Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 17254-FIJ

THE REPUBLIC OF FIJI

THIRD TELECOMMUNICATIONS PROJECT(LOAN 3074-FIJ)

IMPLEMENTATION COMPLETION REPORT

December 31, 1997

Teleconimunications and Informatics DivisionEast Asia & Pacific Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Fiji Dollar (F$)Parity: F$ 1 = US$ 0.693 as of Aug 31, 1997

Equivalency of 1 US$ in F$ since 1989 (Annual Average)1989 0.663 1993 0.6541990 0.694 1994 0.7081991 0.680 1995 0.7001992 0.639 1996 0.723

WEIGHTS AND MEASURESMetric System

FISCAL YEAR OF BORROWERJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

CAS - Commodities Assistance Support Program (Australian)CPE - Customer Provided EquipmentDEL - Direct Exchange LinesEIB - European Investment BankF $ - Fiji dollarFPTL - Fiji Posts and Telecommunications LimitedHF/VHF - High frequency/very high frequency (radio transmission)IBRD - International Bank for Reconstruction and DevelopmentICB - International Competitive BiddingIDD - International Direct DialingIRR - Internal econormic Rate of ReturnMIS - Management Information SystemMOF - Ministry of FinanceOR - Operating RatioPCO - Public Call OfficePCR - Project Completion ReportPEU - Public Enterprise UnitPPAR - Project Performance Audit ReportPPF - Project Preparation FacilityP&T - Posts and Telecommunications DepartmentROR - Rate of ReturnRWL - Revenue per Working LineSOE - Statement of ExpendituresSTI - Singapore Telecom InternationalTFL - Telecom Fiji Limited

Vice President: J. M. SeverinoDirector: Klaus RohlandSector Manager - FPD: Hook Mon ChungStaff Member: R. Peter:Wright

FOR OFFICIAL USE ONLYTable of Contents

Page No.

Preface

Evaluation Summary ........................................................ i

Part I: Project Implementation Assessment .1

A. Background .IB. Project Objectives .2C. Achievement of Project Objectives .3D. Implementation Record and Major Factors Affecting the Project 8E. Project Benefits and Sustainability .8F. Bank's Performance .9G. Borrower Performance ................ 9H. Assessment of Outcome .................................................. 10I. Key Lessons Learned ................................................. 10

Part II: Statistical Tables ....................................................... 11

Table 1: Summary of Assessments ................................................. 12Table 2: Related Bank Loans/Credits ................................................. 14Table 3: Project Timetable ................................................. 15Table 4: Loan Disbursements: Cumulative Estimated and Actual .... 16Table 5: Key Indicators for Project Implementation .......................... 17Table 6: Key Indicators for Project Operation ................................... 18Table 7: Studies Included in Project ................................................. 19Table 8A: Project Costs ........................................ 20Table 8B: Project Financing ................................................. 21Table 9: Economic Costs and Benefits .............................................. 22Table 10: Status of Legal Covenants ................................................. 23Table 11: Compliance with Operational Manual Statements ............ 27Table 12: Bank Resources: Staff Inputs ........................................... 28Table 13: Bank Resources: Missions ............................................... 29

Appendices: ....................................................... 30

A. Map IBRD 21266

This document has a restricted distribution and may be used by recipients only in theperfornance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

IMPLEMhENTATION COMPLETION REPORTTHE REPUBLIC OF FIJI

THIRD TELECOMMUNICATIONS PROJECT(LOAN No 3074-FIJ)

Preface

This is the Implementation Completion Report (ICR) for the ThirdTelecommunications Project in The Republic of Fiji, for which IBRD Loan 3074-FIJin the amount of US$ 8.1 million was approved on May 25, 1989 and made effectiveonJanuary5, 1990.

The loan had an extension of one year with a closing date of December 31,1996. Final disbursement took place on March 13, 1997 at which time a balance ofUS$ 542,468.10 was canceled. Cofinancing for the Project was provided through theAustralian Commodities Support Program (ACS) and the European Investment Bank(EB).

The ICR was prepared by R. Peter Wright of the Telecommunications andInformatics Division (IENTI) and reviewed by Emmanuel Forestier, PortfolioManager, Telecommunications and Informatics Division (IENTI); Jamil Sopher,Principal Financial Advisor, Finance & PSD Sector Unit (EASFP) and ElizabethBrouwer, Senior Country Officer (EACNI).

Preparation of this ICR is based on material in the project file. The draftreport was reviewed with the imnplementing agency, which contributed comment, aswell as financial and performance data. The draft report was provided to the Borrower,and despite repeated requests for a contribution to the report, no response was received.

IMPLEMENTATION COMPLETION REPORT

THE REPUBLIC OF FIJI

THIRD TELECOMMUNICATIONS PROJECT

LOAN No. 3074-FIJ

Evaluation Summary

Background

1. The implementation of the Third Telecommunications Project in theRepublic of Fiji, which was supported by IBRD Loan 3074-FIJ in the amount of US$8.1 million, was under the supervision of the Government's Ministry of Finance (MOF).Provision was made to on-lend through a Subsidiary Loan Agreement US$ 7.6 millionto the Fiji Post and Telecommunications Limited (FPTL). The Loan Agreement wassigned on September 25, 1989, became effective January 5, 1990, and the Closing Datefor the Loan was December 31, 1996.

2. During a mutltisector mission in July 1986 the Government requested Bankassistance in the telecommunications sector. A Bank review mission identified the needfor (a) improvements in the policy and regulatory framework, (b) changes ininstitutional arrangements, (c) an institutional development plan and (d) additionalpreparatory work to ensure the soundness of P&T's investment programn. The Bankapproved a Project Preparation Facility (PPF) of US$ 450,000 in 1988 to provideassistance to the Government and P&T to help draft a sector policy and necessarylegislation, and to plan in detail the restructuring of P&T into a limited company.

Project Objectives and Description

3. The stated objectives of the project were to: (a) assist the Government to establish anappropriate policy and regulatory framework in order to improve the operating environmentof the sector; (b) help to restructure along commercial lines to enhance customer focus andincrease revenue generation and operational efficiency; (c) strengthen P&T through aprogram of institutional development; and (d) help to finance the expansion andmodernization of telecommunications facilities to increase the range of services available tobusiness subscribers and to improve the quality of service, and thus help stimulate growth andinvestment.

4. The project was estimated to cost US$ 47.9 million (F$ 68.5 million), with a foreigncost of US$ 30.0 million; including IBRD financing of US$ 8.1 million for local distributioncopper cables, with co-financing of US$ 7.4 million by Australian Commodities AssistanceSupport Program for digital switches, and US$ 6.4 million from the European InvestmentBank for digital microwave transmission and multiplex equipment, fiber optic cables, and

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HF/VHF radio and rural radio stations. FPTL was to finance the rest of the physical plant at acost of US$ 26.0 million.

Sector Reform

5. The Fiji Telecommunications and Postal Act, provides for authority and control oftelecommunications and postal operations by the Ministry of Communications,Transportation and Works. Telecommunications services in Fiji are provided by two entities,originally the Post and Telecommunications Department (P&T), a department of the Ministryof Communications, Transportation and Works which provided domestic telecommunicationsservices, and FINTEL, a private corporation 51 percent government-owned (49% owned byCable and Wireless Company of the UK), which provides international telecommunicationsservices. P&T was also responsible for postal services and sector regulation. As aprerequisite for the project, the Posts & Telecommunications Decree, enacted in November1989, led to the creation of FPTL, a wholly government-owned corporation and the creationof a separate regulatory unit, effective January 1, 1990. On July 1, 1996, a separation ofpost and telecommunications occurred, creating Telecom Fiji Limited (TFL).

6. In October 1993, the Government adopted a comprehensive public enterprise reformprogram directed to increase the efficiency of Government commercial enterprises. In 1995,the Government's Public Enterprise. Unit (PEU) initiated action to evaluate the option ofprivatization of the telecommunications sector. The PEU engaged a consultant, financed bythe Loan, to (a) study the present telecommunications law and telecommunications operationsof TFL and FINTEL; (b) provide recommendations for the regulation of the sector; and (c)provide recommendations on how to sell a minority share of TFL. The consultant report wassubmitted in June 1996, the Cabinet accepted the recommendations, and has instructed thePEU to engage consultants to assist the Government to undertake restructuring of the industryand to act as advisors for the privatization of the restructured TFL in the future. The Banksupported assistance to Fiji through a New Zealand Aid Fund.

Project Achievements and Results

7. Institutional Objectives. Within the framework of this project, institutionalobjectives for FPTL included: a managerial development program; and a "twinning"arrangement with a developed communications company to enhance FPTL's managerialand technical capabilities. Training of 12 middle and senior managers-for 60 person-months was completed. The twinning arrangement with Singapore TelecomInternational was structured in two phases: the first to prepare a report onrecommendations to change FPTL operations to a commercial enterprise, which wereinstituted successfully, and the second for "on-the-job training" of FPTL personnel, forwhich an assignment for Materials Management was completed. In 1991, the LoanAgreement was modified to enable the Government to use unallocated funds to providetechnical assistance, training and equipment to the newly created Regulatory Unit.Unfortunately, regulatory staffing was delayed and training subsequently postponed inlight of the public enterprise reform activity (see paragraph 6).

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8. Staffproductivity. The target staff ratio for 1994 of 26.1 staffY1,000 workinglines was not achieved (actual 31 staff/1,000 working lines). Subsequently, staff levelshave declined significantly (see table 5), to better project target figures by 1996.

9. Operational targets for telecommunications activities. FPTL's physical targetat the time of project preparation was to increase the switching capacity from 51,198lines in 1987 to 69,000 lines by 1994 (an increase of 18,000 lines) and increase theworking lines from 34,001 in 1987 to 56,700 (an increase of 22,700 services). Theactual achievement was slightly greater, and FPTL also replaced 35,460 analog switchlines in this period. Rural public call office (PCO) development was targeted to grow to249 by 1994, and achieved 264 by 1995 (see Table 5).

10. Implementation schedule. Procurement of digital exchanges and outside plantcables was to occur over the period 1989 through 1993, with installation ready-for-service progressively from 1991 to 1995. Actual procurement of switching equipmentand availability for service was on schedule. Local distribution cables were procured in1989, 1992, 1994 and 1995. 27,300 cable pairs were placed in the 1990-1995 period(an increase of 12,300 over the project target). Digital microwave transmission systemswere placed on schedule. A 150 station trunked radio system (TRS) was installed onthe main island of Viti Levu to replace the rural radio telephone system.

11. Objectives of service quality. The quality of service improved during projectimplementation. Faults/working line/year increased marginally, however average linesfaulty declined and speed of fault clearance improved significantly. The call completionrate improved to standards enjoyed in more developed countries.

12. Cost ofFinancing The actual cost of the project from 1990-1996 is US$ 104.86million (F$ 150 million), with US$ 7.56 million (93% of the approved loan) disbursedby IBRD, US$ 1.26 million for institutional development and US$ 6.3 million to meetphysical objectives. Co-financing expenditures of US$ 16.2 million were incurred.

Implementation Experience and Results

13. Government performance at the preparation stage is rated highly satisfactory, butit deteriorated during project implementation. Adequate support for the creation of aneffective telecommunications regulatory unit was lacking, and development of anappropriate tariff policy never occurred.

14. FPTL suffered from a high turnover of senior management during the period1991 to 1994 contributing to difficulties in meeting financial covenants. It has sincerecovered from most of its financial problems and developed a managerial team.

15. Bank perfortnance in the preparation and approval phase is also rated highlysatisfactory. Bank supervision experienced a high turnover of task managers (four fromproject preparation to closure), resulting in a lack of consistent support to FPTL througha period of tumultuous change from a public to private sector organizational climate.

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Although most physical objectives were achieved, the Bank's role in developing aneffective regulatory agency proved inadequate, as little was achieved. Overall then, theBank's supervision of the project is considered as less than satisfactory.

Project Benefits and Sustainability

16. The benefits of the project are related to the improvement of services provided tosubscribers and the impact on the economic activity of the islands. Specifically, theyare: (a) an increase in the quality and coverage of telecommunications services; (b) theintroduction of new telecommunications services that impact the business and ruralcommunities; (c) the creation of a commercial telecommunications operation withimproving profitability; and (d) implementation of institutional development activitiesin operating company leading to more commercial operations and customer orientation.The Project is considered satisfactory in achieving its development objectives.

17. The organizational split between post and telecommunications activities,although not an objective of the project, will provide the basis for furthercommercialization and privatization of TFL. The Government, through the PEU, ismoving towards competition in the sector and the privatization of TFL. The significantinvestment in physical plant over the past five years has positioned TFL well forcontinued expansion and development of services. Issues related to regulation and tariffreform remain and need to be addressed to affect the changes desired. In respect of thepositive climate that exists for continuing reform of the sector, both within theGovernment and TFL, project sustainability is highly likely.

18. FPTL achieved the overall objective of the project in line with Governmentpolicy, even though the Company and the Government have gone through a greatcultural, political and economic change.

Key Findings and Lessons Learned

19. The key lessons learned are as follows:

(a) Implementation and the achievement of development objectives are cruciallydependent on continuity of staff on the Bank's side, as well as the frequency ofBank supervision visits and consultations and the adequacy of the composition ofits mission teams. This is vital when the implementing agency is going through atransition from public to private sector orientation to customer service, evolvingfrom public sector personnel policies to a commercial operation, and is beingprepared for competition and privatization.

(b) The Bank has a responsibility to educate the Borrower and the implementationagency on the requirements of the legal covenants and the implication of non-compliance and must play a continuing role in assisting the Borrower in resolvingproblems in meeting such covenants in a timely fashion.

IMPLEMENTATION COMPLETION REPORTTHE REPUBLIC OF FIJI

THIRD TELECOMMUNICATIONS PROJECTLOAN No. 3074-FIJ

PART I: PROJECT IMPLEMENTATION ASSESSMENT

The implementation of the Third Telecommunications Project in the Republic of Fiji,which was supported by IBRD Loan 3074-FIJ in the amount of US$ 8.1 million, was under thesupervision of the Government's Ministry of Finance (MOF). Provision was made to on-lendthrough a Subsidiary Loan Agreement US$ 7.6 million to the Fiji Post and TelecommunicationsLimited (FPTL). The Loan Agreement was signed on September 25, 1989, became effectiveJanuary 5, 1990, and the Closing Date for the Loan was December 31, 1996.

A. Background

1. In accordance with provisions of the Fiji Telecommunications and Postal Act, authorityand control of telecommunications and postal operations is vested in the Ministry ofCommunications, Transportation and Works. Telecommunications services in Fiji are providedby two entities, originally the Post and Telecommunications Department (P&T), a department ofthe Ministry of Communications, Transportation and Works which provided domestictelecommunications services, and FINTEL, a private corporation 51 percent gcvernrnent-owned(49% owned by Cable and Wireless Company of the UK), which provides internationaltelecommunications services. P&T was responsible as well for postal services and sectorregulation.

2. Two previous telecommunications projects, IBRD Loan 833-FIJ (1972-1976) and Loan1140-FIJ (1975-1981) with a total value of US$ 7.2 million, were made available to P&T for theconstruction of telecommunications infrastructure, and institutional development. ProjectCompletion Reports (PCR) and Project Performance Audit Reports (PPAR) considered that bothprojects had successfully achieved their objectives of (a) helping to expand basic service in urbanareas and provide service to remote outer islands; (b) strengthen P&T project implementationfacility and improve training of technical staff; and (c) increase P&T's financial autonomy byseparating its accounts from the Government's and establishing a commercial accounting system.During project implementation, the Bank helped P&T to obtain much-needed tariff increases.

3. During a mutltisector mission in July 1986 the Government requested Bank assistance inthe telecommunications sector. A Bank review mission in November 1986 identified the needfor (a) improvements in the policy and regulatory framework, (b) changes in institutionalarrangements, (c) an institutional development plan and (d) additional preparatory work to ensurethe soundness of P&T's investment program. At Government request, the Bank prepared anoptions paper "Restructuring of the Telecommunications Sector, Options for Fiji", whichaddressed the issues of telecommunications policy, restructuring options, a regulatory regime,

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international services, separation of posts and telecommunications, and future P&T organization.The paper was instrumental in assisting an Interministerial Committee' in March 1987 in areview of the status of P&T to identify the key issues involved in sector restructuring and thepros/cons of alternative options. The Govermnent planned to take a decision on the restructuringof P&T in May 1987 following national elections, however this was delayed by govermmentalcoups in May and September 1987. In January 1988, the Government decided upon restructuringP&T as a private company, 100% state-owned.

4. In preparation for the Third Telecommunications Project, P&T agreed to initiateconsultant studies on (a) demand review, development of the network and review of theinvestment program, (b) tariff review and (c) assessment of computerization requirements forP&T. The first study was financed by UNDP/ITU and the latter two studies by P&T. The threestudies were completed in late 1987 and made available to the Bank. A condition established bythe Bank for Board presentation of the Third Telecommunications Project loan was Governmentapproval of necessary changes to the Telecommunications Act to create a post andtelecommunications corporation, and an agreed action plan of key activities for restructuring ofP&T. At the request of the Government, the Bank approved a Project Preparation Facility (PPF)of US$ 450,000 in June 1988 to provide assistance to the Government and P&T to help draft asector policy and necessary legislation, and to plan in detail the restructuring of P&T into alimited company. "Policy consultants" were appointed in July 1988, and "restructuringconsultants" in January 1989.

5. During the 1988 appraisal for the Third Telecommunications Project, it was found thatthe telecommunications sector in Fiji was average for Pacific Island Countries, but well abo-veaverage for developing countries, with 34,000 direct exchange lines (DEL) in service at the endof 1987, for a telephone density of 4.7 lines per 100 population. The long distance network wascomposed of analog microwave facilities that linked main exchanges in the two large islands ofViti Levu and Vanua Levu and some minor islands. There were few dedicated networks, mainlyfor the use of the electricity authority and the army. International direct dialing (IDD) wasintroduced only in November 1987. Existing telex capacity exceeded demand and was expectedto decline as telex service was replaced by facsimile and data transmission. An estimated 70% oftelecommunications revenues was derived from government, parastatal and business subscribers.Rural areas were poorly served with only 3,000 exchange lines for a population of 450,000 (0.7lines per 100 population). Service was by small manual exchanges and very high frequency(VHF) radio telephone public call offices (PCO), with limited operating hours.

B. Project Objectives

6. The Project was developed in line with Governmental goals and objectives to increaseaccess to modern and efficient telecommunications services in urban and rural areas and toincrease the commercial efficiency of entities in the telecommunications sector. The Projectaimed to improve the availability of and access to modern telecommunications services in Fiji

Members included the Permanent Secretaries of the Ministry of Finance, Ministry of Economic Planning, the PublicService Commission, and the Posts & telecommunications Department in the Ministry of Communications, Transport andWorks.

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by: (a) assisting the Government to establish an appropriate policy and regulatory framework inorder to improve the operating environment of the sector; (b) helping to restructure alongcommercial lines to enhance customer focus and increase revenue generation and operationalefficiency; (c) strengthen P&T through a program of institutional development; and (d) helpingto finance the expansion and modernization of telecommunications facilities to increase the rangeof services available to business subscribers and to improve the quality of service, and thus helpstimulate growth and investment.

7. The IBRD component of the Project in support of P&T's 1990-1994 Investment Programwas structured to finance cables and other materials to increase the local distribution network by15,000 DELs, or approximately 80,000 km-pair of cables. IBRD financing for this componentwas appraised at US$ 7.0 million, including contingencies. Grant funds provided throughAustralia's Commodities Assistance Support (CAS) Program would finance purchase of digitalswitching equipment (13,312 lines for expansion and 2,400 lines for replacement at a cost ofUS$ 7.4 million equivalent). A European Investment Bank (EIB) loan (US$ 6.4 millionequivalent) would finance digital microwave transmission and multiplex equipment for 10sections ("hops"), junction fiber optic cables, HFNVHF radio for 4 hops and 60 rural radiotelephone stations as required for the 1989-1992 investment period. P&T would financetransmission equipment required for the 1993-1994 investment period, as well as subscriberpremises equipment, data equipment, new buildings, vehicles, tools and computer equipment(US$ 26.0 million equivalent).

C. Achievement of Project Objectives.

Sector Reform

8. Enacting the Posts & Telecommunications Decree 1989 led to the creation of FPTL andthe separation of regulatory and operational functions, effective January 1, 1990. FPTL was awholly government-owned corporation responsible for postal services and all domestictelecommunications services in Fiji. FPTL and FINTEL were issued exclusive 25 year licensesto operate domestic and international telecommunications services respectively. In 1994,Vodofone Fiji Limited (51% FPTL and 49% Racal-Vodofone UK Limited owned) was granted alicense for operation of cellular wireless service throughout Fiji. Separation of post andtelecommunications functions of FPTL required asset evaluation, which was completed inDecember 1995. Effective July 1, 1996, Post Fiji Limited (PFL) and Telecom Fiji Limited(TFL) were created as separate government-owned corporations.

9. Regulation The regulatory regime was established in March 1990. The DirectorTelecom, Ministry of Information, Broadcasting and Telecommunications is also Director of theTelecommunications Regulatory Unit. The responsibilities of the unit encompasses licensingoperators and frequency allocation, customer provided equipment (CPE) type approval,registration of approved contractors, enforcement and administration functions related to qualityof service, network interconnection, rural service and tariff approval. Early in 1993, theGovernment proposed establishing a separate statutory regulatory body for telecommunicationsand sought Bank assistance with defining the roles, organization and staffing of this organization,

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together with the necessary legal advice and assistance in drafting legislation for this body.Although the Bank indicated its support for this initiative, regulatory restructuring was postponedby the Government later in 1993 pending development of a broader initiative of public enterprisereform (see paragraph 10) that was thought might lead to a need for regulation of additionalsectors2.

10. Privatization In October 1993, the Government adopted a comprehensive publicenterprise reformn program directed to increase the efficiency of Government commercialenterprises. A Privatization Committee was established to oversee the Public Enterprise ReformProgram and a Public Enterprise Unit (PEU) was established to develop and implement theprogram. The PEU initiated action in 1995 to evaluate the option of privatization of thetelecommunications sector. With support from the Bank, the PEU engaged a consultant,financed by the Loan3, to (a) study the present telecommunications law and telecommunicationsoperations of TFL and FINTEL; (b) provide recommendations for the regulation of the sector;and (c) provide recommendations on how to sell a minority share of TFL. The consultant reportwas submitted in June 1996, the Cabinet accepted and agreed with the consultantrecommendations in August 1996, and instructed (Decision-CP(96)177) the PEU to engageconsultants to assist the Government to undertake restructuring of the industry and to act asadvisors to the Government for the privatization of the restructured TFL. PEU sought furtherfinancial assistance from the Bank4 to permit engaging legal consultants to introduce requiredlegislative changes and introduce competitive licenses in 1998, and financial consultants tosubsequently handle the partial privatization of TFL. In the spring of 1997, the Bank attemptedto obtain an IDF Grant to support this effort, but was unsuccessful. Subsequently, assistance toFiji through a New Zealand Aid Fund was initiated and supported by the Bank.

Institutional Development

11. Regulatory institutional objectives. In 1991, the Loan Agreement was modified to enablethe Government to use US$ 250,000 of the unallocated funds to provide technical assistance,training and equipment to the newly created Regulatory Unit. The Government engagedconsultants who specified three additional stafflskill requirements, regulatory training, and testequipment and vehicle requirements. By mid 1992, additional personnel were not in place5 andtraining proposed for the fall was canceled by the Government. Despite encouragement from the

2 At this time, the Government anticipated the need to regulate the power and water sectors if privatization was introduced. TheGovernment wished therefore to consider the options of a less restrictive regulation model as introduced in New Zealandfor telecommunications and/or the creation of a single regulatory agency to oversee all three sectors.

3 December 1995 the Govermment requested the Bank to extend the Closing Date of the Loan by one year to December 31,1996 to permit funding of the consultant study, as well as to permit FPTL to complete procurement of the fourth tender foroutside plant copper cables.

4 The PEU wished to utilize the uncommitted balance of the Loan to finance further consultant activity. TFL also sought toutilize the funds for procurement of additional cables. The Government however did not request a second extension to theClosing Date for the Loan, so neither activity was funded through the Loan in 1997.

5 Approval of Telecommunications Regulatory Unit staffing was delayed by lack of MOF approval of additional personnelslots and Public Service Commission approval of the required positions.

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Bank in its missions in 1993-1994 to undertake the required training, it was only in October 1995that the Director of the Telecommunications Regulatory Unit requested funding for an ITUconsultancy on establishment of a fully operational telecommunications regulator, andsubsequently in 1996/1997 overseas training for of 12 months regulatory staff. As the PEUstudy (see paragraph 10) was to be initiated, the Bank suggested that a fiurther consultant studywould cloud the issue of regulation independent from the broader issue, and proposed thattraining be delayed until the PEU study was complete in 1996 and Government action resolvedrelative to regulation. As the Government did not request a further extension to the Loan ClosingDate in 1997, the issue of regulatory training did not get resolved.

12. FPTL reorganization. FPTL underwent significant restructuring in 1993. Subsequent toa massive operating cost increase (27%) in 1991, due in part to a rapid increase in labor costs6,the Board of Directors of FPTL hired Arthur Anderson Consulting in 1992 to prepare a strategicbusiness plan for the company. A restructuring recommendation of the study7 led to theestablishment in FPTL of five strategic business units: Post, Telecom Customer Services andMarketing, Telecom Network, Finance & Accounts, and Support Services. In December 1994, asixth business unit was introduced - New Business, responsible for introduction of new services.

13. FPTL management. The unusual turnover of senior management and the Board ofDirectors over four years 1991 to 19948 contributed to difficulties experienced in meetingfmancial objectives. Bank interventions, Governmental support and leadership from theremaining experienced General Managers during this period enabled FPTL to maintain servicequality, construct a modem network, and expand the customer base such that a fast fiscaFrecovery in 1995-1996 under a new Managing Director was possible (see Table 5).

14. FPTL institutional objectives. Institutional objectives for FPTL included: a managerialdevelopment program; and a "twinning" arrangement with a developed communicationscompany9 to enhance FPTL's managerial and technical capabilities. This component of the loanamounted to US$ 600,000. Training of 12 middle and senior managers for 60 person-monthswas completed. The twinning arrangement with Singapore Telecom International (STI) was

6 August 1991 wage increase of 15/o, along with a proposed 8% cost-of-living adjustment and a 7% increase through a Hayesjob evaluation exercise contributed to increased labor costs in 1991.

7 The study recommended to reduce staff; recruit outside commercial experts; establish cellular radio service as quickly aspossible to cater for remote rural and mobile customers; reorient the investment program towards high return areas with anemphasis on completing the "last mile" (local distribution plant) in connecting customers; and transform FPTL into semi-independent profit and cost centers.

8 The original Managing Director (MD) of FPTL was removed from office in April 1992 by a new Board of Directors as aresult of declining financial performance, but the MD was reinstated in 1992 by a newly elected Government, as a result ofan employee strike and network sabotage. The Chairman of the Board was dismissed, the Board then resigned, resultingin a new Board being appointed. The new Board Chairman acted as CEO of FPTL until a Chief General Manger (CGM)was engaged in January 1993 to direct the commercialization and restructuring effort. The Chief Financial Officer wasremoved in April 1993 and replaced with a less experienced local appointee. Conflict between the CGM and theManaging Director over restructuring and financial initiatives led to the CGM being removed in mid 1994. The ManagingDirector met an untimely death in September 1994. A new Managing Director, a former senior civil servant, wasappointed in February 1995.

9 A condition of Loan Effectiveness was that arrangements satisfactory to the Bank shall have been made with a twinningorganization.

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structured in two phases: the first was a report'0 on recommendations to change FPTL operationsto a commercial enterprise, which were instituted successfully; and the second was for "on-the-job training" in Singapore of FPTL personnel, for which an assignment for MaterialsManagement was completed. The twinning arrangement was terminated in 1994. This efforthas proven successful in that learned managerial skills were applied in the 1994 through 1996organizational restructuring programs, with all trained personnel being retained on staff.

FPTL 's operations

15. Staffproductivity. The target staff ratio for 1994 of 26.1 staff/1,000 working lines was notachieved (actual 31 staff/1,000 working lines). As a result of a hiring freeze on regular staff,FPTL increased the number of "casual" employees to meet its program of installing increasedcustomer services, improving service quality and an increased construction program. Thetelecommunications staff component for 1992 and subsequent years includes salaried staff, wageearners and casuals, resulting in a peak staff of 2176 in 1993. Staff levels have subsequentlydeclined significantly (see table 5), to achieve project target figures by 1996.

16. Operational targets. FPTL's physical target at the time of project preparation was toincrease the switching capacity from 51,198 lines in 1987 to 69,000 lines by 1994 (an increase of18,000 lines) and increase the working lines from 34,001 in 1987 to 56,700 (an increase of22,700 services). The actual achievement was slightly greater than the target figures (see Table5), and, FPTL also replaced 35,460 analog switch lines with digital equipment in 25 exchanges inthis period. This physical network growth was a significant achievement, but had a significantimpact on capital expenditures in 1992-1993, which adversely affected the rate of return (ROR)(see paragraph 17), but did position FPTL to achieve subsequent growth in services in 1995-1996. Rural PCO development was targeted to grow from less than 170 in 1987 to 249 by 1994,and although not achieved by 1994, the PCO development was 264 by 1995.

Financial Objectives

17. Financial situation. FPTL's annual rate of return (on average net fixed assets) covenantfor the project was to be at least 9%. This was exceeded in the period 1989 through 1991, butfell drastically 1992 through 1994, due to large construction and equipment modernizationprogram expenditures. Covenant targets were achieved again by 1995. The operating ratio(operating expenses to operating revenues) exceeded targets from 1991 through 1994, but wasimproving by 1995, an indication that expense management was taking hold. Revenue improvedthrough higher international settlements with FINTEL impacting 1996 results. The current ratio(current assets to current liabilities) target was to be not less than 1.2, which was achieved, andthe debt coverage ratio remained consistently above target throughout the project period (seeTable 5). FPTL's financial situation, judged by the covenant indicators achieved by 1995-1996,is satisfactory. The internal economic rate of return (IRR) at appraisal was projected as 22percent. Sensitivity analysis at that time indicated a decrease to 10.6 percent would occur with acombination of a 20% increase in investment, increase in operating costs, and reduction in

0 The STI report led to preparation and tendering of a bid specification for a Customer Services System, review of the Postaloperations, and diagnosis and recommendation for the exchange planning and network planning operations.

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operating revenues; or would decrease to 13.5% if benefits were delayed two years. Bothfactors occurred during the project making the IRR achieved 5.3 percent (see Table 9).

18. Annual audit requirements. The provision of FPTL's audited financial statements wasnot in compliance with the provisions of the Subsidiary Loan Agreement (within six months ofthe end of the fiscal year). For the period 1991 through 1996, audited financial statements werereceived one to two months late. The provision of audited Statements of Expenditure (SOE) wasin compliance with the Loan Agreement.

19. Tariffs. Tariff adjustments in 1983 and January 1990 were applied prior to the project. InJuly 1994 a tariff adjustrnent increased monthly rental charges 80% for business, 32% forresidence and applied a 10% increase in call charges. The project Staff Appraisal Reportrecommended revised sector policies to include provision for adjustment of overall levels oftariffs in line with inflation, however no agreed basis for tariff increases exists between theGovernment and FPTL.

Physical Objectives

20. Implementation schedule. Procurement of digital exchanges and outside plant cables wasto occur in four "groups" over the period 1989 through 1993, with installation ready-for-serviceprogressively from 1991 to 1995. Actual procurement of switching equipment and availabilityfor service was on schedule. Local distribution cables were procured in 1989, 1992, 1994 and1995. 27,300 cable pairs were placed in the 1990-1995 period (an increase of 12,300 over theProject target) for a total installed base of 72,900 pairs by 1995. Local distribution cables remainas the limiting factor for the provision of additional customer services, so the 1996-1997construction program target of 11,920 cable pairs to be placed in service is essential to meetexisting demand. Digital microwave transmission systems were placed on schedule. A 150station trunked radio system (TRS) was installed on the main island of Viti Levu to replace therural radio telephone system, and a third phase to complete in 1995/96 would service 100stations in Vanua Levu and Taveuni Islands.

21. Accounting system. At project preparation, only subscriber billing and payroll werecomputerized, utilizing the Government's computer facilities. The billing program in use formore than ten years no longer met P&T's requirements. In 1990, the STI contract (seeparagraph 14) assisted FPTL in the preparation and tendering of a bid for the Customer ServicesSystem, a computerized system for customer records, network assignments, service orderprocessing, fault reporting, and billing which was financed by FPTL and introduced in 1992.System enhancements and upgrading are currently underway".

22. Objectives of service quality. The quality of service improved during projectimplementation. Faults/working line/year increased marginally, however average lines faulty

By 1994, the customer records and billing system was experiencing throughput capacity problems. A 1995 consultant studyadvocated extension of existing technology and introduction of on-line billing. Approval was received from the Board inMay 1996 for expenditure of US$ 6.3 over two years.

8

declined and speed of fault clearance improved significantly. The call completion rate improvedto standards enjoyed in more developed countries (see Tables 5 and 6).

Cost of Financing

23. The cost of the project (support for P&T's 1990-1994 Investment Program) wasestimated at appraisal to be US$ 47.9 million (F$ 68.5 million), with a foreign cost of US$ 30.0million (see Table 8A and B). IBRD financing was foreseen at US$ 8.1 million, Australian CASof US$ 7.4 million, EIB of US$ 6.4 million and PTC's contribution at US$ 26.0 million. Theactual cost of the project from 1990-1996 is US$ 104.86 million (F$ 150 million)'2 (see Table8A), with US$ 7.56 million (93% of the approved loan) disbursed by IBRD, US$ 1.26 million forinstitutional development and US$ 6.3 million to meet physical objectives. Co-financingexpenditures of US$ 16.2 million were incurred (see Table 8B).

Procurement

24. Procurement of local distribution plant copper cables to meet physical investmentobjectives of the project was by FPTL Materials Management, using ICB procedures. Fourtenders were issued for copper cables (see paragraph 20).- Procurement of computer equipmentand consultants, financed locally and through the loan, followed World Bank procurementguidelines. Training was sole source.

Disbursements

25. Disbursement lagged the appraisal estimate by approximately one year due to the delay ineffectiveness of the loan until 1990 and a lack of applications for withdrawal in 1993 (see Table4).

D. Implementation Record and Major Factors Affecting the Project

26. Factors not generally subject to Government control. The substantial reduction ininternational market prices for the digital technology equipment and copper cables has impactedthe overall cost of the physical component of the project. The new technology, in addition tolower cost, provides more reliable service and requires less maintenance thereby positivelyimpacting staff productivity and operating cost.

27. Factors generally subject to Government control. Adequate support for the creation of aneffective telecommunications regulatory unit was lacking. The development of an appropriatetariff policy has not occurred (see paragraph 19), limiting domestic revenue growth in FPTL,and necessitating special negotiations in 1996 between FINTEL and FPTL to establish a moreequitable settlement for international long distance revenues. Both issues need to be addressedbefore the introduction of additional telecommunications licenses and the privatization of TFL.

12 The project cost for the period 1990-1994 is estimated to be about USS 55 million (F$ 84 million).

9

28. Factors generally subject to Implementing Agency control. Changes in Borrower'sphysical development targets and the sources of financing were to be included in annual reviewswith the Bank and clearly documented. Such information was obtained during supervisionmissions, often after the fact. During the early years of the project, ambitious investment inconstruction programs, not balanced with control of operating expense and appropriate tariffincreases, adversely affected financial results (see paragraph 16).

E. Project Benefits and Sustainability

29. Project Benefits. The benefits of the project are related to the improvement of servicesprovided to subscribers and the impact on the economic activity of the islands (see paragraph 6).Specifically, they are: (a) an increase in the quality and coverage of telecommunications services;(b) the introduction of new telecommunications services that impact the business and ruralcommunities; (c) the creation of a commercial telecommunications operation with improvingprofitability; and (d) implementation of institutional development activities in operatingcompany leading to more commercial operations and customer orientation. The Project isconsidered satisfactory in achieving its development objectives.

30. Sustainability. The organizational split between post and telecommunications activities,although not an objective of the project, will provide the basis for further commercialization andprivatization of TFL. The Government, through the PEU, is moving towards competition in thesector and the privatization of TFL. The significant investment in physical plant over the pastfive years has positioned the company well for continued expansion and development ofservices. Issues related to regulation and tariff reform remain and need to be addressed to affectthe changes desired. In respect of the positive climate that exists for continuing reform of thesector, both within the Government and TTL, project sustainability is highly likely.

F. Bank's Performance

31. Preparation and appraisal. The Government requested assistance from the Bank in 1986with institutional reform and developmental issues in the telecommunications sector. The Bankworked with P&T in 1987 to initiate fundamental studies required to determine the scope ofassistance required, and assisted the Government in 1988 through a PPF to engage consultants toprepare policy and legislation, and plan restructuring for the corporatization of FPTL (seeparagraph 4). The project was subsequently initiated to include restructuring of thetelecommunications provider, as well as institutional development, and physical objectives forthe sector. Preparation and appraisal took place in 1988, with negotiations and Board approvalearly in 1989. The Bank's preparation and appraisal of the project are rated highly satisfactory.

32. Supervision. Supervision took place with two visits per year in 1990 and 1992, and onein each other year through 1996. When the project closed, it was with its fourth task manager.The initial task manager who had prepared the project was reassigned before effectiveness, andthe third task manager - from 1992 through 1994 during a critical period of organization change -left the Bank in 1995. The Bank's support and assistance in developing an effective regulatoryagency, a key objective, proved inadequate, as little was achieved. Therefore, the Bank's overallsupervision of the project is rated as deficient.

lo

G. Borrower's Performance

33. MOF was the Borrower, with FPTL being the implementing agency of the funds.Cooperation between MOF and the Bank's project team was satisfactory, but did not lead toregulatory development as anticipated by the project. Cooperation by PEU in initiating actionfor further reform in the sector was excellent. FPTL association with the Bank was inadequate inthe early years, improved somewhat in 1993-1994, and was most effective in the latter two yearsof the project life.

34. Compliance with Loan Covenants. The status of compliance with all Loan covenants isshown in Table 10. The Borrower's compliance with Loan convenants was deficient in the areaof: provision of performance targets for subsequent years; provision of audited financialstatements by FPTL, while timely by the terms of the Loan Agreement, was late by the terms ofthe Subsidiary Loan Agreement; and the rate of return did not meet objective levels 1992 through1994. Compliance began to improve in the latter two years of the project.

El. Assessment of Outcome

35. FPTL achieved the overall objective of the project in line with Government policy, eventilough the Company and the Government have gone through a great cultural, political andeconomic change. The implementation and outcome of the project are considered satisfactory.

1. Future Operation

36. The project achieved its objective of restructuring a Government department into acommercial entity, the commercialization of the new company, and an increase in the quality andcoverage of telecommunications services. Technical assistance in support of the introduction ofcompetition in the sector, the privatization of TFL, and the development of appropriateregulation are the only venues open to consideration for future Bank support.

J. Key Lessons Learned

37. The key lessons learned are as follows:

(a) Implementation and the achievement of development objectives are crucially dependent oncontinuity of staff on the Bank's side, as well as the frequency of Bank supervision visitsand consultations and the adequacy of the composition of its mission teams. This is vitalwhen the imnplementing agency is going through a transition from public to private sectororientation to customer service, evolving from public sector personnel policies to acommercial operation, and is being prepared for competition and privatization.

(b) The Bank has a responsibility to educate the Borrower and the implementation agency onthe requirements of the legal covenants and the implication of non-compliance at the timeof project preparation, and at any subsequent time when there is a change in seniormanagement, and must play a continuing role in assisting the Borrower in resolvingproblems in meeting such covenants in a timely fashion.

11

IMPLEMENTATION COMPLETION REPORTREPUBLIC OF FIJI

TELECOMMUNICATIONS PROJECT(LOAN NO. 3074-FIJ)

Part II: Statisical Tables

Table l: Summary of AssessmentTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Credit Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project OperationTable 7: Studies Included in ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual StatementsTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

Appendices

Appendix A -IBRD Map No. IBRD 21266

12

Table 1: Summary of Assessments

A.. Achievement of objectives Substantiabtan t iali Negligible Not applicable

Macro policies E E El

Sector policies E a El

Financial objectives E EaInstitutional development 1l 1 i Physical objectives El E a

Poverty reduction nl E El [Gender issues l a 5 [

Other social objectives nl E El;Environmental objectives C E JPublic sector management El [ El 0Private sector development i EElOther (specify) l El E l

B. Proiect sustainability Unily Unlikely Uncertain

EEl El El

13

C. Bank performance satisfactory Satisfactorv Deficient(/) (v) . (1)

Identification 1` Ea

Preparation assistance x : E

Appraisal El

Supervision : Cl Ix

D. Borrower performance satisf Satisfacor Deficient(1) (1) (v')

Preparation l i E

Implementation nl E

Covenant compliance mi i

Operation (if applicable) 1 E l

Highly -HWlIYE. Assessment of outcome satisfact Satisfactojr Unsatisfactory unsatisfactr

El Cm El

14

Table 2: Related Bank Loans/Credits

Loan title Purpose Year ofapproa

Telecommunications Project To assist: 1972 CompletedIBRD Loan 833-FIJ

(a) expand basic service in urban areas and 1976provide service to remote outer islands; and

(b) strengthen P&T's project implementationcapacity and improve training of technicalstaff.

Second Telecommunications To assist: 1975 CompletedProject IBRD Loan 1 140-FIJ

(a) expand basic service in urban areas and 1981provide service to remote outer islands;

(b) strengthen P&T's project inmplementationcapacity and improve training of technicalstaff; and

(c) increase P&T's financial autonomy byseparating its accounts from theGovernment's and establishing a commercialaccounting system.

Third Telecommunications To assist: 1990 CompletedProject IBRD Loan 3074-FIJ

(a) the Government to establish an 1996appropriate policy and regulatory frameworkin order to improve the operating sectorentities;

(b) restructure P&T along commercial linesto enhance customer focus and increaserevenue generation and operationalefficiency;

(c) strengthen P&T through a program ofinstitutional development; and

(d) finance the expansion and modernizationof telecommunications facilities to increasethe range of services available to businesssubscribers and to improve the quality ofservice.

Is

Table 3: Project Timetable

Steps in project cycle Date planned Actual Date

Identification November, 1986

Pre-Preparation March 10-19,1987

Initial Executive Project Summary December 19, 1987

Preparation February 1, 1988 Jan. 29-Feb 19, 1988

Pre-Appraisal July 4, 1988 July 4-15, 1988

Final Executive Project Summary August 19, 1988 September 2, 1988

Appraisal September 17, 1988 October 2-8, 1998

Negotiations March 13, 1989 March 20-22, 1989

Board presentation May 12,1989 May 25, 1989

Signing August, 1989 September25, 1989

Effectiveness January 5, 1990

Project completion December 31, 1995 December 31, 1996'

Credit closing/final disbursement April 30, 1996 March 13, 1997

The Closing Date was extended by one year to December 31, 1996 on request of the Government.

16

Table 4: Loan Disbursements: Cumulative Estimated and Actual

(US$ million)

Calendar years 19/ 89 90 91 92 93 94 95 96

Appraisal estimate 0.5 2.1 3.7 5.2 6.6 7.8 8.1 8.1 a

Actual - 0.47 2.60 3.98 3.98 5.10 6.25 7.48 b

Actual as %of estimate 0 22.4 70.3 76.5 -60.3 66.2 77.1 92.3

a/ The Loan Closing Date was extended by one year at the request of the Government

b/ An amount of US$ 542,468.10 of the loan was cancelled in March 1997.

17

Table 5: Key Indicators for Project Implementation

1990 1991 1992 1993 1994 Post SAR

Annual targets or values at SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual 1995 1996December31 target target ar target target Actual Actual

A. TELEPHONE

1. Exchange Capacity 59000 57700 60900 60300 63600 63326 64900 64510 69000 70086 77610 84510

2. Lines in Operation 42100 42400 45000 45600 48600 49610 52500 53977 56700 59471 64823 70015

3. Rural Public Call Offices 193 193 207 193 221 212 235 225 249 239 264 269

B. QUALITY OF SERVICE

4. Faults/line/year 1.5 1.6 1.4 i.7 1.3 1.3 1.2 2.1 1.1 1.9 1.8 1.3

5. Faults cleared in less than2 days % 44 60 46 59 48 55 50 74 52 81 91 90

6. Call completion rate %national 67 NA 70 NA 72 54 74 59 76 60 63 61

C. MANPOWER

7. Telecom Staff 1330 1096 1360 1096 1400 2002 1440 2176 1480 1845 1855 1601

8. Staff/1,000 Wrkng Lines 31.6 25.8 30.2 24.0 28.2 40.4 27.4 40.3 26.1 31.0 28.6 22.9

9. Training Volume % 7 7 7 7 7total weeks NA NA NA 3789 3600 4857 2938

D. FINANCIAL

10. Operating Ratio % 73 71.8 72 77.4 72 94 73 90 72 87 82 82

11. Current Ratio 1.7 2.0 2.0 1.9 1.9 1.6 1.7 1.3 1.8 2.15 1.5 0.8

12. RateofReturn on average 10 15.3 10 11.2 11 2.1 11 3.7 1 1 4.1 9.0 9.4net fixed assets %

13. Debt Service Coverage 3.2 6.2 3.1 5.0 2.7 4.1 2.8 6.9 2.5 7.3 6.0 7.8

18

Table 6: Key Indicators for Project Operation

Annual values at December 31 1992 1993 1994 1995 1996

A. PERFORMANCE INDIATORS

1. Exchange Capacity 63326 64510 70086 77610 84512

2. Lines in Service 49610 53977 59471 64823 70015

3. Waiting Applicants NA 8222 9360 8927 8000

4. Faults/line/year 1.3 2.1 1.9 1.8 1.3

5. Average lines faulty % NA 1:7.8 16.6 16.3 16

6. Faults cleared %within 2 days 55 74 81 91 90within 7 days 8

87 90 91 96 95

7. Call completion %international outgoing 57 64 71 70 70international incoming 49 49 57 78 65national 54 59 60 63 61local 65 65 82 82 80

8. Operator Answer within 10 secs % 85 87 90 90 90

B. EANCIAL INDICATORS

9. Operating ratio % 94 90 87 82 82

10. Current ratio 1.6 1.3 2.15 1.5 0.8

11. Rate of Return on average 2.1 3.7 4.1 9.0 9.4net fixed assets %

12. Debt Service Coverage 4.1 6.9 7.3 6.0 7.8

13. Revenue per Working Line * 1393 1520 1532 1567 1573

14. Expense per Working Line * 1309 1363 1335 1286 1287

C. FINANCIAL REIMLS. F$M

15. Capital Expenditure 17.4 187 10.3 23.3 36.7

16. Total Telecom Revenues 66.3 78.7 86.9 97.4 110.2

17. Total Telecom Expenses 62.3 70.6 75.7 79.9 90.1

18. Net Profit 4.0 8.1 11.2 17.5 20.1

* Working line avcrage in service for the ycar

19

Table 7: Studies included in Project

Study Purpose as defined at Status Impact of study

I - ~~~~~appraisa

1. Restructuring To prepare a postal and Study was The restructured Fiji Posts &telecommunications policy prepared in Telecommunications Limited waspaper, to redefine the 1988, and the organization entityTelecommunications and approved by responsible for implementation ofPostal Act, to prepare the Cabinet in the Project through 1996.operating license for the new February 1989. The Telecommunicationscompany, and to identify the Restructuring Regulatory Unit was establishedduties and staff composition occurred in in the Ministry of Information,of the regulatory unit in the January 1990. Broadcasting andMinistry. Telecommunications.

20

Table 8A: Project Costs

Appraisal estimate' Actual2

Local Foreign Total Local Foreign Total

Item costs exchange costs costs exchange costs(US$M) (US$M)

PHYSICAL DEVELOPMENT

Subscriber Ne rk.............................................................................................. .................................................................................................... .................................................

1. Rural Radio and Carrier 1.8 4.1 5.9 0.79 1.83 2.62

2. Cable plant 7.7 7.1 14.8 14.22 18.09 32.31

3. Subscriber terminal equipment 1.0 4.3 5.3 1.48 13.29 14.77

Truk Network

4. Transmission equipment 2.0 4.0 6.0 3.01 12.03 15.04

5. Junction cables 0.1 0.4 0.5 0.36 0.84 1.20

Exhang Plant

6. Exchange and power equipment 1.1 7.4 8.5 3.97 15.90 19.97

7. Cmputrization 0.2 0.5 0.7 1.30 3.05 4.35

8. Buildings and Land 2.1 0.0 2.1 4.75 0.00 4.75

9. Miscellaneous3 1.9 1.1 3.0 8.69 0.00 8.69

Subtotal 17.9 28.9 46.8 38.57 65.03 103.60

INSTITUTIONAL DEVELOPMENT

10. Consulancy 0.0 1.1 1.1 0.00 1.26 1.26

TOTAL 17.9 30.0 47.9 38.57 66.29 104.86

P&TC's investment program for 1990-1994.

2 P&TC's actual investment program 1990-1996.

3 Includes vehicles, mechanical aids, tools, workshop equipment, furniture, etc.

21

Table 8B: Project Financing

| Item Appraisal estimate Actual financing

(US$M) (US$M)

1. IBRD4 8.1 7.56

2. Australian Commodities Assistance 7.4 7.40Support Program5

3. European Investment Bank6 6.4 8.82

4. P&TC 26.0 81.08

TOTAL 47.9 104.86

4 Finance cable plant and consultancy services.

5 Finance purchase of telephone exchanges.

6 Finance rural radio and carrier system, transmission equipment and junction cables.

22

Table 9: Economic costs and benefits

(Million F$)

Program Total new Revenues Operating Benefit Deflatedcapital lines added from new cost for new from new benefits ofcost (OOOs) lines lines lines the project

1990 8.75 (8.75)1991 19.9 3.00 3.5 3.2 0.3 (18.4)1992 17.4 7.21 10.0 9.4 0.6 (15.0)1993 18.7 11.58 17.6 15.8 1.8 (15.1)1994 10.3 17.07 26.2 22.8 3.4 (6.2)1995 11.7 22.32 35.0 28.7 6.3 (4.5)1996 27.62 43.4 35.5 7.9 6.31997 6.31998 6.31999 6.32000 6.32001 6.32002 6.32003 6.32004 6.32005 6.32006 6.32007 6.32008 6.32009 6.32010 6.32011 6.32012 6.32013 6.32014 6.32015 6.32016 6.3

Internal Economic Rate of Return mRR? for 20 years: 5.3 percent

Capital expenditures are incurred 1990 through first half of 1995. Revenues andoperating costs come from the 27,620 new lines connected from 1991 to 1996. Thebenefits are in 1990 constant dollars. The calculation excludes an estimate of theconsumer surplus.

23

Table 10: Status of legal covenants

Project development objectives rating: S

Original RevisedAgreement Section Covenant Present fulfillment fulfillment Description of Comments

Type status date date Covenant

,Loan 3.01 (a) Utilization of C Borrower to carry out Part A of In compiiance.(i) project funds the project.

3.01 (a) Utilization of C Borrower to make available part In compliance.(ii) project funds of the proceeds of Loan to P&T

to carry out Parts B & C of theproject.

3.01 (b) Restructuring C November January 1. Borrower to establish new In compliance.(i) the sector 30,1989 1990 telecommunications Company.

3.01 (b) Restructuring C November June 15. Borrower to relend part of the In compliance.(ii) the sector 30. 1989 1990 proceeds of Loan to new

Company under an onlendingand operating agreement withterms and conditions as setforth in Schedule 5.

3.02 Procurement C Procurement of goods, works Schedule I ofand consultants services to be Agreementgoverned by provisions of amendedSchedule 4 of Loan January 1991.Agreement. In compliance.

3.03 (a) Implementation C December Borrower to complete field In compliance.31, 1989 demand surveys for exchange

areas to be included in P&T'sinvestment program for 1990-1991.

3.03 (b) Implementation CP September Review P&T~s performance Information30 targets for subsequent year. made available

annually to mission onarrival in 1992.1993 1994 and1995.

3.04 Implementation C Obligations of General In compliance.Conditions to be carried out byP&T.

4.01 (a) Records & C Borrower to cause P&T to In compliance.Accounts maintain accounts.

4.01 (b) Records & CP Borrower to cause P&T to have UnauditedAccounts (i) its accounts. financial financial

statements and Special Account statements forrecords audited, and (ii) furnish 1992, 1994 andunaudited statements six 1996 receivedmonths and audited financial late. Auditedstatements within ten months statement forafter end of each fiscal year. 1996 pending.

24

Loan 4.01 (c) Records C Borrower to cause P&T to (i) In cornpliance.Accounts maintain accounts for

withdrawals on the basis ofstatements of expenditure(SOE) from the Loan Account,(ii) retain records for at leastone year after audited reportsfor the fiscal year are receivedin the Bank. (iii) enable Bank'srepresentative to examine suchrecords, and (iv) included in theannual audit in (b) such recordsand accounts.

4.02 (a) Financial CP Borrower to cause P&T to take Rate of Return(b) Performance all necessary measures was lower in

(including adjustments of the 1992, 1993 andstructure or level of tariffs) to 1994.produce an annual rate of returnof not less than 9 percent.

4.03 (a) Financial C Borrower shall not permit P&T In compliance.(i) Performance to incur any debt in respect of

its telecommunicationsoperations unless net revenuefor the Fiscal Year immediatelypreceding is at least 1.S timesestimated maximum debtservice requirements for anysucceeding Fiscal Year.

4.03 (a) Financial C Borrower shall cause P&T to In compliance.(ii) Performance maintain a ratio of current

assets to current liabilities notless than 1.2.

4.04 (a) Management C Borrower shall cause P&T to In compliance.carry out its operations inaccordance with soundprofessional practices.

4.04 (b) Management C Borrower shall cause P&T to In compliance.operate and maintain its plants.equipment and other propertyand to make necessary repairsand renewals, in accordancewith sound engineering,telecommunications andfinancial practices

25

Original RevisedAgreement Section Covenant Present fulfillment fulfillment Description of Comments

Type status date date Covenant

Subsidiary 5.1 Management CP P&T shall carry out the Project Implementationwith due diligence and of localefficiency and in accordance distributionwith appropriate administrative. plant wasfinancial, engineering and delayed throughtelecommunications practices the 1992 toand shall provide promptly as 1995 periodneeded the funds, facilities and resulting inother resources required for the continued highProject. level of waiting

applicants.5.2 Management C P&T shall carry out obligations In compliance.

as set forth in the GeneralConditions and procure goodsand consultants services only incompliance with Schedule 4.

5.3 Management C P&T shall, at the request of the In compliance.Bank. exchange views withregard to the progress of theProject and performance of itsobligations.

5.4 Management CP P&T shall promptly inform the In partialGovernment and the Bank of compliance.any condition which interferesor threatens to interfere withthe progress of the Project, theaccomplishment of the purposeof the Loan, or the performanceby the company of itsobligations.

5.5 Management CP P&T shall review (a) by In partialOctober 31 st each year annual compliance.targets for completing field Reviews weredemand surveys for exchange undertaken withareas to be included in its supervisioninvestment, and (b) by missions. oftenSeptember 30th performance several monthstargets together with necessary late or in thecorrective measures plan for following year.subsequent fiscal years.

5.6 Management CP P&T shall carry out their In partialoperations under the compliance.supervision of qualified and Seniorexperienced management managementassisted by competent staff in turnover andadequate numbers. delay in filling

positions.5.7 Management C P&T shall operate and maintain In compliance.

its plants, equipment and otherproperty and to make necessaryrepairs and renewals, inaccordance with soundengineering, and financialpractices

26

'ubsidiM 6.1(a) Financial C. P&T shall not incur any debt In compliance.Loan performance for its telecommunications

operations unless net revenuefor the Fiscal Year immediatelypreceding is at least 1.5 timesestimated maximum debt.service requirements for anysucceeding Fiscal Year.

6. 1 (b) Financial C P&T shall maintain a ratio of In compliance.performance current assets to current

liabilities not less than 1.2.6.3 Financial CP P&T shall take all necessary Rate of Retum

performance measures (including was lower inadjustments of the structure or 1992, 1993 andlevel of tariffs) to procure an 1994.annual rate of retum of not lessthan 9 percent.

6.4 Financial NC P&T shall (a) maintain records Audited(a,b,c,d) performance and accounts in accordance financial

with sound accounting statements forpractices, (b) have its records, 1992 throughaccounts and financial 1995 receivedstatements and records of late. Auditedaccounts for the Special statement forAccount for each fiscal year 1996 pending.audited by independentauditors, (c) furnish to the Banknot later than four and sixmonths after the end of thefiscal year, unaudited andaudited financial statements andreports of such audits, and (d)furnish the Bank such otherinformation from time to timeas it shall reasonably request.

6.4 (e) Financial C P&T shall (i) maintain accounts In compliance.performance for withdrawals on the basis of

statements of expenditure(SOE) from the Loan Account,(ii) retain records for at leastone year after audited reportsfor the fiscal year are receivedin the Bank, (iii) enable Bank'srepresentative to examine suchrecords, and (iv) ensure saidrecords and accounts areincluded in the annual audit in(b) and the report of such auditcontains a separate opinion bythe auditors.

Pnrsent status:C = covenant complied withCD = complied with after delayCP = complied with partiallyNC = not complied with

27

Table 11: Compliance with operational manual statements

No significant lack of compliance with applicable Bank Operational ManualStatements (OD or OP/BP) was observed under the project.

28

Table 12: Bank resources: Staff inputs

Stage of project cycle Planned Actual

Weeks US$ a/ Weeks US$ b/

Through Appraisal 65 130,000 66 132,000

Appraisal to Board 20 40,000 20 40,000

Board to Effectiveness 2 4,000 4 6,000

Supervision 60 120,000 61 142,000

Completion 10 20,000 6 16,000

TOTAL 157 314,000 156 336,000

a/ In FY89, at estimated average cost of US$ 2,000 per staff week.

'.,I Estimated average cost of US$ 2,700 per staff week after FY92.

29

Table 13: Bank Resources: Missions

Performance rating /b

Stage of project cycle Month/ Number Days in Specialized staff Implemen- Develop- Types ofl year of field skills represented tation ment problems

persons /A status objectives

Before appra;al

Identification mission 11/86 1 NA FinA

Pre- Preparation mission 03/87 3 10 FinA, Eng, Cons

Preparation mission 02/88 2 22 Econ, Eng

Pre-Appraisal mission 07/88 4 12 FinA, Eng, Cons,Cons

Final Executive Project 09/88Summary

A2raiPsalthmugh

IBoard Approal1

I Appraisal mission 10/88 2 7 FinA, Legal

Board approval 05/89

Board AppmoalroughEffectiveness

Progress review mission 07/89 1 4 FinA I 1

Effectiveness 01/90

Supervision

Supervision mission 1 05/90 3 12 Eng.,Econ, PoIS 2 1 Staffing ofRegulatory Unit.

Supervision mission 2 11/90 1 5 Eng. I I

Supervision mission 3 06/91 1 6 Eng 2 1

Supervision mission 4 03/92 2 5 Eng., Econ 2 1 Poor financialresults. RemovedMD. Engagedconsultants.

Supervision mission 5 10/92 2 5 Eng, Eng 2 1 Reengaged MD.Hired Chief GM.

Supervision mission 6 10/93 2 5 Eng, FinA 2 2 Disbursementlagging.

Supervision mission 7 11/94 3 5 Eng, FinA, Eng S S Dismissed CGM.Death of MD.

Supervision mission 8 12/95 1 5 Eng S S

Closure mission 09/96 1 3 Eng. S S

/a Abbreviations: Cons: Consultant; Econ: Economist; Eng: Engineer; FinA: Financial Analyst; PoIS.: PolicySpecialist

/b Keys to overall performance rating (before FY 94) = I - problem free; 2 - moderate; 3 - major problems;(from FY 94 on) = HS - highly satisfactory; S - satisfactory; U - unsatisfactory; HU - highly unsatisfactory.

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