SCCD: G.G.

AFRICAN DEVELOPMENT BANKAFRICAN DEVELOPMENT FUND

PROJECT COMPLETION REPORT

TELECOMMUNICATIONS II PROJECT(ADB Loan N°B/TAN/TEL/92/12 - ADF Loan N°F/TAN/TEL/92/29)

TANZANIA

INFRASTRUCTURE DEPARTMENT ONINNORTH, EAST & SOUTH REGIONS MAY 2004

TABLE OF CONTENTSPage

Executive Summary, Currency Equivalents, Abbreviations, Annexes, (i-vi)Basic Project Data, Project MPDE Matrix

1. INTRODUCTION 1

2. PROJECT OBJECTIVE AND FORMULATION 1

2.1 Project Objective and Description 12.2 Project Formulation 2

3. PROJECT EXECUTION 3

3.1 Effectiveness and Start-Up 33.2 Modifications 33.3 Implementation Schedule 33.4 Reporting 43.5 Procurement 43.6 Financial Sources and Disbursements 5

4. PROJECT PERFORMANCE AND RESULTS 6

4.1 Overall Assessment 64.2 Project Operating Results 74.3 Institutional Performance 84.4 Financial Performance 94.5 Economic Performance 104.6 Fulfilment of Loan Conditions 11

5. SOCIAL AND ENVIRONMENTAL IMPACT OF THE PROJECT 11

6. PROJECT SUSTAINABILITY 12

7. PERFORMANCE OF THE BANK AND THE BORROWER 13

7.1 Performance of the Bank 137.2 Implementation Performance 137.3 Performance of the Borrower and Executing Agency 14

8. OVERALL PERFORMANCE AND RATING 14

9. CONCLUSIONS, LESSONS LEARNT AND RECOMMENDATIONS 15

9.1 Conclusions 159.2 Lessons Learnt 159.3 Recommendations 16

LIST of TABLES

Table 3.1 Planned versus Actual Project CostsTable 3.2 Planned versus Actual DisbursementsTable 4.1 Some Operating Performance Indicators for TTCLTable 8.1 Project Performance

ANNEXES

Annex 1 Map of Project AreaAnnex 2 Specific Loan ConditionsAnnex 3 Project Costs and Contract AmountsAnnex 4 Project Outputs: Appraisal and PCRAnnex 5 TTCL Financial StatementsAnnex 6 Schools and Hospitals/Centres Connected to the Telecoms NetworkAnnex 7 Calculation of FIRRAnnex 8 Performance and RatingsAnnex 9 List of Documents Consulted

This Project Completion Report (PCR) has been prepared by Miss Josephine Ngure (PrincipalFinancial Analyst, ONIN.2) and Mr. Ahmed A. R. Khozam (Consultant TelecommunicationsEngineer, ONIN.2) following a field Mission to Tanzania in October 2002. Any enquiries related tothe report should be addressed to Miss Ngure (Ext. 2290) or to Mr. N. Matondo-Fundani, Manager,ONIN.2 (Ext. 2891).

EXECUTIVE SUMMARY

1.1 The Bank approved the Tanzania Telecommunications II Project in June 1992. At appraisal,the estimated total cost of the Project was UA 37.96M, out of which the Bank’s contributionamounted to UA 28.421M. The Bank’s contribution was in the form of an ADF loan of UA18.421M and an ADB loan of UA 10.0M. The Project included the procurement andinstallation of transmission systems, switching systems and external line plant in the Dar esSalaam, Dodoma and Mwanza areas. Staff training, Project management services and motorvehicles were also included as part of the Project. The two Bank loans were allocated tofinance the entire foreign exchange component related to switching, transmission, external lineplant, motor vehicles and staff training. Sida funded the Project management services while alllocal costs were financed by the Government of Tanzania (GOT).

1.2 The Project was part of a much larger multi-donor funded Telecommunications RestructuringProgram (TRP), conceived by the GOT and several donors in 1991. The estimated total cost ofthe TRP was USD 220M and its objective of the TRP was to rehabilitate, modernize andexpand the telecommunications network in Tanzania. Specific targets of the TRP included (1)increasing teledensity from 0.3% in 1992 to 0.7% in 1996, (2) increasing telephone penetrationfrom 1.5% in 1992 to 3.8% in 1996, and (3) raising demand satisfaction from 37% in 1992 to50% by 1996.

1.3 Embedded within the overall objective of the TRP, the objective of the Project was to increasethe telephone penetration and teledensity, and to improve the quality of service of thetelecommunications network in the Project areas.

1.4 There were delays experienced in the commencement of activities following delays in thefulfilment of conditions prior to effectiveness. Project activities commenced in January 1994instead of January 1993 as originally planned. Despite this, procurement and physicalimplementation activities progressed rapidly and by the end of 1997 all Project activities werecompleted and the installed equipment was operational. By the end of 1999 all FinalAcceptance Certificates had been issued to contractors. The entire TRP was also completed bythe end of 1999.

1.5 There were no modifications to the Project during implementation and all components wereinstalled as originally envisaged. With the exception of motor vehicles, which were procuredthrough National Competitive Bidding, all goods and services were procured throughInternational Competitive Bidding.

1.6 At completion the total cost of the Project was UA 33.0M, 87% of the original cost estimate.The recalculated Financial Internal Rate of Return (FIRR) for the Project stands at 21%,against the appraisal estimate of 17%. For the entire TRP, the World Bank has estimated arecalculated FIRR of 26% (appraisal estimate was 27%) and an Economic Internal Rate ofReturn (EIRR) of 36% (appraisal estimate was 52%). The sustainability of the Project istherefore considered highly likely.

1.7 Since commissioning, the Project has greatly improved TTCL operations in the Project-specific areas. The Project had increased the Direct Exchange Lines (DELs) in Tanzania by37,737 (102% of appraisal estimate) and this has helped meet a significant part of the demandfor telecommunication services. In addition, there has been a significant improvement in thequality of services provided. For instance, the network has changed from 0% digital in 1992 to70% in 1992.

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1.8 No major negative environmental impact has resulted from the implementation of the Projectand there have been substantial social benefits accruing to the populations in the Project areas.

1.9 The performance of the Bank and contractors/consultants is rated as fully satisfactory whilethat of the Borrower is rated as highly satisfactory.

1.10 The lessons learnt from the implementation of this project are as follows:

1. The formulation of loan specific conditions should be as realistic as possible. Inparticular, specification of loan conditions that are dependent on the implementation ofsome of the Project components should kept to a minimum or avoided altogether. At thesame time, loan conditions should be adequately followed up and appropriate measurestaken at the right time (Para 4.6.3).

2. Internal Bank reorganizations should pay due attention to the preservation of Project-related as well as other important documents (Para.1.4).

3. Field Missions during Project implementation should always comprise of all requisiteskills and this is key to the successful implementation of a Project and compliance withloan conditions (Para. 3.4.3).

4. In reviewing the design of projects in poorly developed areas, the Bank should payparticular attention to anticipated projects that may be implemented in the area. Doingthis helps avoid additional costs and preserve project benefits (Para. 4.2.4).

5. Government ownership of Projects, backed by effective donor co-ordination, is key tothe successful implementation of Projects (Para 7.3.1).

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CURRENCY EQUIVALENTS AND ABBREVIATIONS

Currency = Tanzania Shilling (Tshs)

Appraisal PCR(March 1992) (October 2002)

1 UA = Tshs 322.950 1258.761 UA = US Dollars 1.43043 1.322691 US$ = Tshs 225.77 952

MEASURES

Hz = HertzMHz = Mega Hertz (Hz * 106)GHz = Gega Hertz (Hz * 1012)Mbs = Mega bits per second (106 bits/sec)m = Meterkm = Kilometer ( m * 103)

ABBREVIATIONS

ADB = African Development BankADF = African Development FundBank = African Development BankCEO = Chief Executive OfficerCIDA = Canadian International Development AgencyCSP = Country Strategy PaperDEL = Direct Exchange LineDSM = Dar es SalaamEA = Executing AgencyEIA = Environmental Impact AssessmentEIRR = Economic Internal Rate of ReturnEU = European UnionFC = Foreign CurrencyFIRR = Financial Internal Rate of ReturnFY = Financial YearGDP = Gross Domestic ProductGOT = Government Of TanzaniaICB = International Competitive BiddingIDA = International Development AssociationISD = International Subscriber DialingINTELSAT = International Satellite OrganizationITU = International Telecommunications UnionMDF = Main Distribution FrameMOCT = Ministry of Communications and TransportNTE = National Transit ExchangeOFC = Optical Fibre CablePCR = Project Completion ReportPDH = Pseudo-synchronous Digital HierarchyPIU = Project Implementation UnitPMU = Project Management UnitROI = Return On InvestmentSDH = Synchronous Digital HierarchySIDA = Swedish International Development AuthoritySTD = Subscriber Trunk DialingTCC = Tanzania Telecommunications CommissionTPTC = Tanzania Post and Telecommunications CorporationTRP = Telecommunications Restructuring ProgrammeTTCL = Tanzania Telecommunications Company LimitedUA = Union AccountUNDP = United Nations Development Programme

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PROJECT BASIC DATA

1. Loan Numbers : ADB - 2000191000041 (B/TAN/TEL/92/12): ADF - 21001910013 (F/TAN/TEL/92/29)

2. Borrower : United Republic of Tanzania

3. Executing Agency : Tanzania Telecommunications Company Ltd (TTCL)

A. LOAN

1. Amount: ADBADF

UA 10 MillionUA 18.421 Million

2. Interest Rate Type(ADB) Variable rate on amount disbursed3. Commitment Charge (ADB) 1% p.a. on undisbursed amount4. Service Charge (ADF) 0.75% on amounts disbursed5. Repayment/Grace Period; ADF/ADB 50/10; 20/5 years6. Loan Approval Date 24.06.19927. Loan Signature Date 01.12.19928. Date of Entry into Force 13.10.1993

B. PROJECT DATA

AppraisalEstimate

Actual

1. Total Cost UA 37.96 M UA 33.0M2. Date of First Disbursement 01.06.1993 06.10.19943. Date of Last Disbursement 31.12.97 31.12.19994. Commencement of Project

Implementation Activities January 1993 January 19945. Completion of Project

Implementation ActivitiesMarch 1996 July 1997

C. PERFORMANCE INDICATORS

1. Cost Overrun(Under run) (UA 4.96M)2. Time Overrun(Under run)

- Slippage on Effectiveness- Slippage on Completion Date- Slippage on Last Disbursement- No of Extensions of Last Disbursement Date

4 months16 Months2 Years2

3. Project Implementation Status Completed4. Institutional Performance Satisfactory5. Contractor Performance Satisfactory6. Project Economic Performance Satisfactory

Appraisal PCRFIRR 17% 21%

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Comparative Dates for Implementation of Front-end Activities

Front-end ActivitiesPlanned Date atAppraisal

Actual Date ofImplementation

Slippage(Months)

Loan Approval June 1992 June 1992 0Loan Signature December 1992 December 1992 0Loan Effectiveness June 1993 October 1993 4Estimated Date of Starting January 1993 January 1994 12Recruitment of Consultantsand setting up of the PMU. January 1993 October 1993 9

D. MISSIONS

Type Persons Composition Man-daysIdentification - -Preparation/Appraisal

2 Telecoms Engineer + Financial Analyst 28

Launching (05/94) 1 Telecoms Engineer 14Supervision (11/94) 1 Telecoms Engineer 14Supervision (05/95) 1 Telecoms Engineer 14Supervision (02/97) 2 Telecoms Engineer + Financial Analyst 28Supervision (05/98) 3 Telecoms Engineer + PU Economist +

Financial Analyst42

PCR (10/02) 2 Telecoms Engineer + Financial Analyst 28

E. DISBURSEMENTS

Amount PercentTotal DisbursedADBADF

UA 9,728,812UA 18,394,105

97.3%99.9%

Unused Balances (cancelled)ADBADF

UA 271,188UA 26,935

2.7%0.1%

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PROJECT MPDE MATRIX – TANZANIA T ELECOMMUNICATIONS II PROJECT

Narrative Summary (NS) Verifiable Indicators (OVI) Means of Verification(MOV)

Important Assumptions

Goal1. To develop telecom.Infrastructure for socio-economicdevelopment

1.1 Increased GDP 1.1 Government statistics1.2 ADB Country

Strategy Paper

(Goal to Super goal)1. Sustained economic reformsand growth and politicalstability

Project Objective:

1. To expand , modernize andrehabilitate the exchanges,transmission and external plantfacilities in Dar es Salaam andDodoma-Mwanza areas

As a part of the TRP whose OVI are:

1.1 Increase teledensity from 0.3 to 0.7by 1996

1.2 Increase penetration from 1.5% to3.8% by 1996

1.3 Increase demand satisfaction from37% to 50% by 1996

1.1 TTCL Annual reportsand ImplementationProgress reports

1.2 Supervision Missions

(Project Object. to Goal)

1.1 Sustained investments inthe telecommunications sector

Outputs:

1.1 Eight digital exchangesconstructed and operational

1.2 External line plant installedand operational

1.3 A backbone digital microwavelink constructed andoperational

1.4 Optical fibre cable systemsinstalled and operational

1.5 Transport purchased andoperational.

1.6 Training completed

1.1 A total of 37,000 digital exchangelines and 6,000 trunks installedwith buildings, generators and airconditioning

1.2 A total 49,700 MDF pairs installed.

1.3 2x1920 channels microwaveequipment, 21 repeaters andmultiplex equipment installed andoperational

1.4 Approx. 10 km of optical fibre 140Mb/s and about 26 km of opticalfibre 34 Mb/s

1.5 25 vehicles different typesincluding 3 heavy trucks deployedin use

1.6 42 engineers trained for switching(24) and transmission (18)

1.1 Quarterly ProgressReports

1.2 Supervision Missions

1.3 TTCL PCR

(Output to Project Obj.)

1.1 Local counterpart funds

1.2 Adequate operation andmaintenance.

Activities:

1.1 Procure digital exchanges andaward contracts

1.2 Procure external line plant andaward contracts

1.3 Procure transmissionequipment award contract

1.4 Procure vehicles

1.5 Procure Consultancy Services

Input / Resources

Financing Plan(UA Million)

ADB 10.00ADF 18.42Sida 1.77GOT 7.76

Total 37.95

1.1 Quarterly ProgressReports

1.2 Supervision Missions

(Activity to Output)

1.1 Procurement complieswith the Bank rules

1.2 Adequate supervision bythe Consultant

1.3 Implementation followsimplementation schedule.

1. INTRODUCTION

1.1 The Bank Group’s first intervention in Tanzania’s telecommunications sector was in 1986,when the Government of Tanzania (GOT) guaranteed a loan from the Bank Group to theKagera Basin Organisation (KBO). The KBO project (Telecommunications I), a regionaltelecommunications project serving four countries viz. Tanzania, Rwanda, Burundi andUganda. It was financed by an ADF loan amounting to UA 4.55M and Tanzania’s portionof the project entailed the procurement of switching equipment, transmission equipment andsome logistical support. The KBO project was completed in 1992.

1.2 In the same year the Board of Directors approved the Telecommunications II Project (theProject) for a total loan amount of UA 28.421M. The Project was part of a much widerdevelopment program aimed at institutional strengthening and expansion/rehabilitation ofthe telecommunications network. The Project was expected to complement the benefitsfrom the Telecommunications I (KBO) project.

1.3 The Project was implemented between 1994 and 1999 without any major problems. Theequipment installed is operating effectively and an additional capacity of 37,000 directexchange lines were provided. There have also been substantial institutional changes in thesector during the implementation of the Project. At the time of approval, thetelecommunications sector was wholly serviced by the Tanzania Posts andTelecommunications Corporation (TPTC), the state-owned monopoly. By Projectcompletion in 1999, the sector had been liberalized and a regulator was in place. In 2001,the TPTC was partially privatised.

1.4 This report is based on the Borrower’s PCR as well as data/information obtained within theBank and during the Bank’s PCR Mission of October 2002. Some Project files weremisplaced during the 1995 re-organization and some of the missing details could not beobtained from the Executing Agency (TTCL) as they were undergoing reorganization duringthe PCR Mission. The list of documents consulted is presented in Annex 9.

2. PROJECT OBJECTIVE AND FORMULATION

2.1 Project Objective and Description

2.1.1 The objective of the Project was to increase the telephone penetration and telephone density,and to improve the quality of service of the telecommunications network in the Projectareas. This objective was embedded within the objective of the multi-donor fundedTelecommunications Restructuring Programme (TRP), of which the Project was only part,whose specific targets were to:

Increase the teledensity from 0.3 DELs to 0.7 DELs per 100 inhabitants by 1996 Increase the telephone penetration from 1.5% to 3.8% by 1996 Raise demand satisfaction from 37% in 1992 to 50% by 1996.

2.1.2 The Project comprised the following components:

Switching: Eight digital exchanges - Four in Dar es Salaam (22000 lines and 6000trunks) and four in the Dodoma-Mwanza area (15000 lines)

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External Line Plant: 49,700 MDF pairs (27,100 in Dar es Salaam and 22,600 in theMwanza-Dodoma area)

Transmission: (1) Four optical fibre cable systems to link Dar es Salaam Centralwith Kariakoo, Upanga and Magomeni; (2) A digital microwave link to linkDodoma and Mwanza.

Vehicles (25)

Training - 18 man-months and training equipment

Project Management – 876 man-months (126 expatriate and 750 local)

2.1.3 The Project area included Dar-es-Salaam, Dodoma and the Central Lakes region, as shownin Annex 1.

2.2 Project Formulation

Origin

2.2.1 Towards the end of the Bank-financed Telecoms I Project (KBO Project), the Governmentof Tanzania embarked on an extensive exercise to improve the supply and quality of thetelecommunications services within the country. With funding obtained from donors, theGOT commissioned consultants to undertake a thorough review of the operations of theTanzania Posts and Telecommunications Corporation (TPTC). The findings of this reviewindicated a great need for institutional building and rehabilitation/extension of thetelecommunications network. Specific recommendations were then made for the provisionof telecommunications equipment to cater for the medium-term (1992-1995) requirements.

2.2.2 The review findings were subsequently submitted to a Donor conference held in Tanzania in1991 under GOT coordination. Present at this conference were the ADB, the World Bank,Sida, Spain, NORAD, Italy, CIDA, USAID, UNDP, EEC and Japan. Following discussionheld during the Conference, the GOT and the Donors adopted an investment program (theTelecommunication Restructuring Program - TRP) with an estimated cost of USD 220M.The program was to be implemented over a 4-year period from 1993-1996. Following theconference, GOT submitted a request to the Bank Group for financing of the componentsspecified in Section 2.2 above.

Preparation, Appraisal, Negotiation and Approval

2.2.3 In response to the GOT request, the Bank fielded a combined Preparation/Appraisal Missionin March/April 1992. During the Preparation/Appraisal Mission, the Project componentswere reviewed in greater detail with the Government. At the end of the Mission it wasdetermined that the Bank would co-finance with Sida and GOT components of the TRPcosting approximately UA37.93M.

2.2.4 At loan negotiations a number of loan-specific conditions that were deemed necessary forsuccessful implementation and sustainability were agreed upon. These conditions arereproduced in Annex 2. The basis of these conditions was the weak financial performance ofthe TPTC at the time of Project Appraisal. The main purpose of the conditions was thereforeto ensure commercial viability of the TPTC (the Executing Agency) and therefore guarantee

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the anticipated Project benefits. Of particular importance was the need to substantiallyreduce the level of debts receivable from customers and to increase the rate of return earnedon assets.

2.2.5 In June 1992, the Bank’s Board of Directors approved loans amounting to UA 28.421Mtowards the Project. The amount was made up of UA 18.421M under the ADF andUA10.0M under the ADB. The Bank’s contribution would cover approximately 20% of theentire TRP. The Loan Agreements were subsequently signed on December 1, 1992.

3. PROJECT EXECUTION

3.1 Effectiveness and Start-Up

3.1.1 In addition to the General Conditions applicable to the loans, there were six loan-specificconditions to be fulfilled prior to entry into force, as shown in Annex 2. It was expected thatthese conditions would be fulfilled before award of the first contract in June 1993. Thatwould have meant a total of six months between loan signature and effectiveness. However,fulfilment of these conditions occurred over a period of nine months, three months longerthan initially planned.

3.1.2 Project files relating to this period are unavailable and it is therefore not possible to tell whythis delay occurred. However, one likely cause was the ongoing restructuring of the TPTC.In particular this would have delayed the formation of the PMU, a condition precedent toentry into force.

3.1.3 All conditions were eventually fulfilled and the loans were declared effective on 13 October1993. Project implementation activities commenced thereafter in January 1994 and the firstcontract was awarded in July 1994. The delay in Project start-up was therefore roughly oneyear.

3.2 Modifications

3.2.1 There were no major modifications to the Project and it was implemented as originallyappraised. However, the funds originally allocated for the training of engineers was used tomeet some of the costs for the External Line Plant. The engineers that were to be trainedwere however trained as part of the equipment supply contracts.

3.3 Implementation Schedule

3.3.1 At appraisal, Project implementation was planned to run for about 42 months, from January1993 to March 1997. Tender documents preparation was planned to commence in January1993 and equipment manufacture would begin in June 1993. Installation of the equipmentwould run from June 1994 to March 1996, and commissioning and acceptance would becomplete by March 1997.

3.3.2 There was a delay of about 16 months in Project completion, with installation work endingin July 1997 rather than March 1996. However, by the initially planned completion date,most of the activities had been completed and some of the equipment commissioned. ByJuly 1997, most of the installed equipment was operational. By the end of 1999 all FinalAcceptance Certificates had been issued.

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3.3.3 The delay in Project completion was accounted for by the one-year delay in Project start-up,some delays in disbursement of funds and some time overrun on contract execution. Forexample, the down payment for motor vehicles was done almost 7 months after the supplierhad delivered the vehicles to the port of Dar es Salaam.1

3.4 Reporting

3.4.1 In line with other Bank-funded operations, the EA was expected to submit QuarterlyProgress Reports as well as annual Audit reports for the Project. The specific loanconditions also required submission of Quarterly Performance Reports covering progress onthe institutional development component (funded by other donors as part of the wider TRP).In addition, the EA was to submit half-yearly reports detailing the cost/revenue situation oftelecommunications operations.

3.4.2 Comprehensive Quarterly Progress Reports (QPRs) and Quarterly Performance Reports forthe Institutional Development component are available for the post-1995 period. On thebasis of this, it can be inferred that even for the pre-1995 period the Borrower would havebeen complying with the reporting requirement.

3.4.3 However, the Project was only audited once in 1999, following completion ofimplementation activities. Bank records show that the Bank constantly reminded the EA ofthe need to submit Project Audit Reports, but this condition was not met duringimplementation. Although the responsibility to fulfil loan conditions rests primarily with theborrower, the persistent failure by the EA to undertake annual Project audits is partlyattributable to sub-optimal composition of the Mission teams that visited Tanzania before1998. Apart from the appraisal Mission, the three other Missions before 1998 wereperformed by a Telecoms Engineer on his own.

3.5 Procurement

3.5.1 Procurement activities under the Project were performed in line with the original plan.Procurement for Switching, Transmission, and External Line Plant was throughInternational Competitive Bidding (ICB). Motor Vehicles were procured through LocalCompetitive Bidding (LCB). The Project Management services were procured through Sidafunds and in accordance with Sida procedures.

3.5.2 The procurement activities took place between January 1994 and June 1995, during whichperiod all contracts were awarded. Annex 3 shows the contractors/consultants under theProject and amount for each contract.

3.5.3 The actual number of vehicles acquired and deployed was 23, against an appraisal figure of25. The contract signed for the supply of motor vehicles is unavailable but all availablecorrespondence within the Bank relating to the procurement of the vehicles refers to 23rather than 25 vehicles. The EA could not explain why 23 vehicles were procured ratherthan the 25 planned at appraisal. However in view of the fact that contract for vehicles wassubstantially below budget, it seems most likely that at the time of procurement the EAdecided the two extra vehicles were not needed.

1 This specific delay was caused by some mix-up in communication between the TTCL and the Bank regarding therelease of the down payment for the vehicles.

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3.5.4 Despite the provision for a training budget under the Project, no training contract wasentered into. Instead, the 42 engineers (24 switching and 18 transmission) that weresupposed to be trained underwent factory training as part of the supply contracts forswitching and transmission. The amount budgeted for Training was absorbed by theExternal Line Plant, whose initial lowest bid was above the allocated budget.

3.6 Financial Sources and Disbursement

3.6.1 Total Project costs were estimated at appraisal to be UA 37.96M, with the combinedADF/ADB funding representing about 75% of this cost. At completion, actual Project costsamounted to approximately UA33.0M, almost UA 5M lower than appraisal estimates. Theplanned and actual cost per financier is shown in Table 3.1 while Annex 3 shows moredetails about the Bank-funded components and contracts.

Table 3.1Planned versus Actual Project Costs

Appraisal Actual

Financier UA(M) UA(M)

ADB/ADF 28.42 28.12

Sida 1.77 0.50

Govt 7.76 4.40

Total 37.95 33.02

3.6.2 The difference between appraisal and actual estimates in UA terms was largely attributableto a lower than expected expenditure for the Government-funded components. This was aresult of the depreciation of the Tshs against the UA (225% between 1992 and 1999), whichwas not matched by a proportionate level of domestic inflation. As a result, even though theGovernment’s contribution in Tshs reflected some price escalation during the period, theescalation did not fully capture the exchange rate depreciation, leading to the lower value inUA terms.

3.6.3 Table 3.2 shows planned and actual expenditure schedule for the Project. 60% of totalProject expenditure and 60% of the Bank loans was planned to be incurred during thesecond and third years of Project implementation. Relative to the plan at appraisal, theactual disbursement schedule shifted in response to the delays in physical implementation.Disbursements occurred over a period of 6 years instead of the planned 4 years.

3.6.4 By the end of 1996, the original completion date, 75% of the Project expenditure had beenincurred. The total disbursements during the second and third years of Projectimplementation thus compare favourably with the appraisal estimate of 60%. This impliesthat the physical implementation period was more or less in line with appraisal estimates.

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Table 3.2Planned versus Actual Disbursements

Total ADB/ADF

Planned Actual Planned Actual

% % % %

1993 20.40 20.08

1994 30.50 1.54 30.99 0.79

1995 28.60 32.02 28.63 34.92

1996 20.50 40.66 20.30 44.19

1997 15.88 12.65

1998 3.46 2.13

1999 6.44 5.31

Total 100.00 100.00 100.00 100.00

3.6.5 The disbursement deadline for the Bank loans was extended twice, to December 1998 andthen December 1999, to facilitate payment of the small amounts still outstanding tocontractors. However, by the first deadline in December 1997, 3 years after actual start ofimplementation activities, 91% of the loans had been disbursed and only 9% remained to bedisbursed. During 1998 and 1999, contractors were mainly rectifying pending issues prior toissuance of Final Acceptance Certificates.

3.6.6 Bank records show that an amount equivalent to UA 73,016 (GBP 67,114) was paid to BTTelconsult out of the ADB loan for review of ADB tender documents for the Bank-financedcontracts. Although the ADB loan was not originally allocated for such an activity, theBank’s system shows that this payment related to a contract approved by the Bank on 22nd

July 1994. However, in the Audit report submitted in 2000, the Project auditor pointed outthat this payment did not appear to correspond to an existing contract under the Bank-financed components. FFCO has been requested to review this payment and provide aclarification as to what the amount related to. Their response is awaited.

4. PROJECT PERFORMANCE AND RESULTS

4.1 Overall Assessment

4.1.1 The supply, installation and commissioning of all project components was completedsuccessfully. Commissioning was completed in 1997 and by the end of 1999 the last FinalAcceptance Certificate (FAC) had been issued. As of October 2002, the time of the PCRmission, all the installed Project components were operating satisfactorily. The installedsubscriber lines had almost been fully connected to subscribers and were generatingrevenue. The quality of service in the Project areas has also improved significantlyfollowing the completion of the Project.

4.1.2 Some of the “other” loan conditions were not fully complied as indicated elsewhere in thereport. This was partly due to the EA and partly to the Bank.

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4.2 Project Operating Results

4.2.1 Annex 4 shows the Project outputs at appraisal and at Project Completion. The projectprovided an additional 37,764 DELS (22,416 in Dar es Salaam and 15,348 in Dodoma-Mwanza), 6000 exchange trunks in Dar es Salaam and 51,900 MDF pairs. Actual DELsprovided were 2% higher while MDF pairs provided were 2200 (4%) higher than planned atappraisal. The increase in DELs arising from the Bank Project represents about 41% of thecapacity existing at appraisal and 35% of the total increase in capacity under the entire TRP.

4.2.2 Table 4.1 below compares some operating indicators for TTCL in 1992 against those at theend of the Project in 1999. The Table shows significant improvements in the supply andquality of telecommunications services following Project completion. The exchangecapacity increasing by 75% and the number of connected subscribers rising by 84%.Between 1992 and 1999, the waiting list fell by 72%. Teledensity rose from 0.33 in 1992 to0.5 in 1999 and demand satisfaction in 1999 was 84% compared to 37% in 1992 (appraisal).The network has changed from 0% digital in 1992 to 70% in 1992.

Table 4.1Some Operating Performance Indicators for TTCL

1992 1999Telephone Exchange Capacity (Lines) 109,054 201,381Connected Subscribers (DELs) 81,306 149,934Tele-density (DEL per 100 Inhabitants) 0.33 0.50Waiting List 105,900 29,574Penetration Percentage 1.5% 2.2%Telecom. Staff per 1000 DEL 76 26 (2000)

4.2.3 Between 1992 and 1999, the number of faults per line fell from 2.7 to 0.3 and average faultclearance within 48 hours rose from 52% to 90%. Call completion rates recorded someimprovement, with those for national trunk calls and international incoming calls almostdoubled during the same period.

4.2.4 Since commissioning, the Project has greatly improved TTCL operations in the Project-specific areas. The additional DELs have helped meet a significant part of the demand fortelecommunication services. In addition, there has been a significant improvement in thequality of services provided.

4.2.5 One factor that affected operations in Mwanza was that subsequent to Project completion,extensive road works have been initiated. These works necessitated relocation of mostcables installed under the Project, to allow road construction. The Ministry of Worksincurred a bill of approximately Tshs 0.5bn for this relocation of the cables. It is possiblethat the direct and opportunity costs associated with this might have been avoided if theplanning for cable installation had been done in conjunction with planning for future roadworks. This highlights the need for multi-sector planning in those areas where all aspects ofinfrastructure provision are generally poor.

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4.3 Institutional Performance

Sector-Wide

4.4.1 During the Project implementation period, there have been substantial institutional changeshave occurred in Tanzania’s telecommunications sector. At Appraisal, the Tanzania Postand Telecommunications Corporation (TPTC) was the sole provider of all postal andtelecommunications services in the country. Soon after Project approval, the GOT embarkedon a process of liberalizing the sector and in 1994 the TPTC was replaced by three separateentities, viz the Tanzania Telecommunications Company Limited (TTCL) the TanzaniaPosts Corporation (TPC) and the Tanzania Communications Commission (TCC- theregulator). The TCC licenses operators in the sector, allocates radio frequencies, determinesinterconnection rates, and generally oversees all activities in the sector.

4.4.2 The TPC focuses on postal services while the TTCL provides telecommunications servicesunder licence from the TCC. In addition to the TTCL, there are five mobile phone operatorsthat have been licensed by the TCC. Companies providing data communications services,paging services and Internet services have also been licensed. These changes have had apositive impact on the efficiency of operations in the sector.

4.4.3 In May 2001, the GOT finally sold 35% of its shareholding in TTCL to a JV betweenDetecon of Germany and MSI of Netherlands for a total consideration of USD 120M. Thepurchase agreement between the GOT and the private required that management of TTCL ishanded over to the private investor after payment of 50% of the purchase price (USD 60M).Therefore, since May 2001, TTCL has been under private sector management. The sale ofthe 35% was the initial step towards full privatisation of the TTCL.

4.4.4 From a sector perspective, the biggest institutional challenge is strengthening of theregulator’s capacity to enable it perform its duties effectively. Currently, TCC is receivingfinancial assistance for this purpose from Sida.

TTCL

4.4.5 Following the sector reorganization, the TTCL assumed the responsibility for implementingthe Bank-funded Project. One of the objectives of the sector reorganization was to turn (thenew) TTCL into a commercially viable entity with the ultimate objective of privatisation.TTCL however continued to be 100% owned by the GOT throughout the Projectimplementation.

4.4.6 Staff productivity also improved during the period. The total work force of TPTC as at 31January 1991 was about 8617 employees, out of which 5271 (61%) worked intelecommunications operations. This yielded 76 staff per 1,000 direct exchange lines(DELs), higher than the average staff ratio of 60 per 1,000 DELs for African countries. Thishigh staff ratio was a reflection of the predominantly manual nature of thetelecommunications network.

4.4.7 The targeted staff ratio at the end of the TRP was 25 but this target was not achieved by1998 due to the delays in project implementation. However by July 2002 the increase inexchange capacity, modernization of the network had resulted in a decrease to 26 staff per1000 DELs.

9

4.4.8 Initially, the privatisation of the TTCL is expected to result in loss of jobs for a number ofexisting staff, but in the long run, the competition introduced in the sector should allow forabsorption of most of these back into employment. In the short run, the social consequencesof this scale down in staff numbers would be lessened by appropriate compensation for theaffected staff. Those who remain are expected to further benefit from TTCL’s existing stafftraining and development programs. This issue is to be resolved in due course asprivatisation progresses.

4.4 Financial Performance

4.4.1 Annex 5 shows the summary financial statements of TTCL between 1994 and 1999,including the projections for 1994-1996 as forecast at appraisal. At appraisal the debt-equityratio was projected to stand at 10.01, 11.13 and 10.92, at the end of 1994, 1995 and 1996respectively. These projections were based on the high level of debt that existed at the time.Actual ratios turned out to be much lower, at 1.54, 2.74 and 0.90 for 1994, 1995, and 1996respectively, due to the capital restructuring exercising and a fixed asset revaluation exerciseundertaken during the period.

4.4.2 For the same period the current ratio was projected to be 1.09, 1.03 and 1.13. Despite beingon the lower side, the actual ratios were not too far from the projections, standing at 0.98,1.02 and 0.87 for 1994, 1995 and 1996 respectively.

4.4.3 Accounts receivable from customers were projected to represent 203, 91 and 45 days ofsales at the end of 1994, 1995 and 1996, respectively. The projected levels were quite lowcompared to the actual situation and appraisal, and were based on the expectation that thenew Billing and Collection system would be implemented on time. Due to the delaysexperienced, actual receivables stood at 356, 406 and 371 days of sales. It is expected thatthe situation will continue to improve as a result of the new system.

4.4.4 At appraisal, TTCL’s ability to generate adequate returns was affected by two majorfactors. First, inaccurate customer classification meant that several customers wereerroneously classified as “own-use” telephone lines and therefore not billed for servicesrendered. A lengthy billing cycle (about 3 months) led to high levels of customer receivablesin TTCLs books and negatively affected TTCL’s cash flow. Disputes over the accuracy ofcustomer receivables and weak application of the disconnection policy aggravated thesituation. Second, the level of operating costs was quite high owing partly to the poor stateof the network and partly due to overstaffing.

4.4.5 To improve the billing/collection situation, the World Bank TRP agreed to finance a newservice order billing system (SOBS). The system was however not installed as quickly asinitially anticipated and TTCL continued to suffer from the huge amounts of customerreceivables during implementation. The SOBS was finally commissioned in 1999 and by theend of 2001, customer classification had been accurately done and the billing cycle has beenreduced to one month.

4.4.6 Staff numbers have also reduced significantly during Project implementation, therebyincreasing staff productivity. In addition, the rehabilitation and expansion of the network hasreduced operating costs substantially, and also increased revenues due to less faults on thenetwork.

10

4.4.7 Despite these efforts, TTCL reported a net loss between 1994-1997 but after the projectstarted operating and a World-Bank financed billing system was installed, the company wasable to generate positive net profits for 1998 and 1999.

4.4.8 As at the time of PCR Mission in October 2002, the financial statements for 2000 and 2001were yet to be finalized due to a controversy between the GOT and the private investorregarding the actual profits for 2000. This controversy stems from the fact that payment ofthe remaining USD 60M by the private investor to the GOT was made contingent uponTTCL’s earnings before interest and taxes (EBIT) for 2000. Although three sets of draftfinancial statements had been prepared by auditors at the time of the PCR mission, the GOTand private investor had not agreed on the final results. The privatisation agreement wasfinally concluded in February 2004 following an expert determination of the disputeaccepted by both parties. According to the determination, MSI (now Celtel International)will pay the Government and additional $4.96 million plus accrued interest of $321,000.This resolution paves way for the implementation of investments agreed to under theprivatisation arrangement, already substantially delayed.

4.4.9 It is worth noting that, in line with loan conditions, TTCL regularly revised tariffs and assuch its poor performance was not linked to inadequate tariffs.

Project Financial Performance

4.4.10 As shown in Annex 7, the recalculated FIRR for the Project is 21%, which compares wellwith the 17% at appraisal. Sensitivity analysis shows that with reasonable variations in costsand revenues, the FIRR lies between 10% and 21%. The lower end of the FIRR, 10%, isobtained assuming steady operating costs and revenues per DEL (at 1999 levels) and acollection rate of only 80% of billings. The World Bank Completion Report shows arecalculated FIRR for the entire TRP of 26%.

4.5 Economic Performance

4.5.1 There are substantial economic benefits arising from this Project. While no specific EIRRhas been computed for the Project, the World Bank Completion report estimates that,excluding substantial economic gains that are hard to quantify, the recalculated EIRR for theentire TRP is 36%. This compares to a corresponding estimate for the TRP of 27% atappraisal.

4.5.2 Economic benefits from the Project arise from a number of areas. First, the Project areaincludes the two largest towns in Tanzania, Dar es Salaam and Mwanza. The Project hasstrengthened the services between these two towns by providing a high capacity digitalmicrowave link on the Dodoma-Mwanza section. Second, Mwanza links the Port of Dar esSalaam with the land-locked neighbouring countries of Uganda, Rwanda and Burundi.Third, Mwanza is located on Lake Victoria, where a lot agricultural activity goes on.

4.5.3 Improved telecommunications services in the Project area therefore bring substantialeconomic gains by making available real time information about movement of goodsbetween the neighbouring countries as well as the nature and availability of markets forgoods and services. In addition, there are substantial savings to be realized from reductionsin travel time and transport costs in the Project areas.

11

4.5.4 Use of locally manufactured inputs and creation of jobs in the Project areas also yieldedsubstantial economic gains. There are also long term economic gains to be derived fromimprovement in human capital as a result of the knowledge transfer associated with themodernization of the telecommunications network.

4.6 Fulfilment of Financial Conditions

4.6.1 The loan agreements signed between the Bank and the Government of Tanzania requiredfulfilment of all General Conditions as well as other loan-specific financial conditions (seeAnnex 2). As far as counterpart funding is concerned, TTCL adequately met its share ofproject costs, making it possible to implement the project on schedule. With the exceptionof audit reports (see below) the other reporting requirements were generally adequately met.

4.6.2 However, most of the financial conditions attached to the loans were not fully met. Inparticular, the following was noted:

Separate accounting records were not maintained for the Bank Project.

Though the General Conditions applicable to loans required that the project beaudited every year and the audit report submitted to the Bank, the Project wasaudited only once, at the end of the implementation period (1999).

The specific conditions attached to the loans required the Executing Agency toreduce the number of days’ sales in receivables to not more than 90 days byDecember 1994. As of December 1999, the number of day’s sales in receivables wasapproximately 249 days.

The specific conditions attached to the loans required the Executing Agency togenerate a rate of return on net assets of not less than 10% by December 1994. Thiswas not fully complied with.

4.6.3 The delays in fulfilment of the conditions related to receivables and the rate of return onassets are primarily attributable to the delay in the implementation of the SOBS. However, itis also considered that the requirement to reduce receivables to less that 90 days’ sales byend of 1994 was not very realistic, given the fact that in 1992 receivables were 400 days’sales. The expectation that a reduction from 400 to 90 days would occur within a period oftwo years, tied to the implementation of a new billing system that was yet to be purchased,was a bit on the optimistic side.

4.6.4 Without excusing the EA’s failure to maintain separate accounting records and performannual Project audits, it is felt that the Bank could have done more on its side to ensurecompliance. As mentioned earlier, the composition of Missions to Tanzania could have beenbetter.

5. SOCIAL AND ENVIRONMENTAL IMPACT OF THE PROJECT

5.1 The implementation of the Telecoms II Project has had a significant positive social impactin the Project areas. Implementation of the Project created jobs, especially for unskilledworkers who are at the lowest end of the wealth hierarchy. In addition, the Project providedtelecommunication services to several schools and health clinics, thus improving the qualityof social services in the Project areas. Some of the beneficiary organizations in the social

12

sector in the Mwanza Region are as shown in Annex 6. Another social benefit arising fromthe Project is that by increasing access to telecommunications services, the Project hasfacilitated interaction between family members living far apart, e.g. Dar es Salaam andMwanza. Given the distance between these towns and the poor state of roads in Tanzania,this benefit cannot be underestimated. As part of the Project, TTCL has further helped byinstalling remote telephones in rural areas which allow communities living in such areas tointeract with people elsewhere.

5.2 There were no obvious, deliberate contributions of the Project towards gender equality.Given the overstaffing that existed at appraisal, there were no new jobs being created.However, TTCL’s workforce features a significant proportion of female employees and thisis reflected in the additional components provided under the Project. For instance, theMission noted that three of the eight exchanges financed by the Bank are managed byfemale employees.

5.3 As envisaged as appraisal, the Project has had no major negative environmental impact.Cables in the external plant have been laid in plastic ducts and all necessary buildings havebeen constructed in areas already serviced by roads, avoiding additional road construction.In several areas, the Project makes use of solar power, more environmentally friendly sourceof energy.

5.4 However, the exhaust gases resulting from the operation of stand-by generators pose somethreat of pollution if the burners are not regularly tuned-up. TTCL has been urged to take allnecessary measures to ensure this threat does not materialize.

5.5 The Project has some positive impact on the environment. The implementation of theproject should lead to a reduction in road traffic and consequently a reduction in vehicleemissions. This improves the quality of air in the Project areas. Improvedtelecommunications services also reduce the need to physical presence in several locations,thereby cutting down on construction of buildings and roads.

6. PROJECT SUSTAINABILITY

6.1 The achievements made under the Project are highly likely to be sustained. Generally, theequipment installed under the project is of the latest design and technology and is expectedto remain relevant for at least the next ten years. TTCL is committed to continued expansionof its network. For example, the private investor has committed to increase the number oftelephone lines to 800,000 by January 2005. Further improvements in service quality and arebalancing of tariffs are envisaged.

6.2 One factor critical to sustainability of operations of the Dodoma-Mwanza digitaltransmission link is the storage of adequate spare parts. This link is of the PDH technologythat is being replaced by SDH technology in most parts of the world. TTCL is aware of thisand acknowledges the need to stock enough spare parts for the PDH system.

6.3 At the same time, prompt resolution of the stalemate between the GOT and the privateinvestor regarding the financial results for 2000 is critical to continued investment by TTCLin order to consolidate gains already achieved under the Project. Subsequent to the PCRMission, TTCL’s CEO (appointed by the private investor) has already been replaced by theGOT and this could further delay the necessary investment activities.

13

6.4 Barring any major reversals in the liberalization that has occurred in the sector duringimplementation, the Project remains financially and economically viable.

7. PERFORMANCE OF THE BANK, CONTRACTORS/CONSULTANTS,THE BORROWER AND EXECUTING AGENCY

7.1 Performance of the Bank

7.1.1 Overall, the performance of the Bank on this Project is considered satisfactory. The requestfor financing was promptly dealt with, the period to Board approval was kept to a minimum,communication between the Bank and the Borrower was generally good, and regularsupervision missions were fielded.

7.1.2 However, there are three main areas where it is felt the Bank’s participation was belowexpectation. First, as pointed out before, the composition of the mission teams was notalways optimal, which allowed persistent non-compliance with loan conditions (paras. 3.4.3and 4.6.4). Second, a review of the Project files reveals that the Bank failed to participate inseveral donor meetings that were organized during the implementation period. Donorcoordination could thus have been improved. Third, the speed of processing of disbursementreports could have been improved in several instances (para. 3.3.3).

7.2 Implementation Performance - Contractors / Consultants

7.2.1 Four main contractors were involved in the Project. Mitsubishi (Japan) installed allswitching exchanges in both Dar es Salaam and Dodoma-Mwanza, and constructed thedigital microwave link between Dodoma-Mwanza. For these contracts, completion wasdelayed by between four months and one year. The material provided by Mitsubishi, andquality of work was however satisfactory.

7.2.2 Marubeni (Japan) provided the transmission equipment for Dar es Salaam area and the workwas completed successfully in March 1997 with a delay of about one year. The quality ofwork was satisfactory.

7.2.3 Segitel/SI (Canada) provided the External Line Plant in the Dar es Salaam area. Thedelivery and installation were completed in time and there were no major issues arising fromthe implementation. The quality of work was good.

7.2.4 TCIL (India) provided the External Line Plant for the Dodoma - Mwanza area. Actualcompletion of the project was in July 1997 with a delay of about 10 months. There weresome problems with the quality of some materials used, but in general the installation wasacceptable.

7.2.5 Motor Vehicles were supplied by International Motors, over a period of 18 months. Supplywas delayed by almost one year due to delays in disbursement of funds by the Bank.

7.2.6 Overall, the performance of the contractors on the Project is deemed satisfactory.

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7.3 Performance of the Borrower and Executing Agency

7.3.1 The Government of Tanzania has been an important partner in the implementation of thisProject. Right from the beginning, GOT played a crucial role in the identification andformulation of the Project (and more generally the TRP components). It facilitated severaldonor conferences during Project implementation.

7.3.2 At the same time, beginning with the replacement of the TPTC with TCCL, TCC and TPCback in 1994, the GOT has sustained efforts towards liberalization of the sector alongsidethe implementation of the TRP. The National Telecommunications Policy was released in1997 and sale of 35% of TTCL to a private investor was done in January 2001. These effortshave complemented the activities under the TRP to improve the supply and quality oftelecommunications services.

7.3.3 TTCL successfully implemented the Bank’s Project in conjunction with the othercomponents of the Telecommunications Restructuring Programme. All procurementactivities, mostly under ICB, were expeditiously performed and despite initial delays inProject start up, the Bank Project was substantially completed two years aftercommencement of implementation.

7.3.4 TTCL closely monitored the physical implementation of the Project and ensured that allequipment supplied and work done by contractors was of appropriate quality. Where faultswere identified, TTCL ensured they were fully rectified before the Final AcceptanceCertificates were issued.

7.3.5 The failure of TTCL to comply with all the “Other Conditions” of the loan is primarilyattributable to the delays in implementation of the SOBS. As pointed elsewhere in thisreport, it is also felt that these conditions were unrealistic given the financial position ofTTCL at Project appraisal. The Bank also did not do enough to ensure that all conditionswere met as per the loan agreement.

7.3.6 The performance of the Borrower is considered to have been highly satisfactory.

8. OVERALL PERFORMANCE AND RATINGS

8.1 The detailed Project rating is shown in Annex 8 and summarized in Table 8.1 below. TheProject is rated as fully satisfactory.

Table 8.1Project Performance

INDICATORSRelevance and Achievement

of ObjectivesInstitutionalDevelopment

Sustainability Overall Assessment

Rating 3 3 3 3

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9. CONCLUSIONS, LESSONS LEARNT AND RECOMMENDATIONS

9.1 Conclusions

9.1.1 The implementation of the Bank-funded Project has had a very positive impact on the leveland quality of telecommunications services in Tanzania. This has contributed towards theobjective of Telecommunications Restructuring Programme of improving the efficiency andperformance of the network, expanding telecommunication service and legal, regulatory,and institutional strengthening.

9.1.2 Since the time of commissioning and completion the project operation is satisfactory.However, the lack of spare parts in general, and for the PDH transmission system inparticular, may create some problems concerning sustainable operation of the project. Theseissues have to be addressed to the country and considered in the Post Evaluation.

9.1.3 Despite the fact that the targeted teledensity of the fixed lines, and in turn the telephonepenetration, were not achieved, the overall teledensity (including mobile subscribers)reached 1.2 in 2000. This was a result of the sector liberalization measures undertakenduring Project implementation.

9.1.4 As far as operating is concerned, TTCL needs to put in more effort to increase the rate ofcapacity utilization. This will require additional investment, especially if TTCL is to connectanywhere near the 800,000 lines agreed in the sale agreement. Since taking overmanagement, TTCL’s private investor is working on an investment plan that will involvesubstantial investment before the expiry of the exclusivity period in January 2005.

9.1.5 In conclusion, the Project has been successfully completed and has achieved its mainobjectives. However, more effort has to be put in to connect new subscribers, particularly inDar es Salaam area.

9.2 Lessons Learnt

9.2.1 The lessons learnt from the implementation of this project are as follows:

1 The formulation of loan specific conditions should be as realistic as possible. Inparticular, specification of loan conditions that are dependent on the implementation ofsome of the Project components should kept to a minimum or avoided altogether. At thesame time, loan conditions should be adequately followed up and appropriate measurestaken at the right time (Para 4.6.3).

2. Internal Bank reorganizations should pay due attention to the preservation of Project-related as well as other important documents (Para.1.4).

3. Field Missions during Project implementation should always comprise of all requisiteskills and this is key to the successful implementation of a Project and compliance withloan conditions (Para. 3.4.3).

4. In reviewing the design of projects in poorly developed areas, the Bank should payparticular attention to anticipated projects that may be implemented in the area. Doingthis helps avoid additional costs and preserve project benefits (Para. 4.2.4).

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5. Government ownership of Projects, backed by effective donor co-ordination, is key tothe successful implementation of Projects (Para 7.3.1).

9.3 Recommendations

9.3.1 In light of the foregoing, the following recommendations are considered appropriate:

The GOT/TTCL

1. TTCL should procure enough spare parts for all its equipment. This is particularlyimportant for the PDH transmission systems, since this technology is already outdated.

2. TTCL should aim implement a reliable monitoring and alarm system to minimize thelosses incurred from cable vandalism. This could be complemented by efforts toincrease public involvement in the protection of public services.

The Bank Group

1. In its efforts to bring about rural development, the Bank should accord high priority tothe intervention in telecommunication projects in rural areas, where about 80% ofpopulation in Tanzania live. Teledensity is lowest in these areas and the Government’sobjective of providing each village with telecommunications facilities and raisingteledensity to 6% by the year 2020 will require a lot of support from the donorcommunity. Completion of the ongoing, World Bank funded study on ruraltelecommunications should provide clear guidelines as to how best the Bank cancontribute towards rural telecommunications in Tanzania.

2. If requested in future, the Bank should continue to support the Republic of Tanzania ininstitutional strengthening in the telecommunications sector, particularly for theTanzania Communications Commission (TCC).

I

Annex 1 page 1/1TANZANIA TELECOMMUNICATIONS II PROJECT

MAP SHOWING PROJECT AREAS

PRIMARY

SECONDARY

TERTIARY

Bukoba

LEGEND

UNITED REPUBLIC OF TANZANIA

KENYA

Chake Chake

INDIAN

OCEAN

.

MAP OF PROJECT AREASThis Map has been prepared by the ADB Group’s staff exclusively for theconvenience of the readers of the report to which it is attached. Thedenominations used and the boundaries shown on this map do not imply onthe part of the Group and its affiliates any judgment on the legal sizes of anyterritory or any endorsement or acceptance of such boundaries.

--- BANK GROUP MICROWAVE RADIO

II

Annex 2: page 1/ 1Specific Loan Conditions

Conditions Precedent to Entry into Force

Prior to entry into force, the borrower shall ensure that:

1. TPTC has set-up a project implementation unit with structure and adequateauthority to carry out the assigned duties and responsibilities, in consultationwith the Bank. Such unit shall has a staff with qualifications and experienceacceptable to the Bank

2. Funds from Sida shall have been secured for operation of the PMU throughoutthe project implementation period

3. Subsidiary loan agreements satisfactory to the Bank for on-lending the proceedsof Bank Group loans to TPTC on terms and conditions acceptable to the Bankshall have been concluded

4. The management Performance Contract between the Borrower and TPTC hasbeen signed, incorporating the comments of the Bank, if any.

5. The administrative regulations authorizing TPTC to automatically revise its tariffrates at least twice a year to compensate for inflation and depreciation of theTshs shall have been issued

6. A Director General whose qualifications and experience shall be acceptable tothe Bank shall have been appointed

Other Conditions

The Borrower shall:

1. Cause TPTC top budget each year adequate internal funds to finance 100% ofthe local costs of the TRP

2. Enable TPTC to earn a return on net fixed assets of not less than 10% byDecember 1994

3. Enable TPTC to maintain a liquidity ratio of not less than one by 1994 thoughimplementing the recommendations of the study on billing and collection

4. Enable TPTC to submit to the Bank quarterly performance reports covering theprogress achieved on institutional development

5. Cause TPTC to submit to the Bank Group for comments, not later than 15January and 15 July of every fiscal year, commencing from 15 July 1993, areport analysing the cost/revenue situation of its telecommunications operationsand the measures it will take to earn adequate returns on its assets.

III

Annex 3 page 1/1

Project Costs and Contract Amounts

(a) List of Contractors and Contract Amounts

Contract ADB/ADF

ADB Total

Marubeni Switching JPY 14,668,756

Mitsubishi Transmission JPY 823,351,731

SEGITEL/SI External Line Plant (ADB I) CAD 4,893,045

TCIL External Line Plant (ADBII) USD 1,250,628

BT Telconsult Ltd* Review of Tender Documents GBP 67,114

ADF

SEGITEL/SI ELP (ADB I) CAD 5,415,779

Mitsubishi Transmission JPY 636,441,000

Mitsubishi Transmission JPY 684,735,850

TCIL ELP (ADB II) USD 9,635,000

International Motors Motor Vehicles JPY 42,528,900

(b) Planned versus Actual Allocation of Bank Loans by Project Component

AppraisalBudget Actual Cost

ADF ADB Total ADF ADB Total

Switching 9,570,000 9,570,000 8,725,275 - 8,725,275

External Line Plant 6,560,000 3,290,000 9,850,000 9,390,745 3,269,025 12,659,770

Transmission 1,100,000 6,710,000 7,810,000 6,386,771 6,386,771

Motor Vehicles 400,000 400,000 278,084 - 278,084

Training 790,000 790,000 - - -

Review of Tender Documents* - - - - 73,016 73,016

Total Disbursements 18,420,000 10,000,000 28,420,000 18,394,104 9,728,812 28,122,917

* - FFCO has been requested to review this payment and their response is stillawaited.

IV

Annex 4 page 1/ 1Project Outputs: Appraisal and PCR

ComponentQuantity/ Capacity

PCR/APPAppraisal PCR

Switching:(a) DSM Central TC(b) Four Local Digital Exchanges in DSM area.(c) Four Digital Local Exchanges and Eight

RSUs in central/lake region.

6000 Trunks22,000 lines

15,000

6000 Trunks22,416 lines

15,311

100%100%

100%

External Line Plant:(a) DSM Central Area(b) Up-Country Dodoma – Mwanza Area.

27,100 km22,600 km

25,500 MDF26,400 MDF

94%1.17%

Transmission Equipment:(i) Four OF digital links between DSM

Central/Magomeni, Upanga, Kariakoo andbetween extelecoms House and the Telephone House.

(ii) Digital Microwave system between Dodoma,Shinyanga and Mwanza.

140 Mbps+

Multiplex.Equipment

140 Mbps

140 Mbps+

Multiplex.Equipment

2x 140 Mbps

100%

100%

Vehicles: 25 23 92%

V

Annex 5 page 1/2TTCL Financial Statements: 1994-1999

(a) Balance Sheets (Tshs ‘000)

1999 1998 1997 1996 1995 1994

Actual Actual Actual Actual Projected Actual Projected Actual Projected

Long Term Assets

Fixed Assets 140,353 161,216 114,944 118,875 53,941 42,500 43,793 36,381 29,216

Investment and Insurance 1,935 6,000 4,034 3,227 1,875 3,350 1,591 3,378 1,326

Total Long Term Assets 142,288 167,216 118,978 122,102 55,816 45,850 45,384 39,759 30,542

Current Assets

Stocks 4,054 5,090 5,636 4,310 16,674 5,374 19,577 3,334 11,516

Non Core Assets 30,168 0 0 0 0 0 0 0 0

Subscriber Receivables 76,436 52,072 48,124 45,209 4,230 45,575 7,110 34,151 13,112

Short Term Investments 12,850 4,477 440 862 0 2,699 0 102 0

Cash and Bank Balances 3,349 3,273 5,174 2,802 4,504 4,625 4,217 3,895 1,562

Total Current Assets 126,857 64,912 59,374 53,183 25,408 58,273 30,904 41,482 26,190

Current Liabilities

Accounts Payable 21,529 20,036 53,705 40,429 20,662 39,288 26,826 28,259 21,157

Other Accruals 3,825 1,069 17,560 21,021 1,724 17,630 3,301 14,223 2,870

Total Current Liabilities 25,354 21,105 71,265 61,450 22,386 56,918 30,127 42,482 24,027

Net Current Assets 101,503 43,807 -11,891 -8,267 3,022 1,355 777 -1,000 2,163

Total Assets 243,791 211,023 107,087 113,835 58,838 47,205 46,161 38,759 32,705

Represented by

Share Capital 199,845 192,802 32,811 54,781 4,938 12,458 3,806 15,039 2,971

Long Term Loans 16,877 0 60,539 49,528 53,900 34,159 42,355 23,178 29,734

Capital Grants 6,186 2,976 9,967 6,040 0 0 0 0 0

Pension and Similar Obligations 20,883 15,245 3,770 3,486 0 588 0 542 0

Total Liabilities 243,791 211,023 107,087 113,835 58,838 47,205 46,161 38,759 32,705

Key Ratios

Current Ratio 5.00 3.08 0.83 0.87 1.13 1.02 1.03 0.98 1.09

Quick Ratio 4.84 2.83 0.75 0.80 0.39 0.93 0.38 0.90 0.61

Debt/Equity Ratio 0.08 0.00 1.85 0.90 10.92 2.74 11.13 1.54 10.01

Days' Sales in Receivables 249 213 259 371 45 406 89 356 200

Return on Fixed Assets 0.07 0.09 -0.06 -0.09 0.03 -0.01 0.03 -0.02 0.03

Operating Ratio 0.88 0.84 1.11 1.19 0.95 0.88 0.96 0.86 0.96

Net Margin 0.07 0.12 -0.11 -0.26 0.00 -0.01 0.00 -0.02 0.00

VI

Annex 5 page 2/2TTCL Financial Statements: 1994-1999

(b) Profit and Loss Accounts (Tshs ‘000)

1999 1998 1997 1996 1995 1994

Actual Actual Actual Actual Projected Actual Projected Actual Projected

Income

Operating Income 110,218 84,184 64,978 41,711 39,178 33,193

Other Income 341 3,984 1,839 2,132 1,269 1,347

Total Income 110,559 88,168 66,817 43,843 33,957 40,447 28,634 34,540 23,597

Operating Expenses

Operations and Admin. Expenses 63,029 50,499 41,136 43,464 23,251 29,470 20,273 23,491 17,244

Depreciation 18,255 14,025 14,745 5,287 933 3,596 746 3,351 633

Other 16005 9413 18189 3,443 8,161 2,369 6,483 3,006 4,885

Total Operating Expenses 97,289 73,937 74,070 52,194 32,345 35,435 27,502 29,848 22,762

Profit before Exceptional Items 13,270 14,231 -7,253 -8,351 1,612 5,012 1,132 4,692 835

Exceptional Items -3,005 0 0 -2,867 0 -5,396 0 -5,246 0

Profit (Loss) Before Tax 10,265 14,231 -7,253 -11,218 1,612 -384 1,132 -554 835

Provision for taxation 2,222 3,717 0 0 0 0 0 0 0

Retained Profit (Loss) 8,043 10,514 -7,253 -11,218 1,612 -384 1,132 -554 835

VII

Annex 6 page 1/1Mwanza Area

Schools, Hospitals and Community Centres Connected to the Telephone Network

1. Isamilo Primary School2. Prismack Primary School3. Pemba Secondary School4. Taqwa Secondary School5. Azimio Primary School6. Mkuyuni Primary School7. St Augustine University8. Bugando University9. Mkolani Secondary School10. Ngaza Secondary School11. Nyamanoro Primary School12. Kiloleli Primary School13. Kitungiri Primary School14. Tanzania Finish School15. Loreto secondary School16. Buiru Secondary School17. Nyamangana Primary School18. Bugando Medical Centre19. Hindu Hospital20. Nyakoja Hospital21. Aga Khan Hospital22. Mission Hospital23. Kuleana Centre (Rehabilitation of Street Children)24. Amref25. Tanesa (Tanzania-Netherlands)26. Aid at Action (Education Assistance)

Out of Area (Remote) Access

1. Sobs Nausio2. Misungui3. Misungui District4. TTCL Ngundu5. TTCL Ngundu6. TTCL Maliya

VIII

Annex 7 page 1/1

Calculation of the Financial Internal Rate of Return (FIRR) – Tshs ‘000

Additional Op Rev. Op. Cost Net Total Net

Year Expenditure Subscribers per DEL per DEL Benefit/DEL Benefit Cash Flow

(DELs)

1993

1994 942,844 0 819 579 239 0 -942,844

1995 15,389,526 0 742 558 184 0 -15,389,526

1996 16,150,814 7,608 635 662 -27 -203,159 -16,353,974

1997 5,430,968 17,633 752 476 276 4,868,549 -562,419

1998 1,047,625 21,089 745 447 298 6,288,898 5,241,273

1999 1,810,454 29,649 735 420 315 9,331,484 7,521,030

2000 - 2007 34,096 735 420 315 10,731,206 10,731,206

2008 12,231,669 37,506 735 420 315 11,804,327 -427,343

2009 - 2016 37,506 735 420 315 11,804,327 11,804,327

2017 -2,810,866 37,506 735 420 315 11,804,327 14,615,193

FIRR 21%

BASE SCENARIO (A) ASSUMPTIONS

30% replacement expenditure after 10years

10% Salvage value at end of equipment life

Operating revenue/DEL constant at 1999 levels after 1999

Operating cost/DEL constant at 1999 levels after 1999

NB: First year of operation taken to be 1998.

SENSITIVITY ANALYSIS FOR FIRR

Scenario B

Scenario A plus: (i) 5% decline in Op. Rev/DELs for the 5 years following 1999; revenues steady afterwards

FIRR = 14%

Scenario C

Scenario A plus: (i) Billing collection of 80%

FIRR = 10%

Scenario D

Scenario C plus (i) replacement of Dodoma-Mwanza microwave link after 10 years

FIRR = 11%

Scenario E

Scenario A plus: (i) Op. costs/DEL up by 5% p.a. between 2000-2004; steady afterwards

(ii) Billings collection of 80%

FIRR = 14%

IX

Annex 8 page 1/2Form P1

IMPLEMENTATION PERFORMANCE

Component IndicatorsScore(1-4) Remarks

1. Adherence to Time Schedule 3 One year time overrun2. Adherence to Cost Schedule 4 Cost within original budget3. Compliance with Covenants 2 Partial fulfilment of conditions4. Adequacy of Monitoring & Evaluation and Reporting 3 Adequate reporting though no

audit reports5. Satisfactory Operations (if applicable) 3 Equipment operating wellTOTAL 15

Overall Assessment of Implementation Performance 3 Satisfactory

Form BP 1BANK PERFORMANCE

Component IndicatorsScore1-4) Remarks

1. At Identification N/a2. At Preparation of Project N/a3. At Appraisal 3 Prompt appraisal and approval4. At Supervisions 1 Frequent but sub-optimal

Missions

TOTAL 4

Overall Assessment of Bank Performance 2 Satisfactory

X

Annex 8 page 2/2Form PO 1

Project Outcome

No. Component Indicators Score(1 to 4)

Remarks

1 Relevance and Achievement of Objectivesi) Macro-economic Policy 3ii) Sector Policy 4iii) Physical (incl. Production) 3iv) Financial 3v) Poverty Alleviation and Social & Gender 2vi) Environment 3vii) Private Sector Development 3viii) Other (specify)

2 Institutional Development (ID)i) Institutional Framework incl. Restructuring 3ii) Financial and Management Information Systems

including Audit Systems3

iii) Transfer of Technology 4iv) Staffing by qualified persons (incl. turnover), training $

counterpart staff3

3 Sustainabilityi) Continued Borrower Commitment 2ii) Environmental policy 3iii) Institutional Framework 3iv) Technical viability and staffing 3v) Financial viability including cost recovery systems 3vi) Economic viability 3vii) Environmental Viability 3viii) O&M facilitation (availability of recurrent funding,

foreign exchange, spare parts, workshop facilities, etc 3Economic Internal Rate of Return

TOTAL 57

Overall Assessment of Outcome 3.0 Satisfactory

XI

Annex 9 page 1/1

List of Documentation Consulted

1. ADB Appraisal Report (No. TAN/PCPT/92/01)2. TTCL Quarterly Progress Reports.3. Supervision Reports, Back – to – Office Reports and Aide Memoires.4. TTCL’s Project Completion Report of the Telecommunications II Project, January

2000.5. TTCL’s Implementation Progress Report on the Telecommunications Restructuring

Programme (TRP), 1999.6. Implementation Completion Report (IDA – 24860), World Bank, June, 2001.7. TRP MID – TERM REVIEW, Ministry Of Transport and Communications, July

1997.