Report No. 686a-GH

Appraisal of aTelecommunications Project FILE COPYGhanaMay 21, 1975

Regional Projects DepartmentWestem Africa Regional Office

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

US$1 = 0 1.15¢ 1 = us$o.8696

1,ooo,ooo = Us$869,565

FISCAL YEAR

July 1 - June 30

ABBREVIATIONS, ACRONYMS AND DEFINITIONS

Exchange fill - Percentage of installed capacity of a telephoneexchange in use.-

DELs - Direct Exchange Lines (connected)

GPT - Ghana Posts and Telecommunications Corporation

HF - High frequency radio (3,000-30,000 khz)

ITU - International Telecommunication Union

Khz - Kilohertz

Mhz - Megahertz

Microwave - Radio system working at frequencies above 300 mhzbut normally applied to systems working at fre-quencies above 1,000 mhz

PABX - Private automatic branch exchange

PBX - Private branch exchange

PAGE - Page Communications Engineers, Inc. (USA)

PANAFTEL - Pan-African Telecommuunications Network

P&T - Department of Posts and Telecommunications

PWD - Public 'Abrks Department

STD - Subscriber Trunk Dialing

Telex - Teleprinter exchange service

UHF - Ultra high frequency radio (300-3,000 mhz)

UNDP - United Nations Development Program

VHF - Very high frequency radio (30-300 mhz)

GHANA

POSTS AND TELECOMMUNICATICNS CORPORATION (GPT)

APPRAISAL OF A TELECOMIUNICATIONS PROJECT

TABIE OF CCNTENTSPage No.

SUMMARY AND CONCLUSICNS .. ............... .... .. . i-iv

1. INTRoDuCTIo ........... ............. . . 1

2. THE SECTOR .........*o1Economic Setting .......... 1Telecommunications Sector 2Existing Facilities 2......... 2Ongoing Program .... ....... *O**.**.... . . 4Sector Objectives ........... 4

3. THE PROGRAM AND THE PROJECT .............. 5The Program 5The Project ...... 5Cost Estimates . ......... 6Project Financing ................................. 7Items for Bank Financing .7Procurement 8Execution of the Project .... 9.9.. .. .... 8Disbursements 9.......**..*** 9

4. JUSTIFICATION ..*9*o9.....*.*9..*99.. *99... *. * . *9. *9*9.. . 9Market Demand 9Least-Cost Solution 10Return on Investment .......... 11

F. THE BORROWER 9..................o . ..999099 ....99.OJ 11

Organization and Management ... 11Commercial Department .......... 12Accounting ............ 9.......... 0.99 ......... 13Audit . . . . . . . . . . . 13Billing and Collection of Subscriber Accounts .......... 13Insurance ............................................. 14

6. FINANCES ......... 14Past and Current Finances ... 1O ....... 14Telecommunications Financing Plan 15Telecommunications Tariffs 17Telecommunications - Future Finances 17Postal Service ......99999999999 999999999999999999...... 18Fiscal Inpact . ....... .. 9...... .. . . .............. 19

7. RECOMMENDATIONS ..................... 20

This report is based on information provided by GPT and on the findingsof a mission composed of Messrs. J. G. Davis and S. A. Sathar whichvisited Ghana in December 1974.

LIST OF ANNEXES

1. International Telephone Statistics

2. Organization Chart - WB-9672

3. Basic Statistical Data

4. International Circuits

5. Description of the Program and Project

6. Project Construction Schedule - WB-9671

7. Telecommunications Construction Works (FYs 1975-1980) -Cost Estimates

8. Estimated Schedule of Disbursements

9. Internal Rate of Return of the Project

10. Statements of Income - FYs 1974-1980

11. Representative Tariffs

12. Balance Sheets - FYs 1974-1980

13. Statement of Sources and Applications of Funds - FYs 1975-1980

14. Notes and Assumptions on the Financial Statements

15. Performance Indicators16. Proposed Telecommunications Tariff Study

Ghana Long Distance Network - IBRD-10094(R)

GHANA

POSTS AND TELECOM UICATICNS CORPORATICN (GPT)

APPRAISAL OF A TELECOMMUNICATIONS PROJECT

SUMMARY AND CONCLUSICNS

Introduction

i. The Government of Ghana has asked the Bank to help financethe first phase of the five year (FYs 76-80) telecommunications deve-lopment program of the Ghana Posts and Telecommunications Corporation(GPT), the newly-created Government-owned corporation responsible forall public postal and telecommunications services in Ghana.

Existirlg Telecomunications Facilities

ii. GPT's existing telecommunications facilities are inadequateboth in capacity to meet demand for additional connections (as illus-trated by a waiting list of about 20,300) and in the quality of service.Automatic exchanges, which are located in the main cities, have a totalcapacity of 36,800 lines of exchange equipment. However, after takinginto account 9,000 exchange lines in Accra which are obsolete, worn outand in need of replacement, and the technical limitations on exchangeutilization, only about 25,o0o lines of automatic switching equipmentare in sufficiently good condition for subscribers connections; further-more, since GPT's local cable distribution network is inadequate notall of these lines can be utilized. The total number of connectedlines (DELs) to the automatic exchanges is presently 23,,400. In manyof the 415 areas with manual exchanges poor service is due to the useof obsolete and worn-out equipment. Long distance service is also poor,partly because the network expansion has not kept up with the growth oftraffic, and because of low reliability of the main radio system whichwas poorly designed.

Institution

iii. After independence, the telecommunications service in Ghanawas the responsibility of the Posts and Telecommunications Department(P&T) of the Ministry of Transport and Communications. The service

was subject to all administrative and financial regulations normal toGovernment departments, was not organized on commercial lines, and hadto rely on other Government departments for services essential to itsoperations. P&T's finances were not separated from those of the Govern-ment; all revenues were deposited in the Government's consolidated fund,and operational and development expenditure was made in accordance withbudgetary allocations and not in accordance with true needs.

iv. The Government, recognizing the defects of the institutionalset-up for the sector and the desirability of giving it a reasonableamount of autonomy, decided that P&T would become a Government corpo-ration. Therefore, as of July 1, 1972, it made P&T a self-accounting

- ii -

organization with a separate budget, and with autonomy in its day-to-day operations and development. Finally, on November 1, 19741, P&Tbecame Ghana Posts and Telecommunications Corporation (GPT), a Govern-ment corporation managed by a board of directors and with a director-general as chief executive. Under its charter GPT has been given ade-quate autonomy and will be operated on a commercial basis.

Sector Objectives

v. The main long-term objectives for the sector are: (a) improve-ment of the quality of local, long distance and international services;(b) extension of local and long distance services to meet about 65% ofthe demand for telephone connections by 1980, including,in particular,extension of service to rural communities to help integrate remote areasinto the economy; (c) extension of international services to meet by 1980the demand for these economically crucial services; and (d) consolidationof the recently-created GPT as an organizationally, managerially, andfinancially sound public utility enterprise.

The Program

vi. The main vehicle for achieving objectives (a) to (c) is GPT'sfive year (FYs 76-80) program which comprises: (i) a two-phased programof rehabilitation, replacement and expansion for domestic telecommunica-tions services,(ii) the installation of an earth satellite station forinternational telecommunications, and (Oii) the construction of microwavelinks to Togo and Ivory Coast as part of the Pan-African network.

The Pro.jet

vii. The project proposed for Bank financing consists of the firstphase of GPT's rehabilitation, replacement, and expansion program fordomestic telecommunications services and comprises: (a) the installationof about 18,300 lines of automatic equipment, with cable and subscriberdistribution networks and subscriber apparatus, (b) the improvement andexpansion of long distance facilities by provision of a new Takoradi-Kumasi link, replacement of the Accra-Tema link, and additional multiplexand switching equipment on existing and new trunk routes, (c) the expan-sion of the capacity of the Accra telex exchange by 250 lines with con-version to semi-automatic operation in the international service and theestablishment of a new telex exchange of 50 lines in Kumasi together withassociated teleprinters, (d) consultancy services for detailed engineering,procurement, assistance in project supervision, accounting improvement, and(e) staff training.

Execution

viii. GPT will employ consultants to help prepare the specificationsand bidding documents for the equipment and major cable networks and toassist in bid evaluation. The installation and commissioning of theequipment would be carried out by the suppliers under the supervision ofGPT personnel assisted by the consultants; other works would be executed

- iii -

by GPT staff w'th assistance from the suppliers for cable works in themain cities. GPT has agreed to set up a unit specifically for the pur-pose of monitoring and controlling the execution of the constructionworks of the program.

Project Costs

ix. The project is estimated to cost US$29.5 million, excludingimport taxes and duties, with a foreign exchange component of US$23.1million. Estimated costs for project equipment are based on pricesrecently obtained under international competitive bidding for similarquantities of similar equipment in other developing countries. Civilworks costs are based on prices experienced by the Ghana Public WorksDepartment. Project costs include US$4.3 millim of contingencies tocover price escalation and US$0.5 million for unexpected changes indesign and specification. The Government has confirmed that it willexempt GPT from all import taxes and duties for equipment imported di-rectly for the project.Project Financing

X. The proposed Bank loan of US$23.0 million, which would finance100% of the foreign costs of the project, would cover almost 80% of totalproject costs. The loan would be made to GPT for 25 years, including a5 year grace period. The balance of the project cost of US$6.5 millionwould be provided from GPT's own resources.

Procurement

xi. Equipment financed from the Bank loan would be procured throughinternational competitive bidding, in accordance with the Guidelines forProcurement under Bank Loans, except for about US$2 million (representingabout 9% of the loan) of local switching and transmission equipment forextending existing installations which would be procured from originalsuppliers for reasons of compatibility. It is recommended that this equip-ment be financed from the proceeds of the loan provided prices are reason-able. A local preference of 15% or related customs duties, whichever isthe lower, would be applied to bids received from local manufacturers; itis expected that the latter would compete for the supply of subscriberapparatus. The civil works costing in the aggregate US$2.4 million willalso be submitted to international competitive bidding. These works arewidely dispersed throughout the country and will be subdivided into lotsof riot more than about US$300,000 each. However, even if individual con-tracts include several lots, they are unlikely to attract foreign bidders.

Disbursement

xii. The loan would be disbursed against the foreign cost of importedequipment and supplies, the foreign exchange cost of consulting servicesand training, 40% of the cost of contracts for civil works and 100% ofex-factory cost, excluding sales or similar taxes, for equipment suppliedby local manufacturers. In order to meet the procurement and constructionschedules, GPT will incur expenditures of about US$75,000 for consultantsservices, before loan approval. It is recommended that the Bank financethis amount retroactively.

- iv -

Justification

xiii. The project, because of financial constraints, does not meetthe full needs of the sector; however it is self-contained and its main bene-fits will be realized even if GPT is not able to execute other parts ofits investment program. By improving the quality of local and long dis-tance services and providing for the addition of about 16,000 new con-nections it will provide important infrastructure necessary for the pro-motion of trade and industry and would assist the Government in adminis-tering and developing the various regions. The project elements representthe least-cost solution for providing the services for which they aredesigned. The return on investment is estimated to be at least 18p.

Finances

xiv. Financing arrangements for setting-up GPT were unsatisfactory.Government has now agreed to take the measures necessary to achieve, asa first financial objective, a satisfactory current position for GPT.Former P&r debts to Government taken over by GPT have been converted intoequity capital; Government has agreed to provide GPT with i 2.5 millioncash and will retain responsibility for sums due under contractors financeagreements made prior to November 1, 1974; a local loan, with Governmentguarantee, will be taken up by GPT to complete ongoing FY 76 telecommuni-cations development.

xv. GPT's second main financial objective is to generate sufficientfunds from its telecommunications services to meet operating expenses,debt service, and GPT's portion of telecommunications development expendi-ture proposed for FYs 76 through 80 and provide a modest return on Govern-ment equity. To achieve this objective and to assure a satisfactory fi-nancial position for GPT, the Government has agreed that GPT will adjustits tariffs in such a way that GPT earns a return on net fixed telecommu-nications assets of not less than 7% in FYs 76, 77 and 78 and 9% fromFY 79 on. The increase necessary to meet the FY 76 requirement wouldbecome effective on July 1, 1975.

Conclusion

xvi. lOn the basis of the agreements reached as set out in Chapter7 the project is suitable for a loan of US$23 million.

GHANA

POSTS AND TELECOMMN ICATIONS CORPORATION (GPT)

APPRAISAL OF A TELEC1tJINICATICNS PROJECT

1. INTRODUCTION

1.01 The Government of Ghana has requested Bank assistance to financea telecommunications project of urgently needed works, covering the reha-bilitation of automatic exchanges and long distance facilities, the instal-lation of local exchanges with a capacity of about 18,300 lines, of which9,000 are to replace obsolete and worn-out equipment, and the extensionof the long distance and telex networks. The project would be undertakenby the Ghana Posts and Telecommunications Corporation (GPT) which is res-ponsible for all public postal and telecomunications services in Ghana.

1.02 The total cost of the project is estimated at US$29.5 millionof which the foreign cost component is US$23.1 million. The loan, forwhich GPT would be the borrower, and the Government the guarantor, wouldbe the first Bank operation in the telecommunications sector of Ghana.The project would be the first phase of GPT's PYs 76-80 telecommnunicationsdevelopment program for which Government is likely to request further Bankassistance.

1.03 GPT's program is largely based on a study undertaken by PageCommunication Engineers Inc. (US); the study proposed a four-phase deve-lopment of Ghana's telecommunications system to 1990. In December 1970the Government requested IDA assistance for the financing of a first stageof development concentrating on domestic telecommunications services. In1971 the Ghanaian authorities assisted by IDA prepared a project whichMessrs. S. A. Sathar, N. Holcer and R. C. Mitchell appraised in May/June1972. However, due to the economic uncertainties prevailing in Ghana frommid-1972 on, and the limitation of IDA funds, further project processingwas suspended until May 1974 when Messrs. B. Johnsson and R. C. Mitchellvisited Ghana for a review of the status of telecommunications dev6lopraentand the definition of a new project which Messrs. J. G. Davis and S. A.Sathar appraised in December 1974. This report is based on informationprovided by GPT and on the findings of this latest mission.

2. THE SECTOR

Economic Setting

2.01 Ghana, a country with an area of about 239,000 km2, has a popu-lation of about 9.1 million (38 per sq kin) and a population growth rateof 2.6% per year. The population and economic activities are concentratedin the southern third of the country around Accra, the country's capital,its largest city and major business center, and Takoradi and Tema, itsprincipal ports. Per capita GNP was about US$300 in 1972; it grew at arate of 2.7% annually over the period 1965-72.

-2-

2.02 The economy is agricultural, with a dependency on cocoa as theprincipal export commodity. There is also a substantial mining industrywhich concentrates on the production of gold, industrial diamonds andmanganese! primarily for export. Efficient and reliable telecommunicationsmake possible the timely exchange of necessary information between producers,shippers and customers and are therefore of crucial importance to thestrength and growth of the country's commercial and industrial activities.The demand for telephone service in Ghana, particularly from the businesssector (estimated to be about 60% of total demand), is expressed by GPT'slarge waiting list. By satisfying this demand and generally improving thequality of service, GPT would eliminate many of the communication problemspresently besetting the country's business and administrative activities,and would contribute directly to the overall growth of the economy.

Telecommunications Sector

2.03 In 1963 the Posts and Telecommunications Department (P&T) of theMinistry of Transport and Communicatians assumed full responsibility forthe operation and development of the telecommunications sector in Ghana.Until 1972 P&T functioned as a Government department and was subject tothe administrative and financial regulations normal to such departments;P&T was not organized along commercial lines and had to rely on otherGovernment departments for services essential to its operations. P&T'sbudget was a part of the budget of the central Government and all P&TIsrevenues were deposited in the Government's consolidated fund; hence P&T,to finance its capital development program and recurring expenditures, hadto rely on annual budget allotments, which were not in accordance with itsneeds. P&T's accounting system was on a cash basis in line with Government'sbudgeting requirements and could not provide meaningful management informa-tion.

2.04 P&TIs lack of autonomy and commercial orientation had long beenrecognized in Ghana as a deterrent to the development of the telecommunica-tions sector. Therefore in mid-1972, as a first step tawards corporatestatus, Government declared P&T a self-accounting department with aseparate budget and with autonomy in its day-to-day operations. Finally,as from November 1, 1974, P&T was changed into a statutory corporation--Ghana Posts and Telecommunications Corporation (GPT)--by a decree of theNational Redemption Council. Under its charter GPT has wide administra-tive and financial autonomy, and its Board, with the approval of the Com-missioner for Transport and Communications, may by legislative instrument,prescribe the Corporation's tariffs. The Corporation will eventually havea policy-making Board of Directors but until the Board is appointed theCommissioner wields the Board's authority. For details of GPT's organiza-tion see para. 5.01 and Annex 2.

Existing Facilities

2.05 Ghana has a telephone density of 0.55 per 100 population. Whilethis is a higher ratio than in a number of other African countries (seeAnnex 1), the existing facilities are inadequate both in capacity to meet

-3-

demand for addi ional connections and in the quality of service. Annex 3gives the basic data on GPT's facilities.

Local Telephone Service

2.06 The local telephone network consists of (i) 16 automatic exchangeshaving a total capacity of 36,800 lines with about 23,400 connected lines(DELs), of which some 52% are connected in Accra; however, about 9,000 linesof exchange equipment in Accra are obsolete, worn out and need to be re-placed; and (ii) 415 manual exchanges with 5,700 DELs. Apart from the limi-tations due to design, which restrict the utilization of exchange capacitiesto 85-90%, some of the facilities cannot be used because of shortage in thecable distribution network (see para. 2.10). As of June 30, 197h, there wasa registered waiting list of about 20,300.

Long Distance Service

2.07 Ghana has an extensive long distance network, comprising micro-wave and VHF radio systems, supplemented in the remote areas by open-wirecarrier systems. Subscribers connected to the automatic exchanges candial long distance calls through five automatic trunk switching exchanges;however, due to insufficient capacity and inadequate engineering the ser-vice is unsatisfactory (see para. 2.11).

Telegraph and Telex Services

2.08 The public telegraph service is provided by teleprinter andMorse networks. The teleprinter network serves all the principal citiesby means of voice-frequency carrier, using both microwave and VHF systems.Telex service is provided only in Accra, which has an exchange with acapacity of 200 lines and 192 connected subscribers.

International Services

2.09 International telephone, telegraph and telex services are pro-vided by HF radio links with a number of African countries. Traffic toother countries in Africa and overseas is routed via London. Details aregiven in Annex 4.

Service Standards

2.10 In all parts of the country, the service provided by the localexchanges is poor. Although in the main cities the exchanges are largelyautomatic, expansion of these exchanges has not kept pace with the growthof traffic and there are many bottlenecks in the networks. In Accra, poorservice is mainly due to switching equipment that is partly obsolete andworn out. In the other areas, the main reasons for unsatisfactory serviceare the limitations inherent in the use of manual magneto exchanges, andthe use of exchanges which are old and worn out. Moreover, the subscribernetwork in all areas makes extensive use of open-wire routes, which arefault prone; and capacity and design of networks are inadequate in manyareas; the latter has led to delays in meeting requests for telephoneseven -here capacity is available in the exchanges (see para. 2.06). Theproposed project would eliminate most of these deficiencies.

2.11 The long distance service is likewise poor partly because net-work expansion has not kept up with the growth of traffic. Also, as com-mented on extensively in the PAGE report, there were weaknesses in theinitial system design of the main routes. For instance, due to unsatis-factory design of the spacing between repeater stations in the originalplanning of the microwave system and to an unreliable power supply, espe-cially at the repeater stations, system reliability is low. This situa-tion is being improved significantly as part of the ongoing program (seepara. 2.1:3), by using modern battery-operated equipment at the intermediatestations and by relocating repeaters to overcome difficult radio transmis-sion condiitions.

2.12 The international services, particularly telephone, are unsatis-factory. The lack of equipment capacity and the use of high frequencyradio systens, which--under prevalent radio transmission conditions--areprone to interference and instability, result in inordinate delays Inputting through calls and in poor speech quality.

Ongoing Program

2.13 GPT has an ongoing program mainly consisting of:

(a) Tamale-Bolgatanga-Yendi-Wa UHF radio systems,(b) Kumasi-Mampong (Ashanti) and Sunyani-Techiman-Wenchi

UHF radio systems, and(c) Ministry exchange at Accra.

Almost all of the equipment for these works is in the country but instal-lation is held up due to delays in the construction of buildings. Specialefforts are required to get these works completed as soon as possible. Thefinancing arrangements for the works are discussed in para. 6.05. Duringnegotiationis GPT gave assurances that it will complete the works of itsongoing program by June 30, 1976 at the latest. The phasing of investmentduring FYs 75 and 76 is shown in Annex 7.

Sector Objectives

2.14 The principal sector objectives for the period 1976-1980 are:

(a) improvement of the quality of local, long distance and inter-national services;

(b) extension of local and long distance services to meet about65% of the demand for telephone connections by 1980, inclu-ding in particular, extension of service to rural communitiesto help integrate remote areas into the economy;

(c) extension of international services to meet the demand forthese economically crucial services by 1980; and

(d) consolidation of the recently-created GPT as an organizationally,managerially, and financially sound public utility enterprise.

- 5 -

The main vehicle for achieving objectives (a) to (c) is GPT's FYs 76-80development program (see paras. 3.01 and 3.02) of which the proposed Bank-assisted project represents the first phase. Further, the following mea-sures associated with the Bank project are expected to help substantiallyreach goal (d) above: (i) strengthening of middle-management staff (para.5.03); (ii) improvement of productivity (para. 5.04); (iii) improvementof financial organization and control (paras. 5.o8-5.09); (iv) increasein Government equity (para. 6.05), additional finance for the ongoing pro-gram (para. 6.05), and tariff adjustment (para. 6.08).

3. THE PROGRAM AND THE PROJECT

The Program

3.01 Ghana's telecomunnications development program for the periodFYs 76-80 aims at improving the quality of the local and long distanceservices and, within the limitation imposed by the available resources,meet part of the anticipated demand for new telephone connections. It isestimated to cost i 58.9 (US$51.2) million, including a foreign cost of0 46 .3 (US$4O.3) million, and comprises:

(a) rehabilitation and expansion of domestic telecommunicationservices, with the installation of about 27,500 lines oflocal automatic telephone exchange equipment(of which 9,000would replace worn-out equipment)and associated cable net-works, the addition of high priority long distance telephonefacilities and installation of about 400 lines of telexequipment;

(b) construction of an earth satellite station for interna-national telecommunications; and

(c) establishment of microwave links to Togo and Ivory Coastas a part of the Pan-African telecommunications network.

Details of the program are given in Annex 5. The total cost of part (a)is estimated at about i 49.7 (US$43.2) million,including a foreign costof / 38.7 (US$33.6) million; this part would be executed in two phases:Phase I during FYs 76-79 and Phase II during FYs 78-80. Phase I,whichconsists of the most urgent works of rehabilitation and expansion,is abalanced and self-contained part of GPT's investment program and wouldform the physical component of the proposed Bank project. GPT has notyet arranged financing for Phase II and it may seek Bank assistance forthis. For the financing of parts (b) and (c) of the program, GPT intendsto approach other sources; since these parts also comprise priority itemsof GPT's program, though less urgently needed than those in the Bank pro-ject, it is recommended that the Bank agree to their execution providedsuitable financing is arranged (see para. 6.07).

The Project

3.02 The proposed Bank project, further details of which are given

-6-

in Annex 5, includes (i) installation of about 18,300 lines of automaticswitching equipment (including replacement of about 9,000 lines of worn-out equipment) with cable and subscriber distribution networks and pro-vision of the necessary subscriber apparatus; (ii) improvement and expan-sion of the long distance facilities by provision of a new Takoradi-Kumasimicrowave link, and the addition of multiplex and switching equipment onthe existing and new trunk routes; (iii) expansion of telex exchangecapacity by 250 lines in Accra, with conversion to semi-automatic opera-tion in the international service; construction of a telex exchange witha capacity of 50 lines in Kumasi, including associated teleprinters;(iv) consultancy services for detailed engineering and assistance inprocurement and project supervision, (v) accounting improvement, and (vi)staff training.

Cost Estimates

3.03 The project is estimated to cost % 33.9 (US$29.5) million witha foreign exchange component of US$23.1 million. The costs, which aresummarized below and shown in detail in Annex 7, exclude all duties andtaxes. As confirmed during negotiations the Government will exempt GPTfrom payirng these duties and taxes.

Local Foreign Total Local Foreign Total-- ~million ------ -----US million-----

Civil works, buildings,including airconditioning 1.68 2.42 4.10 1.46 2.14 3.60

Automatic exchange equipmentfor local exchanges and forlong distance facilities 0.38 5.81 6.19 0.33 5.05 5.38

Local networks 1.53 6.39 7.92 1.33 5.56 6.89Subscribers plant 0.38 1.48 1.86 0.33 1.29 1.62Long distance radio and open-wire carrier systems 1.43 2.56 3.99 1.24 2.23 3.47

Telex 0.10 1.20 1.30 0.09 1.04 1.13Vehicles - 0.50 0.50 - 0.43 0.43Miscellaneous 0.29 1.16 1.45 0.25 1.01 1.26Consultants and training 02 0.84 1.09 0.22 7 0.95

Base cost 6.04 22.36 28.20 19.48 24.73Contingencies(a) Physical 0.14 0.42 0.56 0.12 0.37 0.49(b) Price 1.10 82 4.92 0.95 3.29 4.24

71._21 1.07 a. 73

TOTAL 7.28 26.60 33.88 6.32 23.14 29.46

3.Ol The estimated foreign exchange component of the equipment cost ofthe project was determined on the basis of the cost, adjusted to late FY 75price levels, of fixed price contracts for similar equipment recently pro-cured under international competitive bidding and to be delivered over asimilar period of time. The local component of equipment cost and the civilworks costs were estimated on the basis of GPT's and the Ghana Public WorksDb;rtment's most recent contracting experience.

- 7 -

3.05 A physical contingency allowance of 4% has been provided onforeign and local costs of items such as buildings, automatic ex-change equipment,and radio and telex installations. This would be suf-ficient to cover unforeseen design or engineering modifications whichmight occur in these components when the detailed specifications aredrawn up. Estimated price increases amount to about 18% of base costestimates plus physical contingencies and have been computed accordingto the following compound rates: (a) 10% in FY 76, 8% in Fr 77 andthereafter,on foreign costs for equipment; (b) 18% in FY 76, 16% in FY77, 14% in FY 78 and 12% in FY 79 on local costs for civil works. Thesecontingencies are considered adequate.

Project Financing

3.06 The project would be financed from the proposed Bank loan ofUS$23.0 million which would be made to GPT for 25 years, including a5 year grace period, and US$6.5 million from GPT's own resources.

Items for Bank Financing

3.07 The proposed Bank loan would be used to finance the followingforeign exchange costs.

US$ million(a) Airconditioning equipment for

exchange buildings 1.14,

(b) Civil works, buildings - importedmaterials 1.00

(c) Automatic exchange equipment forlocal exchanges and for long dis-tance facilities 5.05

(d) Local and junction cable networks 5.56

(e) Subscribers plant and installations 1.29

(f) Long distance radio and open-wiresyestem 2.23

(g) Telex equipment,including teleprinters 1.04

(h) Vehicles 0.43

(i) Miscellaneous items (training equip-ment, PBX, PABXs, cable constructiontools, telephone billing machines andtest equipment) 1.01

(j) Consultants services and accountingtraining 0.73

(k) Unallocated 3.52

TOTAL 23.00

-8-

Procurement

3.08 Equipment financed from the Bank loan would be procured throughinternaticnal competitive bidding, in accordance with the "Guidelinesfor Procurement under Bank Loans", with the exception of some localswitching and transmission equipment for extending existing installationswhich, for reasons of compatibility, would be procured from the originalsuppliers. The foreign cost of this equipment is estimated at most at US$2million or about 5% of the loan amount; it is recommended that it shouldbe financed from the proceeds of the Bank loan provided the prices offeredare reasonably in line with international prices for similar equipment. Apreference of 15% or the applicable customs duties, whichever is the lower,would be applied to bids from local manufacturers; it is expected that suchmanufacturers would compete for the supply of subscribers apparatus, theforeign exchange component of which amounts to about US$0.3 million. Thecivil works ,which are estimated to cost in aggregate US$2.4 million will alsobe submitted to international competitive bidding. These works are widelydispersed throughout the country and will be subdivided into lots of not morethan about US$300,000 each. However, even if individual contracts includeseveral lots, they are unlikely to attract foreign bidders.

3.09 G'?T is normally required to procure its equipment through theGhana Supply Commission; GPT's experience with this arrangement has beenvery unsatisfactory. To ensure timely and orderly procurement, Governmentagreed during negotiations that GPT, assisted by consultants, would carryout procurement related to the project.

Execution of the Project

3.10 GPT would employ consultants for about 140 man/months to helpprepare the specifications and bidding documents and to assist in bidevaluation for the automatic exchanges, microwave systems, and majorcable networks. GPT has already negotiated a draft contract with con-sultants which has been reviewed by the Bank. GPT expects to appointthe consultants by June 1, 1975 or soon thereafter. The suppliers, underthe superv:Lsion of GPT personnel assisted by the above consultants, wouldinstall and commission the exchange equipment and microwave system. GPT,assisted in the main cities by suppliers, would install and joint thecables. GPT would use its owr. staff for installing subscriber facilities.The civil works--buildings, access roads and major duct routes--would becarried out by contractors under the supervision of GPT's project controlunit and with the assistance of the consulting wing of the Public WbrksDepartment (PWD).

3.11 At present, GPT's organization is inadequate for properly super-vising proJect execution. Therefore, during negotiations GPT agreed tocreate within its own organization a unit whose sole purpose would bemonitoring and control of execution of GPT's investment program, inclu-ding the Bank project. This unit should start working before July 1, 1975,and should be headed by a manager whose terms of reference and qualifica-tions should be acceptable to the Bank.

-9-

3.12 With the above unit,assisted by consultants and suppliers (seepara. 3.10), GPT should be able to execute the proposed project satis-factorily, Construction schedules for the main items in the project areshown in Chart No. WB-9671 (Annex 6). The project completion date wouldbe June 30, 1979.

Disbursement

3.13 The proposed loan would be disbursed against the foreign costof imported equipment and supplies, the foreign exchange cost of consul-ting services and training, 40% of the cost of contracts for civil worksand 100% of ex-factory cost, excluding sales or similar taxes, for equip-ment supplied by local manufacturers (see para. 3.08). The schedule ofestimated disbursements is in Annex 8. In order to meet the procure-ment and construction schedules, GPT will incur expenditures of aboutUs$75,000 for consultants services, before loan approval. It is recom-mended that the Bank finance this amount retroactively. It is also re-commended that if any loan funds remain undisbursed after completion ofthe project, these funds should be disbursed against the cost of addi-tional goods and services similar to those to be procured under the loanand needed for GPT's continuing expansion program. GPT would determinethese goods and services in agreement with the Bank.

4. JUSTIFICATION

4.01 Owing to the limitations on available resources GPT's FY 76-80program could not be designed to meet all the needs of the sector; forthe same reasons the program is to be executed in phases, according topriorities. The project is the first phase of this program and thereforeccntains the highest priority works for rehabilitation, replacement ofobsolete and worn-out plant, expansion and general improvement of thequality of local, domestic long distance and telex services; the remainderof the program addresses itself mainly to the improvement and expansion ofthe international services with some further additions to the domestic ser-vices. The project is based on the premise that the provision of goodservice to a large number of existing subscribers is more important thanthe connection of new subscribers to an already overloaded network. Sinceit is self-contained, its main benefits will be realized even if GPT isunable to execute the other works in the program. It would substantiallycontribute to achieving the sector objectives outlined in para. 2.14 byproviding an important part of the infrastructure necessary for promotingtrade and industry in Ghana and assisting the Government in administeringand developing the various regions.

Market Demand

Local Services

4.02 By mid-1974, after increasing at an annual rate of 8% over thepast ten years, total expressed demand for telephone service was 49,h30,comprising 29,130 DELs in service and 20,300 prospective subscribers on

- 10 -

the waiting list. It is reasonable to assume that demand was even higherbecause prospective subscribers, aware of poor service and of inordinatedelays (up to three years) in the provision of conmections, are not apply-ing for service. Therefore, total demand was projected to continue togrow at about 8% per year during the period of the program. On this basis,and assujming an 85% exchange fill, it is estimated that the equipment tobe provided under the project, after replacing 9,000 lines of obsolete andworn-out equipment in Accra, would be sufficient to meet about 60% of thedemand intil the next phase of expansion commences in FY 80.

Long Distance Service

4.03 Due to the congestion and poor quality of service on most ofthe routes during the past years, historical growth of long distance traf-fic in Ghana is not useful for forecasting future requirements. GPT hasperiodically carried out traffic measurements including registration oftraffic overflow. On the basis of these recent measurements GPT estimatesa normal rate of growth to be 11% per year; this is reasonable. The demandprojections also take into account the limitations on the number of new DELswhich can be added. As part of the ongoing program GPT is providing somefacilities to relieve congestion. The project provides for further suchfacilities which, once installed, would permit the basic transmission equip-ment to meet demand up to 1982.

Telex Service

4.04 EBy mid-1974 the number of telex subscribers in Accra/Tema areawas 192 with a waiting list of 62, making a total demand of 254. In addi-tion to Accra,the cocoa and timber center,Kumasi, urgently needs telexfacilities and has a waiting list of 20. The annual subscriber growth isexpected to be about 15% per year in the country; this is reasonable. Onthis basis, the extension of the Accra exchange by 250 lines and the pro-vision of a new 50-line exchange at Kumasi, both provided under the project,would fall just short of meeting the demand in 1979, the year in which theywould start operation. The new facilities would also provide a semi-auto-matic international service for Accra. A further stage of telex expansionis expected to commence in 1980.

Least-Cost Solution

4.05 Fundamental decisions determining Ghana's telecommunicationsstructure were taken in 1966 in connection with the introduction of sub-scriber toll dialing (STD). This incorporated the numbering, switchingand transmission plans; the facilities to be provided under the projectreflect a continuation of these policies. The size, design and timing ofadditions to the switching facilities represent the least-cost solutionfor the required development under the given financial constraints. Thesize and timing of the associated cable distribution network will be basedon plant practices for achieving least cost; the proper design and engineer-ing of this network will be one of the tasks of the consultants who GPTwill retain for the project.

4.o6 In thf Long distance network, the new Takoradi-Kumasi route willprovide additional facilities for a number of important towns along theroute and also an essential alternative route in the Kumasi-Accra-Takoradi triangular network. The choice of microwave radio for this routerepresents the least cost as compared with the alternative, coaxial cable.In addition, upgrading of the existing routes will bring about the improvedservice and reliability which is essential for STD operation. The addi-tional multiplex equipment will be supplied at low incremental cost and willprovide badly needed additional facilities.

Return on Investment

4.07 The internal rate of return on the investment for the project is18%. It has been calculated as the discount rate which equalizes the pre-sent worth of incremental cost (i.e. capital cost of the project and dif-ference of system operating costs with and without the project, excludingtaxes and duties) and incremental revenues resulting from the project overits lifetime. A similar calculation, assuming a notional 30% surchargeon the imported component of the capital investment (to reflect the scar-city of foreign exchange in Ghana ), showed a rate of return on the projectof 15%. A sensitivity analysis shows that should revenues decrease andcosts increase simultaneously by 10% the return would still be 16%. Thesecalculations indicate that on average the prices that subscribers will becharged for telecommunications usage in Ghana will exceed the incrementalcost of providing the service.

4.08 The true economic return on the project is higher thar the fore-going suggest, since (a) the prices charged do not adequately measure thefull benefits to subscribers, (b) there are external benefits which accrueto parties other than those who pay directly for the use of the facilities,and (c) the costs include the full costs of extending service to new areas,even though the full benefits of the extension will not be realized untiladditional lines are connected in these areas at some future time.

5. THE BORROWER

Orgnization and mae=ment

5.01 GPT was established as an autonomous Government-owned corpora-tion as from November 1, 1974. GPT's statutes are satisfactory. GPTwill have a seven-man Board of Directors, including the Director-Generaland the Deputy Director-General. In the exercise of his functions ofchief executive, the Director-General will be assisted by the DeputyDirector-General, three directors (for External Telecommunications, InternalTelecommunications, and Postal Services, respectively) and a FinancialController. GPT is actively putting together this new organization. Anorganization chart is given in Annex 2.

5.02 The Governmenit has yet to appoint GPTfs Director-General; inthe meantime the Deputy Director-General performs the duties of the office.During negotiations, assurances were obtained that the Government and GPT

- i 2 -

will consult with the Bank before filling vacancies in the posts ofDirector-General, Deputy Director-General, and Financial Controller.The Deputy Director-General and the three directors are experienced andcompetent. A qualified Financial Controller has recently been appointed.The former Chief Accountant, who is a very experienced and capable offi-cial, has reached retirement age but will stay on with GPT until theFinancial Controller has fully taken over and the new accounting staffare appointed and trained.

5.03 GPT needs to strengthen considerably its middle managementstaff in the technical and financial branches. While steps are beingtaken to fill some of the vacancies by selecting suitable members of theexisting staff for training, much more requires to be done. During nego-tiations, the Government and GPT agreed that by March 31, 1976, GPT woulddraw up, cliscuss with the Bank, and thereafter implement a program of re-cruitment and training of middle-management staff.

5.04 The permanent staff of GPT's telecommunications service numbersabout 5,2CO or 100 per 1,000 telephones. This ratio is high, and is main-ly due to (i) a large standing force of laborers, (ii) the need to staff415 manual exchanges, and (iii) the large number of staff required forhandling telegraph traffic. There is room for improved productivity.Therefore, during negotiations, GPT agreed to (i) undertake a review ofits telecommunications staff structure and requirements and consult withthe Bank not later than June 30, 1976 on the measures it proposes totake to increase productivity in general, and in particular to retrainexisting staff; (ii) by June 30, 1976 set targets to substantially reducestaffing ratio below 100 per 1,000 telephones.

5.05 The basic training facilities are adequate. A large well-equippedtelecommunications training center, built with UNDP assistance, is locatedin Accra; the center has capacity for about 20 technical courses per year.At its present annual output of about 100 graduates, the center is not yetfully utilized. Consultants provided under British and Canadian bilateralassistance programs are presently training accounting and comercial staffon-the-job. Equipment suppliers have also provided technical trainingabroad and in Ghana to familiarize GPT's employees with new equipment; itis proposed to continue this practice. Furthermore, the UNDP program forGPT includes a number of fellowships for overseas training of senior per-sonnel in engineering and management. The proposed loan includes US$100,000to cover the foreign costs of eight man-years of specialized training over-seas for management financial staff. The proposed loan would also coverforeign exchange costs of consultants who would give further on-the-jobtraining to GPT's financial staff (see para. 5.08); should GPT be able toarrange training included in the project through further bilateral assist-ance arrangements, the corresponding loan amounts would be available forother purposes of the project.

Commercial Department

5.06 A, senior adviser from Alberta Government Telephones, Canada,under a Canadian Government bilateral assistance program, is presently

-3-

assisting GxPT ̂ ii setting up a new commercial department; GPT will staffthis new department from its existing personnel. The proposed organi-zation and procedures are satisfactory.

Accounting

5.07 The financial consultants Peat, Marwick, Mitchell & Co., underBritish Government bilateral assistance, are presently developing andinstalling a modern commercial accounting system for GPT; the accountswill reflect separately postal and telecommunications operations. Inaddition, the consultants are advising on organization, costing, storesaccounting, and stock control, revenue billing, collection, internalaudit and administrative procedures. The work is proceeding satisfac-torily. During negotiations, GPT agreed to take all measures necessaryto ensure that a commercial accounting system, providing separate opera-ting results for each of GPT's services, will become fully operative inFY 76.

5.08 GPT will require a continuation of assistance from the financialconsultants in (i) establishing systems for budgeting, works-in-progress,project control, internal audit procedures, workshops and vehicle account-ing, and (ii) on-the-job training of staff in the new systems. The con-tinued employment of Peat, Marwick, Mitchell & Co. would be acceptable tothe Bank. The proposed loan includes US$80,000 to cover the foreign costsof these services for about 12-14 man/months. During negotiations, GPTagreed to (i) appoint qualified consultants in accordance with terms ofreference acceptable to the Bank for the services mentioned, and (ii)introduce and operate no later than June 30, 1976, a system of internalaudit satisfactory to the Bank.

Audit

5.09 Assurances were obtained during negotiations that (i) independentauditors acceptable to the Bank would be appointed to perform an annualaudit of GPT's accounts, commencing with FY 76, and (ii) certified finan-cial statements, including the auditors' report, would be submitted tothe Bank within six months after the close of each fiscal year.

Billing and Collection of Subscriber Accounts

5.10 GPT has recently regionalized its billing activities and consi-derable improvement is taking place in the billing lead time. Creditcontrol is also being improved and although there is room for furtherimprovement in subscribers debt collection the problem is being dealtwith methodically and with close supervision fram management. In thepast the Government has made lump sum payments to P&T, generally inadvance, for the telecommunications service rendered to it; however,those payments have not covered the total amount due to P&T. Duringnegotiations, the Government agreed that it will settle its bills fortelecommunications promptly and in full.

- 14 -

6. FINANCES

Past and Current Finances

6.01 On July 1, 1972 when F&T, GPT's predecessor, became a self-finan-cing entity (see para. 2.04), it took over the debts the Government hadincurred on behalf of the telecommunications and postal sectors fromJanuary 15 1969 onwards. Responsibility for the settlement of debts incurredbefore this date remained with the Government; these debts for supplier-financed capital equipment, are presently estimated at / 13.2 (US$11.4)million. P&T took over the right to collect subscribers' arrears but theGovernment did not provide P&T with any liquid working capital or supple-mentary ftnds to meet development expenditures. Consequently, as the pay-ments for new equipment became due, P&T quickly ran into cash flow diffi-cilties. To assist P&T, the Government made two short-term repayableadvances totalling 6 2.9 (US$2.5) million, which, however were insufficient.Therefore, to meet telecommunications requirements, P&T started to use fundscollected by the postal services on behalf of various Government agencies(National Lotteries, Savings Bank, Controller and Accountant General); asof June 30, 1974 it accumulated about / 2.7 million of such debts.

6.02 The full gravity of P&T's financial position became clear onlywhen financial consultants prepared pro-fonra commercial accounts for FY74 operations. These accounts, which present a reasonably accurate pic-ture of P&T's financial performance and position, have been used as abasis for the FYs 74 and 75 Telecommunications Income Statements andBalance Sheets given in Annexes 10 and 12. The first audited accountswill be for FY 76 (see para. 5.09). In establishing the Balance Sheet ofthe telecormmunications service, as of June 30, 1974, debts of the Govern-ment for services rendered have been written-off against equity; capitalas of that date consisted entirely of Government equity, amounting to

4 1.5 million and represented by:r millions

Net fixed assets 42.6Inventories 4.7

47.3Less: excess of current liabilities

over current assets 5.8

Total net assets 41

6.03 The excess of current liabilities over current assets (9 5.8(US$5.0) million), which is indicative of M&T's serious current positionas of June 30, 1974 comprises: 0 millions

Current liabilitiesGovernment advances 2.9Other debt to Government agencies 2.7Suppliers 2.5Other creditors & receipts in advance 2.3

Less: current assetsCash 0.3Subscriber debts 2.8Other debtors 1.5 4.6

- 15 -

6.o4 Earni,.s 9frcym telecommunications operations showed a surplusof about 0 2 million in FY 74; the return on net fixed telecommunica-tions assets in service was about 6.9%; the operating ratio was 85.

However in FY 75, mainly due to the Xarch 1975 salary awards, which weregranted retroactively from July 1, 1974 and were equivalent to an overall

increase of 70% on the previous year's aggregate salaries, there has beena serious deterioration in the financial performance of the telecommunica-tions services. Latest forecasts for FY 75 indicate a net deficit of

1 876,000 with a 'nil' rate of return, and an operating ratio of 106.

6.05 GPT inherited P&TIs poor financial position on incorporation

(November 1, 1974). GPT's first financial objective is therefore toobtain adequate working capital and sufficient funds to finance the on-

going telecommunications program. To help GPT achieve this objectivethe following measures have been or will be taken:

(i) repayable advances made by the Government to P&T andtotalling t 2.9 million (see para. 6.01) have been can-

celled and transferred to Government equity in GPT'sbooks;

(ii) debts of P&T to Government agencies amounting to / 2.7million (see para. 6.01) have been cancelled and trans-ferred to Government equity in GPT's books; Governmenthas taken over responsibility for settling these debts

with the agencies concerned;

(iii) the Government will provide GPT with t 2.5 million cashas working capital; it has already paid ¢ 1 millionand has undertaken to pay the balance before June 30,1975;

(iv) GPT will take up a local loan amounting to 4 7.0million, with Government guarantee, and on terms satis-factory to the Bank, for financing ongoing FY 76 tele-communications development; and

(v) the Government will make a financial settlement withGPT covering the costs of services rendered in FY 75by GPT and its predecessor to Government and vice-versa.

Durtng negotiations, the Government also confirmed that it has releasedGPT from any obligation under long-term suppliers finance agreementsentered into by the Government prior to GPT's incorporation. To allowthe necessary time for the implementation of measures (iv) and (v)above, it is recommeded that this implementation be a condition ofeffectiveness of the proposed loan.

Telecommunications - Financing Plan

6.06 GPT's capital investment and working capital requirements fortelecommunications during the FYs 76-80 period, along with the sources

- 16 -

from which they would be met, are summarized below. Fuirther details aregiven in Annex 13.

Financing Plan - FYs 76-80

US$ _

(millions)Requirements

ConstructionOngoing works - FY 76 9.1 7.9 11

FYs 76-80 program1st phase (Bank-financed project) 33.9 29.5 ho2nd phase 15.8 13.7 19Earth satellite station 7.0 6.1 8PANAFTEL link 2.2 1.9 3

8.9 51.2T 70

Future program-commencing FY 80 8.5 7.4 10

76.5 66.5 91

Working capital 8.1 7.1 9

Total requirements 84.6 73.6 100

SourcesInternal cash generation 48.2 41.9

Less: debt service (13.9) (12.1)cash available for distribution X5j ) _

Borrowings:IBRD 26.4 23.0 31Other (see para. 6.07) 29.7 25.8 35

9-T 488 6-6

Total sources 84.6 73.6 100

6.07 This financing plan reflects the second main financial objec-tive of GPT, i.e. to generate enough funds to be able to meet the re-quirements of the development program, debt service, maintain workingcapital and to pay a modest return on Government equity. For the pur-poses of the plan it has been assumed that the foreign exchange costsof (i) . 16.9 million for Phase II, PANAFTEL and future program workswould be financed by loans on terms similar to those for the proposedBank loan, (ii) i 5.8 million for the earth satellite station would befinanced through credits over 12 years including 3 years grace andinterest at; 8i%. Assumed terms for the e, 7 million local loan are 15years including 3 years grace and interest at 9%. During negotiations,GPT agreed that during the project period it will undertake Phase II of

- 17 -

its program, construct the earth satellite station, implement the PANAFTELlink, undertake any other capital expenditure for telecommunications inexcess of US$600,000, in any one year, only after agreeing a financingplan with the Bank.

Telecommunicat ions Tariffs

6.08 On the basis of present forecasts GPT needs to earn a return onnet fixed assets of at least 9%, to achieve its second financial objective.Present tariffs are insufficient even to provide therevenue to fully coveroperating expenses. However, since it is not possible to implement anincrease in tariffs which would immediately provide the 9% rate of return,the Government plans that GPT will reach the target in two stages. There-fore, during negotiations, the Government and GPT agreed that GPT wouldadjust its telecommunications tariffs in such a way as to enable GPT'stelecommunications operations to earn a return of not less than 7% in FYs76, 77 and 78, and of not less than 9% in FYs 79 and thereafter. Assu-rances were also obtained that the first increase, which will be effectiveJuly 1, 1 975,would provide a 40% increase in aggregate telecommunicationsrevenues in FY 76 over the sum originally forecast for that year. In viewof the existing deficient service, this increase is probably the maximumwhich could realistically be considered; it is recommended that the imple-mentation of this adjustment should be a condition of effectiveness of theloan. Depending on GPT's operating results and requirements at the time,a second increase would be implemented in FY 79; present forecasts indicatethat to achieve a 9% rate of return an increase of about 17% in overallrevenues would be needed. GPTVs tariffs which are given in Annex 11 are nothigh, and compare favorably with some neighboring countries; local callspresently cost US04 in Ghana, US¢12.5 in Ivory Coast, US¢16 in Senegal, and

US¢4 in Ethiopia; the latter are expected to be increased soon. GPT pro-poses to undertake a study on its tariff structure, and has requested theInternational Telecommunication Union (ITU) to provide an expert for thework. The Bank has also agreed to take part in the study and will providestaff for the economic input. A draft on the economic aspects of the pro-posed study is given in Annex 16.

Telecommunications - Future Finances

6.09 Forecast Income Statements and Balance Sheets for FYs 76-80 forthe telecommunications services are given in Annexes 10 and 12 with notesin Annex 14. Indicators to measure GPT's performance are given in Annex15. The estimate of national telephone revenues used for these statementsassumes that, in accordance with GPT's capability to give telephone con-nections, the number of connections will grow in FY 76 by only 6% but thatthis rate would increase by FYs 79 and 80 to about 10-11% per year; a mo-dest lowering of the overall calling rate per subscriber has been antici-pated at that time. International telephone traffic is expected to increaseby about 5% per year from FYs 77 through 79, however with the commissioningof the earth satellite station, assumed in FY 79, a 50% boost in trafficis to be expected during Fl 80. Telegraph traffic increases have been fore-cast at about 3% per year. Annual telex traffic is expected to increase on

- 18 -

average by about 17% per year during the five-year period FYs 76-80.Salaries and wages are projected to grow on average by 15% per yearthrough FY 80. The following table gives a summary of GPT's expectedfinancial performance.

FY to June 30: 1976 1977 1978 1979 1980

Net income (before interest) . million 3.8 3.4 3.8 8.1 7.8Operating ratio % 82 85 85 75 78Rate of return % 8.6 7.2 7.6 12.1 9.2Average net fixed assets 0 million 44.4 47.7 50.8 67.0 85.3Debt/equity ratio 17/83 31/69 ho/60 46/54 49/51Current ratio 3.8:1 4.4:1 4.3:1 5.1 01 4.9:1Surplus available to Government t million - o.6 0.6 3.1 1.6

6.10 The above table shows that the financial position of GPT's tele-communications service should remain satisfactory over the period FYs 76-80. A debt equity ratio of 49/51 in FY 80 would still leave a margin forfurther borrowing. The forecasts also show that through the program periodthe current position and debt service coverage should be satisfactory.Nevertheless, during negotiations, the Government and GPT agreed thatGPT would not incur long-term debt for telecommunications unless the maximumfuture debt service for telecommunications is covered 1.5 times by net tele-communications revenue before charging depreciation. Furthermore, Governmentand GPT agreed that GPT would use short-term borrowing (including the useof postaL funds) only for financing the normal working capital of telecom-munications operations, and that such borrowing would not exceed threemonths' telecommunications cash operating expenses for the preceding fiscalyear or for any preceding 12 month period, whichever is the greater.

6.11 GPT's telecommunications net income should be sufficient toenable GPT to make small contributions to Government in FYs 77 and 78,provided that GPT's postal service is self-supporting (see para. 6.13).On the same hypothesis, contributions should substantially increase afterthe implementation of the second tariff adjustment in FY 79; present fore-casts indicate a return on equity of about 4-5% in FYs 79 and 80. Depend-ing on satisfactory operating and investment policies, telecommunicationssurpluses available for other purposes could increase further after FY 80.During negotiations the Government agreed that only such part of GPT'sannual profits as would remain after reasonable provision has been madeto cover investment requirements will be available for transfer to Govern-ment.

Postal Service

6.12 In FY 74 postal operations showed a small loss of about % 0.2(US$0.2) million. Since then postal tariffs have been increased and inFY 75, despite the salary increases, operations are expected to producea modest surplus.

- i9 -

6.13 GPT Ehould not automatically charge any future postal lossesand postal investment requirements against telecommunications surpluses;such practices militate against operational and development efficiency,and good financial management. It is essential that the two services befinancially autonomous and transfers of surpluses between the two be thesubject of properly prepared action, the implications of which are cri-tically analyzed. During negotiations, assurances were obtained fromGPT that it would use telecommunication funds for postal purposes onlywhen those funds are surplus to telecommunications operational, debtservice and investment requirements. Furthermore, the Government agreedto meet any deficit in GPT's postal services to the extent that it cannotbe met out of surplus telecommunication funds.

6.14 GPT has a postal investment program amounting to about t 2.3(US$2.0) million; execution was to have been undertaken in FY 75; however,owing to financial constraints following the large salary increases, theprogram has been delayed and is now to be revised. Program execution willcertainly have to be spread over a longer period than originally anticipa-ted, unless satisfactory financing arrangements from outside sources canbe made. During negotiations an understanding was obtained from GPT thatappropriate arrangements would be made for the financing of its postaldevelopment program. Furthermore,GPT agreed that it would not incur longterm debt for its postal services unless the maximum future debt servicefor postal services is covered 1.5 times by net postal revenue beforecharging depreciation.

Fiscal Impact

6.15 The financial settlement (para. 6.05) for GPT and the assumptionby Government of pre-November 1974 telecommunications investment debts(para. 6.05) would increase the Government's equity investment in GPT byd 21.3 (Us$18.5) million. The implications of this arrangement for thenational budget are as follows:

(i) outflows of / 2.5 million in FY 75 to meet the cashpayment to GPT, and % 2.7 million, possibly in FY 76,to settle GPT's debts to various Government agencies;

(ii) an outflow of e 13.2 million over a number of years,commencing about FY 83, for debts relating to con-tractors financing agreements; and

(iii) non-receipt of repayable advances due to Governmentfrom GPT amounting to 0 2.9 million.

6.16 Present forecasts indicate that the Government could expect toreceive from GPT about d 5.8 million, during the program period, as re-turn on its investment in GPT; contributions from GPT may even increasefurther after FY 80.

- 20 -

6.17 During the program period (FYs 76-80) GPT would not pay taxesor duties on equipment imported directly for the program, however, thetelecommunications services would finance 34% of a major program ofexpansion without recourse to the national budget.

7. RECOMMENDATIDNS

7.01 During negotiations, assurances were obtained that:

(a) the works of the ongoing program will be completed byJune 30, 1976 (para. 2.13);

(b) procurement of equipment for the project will be under-taken directly by GPT (para. 3.09);

(c) qualified and experienced consultants will be appointedfor the detailed engineering, procurement and supervisionof construction of the project (para. 3.10);

(d) a satisfactory project control unit will be establishedunder the charge of a qualified and experienced projectmanager (para. 3.11);

(e) Government and GPT will consult with the Bank beforefilling vacancies in the posts of GPT's Director-General,Deputy Director-General, and Financial Controller (para.5.02);

(f) GPT will draw-up, discuss with the Bank, and implementa program of recruitment and training of managementstaff (para. 5.03);

(g) GPT will (i) undertake a review of its staff requirements,and then consult with the Bank on the measures to be takento improve productivity, (ii) set targets to reduce itsstaffing ratio (para. 5.04);

(h) GPT's commercial accounts system will become fully opera-tianl in FY 76 (para. 5.07);

(i) qualified consultants will be appointed for accountingimprovements (para. 5.08);

(j) GPT's internal audit will be introduced and operating notlater than June 30, 1976 (para. 5.08);

(k) independent auditors satisfactory to the Bank will beappointed (para. 5.09);

- 21 -

(1) Government will settle its bills for telecommunicationsservices promptly and in full (para. 5.10);

(m) GPT will undertake Phase II of its program, construct theearth satellite station, construct the PANAFTEL links,undertake any additional capital expenditure in any oneyear in excess of US$600,000 during the construction ofthe project only after agreeing a financing plan with theBank (para. 6.07);

(n) unless otherwise agreed a rate of return of 7% per yearwill be achieved in FYs 76, 77 and 78, and 9% as fromFY 79 (para. 6.08);

(o) limitations on long and short-term debts will be observed(paras. 6.10 and 6.14);

(p) limitations on the transfer of profits to the Governmentwill be observed (para. 6.11);

(q) telecommunications funds will only be used for postalpurposes when those funds are surplus to telecommunica-tions requirements (para. 6.13); and

(r) Government will meet any postal deficit to the extent thatit cannot be met out of surplus telecommunications funds(para. 6.13).

7.02 The following conditions of effectiveness of the loan are recom-mended:

(a) GPT should have negotiated a local loan for its ongoingtelecommunications development program (para. 6.05);

(b) a satisfactory settlement should have been made betweenGovernment and GPT in respect of the cost of servicesrendered to and by the Government in Fr 75 (para. 6.05);and

(c) GPT should have implemented such adjustments to itstariffs as from July 1, 1975 as will provide a 40%increase in aggregate telecommunications revenues overthat originally forecast for FY 76 (para. 6.08).

May 21, 1975

GHMAN

PFOTS AND EIX*IQIGATILUS COlATI (OPT)

INTERNATIONAL TELEPhONE STATISTICS

TELEPHONES- JANUARY 1974CHGOSS NATIONAL

P0RJLATIO 0S//Fl-ROWCT1972 NATIONAL PRINCIPAL CITIES 2/ NET OF COUNTRY., carit. ~~~~~Aw. Annual

Growth Rate Growth Rate Percentag PercentageJan. 1, 1974 ?er Capita (1960-72) Total No. Per lO (1965-74) Autowatization Total No. Per 100 of National Total No. Per 100 of National

OOUJTRY (000s) U8 . (000') uatio % S (00O'a) population j (000'5) Population m

AFRICAAioria, 16,118 430 3.2 221 1.37 4.7 79.1 164 6.09 74 57 0.42 26Egypt 35,473 240 1.5 472 1.33 n.a. 92.4 299 1.88 63 173 0.88 37Ethiopia 27,626 80 2.6 61 0.22 11.0 88.7 49 3.44 80 12 0.05 20Ghana 9,443 300 0.0 52 0.55 4.8 89.8 44 2.88 84 8 0.10 16Ivory Coast 4,497 340 4.2 25 0.56 3.6 90.7 17 2.88 69 8 0.20 31

alawi. 4,799 100 3.6 17 0.35 9.6 90.2 8 4.55 44 9 0.20 56Nigeria 70,884 130 2.0 106 0.15 5.8 76.3 61 3.20 57 45 O.07 43Senegal 4,203 260 (O.8) 32 0.75 2.3 92.2 29 3.37 90 3 0.10 10Sudan 17,567 120 - 51 0.29 3.7 91.1 45 2.95 88 6 0.04 12Zare 22,738 100 3.3 25 0.11 2.4 76.0 15 0.62 61 10 0.05 39

AM)3ICA=WUMIS 22,306 4,440 3.6 11,668 52.31 5.2 99.5 5,52 59,15 48 6,o76 47.28 52

Colomibia 23,218 400 1.8 1,080 4.65 10.2 97.6 640 8 72 59 440 2477 41Costa Rica 1 917 630 3.1 89 4.62 15.2 98.2 82 10.44 93 7 0.58 7El Salvador 3,807 340 2.2 46 1.20 7.6 96.9 40 2.81 87 6 0.25 13Guatemla 5,569 420 2.2 53 0.95 8.5 100.0 53 4.94 100 - - -Tinadd and Tobego 958 970 2.8 66 6.92 6.1 99.9 41 41.14 62 25 2.93 38United State. 210,42o 5,590 3.0 137,762 65.4 45 99.9 68,419 73.35 5° 69,343 59.20 50Venesuela 11,5017 1,240 1.8 5o4 4.38 6.8 98.8 431 9.13 85 73 1.08 15

ASIABurma 29,411 90 0.8 29 0.10 2.4 69.8 20 1.03 70 9 0.03 30India 588,889 110 1.1 1,590 0.27 7.7 80.7 832 2.57 52 758 0.14 48Indonesia 128,078 90 2.1 269 0.21 2.6 62.8 157 1.51 58 112 0.10 42Iran 31 753 490 6.3 553 1.74 11.8 90.8 469 5'45 85 84 0.36 15Iraq 10,608 370 2.7 129 1.22 7.6 92.4 0.5. n.a. n.a. n.a. 0.5f. n.a.Japan 109 316 2,320 9.4 38,696 35.40 12.2 94.5 16,71i 42.61 43 21,987 31.37 57Malaysia 11,421 430 3.1 234 2.05 6.8 95.3 n.5. n.a. n.0. n.a. n.a. n.a.Nepal 11,453 80 0.7 9 0.08 11.8 76.2 9 2.97 99 - - 1Pakistan 67,353 130 3.3 195 0.29 5.0 83.0 140 1.49 72 55 0.10 28Philippines 39,451 220 2.2 410 1.04 10.5 97.6 342 4.23 83 68 0.22 17Singapore 2,202 1,300 7.1 250 11.36 12.2 100.0 250 11.36 100 - -Syria 6,890 320 3.4 143 2.08 7.1 89.4 121 5.23 85 22 0.48 15Thailand 40,700 220 4.6 265 o.65 15.0 94.6 210 4.89 79 55 0.15 21

EUROPEFrance 52,923 3,620 4.9 11,337 21.66 7.1 91.4 7,255 46.76 64 4,082 10.91 36Germany (Fed, Rop.) 61,965 3,390 3.7 17 803 28.73 8.1 100.0 7 810 44.39 44 9 993 22.52 56Sweden 8,144 4 480 3.2 4,984 61.20 3.9 100.0 2,416 72.95 48 2,568 53.13 52Switzerland 6,501 3,940 2.9 3,604 55.44 5.4 100.0 1,728 73.01 48 1,876 45,37 52United Kingdor 56,064 2,600 2.3 19 095 34.06 6.7 99.6 7,665 44.33 40 11,430 29.48 60Yugoslavis 21,039 810 4.8 1,004 4.77 10.5 97.4 496 16.13 49 538 2.83 51

OCEANIAAustralia 13,176 2,980 3.1 4,659 35.36 5.7 94.8 3,210 37.73 69 1,449 31.04 31FiJi 551 270 2.7 23 4.09 8.3 86.9 13 16.16 55 10 2.16 45New Zealand 3,043 2,560 2.1 1,411 46.35 3.9 92.0 1,o66 51.23 76 345 35.81 24Fapua New Guinea 2,491 290 5.6 32 1.30 14.3 97.6 24 17.01 74 8 o.36 26

SG1jRCES:

1. G.N.P., World Sank Atlas 1974

2. Telephone Statiotics: World's Telephones by AT&T (January 1, 1974)

NOTES:

P/ Population at January 1, 1974 derived fr-e the "Total Telephones" and "Telephoneo per 100 Population" appearing in A '&T's publication 'World Telephones"(JanuarY 1, .74)

'/ "Principal Cities" ere those considered principal cities in 'World Telephones" (January 1, 1974) except for United States ,here principal cities are those of100,000 s-d over population eppearing in "World Telephones" (Janoary 1, 1974)

n.s.: not available

GHANAPOSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

ORGANIZATION CHART(TELECOMM&UNICATIONS)

BOARD OFDIRECTORS

DIRECTOR GENERAL

DEPUTYDIRECTOR GENERAL

DIRECTOR DIRECTORFINANCIAL ENGINEERING ENGINEERING DIRECTORCONTROLLER EXTERNAL TELE- INTERNAL TELE- POSTAL

COMMUNICATIONS COMMUNICATIONS

INVESTIGATION INTERNAL CHIEF DEPUTY DIRECTOR DIRECTOR DIETRCHIEF OFBRANCH AUDIT ACCOUNTANT ENGINEERING ENGINEERING EGNEIGAMNSRTO

SECTION ADMINISTRATIONING

REGIONAL . REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL REGIONAL

DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR

METROPOLITAN ASHANTI WESTERN CENTRAL BRONG AHAFO VOLTA NORTHERN UPPER REGION EASTERN

ACCRA. KUMASI TAKORADI CAPE COAST SUNYANI HO TAMALE BOLGA TANGA KOFORIDUA

1Jorld Bank-9672

ANNEX 3Page 1 of 2 pages

GHANA

POSTS AND T LECOMMUICATIONS OORPORATION (GPT)

Basic Statistical DataJune 30, 197.

A. Economic

1. Population 9.1 million (mid 1972)2. GNP per capita in US$ 300

B. Domestic Facilities

1. Local Network

Accra Automatic

Exchanges 3Lines installed 19,800Lines connected (DEL's) 12,124Telephones 25,578Exchange fill 0.61

Regional Network Automatic Manual

Exchanges 13 415Lines imntalled 17,000 _Lines connected (DEL's) 11,288 5,718Telephones 18,704 7,649Exchange fill o.66

2. Long Distance Network

Installed capacity channels 1,024Number of long distance circuits 494Circuit miles 45,692

3. Telegraph and Telex

Telegraph offices(a) Postal agency (Morse) 306(b) GP offices 185

Point-to-point circuits 62Leased circuits 12Telex exchanges 1Lines installed 200Lines connected 192

ANNE 3Page 2 of 2 pages

C. International Facilities

Radio telephone circuits 11Radio telegraph circuits 8Telex circuits 17Leased telegraph circuits 12

D. Staff

Telecommunications staff 4,100Number of staff per 1,000 78

telephones

March 24, 1975

ANNZ !L

POSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

International Circuits

Circuits Telephone Telex Telegraph Leased Telegraph

Abidjan 1 1 1 1Addis Ababa 1 - 2.Bamako 1 - - -

Bathurst 1 - - -

Dakar 1 - - -

Frankfurt - 2. -

Freetown 2 1 1 1Lagos 2 2 2 -

Lome 1 1 2.London 1 12 2 10Nairobi 2 - - -

Ouagadougou 2.

TOTAL 11 17 8 12

March 6, 1975

Afl1TEX 5Page 1 of 5 pages

GHANA

POSTS AND TELECOMMUNICATIONJS CORPORATION (GPT)

Description of the Program and Project

GPT's telecommunications development program for the periodFY's 76-80 comprises:

A. rehabilitation and expansicn of domestic telecommunicationservices; this part will be executed in two Phases of which thefirst is the Bank project;

B. establishment of an earth satellite station for internationaltelecommunications; and

C. establishment of microwave links as a part of the Pan Africantelecommunication network system to Togo and Ivory Coast.

These three parts are described below:

PART A REHABILITATION AND EXPANSION OF DOMESTIC TELECOMMUNICATIONSERVICES

PHASE I--The Bank Financed Project

Phase I, the execution of which is planned for FY's 76-79, con-sists of the most urgent works of rehabilitation and expansion,and would form the physical component of the proposed Bankproject0 It includes:

(aL) Local Telephone Exchanges

Installation of new telephone exchanges and expansion ofexisting exchanges for about 18,300 lines, including the necessarybuiildings with air-conditioning, distributed as follows:

(:i) Three new automatic exchanges in the Accra areat

Accra Central II 8,000 lines )Cantonement II 6,oo0 it ) 15,000 linesNungua/Teshi 1,000 t )

These will be interfaced with the existing automa.tic exchangesin Accra North (Phillips UR49). The existing 6,ooo linesexchange at Central and 3,000 lines of the equipment atCantonement exchange, which are worn out, will be replaced bythe new exchanges.

(ii) An additional automatic exchange:

Takoradi II 1,000 lines

This exchange will be interfaced with existing Britishstep-by-step automatic exchange.

ANNEX 5page 2 of 5 pages

(iii) Expansion of existing automatic exchanges:

Ho (Philips UR49A) 400 lines )Sunyani (Philips UR49A) 400 " )

(iv) Five new automatic exchanges with a capacity of 1,500lines to replace manual exchanges of about 600 lines insecondary eenters.

The existing and proposed new exchange equipment, withtype and capacity, are listed on page 5 of this annex.

(b) Local Distribution Network

Rehabilitation and expansion of the outside plant, includ-ing ducts, local and junction cables, distribution boxes andsubscribers installations for about 16,000 lines.

(c) Long Distance Service

(i) Expansion and improvement of the microwave system includ-ing necessary buildings and access roads for a new systemof 300-channel capacity between Takoradi and Kumasi(1l40 miles):

(ii) Addition of multiplex and STD equipment for increasedchannel capacity to handle increased traffic;

(iii) Addition of two VHF radio systems including necessarybuildings and access roads at:

Koforidua-Mpraeso-Nkawka--57 miles, 24 channels

Ho-Hohoe--50 miles, 24 channels

(iv) Reconstruction of overhead trunk route, Akropong-Mampong-Akwapim using copper-covered steel wire with installationof carrier systers.

Details of the existing and proposed new long distancework are shown on the Map.

(d) Telex

Telex automatic exchanges, together with the necessaryteleprinters and accessory equipment for:

Kumasi 50 linesAccra 250 " (expansion of the existing exchange)

ANNEX 5Page 3 of 5 pages

Semi-automatic operation will be introduced for theinternational telex working from Accra.

(d) Other Items

(i) Experts and/or consultants for detailed engineering,procurement and assistance in supervision and commercialaccounting improvements and training:

(ii) Vehicles.

PHASE II

(a) Local Telephone Service

Installation of about 9,200 lines of automatic exchangeequipment which will consist of extension of the new CantonementExchange (Phase I 6,000 lines) by additional 2,000 lines andnew Takoradi Exchange (Phase I 1,000 lines) by additional 1,000lines and Teshi Nungua (Phase I 1,000 lines) by additional1,000 lines and the rest by new equipment at a number of stationsin Ghana. These will also include necessary buildings, outsideplant and subscribers installations.

(b) Long Distance Service

Additional multiplex and long distance STD equipment onexisting routes, installation of a VHF route Enchi-Tarkwa andrehabilitation of open wire systems on five routes in the country.

*(c) Telex

Telex exchanges of 50 lines each for Takoradi and Tema.

(d) Other Items

(i) PABX equipment.

(ii) Vehicles.

(iii) Consulting services for detailed engineering, procurementand assistance in supervision,

PART B ESTABLISHMENT OF AN EARTH SATELLITE STATION FOR INTERNATIONALTELECOMMUNICATIONS

This part includes the supply and installation of an earthstation at Kuntunse on the Accra-Nsawam road and a radio link between Accraand Kuntunse. The earth station would work with the Atlantic Ocean

ANNEX 5Page 4 of 5 pages

satellite. It will be a standard Intelsat-type of earth station witha steerable 90-100 foot antenna. Demand Assignment facilities areplanned. The necessary buildings, power plant and auxiliary facilitieswill be provided. The station when completed is expected to providefor 18 circuits to three groups of countries with 4 channels to USA,9 circuits to UK and 5 circuits to Europe. These are telephone typecircuits and will provide for required telex, public telegraph andleased circuit requirements. Facilities for automatic working on theinternational telephone circuits are also planned for. NipponTelecormunication Consulting Co. (NTCC) are employed as consultantsfor this scheme.

PART C ESTABLISHMENT OF MICROWAVE LINKS FOR PAN-AFTEL SYSTEM

This part covers Ghanats section of the Pan-Aftel Telecommunica-tion system, planned by the ITU for West Africa. This involves installa-tion of wide band microwave systems in the section Lome-Accra-Abidjan inGhanaian territory to link with Togo and Ivory Coast. The microwavelinks will be 1+1 type with the possibility of adding a televisionchannel. Provision is being made for initial capacity as follows:

Accra-Lome--about 84 channels

Accra-Abidjan--about 72 channels

The system includes necessary buildings, access roads, power suppliesand cable links to terminals and installation. The system has beenengineered by SOFRECOM consultants employed by the InternationalTelecommmnication Union (ITU).

ANNEX 5Page 5 of 5 pages

Exchange, Equipment, Type, and Capacity

(ng2oin_roara and, an sisecit)

FYs 1976-1979Proposed

Existing Capacity Addl.Capacity Year CapacityExchange Name Type on June 30, 1974 or Replacement Comnissioning After Project

AccraCantonement ';trowger 3,800 6OoO/ 1978 6,000Central 'Strowger 6,000 8,00oo/ 1978 8,000North UR49A 10,000 2,000** - 12,000Nungua/Teshie - - 1,000 1978 1,000

SUB TOT'AL 19,800 17,000 27,000

Kumasi Strowger, UR49 5,600 - - 5,600Takoradi Strowger, UR49 1,800 1,2003/ 1978 3,000Cape Coast Strowger, UR4h9 1,000 - - 1,000Sekondi S'trowger 1,000 - 1,000Ho Strowger 600 40o 1977 1,000STwedr Strowger 300 _ - 300Sunyani Strowger 600 400 1977 1,000Koforidua Strowger 1,000 - - 1,000Akosombo Strowger 600 - - 600Konongo Strowger 200 - - 200Tamale Strowger 1,000 - - 1,000Tema ]3flF6, UR49 3,000 - 3,000Bolgatanga IJR49 _300 - - 300

SUB TOT'AL 17,000 2,000 19.000

Tarkwa 2LhOM 600AR 1977 600Dunkwa - 160M 400AR 1977 400Obuasi - 8014 200h 1977 200Bekwai - 80M 200AR 1977 200Denu - 4oM lOOAR 1977 100IvJenchi - 100** 1977 100Bawku - -100* 1976 100Mampong-Ashanti - 200** 1976 200Wa - - 100** 1976 100

STJB TOTAL* 600M 2,000AR 2 000

GRAND TOTAL 48,o0o

tMinor manual exchanges not included.*Works forming part of ongoing program.

% 3,000 lines out of this are for replacement of existing equipment. 800 lines of mobileequipment will be relocated.

j 6,ooo lines out of this are for replacement of existing equipment.200 lines out of this are being added as part of ongoing program.

M - Manual exchangesAR - Replacement of existing manual or automatic exchanges.

March 24, 1975

GHANAPOSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

PROJECT CONSTRUCTION SCHEDULE

CALENDAR YEAR 1975 1976 1977 1978 1979 1980

BUILDINGS BDesign 8Bidding 12Construction

EXCHANGES 12Design.Bidding & Contract 18Reception of Materials 12Installation and Commissioning -

OUTSIDE PLANT 8Design _Building & Contract 18Reception of MaterialsInstallation and Commissioning

18

LONG DISTANCE NETWORK 12DesignBidding & Contract 9Reception of Materials 12Installation and Commissioning 12_

World Bank-9671 UN

Figures on or under bars reflect length of poriod in mornths.

CENAX9

P0TS.AIJELTEl OQIUNICAU0MNS CORPORATION (GPT)

Telecommunications Construction rka (FYT 1975-1980)-Cost Estimates(in thoasads o hnian cedio

1975 1976 1977 1978 1979 1980 Total

Local Foreign Total Local Foreign Total Local Fore.ig Total Local Foreign Total Local Foreign Total Local Foreis Total Local Fcreign Total

A. PHASE I WGHESTIC REHABILITATION& EXPANSION (Bank-fiaana,d Proseat)

1. Building including aircondition-ing - - - 559 890 1,449 510 1,130 1,640 611 400 1,011 - - - _ _ _ 1,680 2,?20 4,100

2. Automatic exchange equipmant - - _ - 380 380 180 1,940 2,120 100 2 900 3,000 100 590 690 _ _ - 380 5,810 6,190

3. Local netwrks - - - 306 500 806 459 2,500 2,959 459 2,000 2,459 306 1,390 1,696 - - 1,530 6,390 7,920

4. Subscribar plant - - - - 200 200 180 500 680 100 b00 500 100 380 4a8 _ _ 380 1,480 1,860

5. Long diatanee eyaet - - - - 250 250 560 1,100 1,660 560 800 1,360 310 410 720 - - - 1,430 2,560 3,990

6. Tlax _ _ _ _ 300 300 50 0OO 950 50 - 50 - - - _ _ _ 100 1,200 1,300

7. Vehicles _ _ _ 200 200 - 200 200 - 100 100 - - - - - - - 500 500

8. Miscelanue - - - 80 250 330 70 360 430 70 250 320 70 300 370 _ _ _ 290 1,160 1,450

9. Conaultants 15 50 65 60 300 360 75 350 425 50 70 120 50 70 120 - _ 250 840 1,090

10. Contingeiaa - - - 670 50 46 1,.190 2,296 700 920 1,620 44 760 4 - - - L40 4.20 0

Total Phasa I (Project) 13 3d 7 I 3,360 10- f 3 , 3 6 0 7 3 7.280 3

B. PHASE II DO1STIC RIABILITATION& EXPAUSION

1. Building including aircmditioning - - - - - - - - - 220 50 270 220 150 370 - - - 440 200 640

2. Automatic axchang. equipment - - - - - - - - 80 650 730 120 1,500 1,620 50 950 1,000 250 3,100 3,350

3. Local netorke - - 200 600 800 550 1,400 1,950 50 91O 960 800 2,910 3,710

4. Subsoribar plant - _ 50 90 140 30 200 230 20 100 120 100 390 490

5-. Long distance sateN - - 100 300 400 550 650 1,200 150 400 550 800 1,350 2,150

-6.Teles - - - - - - - 40 200 240 - 100 100 - 100 100 40 400 440

7. Vehicles - - - 230 230 - 200 200 - - - - 430 430

8. Misellaneous - - - - - - - - - 100 150 250 300 300 600 150 210 360 550 660 1,210

9. Consultants - - - - - - - 100 200 300 40 250 290 ho 180 220 180 630 810

10. Conting iesn - - - - 1 0 480 240 1 0 630 2,010 2.640

Total PhaBe II _ _ = __ _ 150

C. BSTABLISEM1NT F EARTH STATION FORSATEILISE COMIICATIONS

1. Civil.,orks - - - - -70 - 710 - 740 - - - - 710 7402. Satellite terminal equipment - - - - - - 70 1,105 1,475 120 1,125 1,545 160 1,750 1,910 - - - 350 4,580 4,930

3. Terreatial link to Actra _ - - _ ....- 3° 845 875 70 40 4 - _ 1.145

Total earth eatellite station _ _ _ = _49__ _ 52

D. PAN-AFRICAN MIC3VA1E SYSTBNTOGO-I901T OOAST

1. Civil wrkcs - - - - - - - 238 - 238 _ _ 238 - 238

2. Radio and multiplar equipment - - _ - _ _ _ _ _ 480 480 - 180 4 80 4o7 171 - 1,131 1,1434

3. Installation -36 149 78 134 212 24 117 40 538- - - - ~~~~~~--e -ese 78 __ ___3 -.+ ~ 3 2,

Total PANAFTEL links 24 376 11 131 2.210

TOTALPROGRAM 15 50 65 1,095 3.940 5.035 L&3 13|120 16.450 4.201 13.094 17.298 3.268 11.914 15.212 724 4.191 4.1 12.636 46,339 58.975

B. ONGOING WR1S

1. Internal swvices 638 2,791 3,429 1,925 1,05 5,940 - - - 2,563 6,8o6 9,369

2. External services 249 625 874 1,461 479 1,940 - - - - - _ - _ _ _ _ _ 1,710 1,104 2,814

3. Binr works 320 50 370 600 600 1 200 1- 6 - -- 570

Total ongoing works TIM3.986 09 90 =_ = = - -= _ _ _ = 8 -

Total omtroction Ts 1975-1980 1,222 3,516 4,738 5,081 93 111 330 13.120 16.450 o201 13.094 ,2 11,941 15212 7224 61.91 lo 17,82 54.89 72.728

March 4, 1975

ANNEX 8

GHANA

POSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

Estimated Schedule of Disbursements

IBRD Fiscal Year Cumulative Disbursementand Quarter at End of Quarter

(US$ '000)

1975/76

December 31, 1975 75March 31, 1976 75June 30, 1976 2,800

1976/77

September 30, 1976 4t,000December 31, 1976 5,000March 31, 1977 6,000June 30, 1977 8,000

1977/78

September 30, 1977 9,000December 31 , 1977 11,000March 31, 1978 13,000June 30, 1978 15,000

1978/79

September 30, 1978 17,000December 31, 1978 18,000March 31, 1979 19,000June 30, 1979 21,000

1979/80

September 30, 1979 22,000December 31, 1979 23,000

May 13, 1975

ANNEX 9

GHANA

POSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

Internal Rate of Return of the Project

1. A conservative estimate of the internal rate of return on theproject is 18%; this rate is the discount rate which equalizes the streamof GPT's expected revenues attributable to project with the capital andoperating costs, excluding of taxes and duties. The table below presentsthe cost and benefit stream relating to the project over a period of 25years. Revenues attributable to the project were derived from an appor-tionment of the forecast revenues in the Income Statements (Annex 10)and their further projections for FYs 1981 through 2000. Operating costsfor the project have likewise been obtained by the apportionment of theoperating expenses (other than depreciation) given in Annex 10 and fur-ther expenses projected from FYs 1981 through 2000.

Capital Operating TotalFY Cost Costs Costs Revenue

------ (in thousands of )7----------------

1976 5,100 5,too1977 13,360 - 13,360 -1978 1o,540 - 10,5)0 5301979 h,880 345 5,225 1,4001980 - 687 687 4v5341981 - l,ooo 1,000 8,4511982 - 1,269 1,269 10,4561983 - 1,695 1,695 11,2101984-2000 - 2,119 2,119 11,295

2. Should revenues and costs each vary +10% the rate of returnwould be between 16 and 20%.

3. Assuming a notional 30% surcharge on the imported componet ofthe capital investment (to reflect the scarcity of foreign exchange inGhana) the rate of return on the project would be 15%.

May 16, 1975

ANNEX 1 0

GHANA

POSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

TELECOMMUNICATIONS SERVICES

Statements of Income - FYs 1974-1980-

( thousands of Ohanian cedis)

Year ending June 30: 1974- 1975/3 1976 1977 1978 1979 1980

REVENUE

Telephone - installation fees 171 275 285 315 355 365 315

- rental 1,459 1,540 1,630 1,750 1,935 2,140 2,345

- calls - local & long distance 6,950 7,256 7,654 8,210 8,933 9,850 10,702

- international 603 680 680 715 750 785 1,15?5

- directory 52 35 55 38 58 40 60

- other 77 40 40 40 50 50 50

Telegraph - national 487 500 515 530 545 560 575

- international 1,756 1,865 1,950 1,950 2,010 2,070 2,070

Telex - rental 128 156 157 192 255 321 379

- calls 1,253 1,520. 1,576 1,839 2,308 2,798 3,232

- leased circuits 189 189 200 200 220 230 240

- other 13 12 13 16 20 25 28

Miscellaneous 325 438 480 530 580 640 700

Total 13,463 14,506 15-235 1 32 18,019 19,874 21.851

Revenues from rate change - FY 1976 - _ 6,o95 6,53o 7,210 7,950 8,740

- FY 1979 - 4,730 5,200

TOTAL OPERATING REVENUE 13.463 14.506 21I 30 222855 229 2,.551s 3&.791

RXPENDITURE

Salaries & wages 4,722 8,000 9 200 10 580 12,170 1 995 16,095

Other operating expenses 3,822 4,016 4,h433 4 ,560 4,566 , 776 4,976

Inter service - charges 574 775 850 935 1,030 1,130 1,240

- recharges (104) (140) (155) 170) (185) (205) (225

9,014 12,651 14,328 15,905 17,581 19,696 22,086

Deepreciation 2,472 2.731 3.159 3.500 3.804 4,786 5.894

TOTAL OPERATING EXPENSES 11 486 15,382 1411 7 19,405 21,385 24,4h2 7,980

NET IIXCOE (before interest) 1,977 (876) 3,843 3,45O 3,844 8,072 7,811

Less: interest - - 542 1,I405 2,360 3,443 4l426

NET PROFIT (LOSS) 1,977 (876) 3,301 2,045 1,4i84i 4,629 3,385

Less: transferred to Government _- - 650 450 3,145 1,600

NET SURPLIUS (DEFICIT) 1.977 (876) 3,301 1'395 !03h4 1k484 1,785

Average net fixed assets 35,051 38,396 44,355 47,680 50,827 66,978 85,318

Rate of return 6.97, - 8.6% 7.2% 7.6% 12.1% 9.2%

Operating ratio 85 106 82 85 85 75 78

/1 For notes and assumptions on these accounts see Annex 14.

/2 FY 74 statement relates entirely to P&T Department operations.

/3 17 75 statement includes P&T operations - July 1, 1974 to October 31, 1974

and GPT operations - Novembor 1, 1974 to June 30, 1975.

May 16, 1975

ANNEX 11Page 1 of 2 pages

GHANA

POSTS AND TELECO0MMNICATION3 CORPORATION (GPT)

ReDresentative Tariffs(in Ghana 0)

1. Telephonea. Installation charge

i. Main telephone 31.25ii. Extension 6.25

b. Line rental per annum (within two milesradial distance of exchange) Business Residencei. Manual exchange

1-20 subscribers 30.00 20.0021-50 subscribers 36.oo 20.0051-100 subscribers 4o.00 20.00more than 100 subscribers 4h.00 20.00

ii. Automatic exchanges 50.00 25.00iii. Auxiliary lines to PBX 80% of above

iv. Extensiona. Tnternal - up to 110 yds. 10.50

- each additional 110 yds. 2.25b. External - up to 220 yds. 15.00

- each additional 220 yds. 3.00v., Private line - within two-miles radius 25.00

- exceeding two-miles radius 30.00

c. Call chargesi. Local - unlimited time 0.05*

- coin box 0.07ii. Long-distance (per 3-minute duration)

Full rate Manual _________-

0-10 miles 0.050 0 - 20 miles 0.10011-20 "-005

20-30 I 0.12531-4o o 0.165h1-50 " 0.235 21 - 50 miles 0.22551-75 " 0.30076-1o00 ". 0h.O 51 - 100 miles 0.450

101-150 0 0.500151-200 ' 0.635201-300 0.765301- or more 0.900 over 100 miles 0.563

Cheap rate (6 pm to 6 am) formost distances - 50% of full rate

*The pulse is the metering unit. For local service each call is metered asone pulse; for long distance the number of pulses are determined by theexact duration of the call and the distance between the communication points.

ANNEX 11Page 2 of 2 pages

2. Telex

a. Annual rental - complete telex installation 1,110.00

3. Telegraph - Inland message rate

a. Ordinary telegrams -First 12 words 0.25Each additional word 0.02

b. Press telegrams -First 48 words 0.15Each additional three words 0.01

February 26, 1975

ANNEx 12

GHANA

POSTS AND TELECOMMUNICATIONS CORPORATION (GPT)

TELECOMMUNICATIONS SERVICES

Balance Sheets FYs 1974-1980-(in thousands of Ghanian cedis)

As of June 30: 1974- 1975 1976 1977 1978 1979 1380

ASSETS

Gross fixed assets 53,655 60,155 71,463 73,463, 85,063 113,145 131,215

Less: depreciation ,17143 19,874 23.033 26 533 30,337 33i915 39,809

Net fixed assets 36,512 40,281 48,430 46,930 54,726 79,230 91,406

Works in progress _6068 4,241 7,113 21,563 27,261 13,183 8,528

Other assets - inventories 4,720 1,600 2 000 2,250 2,700 3,000 3.300

Current assetsCash 250 345 2,446 3,474 3,387 4,728 b,337Subscribers accounts - private (net) 2,784 2,211 2,570 2,780 2,995 3,605 3,880

- Government - 900 1,240 1,330 1,400 1,63c 1,735Sundry debtors - paymtents in advance 1,530 940 945 1,020 1,102 1,190 1,285

Total current assets 4564 4,396 7,201 8,60, 8,884 11,153 11,237

TCOTAt ASSETS 51,864 50,518 64,744 79,347 93,571 106,566 1t4,471

LIABILITIES

Capital 41,477 49,305 49,305 49,305 49,305 45,,3U5 45,,ju5

Surn'us (584)-2.7? 17 4,112 5,146 6,630 3,415

Total equity 41.477 48,721 52,022 53,417 54,451 55,935. 570,ThLong-term debt

Local loan - _ 7,000 7,000 7,000 6,462 5,924IBRD loan - proposed 3,810 14,710 22,550 26,450 2d,450Loan - second phase - - - - 2,800 8,480 12,080

- earth satellite station - - - 2,250 4,075 5,825 5,178- PANAETEL link - - - - 629 1,243 1,834- future program - - - 1000

Total long-term debt - - 10,840 23,960 37,054 48,460 5L,466

Current liabilitiesGovernment advances 2,963 - - -Post office funds 2,657 - - - - -Equipment suppliers 2,482 550 595 640 690 745 805Sundry creditors 1,041 497 537 580 626 676 730Receipts in advance 786 750 750 750 750 750 750TIuter-service operations 458 -

Total current liabilities 10,387 1.797 1 882 1.970 2,066 2,171 2 85

TOTAL LIABILITIES 51 64 50,518 6,7 79,37 93,571 106,566 1I,471

Current ratio 0 4:1 2.4,1 3.801 4.411 4.3:1 5.1 :1 L.9:1

Debtle,uity ratio -/100 -/100 17/83 31/69 40/60 46/54 1,9/51

/1 Estimated dexicit re'Lating to November 1, 1974 to June 30, 1975; deficit for July 1, 1974 to October 31, 1974 has been included incapital.

/2 For notes and assumptions on these accounts see Annex 11.

/3 FY 74 Balance Sheet relates to P&T Department.

ANNEX 13

GRA;A

POSTS AND TRLECONMtlliICATIONS CORPORATION (GPT)

TELECONWUNICATIONS SERVICES

Statement of Sources and Applications of Funds - FYs 1975-1980(in thousands of Ghanian cedis)

Year ending June 30: 1975/ 1976 1977 1978 1979 1980

SOURCES OF FUNDS

Internal cash generationNet income before interest (876) 3,843 3,45O 3,844 8,072 7,811Depreciation 2 731 L159 .3500 3,804 4,786 5,894

tt85 7,002 6.5 ,4 2oO 13,705

Goverrmient contribution - cash 2,500 - -- transfers to equity 5.620

E,120 _ - - -

BorrowingsLocal loan - ongoing works - 7,Au- - -IBRD - first phaae - 3,

840 10,870 7,840 3,900 -

Loan - second phase - - - 2,800 5,680 3,600- earth satellite station- - - 2,250 1,825 1,750 -- PANAFITEL links - - - 629 614 591- future program _ _ _ _ 3.000

Total borrowings _ - 13,120 13.094 11.944 7.191

TOTAL SOURCES OF FUNDS 95 17.82 20.70 2 L 20.896

APPLICATIONS OF FUNDS

Construction worksOngoing works 4,673 9,080 - -Program - first phase 65 5,035 13,360 10,540 4,880

- second phase - - 3.840 7.730 4,300- earth satellite station _ 3,090 2,015 1,910 -- PANAFTEL links - 903 692 615

Future vrogram _ _ _ _ _ 8B500Total construction ls1815 16,450 17.298 15,212 13

Tnventories - increase (decrease) (3Q120) 400 250 450 300 300

Debt service - auortizationLocal loan - - - 538 538IBRD loan (proposed)Loan - earth satellite station 64

Total amortization _ _ _

Debt service - interestLocal loan 315 630 630 606 557IBRD loan (proposed) 227 679 1,223 1,803 2,220Loan - second phase - - 199 527 887

- earth satellite station - 96 269 421 440- PANAFTEL link - 39 86 132- future program _ 190

Total interest 2 , .Total debt service ____ 532__-5 31

Transfer to Government _ 650 45O 3,145 1,600

Working capital - increase (decrease)Cash 95 2,101 1,028 (87) 1,341 (391)Subscribers - Private (573) 359 210 215 610 275

- Government 900 340 90 70 230 105Sundry debtors (655) 70 75 B2 88 95Government advances 2,963 - -Post office funds utilized 2,657 - -E-uipment suppliers 1,932 (45) (45) (50) (55) (69)Sundry creditors 544 (40) (43) (46) (50) (54)Receipts in advance 36 - - - -Irter- service operations 458

8.357 2,785 1.,315 184 2,164 (30)

TOTAL APPLICATIONS OF FUNDS 9975 2 20070 2072 2,802 20.896

Debt service coverage - times n.a. 12.9 4.9 3.2 3.2 2.4

/1 FY 75 statement includes P&T operations - July 1, 19714 to October 31, 1974and GPT operations - November 1, 197h to June 30, 1975.

May 16, 1975

ANMIEX 14Page 1 of )1 pages

GHANA

POSTS AND T OELECO4UICATIQON CO2PORATION (GPT)

TELECYL4UNICATI9.15 SERVICES

Notes and Assumptions on the Financial Statements

1. The Statements of Tncome and the Balance Sheets for FY 74 areprimarily based on draft pro-forma accounts prepared by GPT's financialconsultants; however, after discussion with the consultants and GPT'ssenior management staff, changes were made in those accounts to reflectadditional information which was brought to light during the appraisal.The following data relates to the main items of the accounts shown inAnnexes 10 and 12.

2. Statements of Income - Annex 10

Revenue

(i) Telephone

(a) Forecasts of revenue from domestic services in FYs 75-80have been prepared after taking into account (i) thenumber of telephone lines estimated to be put intoservice in each FY; (ii) subscribers ancilliary instal-lations to be put into service in each FY; (iii) theestimated effect on revenue of the additional trafficfollowing improvements in long distance facilities; and(iv) a reduction of calling rate as lower-usage subscri-bers are connected.

(b) Forecasts of revenue from international services takeinto account (i) the additional revenue from the in-creased domestic network, and (ii) the improved facil-ities, particularly the introduction of the earth satel-lite station and the PANAFTEL links.

(ii) Telegraph - During FYs 75-80 both domestic and internationaltelegraph traffic is expected to increase on average at about3% per year.

(iii) Telex

(a) Forecasts of telex revenue are based on the estimatedyear-by-vear lines in service.

(b) Leased circuit revenue is expected to increase on averageby about 5% per year during FYs 75-80.

ANNEX 1 Page 2 of 4 pages

(iv) Miscellaneous revenue is expected to increase at a rate of 10%per year.

(v) Revenues from rate change - FY 76 - Since telephone installationfees and international telephone, telex and telegraph chargeswere increased on September 1, 1974 (FY 75), it has been assumedthat the proposed increase in tariffs as from July 1, 1975 willfall on telephone rental, local and long distance call charges;a rate increase of hO% on these items has been assumed.

(vi) Revenues from rate change - FY 79 - An overall 20% increase oftariffs (other than miscellaneous) has been assumed as fromJuly 1, 1978.

Expenditure

(vii) Salaries & wages - have on average been estimated to increaseat 1% per year from FY 75 through FY 80.

(viii) Other operating expenses - comprise a large number of items whichhave been estimated to increase at varying percentages (5-30%)through FY 80; however maintenance spares, the largest item ofexpense, which represented about 46% of the total of other opera-ting expenses in FY 74, is expected to decrease by 16% over theperiod to FY 80.

(ix) Inter-service charges - relate to work done by the postal servicefor the telecommunications services.

(x) Inter-service recharges - relate to work done by the telecommu-nications service for the postal service.

(xi) Depreciation - has been charged on average gross fixed assetsin operation at a composite yearly rate of L.85.

(xii) Interest - The assumed terms of the loans included in the finan-cial plan are as follows:

Local loan - 9% - 15 years including 3 years grace

IBIRD proposed loan - 8-2% - 25 years including 5 years grace

Loan: Phase II - - 25 years including 5 years graceEarth satellite station-8 <g-12 years including 3 years gracePANAFIEL links -81-- 25 vears including 5 years graceFuture program-loan-8 -25 years including 5 years grace.

(xiii) Transfers to Government - relate to sums available for payment toGovernment as a return on Government investment.

ANITEX 1LPage 3 of L pages

3. Balance Sheets - Annex 12

Assets

(i) Gross fixed assets - have been increased yearly to bring intoaccount new assets brought into service. In FY 79 an appro-priate allowance has been made for assets withdrawn fromservice.

(ii) Depreciatior. - comprises the accumulated depreciation provision.In FY 79 adjustment has been made for assets withdrawn fromservice.

(iii) Work in progress - has been calculated in relation with Programconstruction schedule at the end of each year.

(iv) Inventories - FY 74 balance includes a large amount of materialswhich will be withdrawr. in FY 75 for GPT's ongoing orogram.Balances from FY 75 onwards have been estimated in relation tothe scale of GPT's operations.

(v) Cash - has been related, as far as possible, to GPT's liquidworking capital needs.

(vi) Subscribers accounts - private (net) - relate to sums due fromsubscribers for telecommunications services. In estimatingthese figures it has been assumed that GPT will progressivelyimprove its collection record; due allowance has been made forthe increased balances which will arise from the tariff increasesin FYs76 and 79. Bad debt reserves have been adjusted annually.

(vii) Subscribers accounts - Government - relate to sums due fromGovernment in respect of telecommunication services. All suchGovernment debts as of June 30, 1974 have been written-offagainst equity capital as at that date. From FY 75 onwardsit has been assumed that the Government will regularly settleits debts as they become due.

(viii) Sundry debtors - payment in advance - includes miscellaneousdebtors for rechargable works, international services, dowr-payments on contracts, and deposits. GPT is expected to nor-malize this accoLnt in FY 75, thereafter future balances shouldonly reflect the annual increase in operations.

Liabilities

(ix) Capital - Since the accumulated surplus is not known, the balanceshown as of end-FY 74 is equal to the difference between total netassets and current liabilities. In FY 75 the capital balanceincludes the proposed settlement between Government and GPT and

ANNEX 14Page X of h pages

the estimated deficit between July 1 and October 31, 197h.

(x) Surplus - relates to GPT's accumulated annual surpluses asfrom November 1, 1971.

(xi) Long-term debt - includes the various loans assumed to beraised as part of the financing arrangements for GPT's on-going works, FYs 76-80 program and a future program to com-mence in FY 80.

(xii) Government advances - relate to the advances made to theformer P&T; in accordance with the proposed settlement thesewill be cancelled and converted to GPT equity in FY 75.

(xiii) Post Office funds - relate to the amounts owing to variousGovernment agencies by the former P&T; in accordance with theproposed settlement these debts will be cancelled and trans-ferred to-GPT equity in FY 75.

(xiv) Equipment suppliers - relate to sums due to suppliers inrespect of equipment supplied since January 1, 1969. It isexpected that most of these debts will be settled in FY 75;thereafter, balances should be normal with annual increasesfollowing the trend of operations and development.

(xv) Sundry creditors - relate to miscellaneous creditors accounts,including those for international services which should benormalized in FY 75; future balances should reflect the normalincrease in operations.

(xvi) Receipts in advance - relate to sums received for large PABXinstallations and other subscribers equipment.

(xvii) Inter-service operations - relate to the net suim due to thepostal service in FY 74. This balance should be cleared inFY 75. Future balances will be settled before the accountsare closed.

March 12, 1975

ANNEX 15

GHANA

POSTS AND TELECO?MUNMATIONS COR TION (GPT)

Perforaxance Indicators

Fiscal Year 197. 1975 1976 1977 1978 1979 1980

Number of directexchange lines(DELs) 29,130 30,600 32,400 35,175 39,170 43,600 46,330

Number of telexconnections 191 192 193 267 327 408 L50

Domestic call re- /1 /2venue per DEL l 243 243 343- 336 335 390 389

Operating ratio % 85 106 82 85 85 75 78

Rate of return , 6.9 nil 8.6 7.2 7.6 12.1 9.2

/1 Includes a tariff increase of 401o as from July 1, 1975.75 Includes a tariff increase of 17% as from July 1, 1978.

May 15, 1975

ANNEX 16Page 1 of 6 pages

GHANA

POSTS AND TELECOMUNICATIONS CORPORATION (GPT)

PROPOSED TELECONMMNICATIONS TARIFF STUDY:ECONOMIC ASPECTS OF TELECOMMUNICATIONS IN GHANA

I. Background and Objectives of the Study

The general purpose of the proposed study is to assist theGhanaian Government in making pricing and investment decisions in thetelecommunications field. The problem is essentially one of assessingthe costs and benefits of alternative investments in order to determinea rational system of priorities. This requires a method of investmentappraisal which takes into account not only the objective of the GhanaPosts & Telecommunications Corporation (GPT), which can probably becharacterized as the maximization of the growth of the enterprise subjectto a profit constraint, but also the economic and social consequences thatresult from alternative investment programs.

Telecommunications are frequently questioned on two major grounds,namely:

(a) the nature and distribution of project benefits. There is agrowing awareness that the benefits of many developmentprojects fail to reach the poorest segments of society.While, given the distribution of income, telecommunicationsprojects may be justifiable on cost-benefit grounds, it isoften argued that, when project costs and benefits are weightedaccording to whether they accrue to the rich or the poor, thesame projects would fare badly as a result of such an adjustment.Similarly, while rural development is currently a priorityobjective, it is often felt that telecommunications investmentshave been biased in favor of the urban populations. At presentlittle is known about what telephones are used for, or whobenefits from their use, and such information as is available,is not often considered by telephone authorities.

(b) the project and the program. There is a further problem ofevaluating the costs and benefits of the various individualcomponents of an overall investment program. Such an evaluationbecomes more important as telephone authorities extend theirnetworks beyond the often highly profitable inter- and intra-urban systems, which tend to pass most reasonable tests ofproject justification even when allowance is made for income

ANNEX 16Page 2 of 6 pages

distribution. When service is expanded into sparselypopulated regions, in which unit costs of serviceare relatively high and incomes (and therefore abilityto pay, a proxy for economic benefits) are relativelylow, project evaluation becomes more complex. It thenbecomes even more important to evaluate the nature oftelephone usage, for even financially unprofitableservices may be justified, and therefore worth sub-sidizing, if external benefits, or social or politicalfactors, so indicate. When such information is notavailable the problem is usually handled simply bytreating all individual elements of an investmentprogram as a unit for evaluative purposes. Programevaluation then becomes a comparison of incrementalcosts and revenues which accrue to the telephoneauthority, with no attempt being made to ascertainwhether the program would be better off if certaincomponents were expanded or left out altogether.Similar shortcomings exist in disentangling costsand benefits of local vs. long-distance, peak vs.off peak calls, etc.

The object of the proposed study is to improve the informationavailable to investment decision-makers by providing quantitative andqualitative information on costs and benefits of different componentsof telecommunications projects, thereby remedying the deficiencies des-cribed under (a) and (b) above. One particular application of suchknowledge would be to help determine the role of telecommunications asa source of general government revenues.

II. Description of the Study

The study would have the following three components:

(a) Analysis of cost and tariff structures. The objectivewould be to determine the marginal costs of supplyingthe various types of service provided by the telephoneauthority and to compare marginal costs with the pricescharged for such services. Analyses would be conductedof the marginal costs of connecting to and remaining onthe network, and of local and long-distance calls, wheredistinction would be made between urban and rural, peakand off-peak telephone usage. Comparison of the structureof costs and tariffs would highlight divergences betweenprice and marginal cost, and the extent of cross-subsidization between various categories of subscriber.This would allow a preliminary judgement to be exercised

ANNEX 16Page 3 of 6 pages

about the desirability of cross-subsidizationand the scope for variation in the structure andlevel of tariffs. The essential point is thatsuch decisions are best made with knowledge oftheir implications for resource allocation. However,two other areas need to be investigated to supplementthe foregoing; first, analysis of demand to facilitateprediction of the impact of changes in the level orstructure of tariffs on usage and, second, a surveyto provide qualitative information on types of users,purposes for which telephones are used, income aspectsof telephone demand, etc.

(b) Demand analysis. Following a 40% tariff increase inJune 1975, it is expected that there will be a furtherincrease of about 17% in July 1978. Prior to the secondincrease, data should be collected on long distance andlocal traffic, broken down according to distance of calls,categories of user, time of day when the call is made,and other classifications deemed appropriate. Data ontelephone usage and on national and regional variableslikely to affect usage should be collected for at leastone year prior to the tariff increase and for one yearsubsequent to it in order to isolate the effect of priceon the quantity of telecommunications services demanded.This would be the main approach to demand analysis; theother would be included within the survey described in(c) below, and would attempt to impute demand curvesfor telecommunications by a traditional benefit-costapproach, with application mainly to the rural sector.

(c) Survey of telecommunications usage (with special referenceto rural telecommunications). For a number of reasons,namely (i) the current interest in the Bank and elsewherein rural development, (ii) the fact that while most inter-and intra-urban projects and programs are clearly viablein financial and economic terms, rural projects are lessso, and (iii) in the development of a general methodologyit is better to begin with the easiest cases first, ananalysis of provincial and rural telecommunicationsprojects in Ghana merits priority. A survey of telephoneusage would be designed to provide the qualitative andquantitative background necessary for rational decision-making. Such a study should review the experience ofpast investments in provincial and rural telecommunicationsfacilities in Ghana, bringing together data on telephoneusage and regional socio-economic data, and attempting toexplain the major determinants of success or failure of

ANNEX 16Page 4 of 6 pages

past projects. The study would be aimed at definingthe parameters upon which more accurate predictionof the demand for telecommunications facilities,particularly in the rural areas, would be based.The study would go behind the financial data inanalyzing the economic benefits, or consumers'surplus, associated with the use of telephones.Qualitative data on the nature of telephone usage,such as types of business calls, emergency calls,and so on, would be combined with financial data inorder that a complete picture of the impact of invest-ments can be constructed. It should be possible to rankvarious types of economic activity according to thevalue which they derive from telecommunications facil-ities. If these activities vary regionally, this infor-mation would be of value in indicating regional investmentpriorities for telecommunications.

III. Organization and Timing of the Study

(a) Analysis of cost and tariff structure. Three to sixmonths will be required, beginning in summer 1975. Aconsultant or Bank economist, and possibly a consultantengineer, will be required, although the latter mightbe supplied by GPT.

(b) Demand analysis. The demand study would be conductedover two years. Major input from the economist wouldbe required at the beginning and intermittentlythroughout the study. Local University faculty andgraduate students could be involved by GPT in thispart of the study.

(c) Survey of telecommunications usage. This would requireat least one year in order to take into account seasonalvariations in telephone usage. Involvement of localuniversity personnel would be particularly helpful.The study would consist of two phases:

Phase 1 - Analysis of Existing Data. The firstphase, lasting 3 to 5 months, would allow for familiar-ization with the operations of GPT and with the relevantgeographical, economic and social conditions of Ghana.Following this, available information on subscribers andtraffic and appropriate socio-economic data from previouscensus and surveys, if such are available, would becompiled. The objective would be to see whether determinants

ANNEX 16Page5 of 6 pages

of success or failure of past investment projectscan be ascertained, with special attention beinggiven to those cases in which demand has beenexcessively overestimated or underestimated. Anattempt would be made to explain the rate of growthin the demand for telephones, the rate of growth intelephone traffic, and other indicators of projectsuccess. In this regard, variations in geographicallocation as well as in standard and cost of servicewould be analyzed.

Phase 2 - Generation of Data. It will undoubtedlybe necessary to supplement existing data with informationthat can only be obtained by direct observation of tele-phone usage. The use of questionnaires, directed attelephone users and potential users, including boththose making calls and those receiving them, would beintended to provide information on the nature of thebenefits of telecommunication services and the cha-racteristics, economic and social of the beneficiaries.Where possible, estimates should be made of the monetaryvalue of the benefits that accrue from telephone usage.It is possible that the questionnaire approach could besupplemented by monitoring of calls. However, extremecare should be taken to ensure that such monitoring isnot carried out without the knowledge of callers.

IV. Analysis and Interpretation of Results

The final phase of the overall study, which should require aboutthree months, would involve the following:

- estimating in both qualitative and quantitativeterms the social costs and benefits of pasttelecommunications investments.

- estimating the incidence of those costs andbenefits.

- predicting the costs and benefits of alternativefuture investment programs.

- using the above information to analyze GPT's pastand proposed pricing and investment policy.

- explaining and predicting the financial implicationsfor GPT of alternative courses of action.

ANEX. 16Page 6 of 6 pages

- analyzing the implications of alternative coursesof action for the generation by GPT of tax revenuesfor general government purposes.

IBRD 10094RFRROtJARY 197E

GHANA

POSTS & TELECOMMUNICAT[ONS CORPORATION

LONG DISTANCE NETWORKUfP P E R .V O L T A - . ExIsrSA NRCION POPOSED

UPPEr VOLTA /-' NroTERMINAL STATIONS A=

,/omnge ,ITumu~~~-__@_~ (I*OZuzrungu /REPEATER STATIONS

- ~~k----- ~ ~ ' O ZoeBmego.I MICROWAVE CARRERSSM --

Hoe '\.. ~~~~~~~~~~~~~~~~~~~~~UHF/VHF RADIO SYSTEM ---------------

II P § r N~~~~~~~~~~~~~~~ OPE.g IIN WIRE CARRIES STSTEM .....................

|-- a Rr . B.TV TRANSMITTING STATIONS *

I 9 X R 5 G / 0 ZV I qtWl e A TV LINKS

~SHIP TO SHORE SYSTEM .- .- -

-- --------IRRnT00I0ndre

PV O R 7' H / ONR -. emationoT boundories

1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 20 40 00 g lo 10w0 120 140 160

4. 0 40 40 100

| V O R Y \ '\ t-Ro 0 Poboel

C A S T Kopp N '

,,5-, \' I / f .DAHOMEY

: Suny, RTs ' G / O A/ ° T O G O tj ~~~~WenchA lAtb.bu E :s <

2 0Do,ecoo Aheecro ~ ~ 'h

( OD Ah k t° r || >, i r i ~~~~~~~~~~~~pi oe i ; ii.i \ c o,Behem XMe -poeg 0--- .1 i

I~~~~~~ ~~~ /JeerO

--erdal-0Kpnu5t

Ooe . J /..oRfrdoor,- ?'eCr < > a X

B-k-A 0~~~EAR~Yj~

\ *- _< * * g 9*~~~~~~~~~~~~~~~~~~~~~~~k6

somho', 1

-6'~~~~~~~~~~~~~~~~~~~~ec 0 Eelo o(o Akorel DoadOec ak

\ gS F XDunt-~~~. -'~ ................. 1_ . , ..... Asoerenkeso ~ ee o " It /^edo i

>z~~~~ ~~~~ 5 H AG /7 S9DRA ,

5 A~~~~~~~ARC

TOe~ ~ oeeooorg/oeoe*-oa U R / C I G ° jx CClA >

fieMOOSoAeodeo o e e o T ' / /'aib,.

SPoe; R *&r'' * OdOo5oORpoot3 o

N

%;-baaS , . F G.1

HaAsii. .-\( /

f_~~~~~~~~~~~~~~~~~~~~~4 A-- " - ;- "g