World Bank Document€¦ · 1. Public telecommunications services in Nepal are provided by the Nepal Telecommunications Corporation (NTC), a fully Government owned corporation under

Document of

The World Bank

FOR OmCIAL USE ONLY

Report No. 14259-NEP

IMPLEMENTATION COMPLETION REPORT

NEPAL

NEPAL TELECOMMUNICATIONS CORPORATION (NTC)

FOURTH TELECOMMUNICATIONS PROJECT

MARCH 30, 1995

Infrastructure Operations DivisionSouth Asia Country Department IITelecommunications & Informatics Division

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

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CURRENCY EOUIVALENTS(As of February 1995)

Currency Unit = Nepalese Rupee (NRs)US$1.00 = NRs 49.84NRs 1,000 = US$20.06NRs I = paisa

FISCAL YEAR

July 16 - July July 15

ABBREVIATIONS AND ACRONYMS

DANIDA = Danish International Development AgencyEIRR = Economic Internal Rate of ReturnFINNIDA = Finnish International Development AgencyFIRR = Financial Internal Rate of ReturnHF = High Frequency (3-30 MHz)IBRD = International Bank for Reconstruction and DevelopmentICB = International Competitive BiddingISD = International Subscriber DialingITU = International Telecommunication UnionJICA = Japan International Cooperation AgencyLCB = Local Competitive BiddingMARTS = Multiple Access Radio Transmission SystemsMOIC = Ministry of Information and CommunicationsNTC = Nepal Telecommunications CorporationO&M = Operations and MaintenancePABX = Public Call OfficeSTD = Subscriber Trunk DialingUNDP = United Nations Development ProgrammeVHF = Very High Frequency (30-300 MHz)

NEPAL FOR OFFICIAL USE ONLY


CREDIT 1588-NEP


Table of Contents

Paze No.

Preface .................... ii

Evaluation Summary .................... iii

Statement of Objectives ...................Project Implementation .................. 3Technical Assistance .................. 4Project Costs .................. 4Disbursements .................. 4Operational Performance .................. 5Institutional Performance .................. 5Manpower & Training .................. 5Project Sustainability .................. 6Bank Performance .................. 6Borrower Performance .................. 6Assessment of Outcome .................. 6Future Operation .................. 6Key Lessons Learnt .............................................................. 7......................7

Tables and AppendixTable I Summary of AssessmentsTable 2 Related Bank Loans/CreditsTable 3 Project TimetableTable 4 Loan/Credit Disbursement: Cumulative Estimated and TotalTable 5 Key Indicators for Project ImplementationTable 6 Key Indicators for Project Operations (Performance Indicators)Table 7 Studies Included in the ProjectTable 8 Project CostsTable 8A IDA Financial CostsTable 8B IDA Project FinancingTable 9A Economic Costs and Benefits - Financial IRRTable 9B Economic Costs and Benefits - Economic IRRTable I 0 Status of Legal CovenantsTable 1 1 Compliance with Operational Manual StatementsTable 12 Bank Resources: Staff InputsTable 13 Bank Resources: Missions

Appendix I Borrower's Evaluation Summary

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without WoTld Bank authorization.

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NEPAL


CREDIT 1588-NEP


Preface

1. This Report covers the implementation of the Fourth Telecommunications Project inNepal, supported by Credit 1588-NEP. The Credit for SDR 20.7 million to the NepalTelecommunications Corporation (NTC) was signed on April 10, 1986, became effective onDecember 17, 1986 and was closed on June 30, 1994, one year later than the original closingdate. Final disbursement took place on November 28, 1994, at which time a balance of SDR1,239,515 was canceled. Cofinancing for the project was provided by DANIDA, FINNIDA andJICA.

2. This report has been prepared by Alberto Cruzat (Task Manager), Peter Wright, RajaBasu and David Delgado from IENTI for the South Asia Region and reviewed by Robert Panfil,Chief SA2IN, Marie Garcia-Zamor, Chief SAIIN, Kazuko Uchimura, Project Advisor, andDavid Groves, Project Advisor. The borrower provided comments that are included as AppendixI to the ICR.

3. Preparation of this ICR began during the Bank's final supervision/completion mission,July 3-17, 1994. It is based on material in the project file. The borrower contributed to the ICRby preparing its own evaluation of the project's execution and commenting on the draft ICR.

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NEPAL


CREDIT 1588-NEP


Evaluation Summary

Background

1. Public telecommunications services in Nepal are provided by the NepalTelecommunications Corporation (NTC), a fully Government owned corporation under theoverall guidance of the Ministry of Information and Communications (MOIC) of His Majesty'sGovernment (HMG).

2. IDA's involvement in Nepal's telecommunications sector began in 1969 with a credit ofUS$1.7 million (Credit 166-NEP) approved in November 1969. Since then IDA has financedfour more operations : Credit 397-NEP for US$5.5 million approved in June 1973; Credit 799-NEP for US$14.5 million approved in August 1978, Credit 1588-NEP for US$22 millionapproved in April 1986 (closed in June 1994) and Credit 2364-NEP for US$55 million approvedin April 1992. The December 1977 PPAR report for Credit 166-NEP and April 1989 report forCredits 397-NEP and 799-NEP rated these projects as successful overall, contributingsignificantly to the development of infrastructure, improving the quality of telecommunicationsservices and supporting NTC's institutional development.

Proiect Obiectives and Project Description

3. The Project was designed to strengthen NTC as an institution, expand local telephonefacilities in Kathmandu and other urban areas, provide telephone services for the first time toabout 90 rural communities, expand facilities to cater to resultant additional domestic longdistance and international traffic, expand existing telex facilities and extend service to townsother than Kathmandu.

4. The Project included: (a) funding of management consultants, technical assistance andfellowships for foreign training of NTC staff; (b) installation of (i) about 35,000 lines of localautomatic switching equipment with associated cable distribution network and subscriber plant toconnect about 31,000 new subscriber lines, and replace 1,370 lines of all remaining manualexchanges, (ii) about 2,500 additional terminals in national/international trunk exchanges, (iii)about 75 transmission systems in the long distance network, (iv) equipment for expansion of theexisting earth station and the telex exchange, and (v) about 550 local and long distance publiccall offices in urban areas and about 200 long distance connections and public call offices inabout 90 rural areas; (c) provision of air conditioning and power equipment fortelecommunications buildings, vehicles, computer equipment, teleprinters, office aids andtraining equipment, and (d) civil works for laying of cable ducts, and construction of cablenetworks and buildings for telecommunications equipment and offices.

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Proiect Results

5. With the use of the additional funding derived from exchange rate fluctuation, theachievements of the Project exceeded the initial estimates. Approximately 43,000 lines wereadded to the network compared to the Project estimate of 35,000. Twenty Multi-Access RadioTelephone Systems (MARTS) were installed (with 12 already commissioned) connecting 3,500rural subscriber lines. Due to the physical extension of the Project the closing date was extendedby one year.

6. NTC's financial position was satisfactory throughout the Project and it met the financialcovenants set under the project. There were some delays in submission of audited financialstatements but these were not significant. The internal economic and financial rate of return,calculated over a life cycle of 15 years, were 14.5% and 16.8% respectively, compared with theAppraisal estimates of 17.3% and 16.1% respectively over a life cycle of 22 years. Additionally,the economic rate of return is larger than the Opportunity Cost of Capital (OCC) of 10%.However, collections, especially from HMG, have been a persisting problem during the Project.Nevertheless, with IDA's assistance, NTC reached a satisfactory agreement with HMG whichsettled the total amount of Government arrears as of April 1994. Also, with the assistance ofFINNIDA, there has been considerable progress in the area of billing. A countrywide automatedbilling system was commissioned in 1993 to process more than 95% of the bills issued. As afollow-up, a computerized ledger and billing system will be installed under the Credit 2364-NEP.

Proiect Sustainability

7. Under the Project, the NTC has established a sizable telecommunications network in 73of Nepal's 75 districts to support Nepal's developing economy. This company is sustainable interms of cost recovery and general financial situation. Through the establishment of a MISsystem, automated billing facilities, and institutional studies, the Project has paved the way forlater projects to complete the transition to a private sector, commercially run organization. TheProject has also strengthened the procurement and implementation capabilities in NTC. Theoverall management of the organization has been modernized but more work needs to be done inthis respect. This is being done under Telecommunications V which is focusing on sector widerestructuring to introduce competition in existing and new services.

Conclusion

8. After initial teething problems with the co-financing arrangement, and the contracting ofmanagement consultants, the Project was smoothly implemented. The objectives of the Projectrelating to (a) physical expansion and (b) institutional objectives were substantially fulfilled.The Association's main contribution were three-fold: (i) establishing the co-financingarrangement and grant facilities; (ii) for the first time connecting the rural areas to thetelecommunications network; and (iii) establish the groundwork for future sectoral reform in linewith the trend in other countries. The main lessons from this Project are: (a) that close Projectimplementation supervision is critical to avoiding major problems; (b) that it is advisable to haveadvanced preparation of procurement documents; and (c) that the size of the T/A included in theProject has to be tailored to the absorbing capacity of the entity. These lessons were applied inthe Fifth Project preparation.

NEPAL


CREDIT 1588-NEP


Statement of Obiectives

1. The Fourth Telecommunications Project was a major component of Nepal's FY86-90telecommunications development program which had a total investment of about US$115 million.Investment on the IDA funded Project represented about 57% of this total (US$ 65.3 million). The IDAcredit of SDR 20.7 million (US$ 22 million equivalent at the time of effectiveness) was provided to HisMajesty's Government (HMG) to be onlent to Nepal Telecommunications Corporation (NTC) at anannual interest rate of 12% repayable over 10 years after 5 years of grace, with NTC assuming all foreignexchange risks. In addition to IDA, DANIDA (US$7.5 million), FINNIDA (US$5.3 million) and JICA(US$ 30 million) contributed as donors to the Fourth Project (see Table 8B). NTC, a fully Governmentowned corporation under the overall guidance of the Ministry of Information and Communications(MOIC) of HMG is responsible for the provision of public telecommunications services in Nepal.

2. IDA's involvement in Nepal's telecommunications sector began in 1969 with a credit of US$1.7million (Credit 166-NEP approved in November 1969). Since then IDA has financed four moreoperations: Credit 397-NEP for US$5.5 million, approved in June 1973; Credit 799-NEP for US$14.5million, approved in August 1978, Credit 1588-NEP for US$22 million approved in April 1986, closed inJune 1994; and Credit 2364-NEP for US$55 million, approved in April 1992. The December 1977 PPARreport on Credit 166-NEP and the April 1989 report on Credits 397-NEP and 799-NEP rated theseprojects as successful overall, contributing significantly to the development of infrastructure, improvingthe quality of telecommunications services, and supporting NTC's institutional development.

3. The Fourth Project was approved by IDA on April 30, 1985 but was not signed until April 10,1986, due to HMG's delays in undertaking a 20% increase in tariffs which was required as a condition ofeffectiveness. The Project was designed to strengthen NTC as an institution, expand local telephonefacilities in Kathmandu and other urban areas, provide telephone services for the first time to about 90rural communities, expand facilities to cater to resultant additional domestic long distance andinternational traffic, expand existing telex facilities and extend service to towns other than Kathmandu.

4. The main components of the Project were as follows:

a) enhancement of NTC's management and operational capabilities through managementconsultants, and fellowships for foreign training of NTC staff;

b) development of long term planning capability within NTC for long term development of thesector through sector experts;

c) provision and installation of about 35,000 lines of digital switching equipment (including1,370 lines for replacement of all existing manual equipment), about 159,000 pair-kilometersof telephone cables, about 390 km of cable ducts, jointing materials and other accessories forthe net expansion of local network capacity by about 33,630 lines;

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d) provision and installation of subscriber facilities to connect about 31,000 new subscriberlines;

e) provision and installation of about 2,500 additional circuit terminals in the existingnational/international trunk exchange;

f) provision and installation of about 500 local and 50 long distance coin boxes for public calloffices in urban areas to serve non-subscribing public;

g) provision and installation of three high capacity digital microwave radio systems on mainroutes and twelve small capacity digital microwave radio systems on spur routes;

h) provision and installation of about 60 VHF/UHF radio systems to connect about 200 longdistance telephone connections and public call offices in about 90 rural communities;

i) provision and installation of equipment for expansion of the earth station for internationalsatellite communication;

j) provision and installation of equipment for expansion of the existing telex exchange by 250terminations, 4 VFT systems and provision of about 150 electronic teleprinters;

k) provision and installation of air conditioning and power equipment in telecommunicationbuildings;

I) provision of vehicles for project implementation, computer equipment, office aids andtraining equipment; and

m) civil works associated with laying of cable ducts, and construction of cable networks andbuildings for telecommunications equipment and offices.

5. The experience gained under the first three IDA projects played a major role in designing theFourth Project, the thrust of which was directed towards continued expansion of the network andinstitutional improvement in NTC of planning, project implementation and strengthening of NTC'sfinancial position. The technical assistance program therefore included carrying out an institutionalreview, tariff studies, network planning, establishment of a MIS and automated billing facility,revaluation of fixed assets, and development and implementation of technical and financial trainingprograms. To emphasize the importance of the technical assistance, the appointment of managementconsultants was a condition of credit effectiveness

6. The Project was initially appraised in September 1983, with Negotiations in April 1984, whichended without agreement on the issues and without agreed Minutes of the discussions. IDA requiredHMG to present the cofinancing agreements to cover the balance of costs of the Project as a condition ofBoard presentation. This condition was not acceptable to HMG. Subsequently, HMG negotiated withother Governments cofinancing for the Project which affected both the project scope and IDA financing.Consequently it became necessary to reappraise the Project in February 1985. Final negotiations tookplace in the field between February and March 1985, and the Credit was presented to the Board in April30, 1985.

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7. At the time of Board presentation the cost of the Project to be financed by IDA was set at SDR20.7 million (US$22.0 million equivalent), but in the course of Project implementation the Project scopewas expanded to utilize exchange rate gains which have increased the dollar equivalent of the SDR 20.7million credit to US$30.0 million. Out of this amount, NTC utilized US$ 28.2 million, and the remainingUS$ 1.8 million were canceled.

Proiect Implementation

8. Loan Effectiveness and Project Start-up. To ensure timely implementation of the Project,conditions of effectiveness included : (a) issuance of bid invitations for transmission equipment for ruralareas, subscriber facilities and expansion equipment for the earth station; (b) the continued operation ofthe project implementation unit established for the first three projects; (c) appointment of managementconsultants for institutional and sectoral development; (d) signing of the subsidiary Loan Agreementbetween NTC and MOIC; (e) signing of all co-financing agreements for the proposed financing of theproject; (f) increasing NTC's tariffs in effect on January 1, 1986 by at least 20%; and (g) payment byHMG of NRs 3,500,000 as part settlement of overdue bills. The original date of effectiveness, October6, 1986, was extended to January 5, 1987 because of delays in appointment of the managementconsultants, in HMG signing the subsidiary Loan Agreement, in signing the Belgian grant, in payment ofthe first installment of NRs. 3,500,000 by HMG of the overdue bills to NTC, and issuance of bids for theearth station. The credit became effective on December 17, 1986.

9. Prior to effectiveness, NTC raised a number of concerns as to the magnitude of the proposedmanagement consultancy, more so, given the shortage of skilled staff and NTC's weak institutionalcapacity questions were raised as to NTC's ability to absorb the degree of change anticipated. It wastherefore agreed to modify the assignment and revise the TOR. As a result of the revision of the TOR,the appointment of the management consultants was changed from a condition of effectiveness to a datedcovenant. All other condition being fulfilled, the Project became effective on December 17, 1986.

10. Project Implementation. With the delays in Project effectiveness (see para. 3 above), the start-upperiod took longer than the appraisal estimates. However, by the end of FY88 the project pace hadpicked up, NTC had procured about 36% (by value) of the IDA funded equipment and the project wasabout 42% complete, only six months behind schedule. After initial problems with the Earth Stationprocurement, it was installed with little delay. Delays in the construction of civil works wereconsiderable--about six to eight months behind schedule. About 86% (except rural) of the Project wascompleted by November 1989. The outstanding problem was with the Multi-Access Radio TelephoneSystem (MARTS). Due to re-planning, it had to be rebid, which in turn led to a two-year delay inimplementation. As a result, all procurement associated with the MARTS was similarly delayed. Inaddition, there were several implementation problems, specifically: (a) geographical coordination; (b) asevere lack of experienced staff; (c) a lack of AC power; (d) the delay in scheduling of priority ofinstallation; and (e) inadequate arrangements for engaging the private sector to operate PCOs at MARTSlocations. Other logistical problems included a lack of vehicles and gasoline (in particular during theTransit and Trade Embargo imposed by India) and some technical problems faced with the performanceof the large MART system purchased from NEC.

11. In October 1, 1992 IDA approved amendments to the Development Credit Agreement,reallocating funds within the categories of Schedule I to accommodate changes in the Project Descriptionand to utilize savings of about US$8 million arising from exchange rate differences between the USDollar and SDR. The changes included: (a) an increase of local automatic exchange lines by 10,000; (b)

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an installation of facilities to accommodate a further 7,100 lines; and (c) an increase in installation to 18MART systems and associated solar power equipment, and about 215 UHF/VHF radio systems.

12. On Project closure most of the work has been completed. Only eight of the MART systemsremain to be installed. All other physical components have been installed and are functioning. Keyindicators of project implementation are provided in Table 5.

Technical Assistance

13. Management Consultancy. Under the TA component, Bell Canada International (BCI) wasappointed to assist NTC upgrade its institutional capacity. BCI's final report submitted in April 1989,proposed inter alia: (a) establishment of an appropriate Management Information System (MIS); (b)appointment of new personnel to organizational positions created according to the consultantsrecommendations; (c) a job planning and review system for day-to-day management; (d) new exchangemaintenance procedures; and (e) inventory/stores control procedures including standardization ofmaterial, creation of stock items, and operation of inventory control. The MIS was installed in 1989 andis functioning satisfactorily (this is being expanded under Telecommunications V). The inventorysystem has been operational at the Kathmandu store since 1989.

14. A fixed assets evaluation was carried out by management consultants in 1990, and NTC'srecords were amended accordingly. Subsequently, NTC has revalued its assets annually to reflectchanges in the NRs value of the foreign currency denominated debts. This type of inflationaryaccounting is appropriate to the inflation level of Nepal, which does not require a more advanced systemwhich includes adjustments to the Income Statement.

15. With the assistance of FINNIDA, and financing from IDA, an automated billing system wasinstalled and is handling about 95% of the total lines. Under Telecommunications V, a more advancedbilling system is being installed as part of the new Corporate Data Base project, jointly financed byFINNIDA and IDA. With DANIDA's, support, experts assisted NTC in designing the outside cablingand transmission network.

Project Costs

16. The original estimated Project cost at credit signing was US$65.3 million equivalent. The IDAfinancing was SDR 20.7 million (equivalent to US$ 22 million). However, with the devaluation of theUS dollar against the SDR, the original SDR amount became equivalent to around US$ 30.0 million,resulting in a favorable exchange rate gain of about US$8.0 million. Given the good progress of Projectimplementation and compliance with all covenants, the scope of the Project was expanded and thesavings used to finance this additional expansion. At Closing Date, the total IDA financed componentsof the Project are estimated at US$28.2 million equivalent; the remaining US$ 1.8 million were canceled.With this the total Project cost increased to about US$74 million according to current estimates. Asummary of estimated and actual Project costs is shown in Table 8A for the IDA funded part of theProject, and in Table 8B for the whole Project.

Disbursements

17. Although there was a lag in Project start-up, disbursements during the first three years aftereffectiveness were in line with Appraisal estimates. After 1990, disbursements fell short of expectations

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primarily because of the increase in project scope and the delays in the procurement of the MARTS. Theschedule of estimated and actual disbursements is provided in Table 4.

ODerational Performance

18. NTC's technical and financial performance throughout the Project has been satisfactory. NTCmet most of the operational and financial targets, and exceeded some of them. This is commendableconsidering the shortage of skilled staff in the organization.

19. Technical Performance. The Project exceeded most of its operational objectives (Table 6).Subscriber connections were planned to reach 68,500 by the end of the project but 77,000 lines wereinstalled; 73 out of the 75 districts have been connected by the MART systems with about 3,450 linesunder this Project (to be completed in 1994/95).

20. Financial Performance. NTC has met the financial conditions set under the Project and itsaccounts have been audited by qualified external auditors. Although there were some delays inpresenting the audit reports, NTC has now met the due dates as required by the Project Agreement.

Institutional Performance

21. Under the Project, Bell Canada International was employed as management consultants to assessthe institutional deficiencies of NTC and make recommendations to improve its operational efficiency.The original TORs for management consultancy, which were quite comprehensive, were subsequentlymodified to relate to NTC's implementation capacity. Implementation of the consultants'recommendations was initiated under the Project and continues under the Credit 2364-NEP.

22. The management of NTC has been sound, and the successful implementation of the Project bearswitness to this. The institutional capacity of NTC was considerably strengthened throughout Projectperiod. During Project implementation there was a limited amount of reorganization, primarily tofacilitate delegation of authority in key operational and financial areas. Through the various technicalassistance programs, NTC staff has been re-enforced with training and management capabilities toimprove the efficiency of the organization. The Project Implementation Unit's performance has beencommendable in terms of the procurement activities and implementation of all physical components.

Manpower and Training

23. One of the objectives of the Project was to increase the efficiency of staff. The ratio of staff tosubscribers lines improved from 124 per 1,000 lines in 1985 to about 60 per 1,000 in 1993. This wasprimarily due to the high rate of expansion of installations compared to the small increase in staffing.Under the Project, through the grant facilities and the training component, a number of fellowships wereoffered to staff primarily for improving operational and technical skills. In addition, visiting expertsprovided a number of training courses locally. These will be continued under Telecommunications V(Credit 2364-NEP). However, the limited number of skilled personnel still remains a binding constraintto the economic development of the country in general and the sector in particular. This scarcity oftelecommunications managers is of major significance with the opening to a more competitive market.

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Project Sustainabilitv

24. The Project has established a sizable telecommunications network in 73 of Nepal's 75 districts tosupport Nepal's developing economy. NTC is sustainable in terms of cost recovery and general financialsituation. Through the establishment of a MIS system, automated billing facilities, and institutionalstudies, the Project has paved the way for later projects to complete the transition to a private sector,commercially run, organization. The Project has also strengthened the procurement and implementationcapabilities in the organization. The overall management of the organization has been modernized butmore work needs to be done in this respect. Telecommunications V is focusing on sector widerestructuring to introduce competition in existing and new services.

Bank Performance

25. IDA's performance under the Project was satisfactory. Basic institutional weaknesses, especiallyin the areas of skilled managerial and technical expertise, were identified and appropriate TORs preparedfor assistance to NTC through management consultancy and training. Under the umbrella of this Project,IDA assisted NTC in obtaining grants and financing from Belgium, France, Finland and Denmark. It alsohelped in coordinating with JICA for the development of the rural network.

26. IDA made an effort to process bid documentation expeditiously and assisted NTC and its Boardin resolving procurement difficulties. Some minor delays were experienced at the beginning in theclearance of bidding documents but this was quickly resolved. IDA supervised the Project twice a yearand 17 missions were carried out during the project (10 of the missions were shared with the 5thTelecommunications Project preparation, appraisal and supervision). The details of the missions areprovided in Table 13. The two main delays occurred during Project preparation, a 12 months delaybetween Negotiations and Board presentation (see para. 5 above) and a 20 months gap between Boardand Effectiveness (see para. 3 above). The Bank made use of the lessons coming from these cases andpreparation of the Fifth Project did not suffered these delays.

Borrower Performance

27. NTC made a serious effort to implement the Fourth Project efficiently and the major problems ofcoordination still remaining are being solved during implementation of the ongoing FifthTelecommunications Project. NTC managed changes in its top management and a major reduction ofstaff without impairing project implementation.

Assessment of Outcome

28. The Project met its objectives both in institutional and physical terms. At the end of the ProjectNTC was prepared, technically and managerially, to operate the substantive increase in lines to be carriedout under the Fifth Telecommunications Project. Additionally, HMG reached an understanding of thealternatives for telecommunications sector organization.

Future Operation

29. On May 12, 1992, IDA's Board approved the Fifth Telecommunications Project (Credit 2364-NEP) for SDR 40.1 million (US$55.0 million equivalent). This Project is under successfulimplementation. The understandings on sector reform have been greatly expanded through severalworkshops and consultancies undertaken under the Fifth Telecommunications Project. IDA present and

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future involvement in the sector will center on sector reform, principally, the establishment of aRegulatory Agency, open entry and competition in the provision of services, andcommercialization/privatization of NTC. The Japanese PHRD Fund has recently approved HMG'srequest to finance further initiatives in Nepal's telecommunications sector organization, in particular,training and consultancies required in the process of establishment and organization of an adequateRegulatory Agency. IDA has also received a request to finance frequency management and monitoringequipment for the Regulatory Agency.

Key Lessons Learnt

30. Under the Project the cofinanciers, DANIDA, FINNIDA and IDA learnt that close projectimplementation supervision is critical to avoiding major problems, and to detect any problems insufficient time for appropriate corrective action. Thus, under the Project, it was decided to engage anengineering consulting firm as permanent Project Supervisor representing the three donors. This solutionhas proved its value during implementation of the Fifth Telecommunications Project, where difficultprocurement situations have been brought into attention on-time for appropriate action.

31. IDA also learnt the value of advanced preparation of procurement documents by the time theProject is taken to IDA's Board for approval, and the size of the T/A to be included in a Project shouldbe tailored to the absorbing capacity of the entity. These lessons have been applied in the Fifth Project,where all major procurement processing documentation was prepared in advanced of credit effectiveness,and where the proposed T/A fitted the absorbing capacity of NTC.

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Tablel: Summary of Assessments

A. Achievement of objectives Substantial Partial Negligible Not Applicable

Macro policies 7 F F VSector policies 7 F 7 23Financial Objectives F T 7 Finstitutional objectives V z 7 L

Physical objectives 23 0 0 z

Poverty reductionGender issues z 7 F VOther social objectives 7 7 D 3Environmental objectives LV FiPublic sector management Fi M LViPrivate sector management L7 LiOther (specify) Li L i V

B. Project sustainabillty Likely Unlikely Uncertain

F-VI FL Oi

HighlyC. Bank performance satisfactory Satisfactory Deficient

Identification FT oi FoPreparation assistance LV LiAppraisal V E LSupervision V 7 L

HighlyD. Borrower performance satisfactory Satisfactory Deficient

Preparation i Li FImplementation Li L iCovenant compliance iV L Operation (if applicable) i LV

Highly HighlyE. Assessment of outcome satisfactory Satisfactory Unsatisfactory unsatisfactory

VgrL O O

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Table 2: Related Bank Loans/Credits

Loan/Credit Title Amount Purpose Year of StatusT (US$ OOOs) Approval

Preceding Operations

Cr-0166 Nep 1,781 Telecommunications 1969 Closed in 1976



Following Operations

Cr-2364 Nep 55,000 |Telecommunications 1992 Disbursing

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Table 3: Project Timetable

= Steps in Project Cycle Date Planned Date Actual/Latest EstimateI. Identification April 4, 1983 April 4, 1983

2. Preparation

3. Appraisal September 4, 1983 September 4, 1983

4. Negotiations February 1985 February 1985

5. Board Presentation April 11, 1985 April 11, 1985

6. Signing April 10, 1986

7. Effectiveness October 6, 1986 December 17, 1986

8. Project Completion June 30, 1990

9. Loan Closing June 30, 1993 June 30, 1994

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Table 4: Loan/Credit Disbursement: Cumulative Estimated and Total(US$ OOOs)

| ( Appraisal Estimate Actual Actual as a % of Estimate

Fiscal Year 1987 250 170 68.0%

Fiscal Year 1988 1,000 3,840 3840.0%

Fiscal Year 1989 4,500 6,690 148.7%

Fiscal Year 1990 12,500 8,350 66.8%

Fiscal Year 1991 19,000 10,500 47.6%

Fiscal Year 1992 22,000 13,000 58.9%

Fiscal Year 1993 18,300 83.4%

Fiscal Year 1994 25,200 114.6%

Fiscal Year 1995 28,196 128.2%

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Table 5: Key Indicators for Proiect Implementation

Item Procurement/ SAR Estimate Actual

Implementation _

Land & Buildings Procurement Dec 87

Implementation Dec 88 July 91 (Dhangarhi exchange)

Switching Equipment Procurement June 89

Implementation Sept 89a) E- IOB (ALCATEL) March 1994

b) System 12 (BTMC) Sept. 1991

Transmission Equipm. Procurement Sept 89

Implementation March 90

a) JICA Augt. 1994 (03 Area)

b) NOKIA July 1989

c) BTMC Jan. 1989

Earth Station Procurement Dec 87

Implementation March 88 July 1988

Consultancies Bell Canada March 90 15 Jan. 1987 - Nov 1988

Austroconsult Augt. 1990

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Table 6: Key Indicators for Proiect Operations (Performance Indicators)

Fiscal Year Ending July 15 1987 1987 1988 1988 1989 1989 1990 1990Estimate Actual Estimate Actual Estimate Actual Estimate Actual

1. Exchange CapacityAdded in Year 0 6,790 20,920 11,960 11,800 8,380 16,310

Total line Year end 35,780 34,970 56,700 46,930 68,500 55,310 71,620

2. Working LinesAdded in Year 6,000 3,988 8,000 6,393 10,000 9,991 11,047

Total line Year end 28,000 24,500 36,000 30,893 46,000 40,884 51,931

3. Number of RuralCommunities with Access toTelephonesAdded in Year 0 0 62

Total line Year end 17 17 79

4. Total Staff 2,999 3,077 3,230 3,494

Staff/ 1,000 lines 92 122 76 100 66 79 74

5. Rate of Retum 15 20.6 16 12.4 13 12.2 16.3

6. Operating Ratio 46 56 46 64 52 57 57

7. Current Ratio 2.5 1.6 2.8 1.4 3.0 1.4

8. Debt Service Coverage 2.2 2.2 2.0 2.0 1.9 1.4

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Table 7: Studies Included in the Project

Studv Purpose as defined Status Impact of Studyat

Appraisal/redefinedManagement Institutional Started January 1987 Created MIS, inventory control, re-

Consultancy - Bell strengthening of NTC finalized July 1990 organizationCanada International .Human Resource Re-organization done August 1990 improved organizational communication

Analysis managementimprovement

Tariffs Study appraise and adjust done December 1990 used several times in tariffs adjustments

I tariffs I.I_I

15

Table 8: Proiect Costs(US$ millions)

Appraisal Estimate

ITEM _ Local Costs | Foreign Costs Total

Switching Equipment 1.5 21.0 22.5

Cables, Ducts and Accessories 0.8 10.1 10.9

Subscriber Facilities 0.1 1.8 1.9

Transmission Equipment, main 0.3 5.8 6.1

Transmission Equipment, rural 0.2 3.0 3.2

Earth Station 0.4 3.0 3.4

Telex and Teleprinters 0.1 0.6 0.7

Vehicles, computers, office aids and training 0.3 1.0 1.3

equipmentConsultancy and training 0.1 1.5 1.6

Civil works for cable network and building 3.5 3.4 6.9

Total Base Costs 7.3 51.2 58.5

Physical contingency 0.7 1.1 1.8

Price Contingency 1.5 3.5 5.0

Total Contingency 2.2 4.6 6.8

Total 9.5 55.8 65.3

16

Table 8A: IDA Financial Costs(US$ Million)

Item A praisal Estimate Actual/Latest Estimate

Local Foreign Total Local Foreign Total

Costs Costs Costs Costs

Cables, ducts & accessories 3.4 3.4 7.90 7.90

Subscriber facilities 2.4 2.4 1.32 1.32

Transmission equipment, main 0.5 0.5 4.34 4.34

Transmission equipment, rural 3.8 3.8 6.92 6.92

Earth station 3.7 3.7 3.62 3.62

Telex and teleprinter 0.7 0.7 - -

Vehicles, computers, office aids & training equipment 1.3 1.3 2.95 2.95

Consultancy & training 1.9 1.9 1.15 1.15

Civil works for cable network and building 4.3 4.3 - -

Total 22.0 22.0 28.20 28.20

17

Table 8B IDA Project Financing(US$ Million)

Source App aisal Estimate Actual/Latest Estimate

Local Foreign Total Local Foreign TotalCosts Costs Costs Costs __

IBRD/IDA 22.0 22.0 26.83 26.83

Belgium 10.9 10.9 10.49 10.49

Denmark 7.5 5.5 10.73 10.73

Finland 5.3 5.3 5.71 5.71

France 10.1 10.1 13.37 13.37

NTC 9.5 - 9.5 7.12 - 7.12

Total Fourth IDA Project 9.5 55.8 65.3 7.12 67.13 74.25

Ongoing Works 0.1 3.8 3.9 ; -

JICA Project 1.6 28.4 30.0 .

Pre-investment 4.0 12.0 16.0

Total Program 15.2 100.0 115.2 N/A N/A N/A

18

Table 9 A: Economic Costs and Benefits

CALCULATION OF THE FINANCIAL RATE OF RETURN

For all projects, this table identifies the major costs and/or benefits that enter into the calculation of a re-estimated net present value (or economicrate of return) or, where the net present value (or economic rate of return) was not estimated, of cost-effectiveness in achieving project objectives.These calculations understate the overall benefits to be derived from the investment program in as much as they did not take into accountconsumer surplus and external benefits to non users of the telecommunications services provided by NTC.

The internal financial rate of return of the program was estimated in the SAR to be 16.1 %, and the projected intemal economic rate ofreturn was estimated in the SAR to be 17.3%.

47/48 48/49 49/50 50/51year ended 15 July 199- 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Investment 0.00 744.35 134.42 217.19 574.97 355.41

Incremental Revenue (0.00) (0.01) 80.37 263.33 456.34 879.99 1,380.75 1,404.28 1,364.62Incremental Cost 0.00 (0.00) 9.48 33.37 50.01 70.99 86.07 103.98 166.37

Incremental Rev-Cost (0.00) (0.00) 70.89 229.97 406.33 809.00 1,294.69 1,300.30 1,198.25

Net Benefit Stream (0.00) (744.35) (63.53) 12.78 (168.64) 453.59 1,294.69 1,300.30 1,198.25 1,198.25 1,198.25 1,198.25Inflation Deflactor 1.00 1.11 1.20 1.32 1.58 2.24 2.50 2.65 2.82 2.99 3.17 3.36

Deflacted Benefit Stream (0.00) (670.59) (52.94) 9.65 (106.76) 202.77 518.15 490.94 424.80 400.75 378.07 356.67

FIRR project life 15 years(U - 2001) 16.80%

FIRR project life 20 years(Z - 2006) 18.22%1 2 3 4 5 6 7 8 9 10 11 12

Summary of assumptions: 1 - Investment period of 5 years 88-92, proceeding capacity increases by one year2 - From 1995 to the end of the period the net benefit stream is constant in current NRs. These values are

then adjusted by the deflactor.

19

Table 9 B: Economic Costs and Benefits

CALCULATION OF THE ECONOMIC RATE OF RETURN

For all projects, this table identifies the major costs and/or benefits that enter into the calculation of a re-estimated net present value (or economic

rate of retum) or, where the net present value (or economic rate of return) was not estimated, of cost-effectiveness in achieving project objectives.

These calculations understate the overall benefits to be derived from the investment program in as much as they did not take into account

consumer surplus and external benefits to non users of the telecommunications services provided by NTC.

The internal financial rate of return of the program was estimated in the SAR to be 16.1 %, and the projected internal economic rate of

return was estimated in the SAR to be 17.3%.

47/48 48/49 49/50 50/51

year ended 15 July 199- 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Investment 0.00 737.23 133.13 215.11 569.47 352.01

Incremental Revenue (0.00) (0.00) 72.34 237.00 410.71 791.99 1,242.68 1,263.85 1,228.16

Incremental Cost 0.00 (0.00) 8.78 30.91 46.33 65.76 79.72 96.31 154.11

Incremental Rev-Cost (0.00) (0.00) 63.55 206.09 364.38 726.24 1,162.95 1,167.54 1,074.05

Net Benefit Stream (0.00) (737.24) (69.58) (9.02) (205.09) 374.22 1,162.95 1,167.54 1,074.05 1,074.05 1,074.05 1,074.05

Inflation Deflactor 1.00 1.11 1.20 1.32 1.58 2.24 2.50 2.65 2.82 2.99 3.17 3.36

Deflacted Benefit Stream (0.00) (664.18) (57.99) (6.81) (129.83) 167.29 465.43 440.81 380.77 359.21 338.88 319.70

FIRR project life 15 years(U -2001) 14.48%

FIRR project life 20 years(Z -2006) 16.12%1 2 3 4 5 6 7 8 9 10 1 1 12,

Summary of assumptions: 1 - Investment period of 5 years 88-92, proceeding capacity increases by one year

2 - From 1995 to the end of the period the net benefit stream is constant in current NRs.

These values are then adjusted by the deflactor.

The Economic IRR was calculated using the SCF of 0.90 applied to: (a) the Local Component of the investment (9.56%)(b) 100% of the Benefits (Revenue); and(c) the Local Component the O&M costs (74.7%)

20

Table 10: Status of Legal Covenants

Agreement Section Covenant Type Present Original Revised | Description of Covenant Comments

status Fulfillment Fulfillmen

_ _ _ _ _ _ _ _ _ _ _ _ _ Date t Date

Credit 3.04(a) Financial OK 1987/88 HMG to settle Arrears Complied April '94

Credit 3.04(b) Financial OK 12/15/86 proposal to pay accountswithin 2 months

Credit 3.04(b) Financial OK since 1987 1991 adopt to implement above

Credit 3.05 Financial OK 85-89 Acquire Land and accessrights

Credit 3.06(a) Sector Policy OK 85 Grant Import License

Conditionality

Project 2.02(b) Project OK 12/15/86 Appoint Management The TORs of the

Implementation Consultants Consultancy were

Arrangements changed in December'86.

Project 2.08 Project OK 1987 to establish a Project

Implementation Implementation Unit

ArrangementsProject 4.02(b) Financial OK Annual present audited statements

within 8 months

Project 4.03(a) Financial OK Annual to have an annual rate ofreturn of 12%

Project 4.04(a) Financial OK 87-91 not incur any debt exceedingNRs 30 million

Project 4.04(b) Financial OK Annual Debt Service Coverage of

I__ _ _ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 .5

21

Table 11: Compliance with Operational Manual Statements

There have not been any significant lack of compliance with any applicable Bank Operational Manual Statement.

22

Table 12: Bank Resources: Staff Inputs

Stage of Planned Revised Actual

Project Cycle Weeks US$ Weeks US$ Weeks(1) US$

Through Appraisal NA NA 9

Appraisal - Board NA NA 36

Board - Effectiveness NA NA 6

Supervision NA NA 82

Completion NA NA 8

Total NA NA

Note: (1) Staff-weeks in the field

23

Table 13: Bank Resources: Missions

Performance Rating

Stage of Project Month/Year Number Of Persons Days in Specialized Staff Implement Develop Types of

Cycle Field skills ation mental Problems_ represented Status Status

Through 3/83- ENG, FNA, FNA

Appraisal Sept 9 - 27/83 2(D.J./M/S.) 18 ECO

Negotiations April 84 andRe-Appraisal Feb 85 3 ENG, FNA

Negotiations April 85 (field)Board April 30, 85

Mission July 17 - 25, 85

Mission Oct 6 - 11, 85 4 (DJ, RL, JM, HL) 5 ENG, ECO,FNA, ENG

Mission Jan 30 - 31, 86 1 (JM) 2 FNA

Mission May 17 - 22, 86 2 (DJ, HL) 5 ENG

Signing April 10, 86Mission Oct 18-23,86 1 (HL) 5 ENG

Effectiveness Dec 17, 86 I

Supervision Feb 5 - 13, 87 3 (JM, HL, HS) 8 FNA, ENG,ENG

Supervision Jan 25 - Feb 4, 88 1 (HL) 9 ENG

Supervision July 24-Aug. 1, 88 1 (JM) 8 FNA

Supervision April 5 - 17, 89 2 (HL,AC) 12 ENG, FNA

Supervision Aug. 26-29, 89 1 (AC) 3 FNA

Supervision Nov. 15-Dec 4,89 2 (HL,AC) 19 ENG, FNA

Supervision June 8 -11, 90 1 (AC) 3 FNA 2 2

Supervision Aug. 8-31, 90 2 (AC, HL) 23 FNA, ENG 2 2 procurement

+prep 5th Project delay,

Supervision Dec 5 - 19, 90 2 (AC, PS) 14 FNA, ECO

+tariff study,prep 5th Project

24

_ Performance Rating

Stage of Project Month/Year Number Of Persons Days in Specialized Staff Implement Develop Types of

Cycle Field skills ation mental Problemsrepresented Status Status

Sector Workshop June 15 -19, 91 3 (AC, PS, BW) 3 FNA, ECO, ECO

Supervision July 12 - 30, 91 2 (AC, HL) 18 FNA, ENG 2 1 delay in

+Appraisal 5th appointment

Project of Auditor

Supervision May 27 - June 10, 92 2 (AC, HL) 14 FNA, ENG 2 1 procurement

+start 5th Project delay

Supervision Nov. 8-13, 92 3 (AC,HL,BW) 6 FNA, ENG, 2 1 procurementECO delay

Supervision April 17 - 23, 93 2 (AC, HL) 5 FNA, ENG 1 1

Supervision July 21 - 24, 93 1 (AC) 3 FNA 1 1

Supervision Nov. 8 - 19, 93 3 (AC, PS, PW) 11 FNA, ECO, 1 1ENG .

Supervision Feb 13-March 5, 94 2 (AC, PW) 20 FNA, ENG 1 I I

Supervision July 3 - 17, 94 2 (AC, PS) 14 FNA, ECO HS HS

Appendix 1Page 1 of 2

NEPAL


CREDIT 1588-NEP (ICR)

Borrower's Evaluation Summary

Assessment of the Proiect obiectives. desian, implementation and operationexperience:

a) The project objectives were clear and appropriate;

b) The project was designed appropriately to meet the project objectives;

c) The planned implementation schedule was suitable in general, however, theimplementation schedule did not take into consideration certain problems.

Evaluation of the Borrower's own performance

1. NTC tried its best to execute the project as efficiently as possible in spite ofcertain difficulties. The major difficulties faced by the NTC were as follows:

a) Changes in telephone exchange sites due to nonavailability of electric power;

b) Change to the type of exchange due to unreliable power;

c) Some procurement delays.

2. Some problems could have been avoided by conducting a detailed site surveybefore finalization of the exchange sites.

3. Experience with this project offered the following lessons:

a) Prior detailed survey is essential and has to be completed before finalization ofthe project.

b) Problems in the procurement process have to be considered in planning theimplementation schedule.

Appendix 1Page 2 of 2

Evaluation of the Bank

4. IDA's overall performance in designing and implementing the Fourth Project wasquite satisfactory. IDA has supported the development of telecommunications sector inNepal between the period 1986-1992. It provided adequate guidance to NTC for thesuccessful and timely implementation of the Fourth Project, inspite of many unforeseendifficulties. IDA was also instrumental in shaping the organization of NTC to enable it tohandle the development activities in an efficient manner. It was IDA's suggestion thatNTC appoint Management Consultants for the strengthening of its organization andinstitutional development for carrying out the development activities. Implementation ofthe consultant's recommendations gave a new impetus to NTC. NTC took a new attitudein this phase toward the management of operation and maintenance activities, planningactivities and development activities.

5. Even though the appointment of Management Consultants resulted in a set of welldefined recommendations, NTC was only able to implement these recommendations in aphased manner. There are still many recommendations which are yet to be implemented.Besides the seven areas covered by the consultants as per the terms of reference, there arestill other important areas which need to be strengthened. NTC reviewed these areas onits own along the same line as the consultants formulated. IDA might have more closelymonitored the implementation of the consultants recommendations and guided NTC ininstitutional development.

6. IDA has to be commended for their guidance regarding tariffs. IDA suggested atariff study to be carried out by a consulting firm. As result of the tariff study, NTC wasable to apply a tariff which was closer to a cost base tariff. IDA has also to becommended for their effort in ensuring that NTC collect government arrears.

7. NTC expected IDA to take the leading role in coordinating the activities of thevarious donor agencies. IDA fulfilled this expectation by maintaining close contact andliaisoning with the various donor agencies and closely monitoring the status of thevarious subprojects. NTC expected IDA to assist NTC in recovering government arrearsand in institution development. IDA's efforts in these respects were commendable.

8. IDA's supervision effort during the Fourth Project was adequate and satisfactory.NTC was able to maintain a good working relation with IDA throughout the project.

World Bank Document€¦ · 1. Public telecommunications services in Nepal are provided by the Nepal Telecommunications Corporation (NTC), a fully Government owned corporation under

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