 7,380 9,030 13,850 19,830 27,000 35,000(Capacity in Lines)

Total Operating Revenue per 3,668 3,991 4,001 4,198 4,563 4,950 5,339Working Line (average) in Bahts

Total Operating Bxpense (Net of 2,039 2,349 2,188 2,162 2,243 2,356 2,557Depreciation) per Working Line(average in Bahts)

Rate of Return on Average Net 9.5 10.2 11.1 11.0 11.7 11.9 12.1Assets (%)

Operating Ratio (%) 74 76 72 71 69 68 68

Project Period .

March 23, 1976

100n

f THAILAND

TELEPHONE ORGANIZATION OF THAILAND (TO.T)2zo B U R M A J Doh.angrtl . 1972 -1979 DEVELOPMENT PROGRAM 20

' -i'fl HIGH CAPACITY TRANSMISSION SYSTEMS( Mae HongSonn\BrE' Khao Maa Oak

1g Bq~~~~mn Pako Thang FPhayao

{ ZKhao Ha agK(a Ban Rai Na Dieo

Nihana Mai *Barap D Mon loan

C. Lamphon OKhon ran onh KThalal Non B Sa* Laang (han Ban Ban hoai-Bai Tun

_t ~~~~~~Pa Bang Pana long (wang \

'LOKn Chh ii L A O S

< 9atXqnkh~~~~~~ ~~aplaa Chan loa Vd Noo nOalm~~~~~05 ~ ~ ~ ~ Elon, Udon ~~~~~~~~~~~~Than Nalkhon Pnanom

= Ubl ~~~~~~~~~~~S.khoth.i^ Nonq B.. Ltm Ph.sP h upa p Sako ahn

J Maa Tk h,nan ,,-WangThong Ban Boa, Yang Naloaa Ban Hoa Bong Tha

,4 '= X tL~~~~~Khan-KO Kna-Pnn Koanai ; CuPhqaa Mktnl

70 WngOao PhnIM,Con,Ph,a,an h Ha .

r @; t = tt X \ 5 ~~~~Kampoaennae * Phhcabn U.lKn K.0 Ba Chhnaonhah

== V R _ -a Q x J ~~~~~~Bang Mun Nahif Tanan Bin Boian Bhnabot_lapnoum 100Ab

C-phagi Nah M amnng Cha,ndan Ban Ta Rnhoanhareni

) t g ~~~~~ I t <1/ C k Ni v -~~~Bol am nbugatahan

= ;I:r - N Suoonn Buri- ona olo no;anC Phannn Mn n Ca

1g S 2 2 5 N =~ ?; j 9 songPh, NongS kh..

' B ' ' |ancha Boa Bng Bang a-,n Wang Nhan 0hb n Bo. PA-

;DAMA1 V i K { !, j T kano Sar .Na K-h

CA~~~~~~~~~~~~~~~~~ Sap haakhn B, -

' ; ' - _ = ' =1 T a&Ph, nkr OF =fa

0;~~~~~~~~~~~~~11 8.X B.A DMh B- t g9d Nt = nhb Bri

Th - - I: ; { : t; E 2 2 0ABRATh 0000W

; I> r gTh. itiG=Sfiffi,; aF-r,7{ OMIA ,EP=ATORR-T

MoB BWa K T on w ThqSng Bno 0 _ cyV !LA K6; qji BUTM2A <B'

f~~~~~~~~~~~~~~~~~ ~ Baoah '0 -E on noh S I'

; t t i = ; 0 n~Ba Yai Oatnnn Tha a ls S r;,ta

; K WWTi4rS 5t; 0; 0 thaano Baan Knomq3k ug|Pd 0> MAiA

b3iB 20 300 -IGFk.

:~ ~ ~ ~~~~Bna noo ; MALAYSIA-.:. IDNS',;o

Ph-hn...-.oIWO 200 o0 -s -~~~~~RY_

A NA4 MLE SNGBOSfCh-h.WH L ~ ~ ~ ~ ~ ~

D~ ~~10 AASI ttOEI ~