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

OFFICIAL USE ONLYIDA/R2012-0182/1

July 6, 2012

Streamlined ProcedureFor meeting of

Board: Thursday, July 26, 2012

FROM: Vice President and Corporate Secretary

Kiribati

Telecommunications and ICT Development Project

Project Appraisal Document

Attached is the Project Appraisal Document regarding a proposed IDA grant to the Republic of Kiribati for a Telecommunications and ICT Development Project (IDA/R2012-0182). This project will be taken up at a meeting of the Executive Directors on Thursday, July 26, 2012 under the streamlined procedure.

Distribution:

Executive Directors and AlternatesPresidentBank Group Senior ManagementVice Presidents, Bank, IFC and MIGADirectors and Department Heads, Bank, IFC and MIGA

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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 65360-KI

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED IDA GRANT

IN THE AMOUNT OF SDR 0.7 MILLION (US$1.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF KIRIBATI

FOR A

TELECOMMUNICATIONS AND ICT DEVELOPMENT PROJECT

July 3, 2012

Information Communication Technologies Division East Asia and Pacific Region

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

- i -

CURRENCY EQUIVALENTS

(Exchange Rate Effective April 30, 2012)

Currency Unit = Australian Dollar AUD 1.00

US$1 = =

US$1.01 AUD 0.99

US$1 = SDR 0.64

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank ARPU Average revenue per user AusAID Australian Agency for International Development CAS ECOP

Country Assistance Strategy Environmental Code of Practice

FM Financial management FMS ICT IFR

Financial Management Specialist Information and communication technologies Interim financial report

KNAO Kiribati National Audit Office MCTTD Ministry of Communications, Transport and Tourism Development MFED Ministry of Finance and Economic Development PDO Project development objective PMU Project management unit PST PRIF

Project support team Pacific Region Infrastructure Facility

TAK Telecommunications Authority of Kiribati TSKL Telecom Services Kiribati Limited

Regional Vice President: Pamela Cox Country Director: Ferid Belhaj

Sector Director: Jose-Luis Irigoyen Sector Manager: Randeep Sudan

Task Team Leader: Natasha Beschorner

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REPUBLIC OF KIRIBATI Telecommunications and ICT Development Project

CONTENTS

Page

II. STRATEGIC CONTEXT ......................................................................................... 1

A. Country Context ................................................................................................... 1

B. Sectoral and Institutional Context ........................................................................ 3

C. Higher Level Objectives to which the Project Contributes .................................. 5

III. PROJECT DEVELOPMENT OBJECTIVES ........................................................ 6

A. Project Development Objective ........................................................................... 6

B. PDO Level Results Indicators .............................................................................. 7

IV. PROJECT DESCRIPTION ...................................................................................... 7

A. Project Components ............................................................................................. 7

B. Program Objective and Phases ........................................................................... 10

C. Lessons Learned and Reflected in the Project Design ....................................... 10

D. Alternatives Considered and Reasons for Rejection .......................................... 11

V. IMPLEMENTATION .............................................................................................. 11

A. Institutional and Implementation Arrangements ................................................ 11

B. Results Monitoring and Evaluation .................................................................... 13

C. Sustainability ...................................................................................................... 13

VI. KEY RISKS AND MITIGATION MEASURES .................................................. 14

A. Risk Ratings Summary ....................................................................................... 14

B. Description ......................................................................................................... 14

VII. APPRAISAL SUMMARY ....................................................................................... 15

A. Economic and Financial Analysis ...................................................................... 15

B. Technical ............................................................................................................ 15

C. Financial Management ....................................................................................... 16

D. Procurement ....................................................................................................... 16

E. Social (including Safeguards) ............................................................................ 16

F. Environment (including Safeguards) ................................................................. 17

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G. Other Safeguards Policies Triggered .................................................................. 17

Annex 1: Results Framework and Monitoring ................................................................. 18

Annex 2: Detailed Project Description .............................................................................. 21

Annex 3: Implementation Arrangements ......................................................................... 30

Annex 5: Implementation Support Plan ........................................................................... 41

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E.

DATA SHEET

Republic of Kiribati Telecommunications and ICT Development Project

PROJECT APPRAISAL DOCUMENT .

East Asia and Pacific Region

Transport, Water and ICT Unit

Basic Information

Date: June 21, 2012 Sectors: Telecommunications

Country Director: Ferid Belhaj Themes: Regulation and competition policy (75%); Infrastructure services for private sector development (25%)

Acting Sector Manager Director:

Samia Melhem Jose-Luis Irigoyen

EA Category: C

Project ID: P126324

Lending Instrument: TAL

Team Leader(s): Natasha Beschorner

Does the project include any CDD component? No

Joint IFC: No .

Borrower: Republic of Kiribati

Responsible Agencies: Ministry of Communications, Transport and Tourism Development (MCTTD), Telecommunications Authority of Kiribati

Contact: Ms. Tarsu Murdoch Title: Secretary, MCTTD

Telephone No.: +686 26003 Email: tarsumurdoch@yahoo.com .

Project Implementation Period: Start Date: 07/12/2012 End Date: 12/31/2016

Expected Effectiveness Date: 10/12/2012

Expected Closing Date: 06/30/2017 .

Project Financing Data (US$M)

[ ] Loan [X] Grant Other Terms: Standard IDA Grant

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost : USD5.1 million Total Bank Financing : USD1.0 million

Total Co-financing : USD 4.1 million Financing Gap : 0 .

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Financing Source Amount (US$M)

BORROWER/RECIPIENT 0.0

IBRD

IDA: New 1.0

Others (AusAID and Government of New Zealand through Pacific Region Infrastructure Facility)

4.1

Financing Gap 0.0

Total 5.1 .

Expected Disbursements (in USD Million)

Fiscal Year 2013 2014 2015 2016 2017

Annual 0.60 1.00 1.00 1.00 1.50

Cumulative 0.60 1.60 2.60 3.60 5.10 .

Project Development Objective

The Project development objective is to strengthen the legal, regulatory and institutional environment, enabling transition to a market-driven telecommunications sector and facilitating improved connectivity for the Outer Islands. .

Components

Component Name Cost (USD Millions)

ICT Policy and Legal Support 1.3

ICT Regulatory Support 1.2

Outer Islands Connectivity 2.2

Project Management 0.4 .

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X] .

Does the project require any exceptions from Bank policies? Yes [ ] No [X]

Have these been approved by Bank management? Yes [ ] No [ ]

Is approval for any policy exception sought from the Board? Yes [ ] No [ ]

Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] .

Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

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Safety of Dams OP/BP 4.37 X

Projects on International Waters OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X .

Legal Covenants

Name Recurrent Due Date Frequency

(a) Subsidiary Agreement No Effectiveness Once

(b) Project Operations Manual No Effectiveness+ 3 months

Once

(c) Project Steering Committee No Already established and to be maintained

Ongoing

(d) Project Management Unit No Effectiveness+ 3 months

Ongoing

(e) Project Support Team No Effectiveness+ 3 months

Ongoing

Description of Covenant .

Team Composition [in Portal]

Bank Staff

Name Title Specialization Unit UPI

Natasha Beschorner Senior ICT Policy Specialist

Task Team Leader TWICT

81896

Christopher Bennett Senior Transport Specialist

Peer Reviewer EASNS

65273

Alan Carroll Operations Advisor Reviewer TWICT 12060

Doyle Gallegos Lead ICT Policy Specialist

Practice Leader TWICT

84478

Tobias Haque Economist Peer Reviewer EASPR 354256

Arturo Muente Kunigami ICT Policy Specialist Peer Reviewer TWICT 288387

James Neumann Counsel Technical Specialist LEGPS 373901

Andrea Ruiz-Esparza Sr. Program Assistant Project Support TWICT 21218

David Satola Lead Counsel Technical Specialist LEGPS 160702

Isabella Micali-Drossos Sr. Counsel Country Lawyer LEGES 191270

Knut Opsal Senior Social Scientist Social EASER 18305

Gerardo Parco Environmental Specialist Environment EASPS 331322

Stephen Hartung FM Specialist Financial Management EAPFM 332812

Haiyan Wang Senior Finance Officer Finance CTRLN 221502

Miriam Witana Procurement Specialist Procurement TWICT 156462

.

Locations

Country First Administrative Division

Location Planned Actual Comments

Kiribati Tarawa

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II. STRATEGIC CONTEXT

A. Country Context

1. Country development context. The Republic of Kiribati is one of the most remote and geographically dispersed countries in the world, consisting of 33 coral atolls spread over approximately 3.5 million km2 of ocean. The population of about 92,000 (as at November, 2005)1 lives on 22 coral atolls and a single volcanic island. Total land area is less than 800 km2 of which Kiritimati Island, at the eastern extremity of the country, comprises almost half. The capital of South Tarawa is the most populated island with approximately 40,000 people.2 The population of the other islands, known as “Outer Islands” varies from around 35 to 5,000 although the majority are between 1,000 and 3,000. One of the main challenges facing Kiribati is how to overcome its remoteness by developing the basic infrastructure which it needs to connect its people domestically and internationally. Kiribati has few natural resources and is one of the least developed Pacific Islands.

2. Macroeconomic context. Kiribati has an undiversified economy, dominated by the public sector (public expenditure is currently equal to 86 percent of gross domestic product). The Government is heavily reliant on volatile fishing license fees, aid, and draw-downs from a trust fund that was established with revenues from exploitation of now-depleted phosphate deposits. Asset values of the trust fund were negatively impacted through exposure to Icelandic banks during the Global Economic Crisis while government increased draw-downs to maintain public expenditure in the context of falling remittance income and large variations in fishing license income. Current draw-downs are not sustainable, and the Government is pursuing a program of economic reforms to improve ongoing fiscal sustainability. Strengthening the poorly-performing state-owned enterprise sector (which currently relies on implicit and explicit subsidies accounting for around 6 percent of government expenditure) is a central focus of ongoing reform efforts. Gross domestic product per capita was US$1,420 in 2010.

3. Kiribati is one of the least “connected” countries in the world. The majority of the population either has no access to information communication technologies (ICT) or, even if they live within range of the existing, often unreliable networks, are unable to afford the service. About 40 percent of the population relies entirely on public access (radio, satellite-based telecenters). At the end of 2011 there were about 12,000 mobile and about 2,600 fixed line subscribers. Broadband Internet penetration is less than one percent of the population. Almost all telecommunications subscribers and individual users are on South Tarawa (20 percent mobile teledensity) and Kiritimati (13 percent mobile teledensity). The sole service provider, Telecommunication Services Kiribati Ltd (TSKL) is planning mobile network expansion to some Outer Islands close to South Tarawa. However, current projections indicate that fixed and mobile teledensity in Kiribati will not exceed 20 percent by end-2012 which is low by global and regional standards (Table 1).

1 Refer Kiribati 2005 Census, published January, 2007: http://www.spc.int/prism/Country/KI/Stats/Census2005/reports/KIR%20Report%202005%20-%20Volume%20II%20-%20FINAL.pdf 2 Ibid. The number of people living on South Tarawa in 2012 is likely to be closer to 50,000 people or more, however the 2005 census figure is the most recent official estimate available.

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Table 1. ICT Penetration rates in the Pacific (latest available data)

ICT Penetration rates (teledensity, % population)

Kiribati (2012)

PNG (2010)

Vanuatu (2012)

Tonga (2011)

Samoa (2010)

Solomon Is. (2011)

Mobile 12.0 28.0 72.0 60.0 91.0 56.0

Fixed 2.6 1.8 3.2 30.0 19.0 1.6

Internet subscribers

Broadband Internet (subscribers) <1.0 <0.5 1.0 1.0 1.0 <1.0

Sources: regulators, operators, International Telecommunications Union (ITU) 4. The cost of ICT services is high in Kiribati, both in absolute terms and in comparison to prices charged for services is similar to countries in the region. ICT pricing has become increasingly complex due to bundling of services and promotions. However, Table 2 illustrates some regional comparators for key pricing indicators. Solomon Islands and Vanuatu are reasonable comparators because, like Kiribati, these countries rely on satellite for international and remote island connections. Solomon Islands and Vanuatu liberalized their ICT markets in 2010 and 2008 respectively.

Table 2. Prices for Selected ICT Services, end-2011 (US$) Service Kiribati Vanuatu Solomon Islands

3 minute local call (mobile to mobile) 0.90 0.75 0.45 3 minute interisland voice call (mobile-mobile) 3.90 0.75 0.45 3 minute international voice call to Australia 9.00 1.08 to 11.20 2.60 Internet (512Kbps, 15+GB) installation

-monthly fee 399.0 500.0

100.0 350.0

240.0 533.0

Dial-up Internet (monthly fee plus hourly rate) 15.0 + 3.0

10.0 2.1

Mobile data (per megabyte, MB)* 0.40 0.20 0.29 Sources: regulators, operators. *Note: prices in Solomon Islands and Vanuatu are for 3G 5. Limited and expensive telecommunications results in high business and social costs, including the isolation of entire island communities and missed opportunities for economic and social development including better inclusion in government services and programs. The main reasons for the limited and costly service include: the monopolistic market structure which limits opportunities for new capital investment in the market (TSKL is the sole provider); the difficult operating environment, including costly satellite bandwidth (Kiribati does not have access to a submarine fiber optical cable) and limited revenue streams; the lack of scale and difficulties recruiting and retaining experienced staff; and the high costs of maintaining services on remote and sparsely-populated islands—power supply is particularly challenging. Reforms implemented in similar (albeit less isolated) countries, including elsewhere in the Pacific, demonstrate strong links between market-based reforms and improved economic and social indicators. The introduction of an innovative and market focused private sector operator is the most reliable mechanism for delivering reliable, lower cost services that will satisfy the needs of government, civil society and business in Kiribati.

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B. Sectoral and Institutional Context

6. The Ministry of Communications, Transport and Tourism Development (MCTTD) is responsible for ICT policy, in addition to its substantial workload in other sectors. MCTTD currently has only one staff assigned for ICT. The Telecommunications Authority of Kiribati (TAK) is the independent regulator, established under the Telecommunications Act 2004, responsible for spectrum management, Internet addressing and numbering. TAK has four professional staff working primarily on technical, rather than legal and economic, aspects of regulation. TAK is also responsible for approving retail tariffs, but to date it has neither approved nor rejected any tariff changes notified by TSKL. A substantial policy, regulatory and institutional development program to strengthen the capacity of the MCTTD and TAK will be needed as part of the reform process.

7. The Government has started the process of ICT sector reform and institutional development. The Telecommunications Act 2004 was an early step to liberalize the telecoms sector and was intended to allow for competition at a reseller level, particularly in mobile services. However, initial attempts to introduce competition through direct negotiation with prospective suppliers did not progress. One potential investor had proposed a satellite-based Internet and mobile service on an exclusive basis in a joint venture with TSKL. Another potential investor had offered to deploy mobile telephony, but with offshore management of services and significant tax concessions. After a review of options, with support through World Bank/Australian Agency for International Development (AusAID) technical assistance, the Government decided in 2010 on a more comprehensive reform program to prepare a new policy and legal framework which would set the stage for a competitive market and provide the required regulatory mechanisms.

8. A new policy, legal, regulatory and institutional framework is being developed to support the introduction of competition. In April 2011, with the support of technical assistance provided by the World Bank, the Government approved the new ICT Sector Policy (“ICT Policy”) and is currently preparing new sector legislation. The ICT Policy acknowledges that the introduction of competition, including in the form of a second mobile operator, before an updated legal enabling environment has been implemented, has the potential to (a) create a dominant market player before there are regulatory tools available to manage that dominance and protect the interests of users of ICT services in Kiribati; and (b) complicate the implementation of legislation to introduce these regulatory tools. Accordingly, the Government intends to introduce full competition for telecommunications and related services after the implementation of the new legal enabling environment. The Government is preparing a new legal and regulatory framework and licensing regime, taking into account World Bank-supported advisory assistance on regional and international experience.

9. The new legal enabling environment will include provisions:

(a) establishing an open and transparent, technology neutral licensing process; and promoting nondiscrimination in regulation between like licensees;

(b) ensuring equitable access to relevant key national resources such as spectrum and numbers;

(c) ensuring transparency in how wholesale access (including interconnection and access to essential facilities) is regulated and that access rates will be cost-oriented;

(d) strengthening operators’ rights to access each others’ infrastructure, to lower barriers to

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entry and expansion; and

(e) adding regulatory tools to address anti-competitive conduct and to protect the interests of users of ICT services.

10. The experience of similar operations in the Pacific and internationally supports the view that it is possible for a multi-operator market (e.g., including two mobile operators and two or more Internet service providers) to develop over the medium term in Kiribati, at least in South Tarawa and on some of the more accessible Outer Islands. However, given the limited scope of commercial opportunities in Kiribati at present, due in part to its smallness, geographic dispersal and isolation, the new legal framework anticipates the possibility that effective competition may not be sustainable across the whole country, and indeed may not be appropriate for remote islands with very small populations. Accordingly, the framework includes regulatory mechanisms which can be applied to regulate monopoly and dominant providers, in the absence of competition, in a manner appropriate for the needs of end-users in Kiribati. Moreover, wherever intervention is needed, the Government is also focused on ensuring that it is applied in a manner which minimises regulatory burden and impact on commercial incentives to invest in Kiribati.

11. Other key elements of the ICT sector reform are as follows:

(a) Reform the incumbent operator: Government will provide managerial and financial support to TSKL in the short term to: (i) strengthen its operations and prepare it for competition and (ii) replace obsolete and high cost assets with more economic and productive ones;

(b) Introduce competition: Government will open the market to competition through a competitive tender process pursuant to a new transparent licensing regime. The introduction of a competitor will likely (i) create pressures on a reformed TSKL to improve its operational performance and align with market needs; (ii) increase access to services; and (iii) create downward pressure on prices for ICT services.

(c) Expand access on the Outer Islands: Government will design a strategy for the modernization of ICT services for the Outer Islands and, based on that strategy, provide a subsidy for Outer Islands connectivity (household access to telephony and data services) where it cannot feasibly be provided on a commercial basis. The Government has already funded TSKL initiatives for the Outer Islands, including the replacement of high-frequency radio links with satellite links to basic telecenters providing telephone and Internet access on a shared basis.

12. The expected timing and sequencing of reforms is as follows. Some activities are expected to proceed in parallel.

Timing Reform Action April 2011 Cabinet adopted ICT Sector Policy July 2012 MCTTD presents new ICT Legislation to Parliament Jan-Dec 2013 TAK implements new regulatory framework Sept 2012 to Dec 2013

Phased restructuring of TSKL (options assessment, implementation of preferred option)

February 2013 Government issues request for expressions of interest for new ICT service provider(s)

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Timing Reform Action June 2013 New ICT service provider (s) licensed Jan 2014 New ICT services launched Sept 2014 Outer Islands ICT strategy development J an 2015 Outer Islands subsidy program implementation

13. Rationale for World Bank involvement. The World Bank became involved in the sector 2009 at the request of the Government of Kiribati. The World Bank has so far provided technical assistance to the Government on: (a) telecommunications policy and strategy issues, including an assessment of existing network infrastructure, a supply and demand analysis, and an initial review of the current policy and legal environment (2009-2010); and (b) policy reform and development, legislative and regulatory reforms advice, Outer Islands access options, and preliminary assessment of TSKL (2010-12). The World Bank has extensive experience in the field of telecommunications policy, regulatory reform and rural access issues. It has advised numerous governments on ICT issues in the Pacific and worldwide.

C. Higher Level Objectives to which the Project Contributes

14. Relationship to the Country Assistance Strategy (CAS). The proposed Project is consistent with the objectives of the World Bank’s CAS for Kiribati. It is also consistent with the Government’s own vision for a more diversified economy and more equitable social and economic development which includes the Outer Islands. The proposed Project is intended to help support the Government in pursuing the opportunity identified in Section 30 of the CAS Strategic Area, specifically the “considerable untapped potential for Kiribati to take advantage of opportunities for closer global integration made possible by the telecommunications revolution.”

15. The Project is consistent with the World Bank’s regional engagement strategy in the Pacific. The Project supports improving incentives for private sector-led growth and employment. It also supports the regional strategy’s objective of strengthening capabilities for service delivery, by both public and private sectors. The Bank has extensive experience in supporting telecommunications market liberalization and development of new regulatory structures, including in small island economies in the Pacific (Fiji, Samoa, Solomon Islands, and Vanuatu). The Bank, together with other regional partners, has also supported the establishment and operation of a new ICT Regional Regulatory Resource Centre for the Pacific established at the University of the South Pacific in Fiji in 2011. The Bank also has significant experience in extending communications to remote areas. The proposed Project will draw on lessons learned from implementing similar reforms in comparable countries, as well as on implementation experience from World Bank and development partner-funded operations in Kiribati more broadly.

16. The Project is being supported through a partnership arrangement between the World Bank, and the Governments of Australia and New Zealand. AusAID and the World Bank have worked together closely in support of telecommunications reform in the Pacific for several years. AusAID has provided financing, through the Pacific Facility and the Pacific Region Infrastructure Facility (PRIF), to support the World Bank’s advisory assistance program, both country-specific and regional. AusAID and the Bank have also collaborated on the preparation of analytical work on Pacific connectivity challenges. The Project will continue to build on the strength of this relationship: AusAID through PRIF, is cofinancing this operation through a US$3.1 million recipient-executed trust fund.

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17. The Government of New Zealand, as a partner in PRIF, is also seeking closer collaboration with the World Bank on ICT development in the Pacific. Accordingly, the Government of New Zealand is also providing a cofinancing contribution through PRIF in the amount of US$1.0 million equivalent for this operation.

18. Role of the ICT sector in Kiribati’s economic and social development. ICT has been an enabler of economic growth and social stability and development worldwide, including in some of the least-developed economies.3 While fundamental geographical constraints limit the extent of economic growth that could be enabled by improved ICT access in Kiribati, the project can be expected to reduce business costs and allow existing users of telecommunications to expand their reach and address new markets. ICT can support the more efficient delivery of Government services, including health and education. The social value of widely available communications is also very important: facilitating a more mobile work force, enabling family and community links to be preserved despite distance, assisting interaction between islands and communities, and supporting public engagement and participation. By increasing access to telecommunications, the Project is expected to contribute to the economic and social empowerment of women in particular, as has been the case in many other countries.4

III. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objective

19. The proposed Project development objective is to strengthen the legal, regulatory and institutional environment, enabling transition to a market-driven telecommunications sector and facilitating improved connectivity for the Outer Islands.

B. Project Beneficiaries

20. Direct beneficiaries will be the people of Kiribati (including individuals, businesses, Government agencies and remote communities) through increased access to telephony and the Internet, as well as related value-added services. Broader development impacts will likely include:

reduced costs of doing business for the private sector with the possibility of new job creation;

increased availability of value-added services such as mobile phone-enabled banking (e.g., for remittance transfers), e-commerce (e.g., for the tourism industry), and, potentially, online government services;

improved communications facilities for schools, clinics, and government offices; opportunities for Outer Islands to become tourist destinations or other sources of industry (e.g., niche agricultural or marine products);

some new business opportunities for women and youth, particularly in Outer Islands (telecenters and kiosks are often operated by women and youth); and

3 See, for example, Extending Reach and Increasing Access: ICT for Development, World Bank (2010). 4 The Pacific Institute of Public Policy has conducted a study on the social and economic impacts of telecoms liberalization in Vanuatu. The IFC is conducting a similar analysis on the impact of telecoms liberalization in Solomon Islands, Papua New Guinea and Fiji.

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improved integration of remote Outer Island communities with improved communication linkages and access to services.

B. PDO Level Results Indicators

21. Monitoring indicators. Progress will be measured against the following results indicators: Improved ICT policymaking capability in the country;

Legal and regulatory framework more effective at enhancing sector performance;

Increase in penetration of telephones and Internet access, including the number of direct beneficiaries (particularly female);

Increase in penetration of telephones and Internet access in the Outer Islands; and

Decrease in tariffs of key communications services.

IV. PROJECT DESCRIPTION

A. Project Components

22. The proposed financing instrument is a technical assistance grant of US$1.0 million, co-financed by a Recipient-executed grant from AusAID through the PRIF Trust Fund of US$3.1million, and a Recipient-executed grant from the New Zealand Government through the PRIF Trust fund of US$1.0 million, covering a five-year program of support to the MCTTD and TAK.

23. Component 1. ICT Policy and Legal Support (MCTTD) US$ 1.3 million. The Project will provide assistance to MCTTD in the following areas:

(a) ICT policy review and coordination: including: (i) coordinating and updating sector policy in line with industry developments and Government objectives, including second-generation reforms and application of ICT in other sectors, and monitoring ICT sector development; and (ii) leading the Government’s work on international agreements related to telecommunications and ICT.

(b) TSKL transformation: in coordination with the Ministry of Finance and Economic Development (MFED) and TSKL, identifying options and recommendations and then implementing the Government’s preferred options for restructuring. Options could include introduction of an equity investor, or other strategic partner for TSKL, or privatization. The Project will finance the options assessment and technical assistance for implementation, but will not provide direct financial assistance to TSKL.

(c) Legal and regulatory advice: legal and regulatory advice, as needed from time to time, including advice regarding legislative and regulatory reforms, drafting and other advice necessary to give effect to Government policy and sector development (including specialist legal advice for the Office of the Attorney General).

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24. Component 2. ICT Regulatory Support US$1.2 million. This envisages a medium-term program of technical assistance and capacity-building (including on the job and formal training) for the TAK in the following areas:

(a) New market entry: assist in the design and conduct of a selection process for new telecommunications service provider(s) that will permit a second operator to offer mobile services, to be undertaken in coordination with the MCTTD;

(b) General regulatory support: technical assistance and capacity-building for the TAK to regulate efficiently a monopoly or dominant operator, or a competitive market with multiple operators, consistent with the new legal and regulatory framework

(c) Technical management and training: assistance for TAK regarding the development of a spectrum management and monitoring system through procurement of specialized equipment and software, and capacity-building (formal training) for TAK staff at external training institutions, under a comprehensive and prioritized training plan.

25. Component 3. Outer Islands Connectivity US$2.2 million. This will finance:

(a) Phase 1: Technical assistance to MCTTD and TAK for: the development of an appropriate Outer Islands connectivity policy and strategy (built around an output-based aid approach), including preparation of the scheme and necessary enabling instruments. These include: (i) technical and financial feasibility analysis, and stakeholder consultations; (ii) identification, analysis and evaluation of possible coverage and services extension projects, least cost subsidy and financing/risk-sharing mechanism (such projects might include voice and/or data; broadband/backbone infrastructure and/or access facilities); (iii) development of the necessary regulatory instruments, instructions and practical procedures to implement Outer Islands coverage and services extensions; (iv) preparation of project documentation, selection process for identifying and contracting with an operator for the supply of specified services; and ongoing monitoring and audit of the service being subsidized, possibly including specialized equipment and software; and (v) community outreach and training programs to encourage take-up.

(b) Phase 2: Outer Islands connectivity subsidy for new infrastructure and services delivery

projects for the Outer Islands identified in Phase 1, using an output-based aid approach. TAK will manage a competitive bidding process for the lowest subsidy for these Outer Islands projects. The use and volume of subsidies to individual projects will depend on the extent of commercial rollout and connectivity gaps in the Outer Islands, and the types of services (e.g., mobile voice, data) to be provided. The estimated costs for this subcomponent assume a least cost, one-time subsidy payment for provision of voice and basic data using 2.5G mobile services across all population centres in Kiribati (Annex 2).

26. Component 4. Project Management US$0.4 million. Project implementation arrangements are summarized in Section V and detailed in Annex 3. Overall Project administration and fiduciary matters will be handled by the central Project Management Unit (PMU) within the MFED, established to support all World Bank and Asian Development Bank-financed (ADB) operations (see Section V). In addition, MCTTD will establish a small Project Support Team (PST)

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for each Project within its portfolio Implementation arrangements are described in Section V and Annex 3. Component 4 will therefore finance the following:

(a) ICT Project Manager in MCTTD

(b) International procurement advisor in the central PMU on a cost-sharing basis (time-based contract)

(c) Computer equipment and peripherals for the ICT PST in MCTTD

(d) Incremental operating costs

(e) Project audit; and

(f) Project financing,

Lending Instrument 27. IDA and PRIF Grants. The Project will be cofinanced by an IDA grant and a PRIF grant. The PRIF grant was signed on January 20, 2012 and declared effective on March 14, 2012. Project Cost and Financing 28. Project costs. The total cost of the Project is US$5.1 million, including US$1.0 million IDA and US$4.1 million from PRIF (US$3.1 million from AusAID and US$1.0 million from the Government of New Zealand). Totals by component are shown in Table 3.

Table 3. Project Costs Project Cost By Component and/or Activity Local

US$ million Foreign

US$ million Total

US$ million

Component 1. ICT Policy & Legal Support Component 2. ICT Regulatory Support Component 3. Outer Islands Connectivity Component 4. Project Management

1.17 1.08 1.98 0.36

1.17 1.08 1.98 0.36

Total Baseline Cost 4.59 4.59 Contingency (10%) 0.51 0.51

Total Project Costs

Total Financing Required IDA Grant: 4.0

PRIF Grant: 1.1

5.10

5.10

*Includes any taxes and duties which are to be financed from grant resources.

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B. Program Objective and Phases

29. The Project envisages a five-year program of support in line with the Project Development Objective described above.

30. The expected sequencing of Project inputs linked to the Government’s reform timetable is as follows (Table 4). This phasing is also reflected in the disbursement projection for the Project.

Table 4. ICT Sector Reforms and Project Inputs Sector Reforms Project Inputs April 2011 Cabinet adopted ICT Sector Policy July to Nov 2012 MCTTD presents new ICT Legislation to Parliament Components 1 (a), (c) Sept 2012 to Dec 2013

Phased restructuring of TSKL (options assessment, implementation of preferred option)

Component 1 (b)

Jan 2013 TAK implements new regulatory framework Component 2 February 2013 Government issues request for expressions of interest for new

ICT service provider(s) Components 1 & 2

June 2013 New ICT service provider (s) licensed Component 2 Jan 2014 New ICT services launched Component 2 Sept 2014 Outer Islands ICT strategy developed Component 3 (a) Jan 2015 Outer Islands subsidy program implementation Component 3 (b)

C. Lessons Learned and Reflected in the Project Design

31. Commitment to private sector participation and competition. The Project draws on lessons learned from previous and ongoing telecommunications projects in the Pacific region as well as international best practice and analytical work in the sector. Telecommunications sector reform in other countries demonstrates that a pro-competitive framework which supports private sector participation and competition tends to improve service coverage and quality better than a monopoly operator, especially mobile services. This lesson is well understood by the Government of Kiribati and is reflected in the 2011 ICT Policy. This Project is intended to help the Government in attracting and sustaining new sector investment by strengthening the legal, regulatory and institutional environment.

32. Institutional development. In Kiribati skilled staff recruitment is very difficult and the MCTTD, TAK, and TSKL will face significant challenges attracting and retaining staff to deliver on the promise of a reformed and liberalized ICT sector. The Project focuses on providing technical assistance which is aimed at addressing this capacity issue. For Government institutions, the assistance proposed will be primarily substitution in nature in the short- to medium-term. However, a heavy emphasis on internal capacity building and knowledge transfer is proposed, wherever possible, subject to capacity constraints in Kiribati, in order to increase overall sustainability. The TAK is currently financed by industry (license and other fees) and it is envisaged that a similar mechanism will be carried over into the new legal framework. Nevertheless, ongoing supplementary donor-financed technical assistance may still be required to support ongoing regulatory and policy functions required under a liberalized telecommunications sector. The approach for TSKL is to provide technical assistance for the Government (the owner) to retain specialists to advise it on: (a) options for reform, and (b) implementation of the

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Government’s preferred option. The objective is to introduce private sector involvement in the company to strengthen the company by providing greater access to capital and operational expertise. The experience of other countries in the Pacific is that, without reform, the Government owned incumbent operator will likely struggle to compete effectively in a liberalized market.

33. Outer Islands access. Kiribati, like many Pacific Islands, has low population centers spread over multiple islands and large distances. This poses particular technology challenges for the provision of services on a commercial basis due to the capital and operating costs of supplying remote (often sparsely populated) markets. The proposed universal access program will leverage private sector investment to increase availability of and access to ICT services. The Project will supply technical assistance to assist Government to design a strategy and the mechanism for disbursing funds effectively; and subsidize a “top up” arrangement to make for commercial provision of Outer Islands communications.

34. In light of lessons learned in other countries, it will be important that the Government develops procedures for defining Outer Island access that are not overly rigid or unduly complex to ensure efficient and cost effective disbursal of funds. Government will need to have the flexibility to tailor the subsidies to ensure maximum impact, which includes taking into account the type of services and geographic footprint of services being supplied by the commercial operators. Accordingly, implementation will be deferred until commercial rollout has been completed or at least until the level of services that will be supplied on each island can be assessed. The overall framework will be defined early in the life of the Project, in order to provide transparency and commercial certainty, once the market liberalization process has been completed and the structure of the market is known. The overriding imperative is to ensure that Outer Islands connectivity projects are properly identified and managed so that funds are disbursed in a timely, effective and accountable manner.

D. Alternatives Considered and Reasons for Rejection

35. Many universal access programs have been designed either as a charge on usage or a levy that is imposed on the suppliers of ICT services. However this is unlike to be feasible for Kiribati. The small size of the ICT sector would mean a low rate of funds accumulation for disbursement. Moreover, compared to larger ICT markets, a wholly industry-financed scheme would impose excessive costs on the consumers of ICT services (predominantly on the island of South Tarawa) who would be required to subsidize the fund. The imposition of such costs is inconsistent with the Project’s objective of increasing access to telecommunications in Kiribati. Without the subsidy provided under the Project, in addition to delaying the disbursement of subsidies, cost increases imposed in larger centers (e.g., South Tarawa) to cover a universal access obligation could potentially reduce access (at a higher price fewer services will be demanded) to ICT services.

V. IMPLEMENTATION

A. Institutional and Implementation Arrangements

36. Institutions responsible for implementation. MCTTD and TAK will share technical responsibility for Project implementation in line with their functional responsibilities. MCTTD will

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implement Component 1, Component 3(a) with technical support from TAK and Component 4. TAK will implement Component 2 and Component 3(b).

37. Project administration, specifically relating to fiduciary support and liaising with development partners, will be handled by the central Project Management Unit (PMU) that has been established within the MFED to maximize efficiency across development partner-supported projects. This central PMU is financed under the Roads Rehabilitation Project (IDA P122151) and is responsible for administration of all World Bank- and ADB-funded operations. The PMU structure and staffing are illustrated in Annex 3. When fully staffed, the central PMU will include: a PMU Manager, two procurement officers and two financial management specialists, plus internationally-recruited project management and procurement advisors (Figure 1).5 For the specific technical administrative requirements of the ICT Project, MCTTD will recruit an ICT Project Manager (financed under the Project) and assign administrative staff as its ICT Project Support Team (PST), together with technical advisors, as needed.

Figure 1. Project Implementation Arrangements

38. Implementing agency risks. The MCTTD has a very heavy workload and is stretched in terms of its ability to implement this Project. It is responsible for around 20 of the 29 state-owned enterprises in Kiribati which are being considered for privatization or restructuring. It is also participating in the Roads Rehabilitation Project (IDA P122151) and is the implementing agency for the large Kiribati Aviation Investment Project (IDA-P128938) and a number of other partner-supported projects. TAK has been in operation for about four years, although it has only carried out a limited range of functions principally concerning technical regulatory issues. It does not presently have the experience or capacity to undertake economic regulatory functions. Both MCTTD and TAK will require extensive external support to be financed under the Project. While the intention is to build permanent capacity, based on experiences from similar reforms in the Pacific and

5 As of March 2012 the PMU comprised a KRRP Manager, one combined procurement and financial management officer, and an international procurement advisor.

Central Project Management Unit (Associated with MFED) PMU Manager, 1 x International Project Management Advisor 1 x International Procurement Advisor 2 x National Procurement Officers 2 x national financial management specialists

MCTTD Project Support Team1 1x ICT Project Manager

MCTTD Project Support Team2 1x Airports Project Manager

Other Project Support Teams (Other Ministries) Roads Rehabilitation, Water supply, Sanitation

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internationally, it is likely that some technical functions will continue to be outsourced beyond the lifetime of the Project to support regulatory and policy functions required under a liberalized telecommunications sector, and some ongoing donor-financed technical assistance may be needed (paragraph 39).

B. Results Monitoring and Evaluation

39. The results framework for this Project is described in Annex 1. The information required to monitor and evaluate progress of the Project will be collected by the MCTTD. Sources of information and data will include the MCTTD, TAK, TSKL and national entities responsible for collecting economic and demographic data. Over the course of the Project, in close consultation with TAK, the MCTTD will develop capacity to collect and analyse information for its ongoing purposes. MCTTD and TAK capabilities will be supported and strengthened by the Project. C. Sustainability

40. The key sustainability concerns are: (a) the staffing of MCTTD and TAK; (b) the sustainability of competition in the event that the Government successfully attracts a second mobile operator; and (c) the sustainability of the Outer Islands Connectivity. The staffing issues have been discussed above. With regard to financial sustainability:

(a) The TAK is currently financed by industry (license and other fees) and it is envisaged that a

similar mechanism will be carried over into the new legal framework. Such an approach is consistent with regulatory arrangement implemented in other countries.

(b) The Project will support an expanded policy role for MCTTD in the ICT sector. To increase sustainable outcomes, the new legal framework could possibly introduce an industry charge (as part of licence fees) to finance the MCTTD’s policy activities for the ICT sector.

(c) The experience of other countries in the Pacific concerning sustainably of competition is that, without reform, the Government owned incumbent operator would struggle to compete effectively in a liberalized market. An early component of this project is the reform and strengthening of the incumbent for competition. In addition, the new legal regulatory framework together with technical assistance to support the regulator will: (i) prohibit the abuse of market power for anticompetitive purposes; and (ii) provide regulatory tools to protect consumers in any areas of the market where effective competition does not develop or is not sustained.

(d) Due to severe capacity constraints and an absence of key regulatory and policy capacities within Kiribati, supplementary ongoing donor-financed technical assistance may be required to support regulatory and policy functions required under a liberalized telecommunications sector, although, as noted above under paragraphs (a) and (b), industry funding may be used to increase the financial sustainability of regulatory and policy functions.

(e) The Outer Islands connectivity scheme would provide the lowest-cost subsidy needed to incentivise the private sector to supply services for a specified term. The scheme will provide sufficient flexibility to ensure no residual burden falls on the Government to provide additional financing over the life of the infrastructure. Further, the Government may extend services beyond the level of funding available under Component 3 though alternative funding sources, which could include an industry levy, direct Government

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funding and an annual budget provision for Outer Islands connectivity in the national budget.

VI. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary

Implementing Agency Risk Delivery Monitoring and Sustainability

High

Capacity High Legal and Regulatory Risks Medium

Governance Medium Other (Optional)

Fiduciary High

Overall Implementation Risk High

B. Description

41. Country risks. While Kiribati is politically stable (a national election recently took place in October 2011), it is economically vulnerable and highly exposed to external shocks. Kiribati has a very small, highly dispersed population, is very isolated, and institutional capacity is very limited across Government. Its ability to attract foreign investment is uncertain which raises doubts about the likelihood of attracting new private sector investment into the ICT sector. Moreover, the viability of a commercial operator is less assured in the Outer Islands. Innovative approaches and careful technology selection are needed. The Government may also look at options to link licensing obligations and supply of services for the Outer Islands. Moreover, it is envisaged that the Government will propose a new ICT sector law that includes regulatory mechanisms which can be applied to regulate monopoly providers, in the absence of competition, e.g., by regulating tariffs, quality of service, coverage and other matters for the benefit of users.

42. Sector risks. The principal risks focus on: (a) the timely introduction of the new legal framework; (b) the ability of the Government to attract new private sector investment into the sector, on terms acceptable to Government; (c) the sustainability of competition, especially the ongoing viability of TSKL under competitive market conditions; and (d) the lack of legal, regulatory, technical and policy skills which can be applied to the ICT sector in Kiribati. These risks will be addressed, principally, in the following respects:

The Government has confirmed that it has the political will that is needed to undertake the reforms, which is evident in its introduction of the current Telecommunications Act 2004 and its recent adoption of a pro-competitive sector policy in April 2011. It is currently preparing legislation to give effect to the new policy.

The Project will support technical assistance in order to maximize the likelihood of attracting a second mobile operator, including international marketing, transaction and licensing processes. It is also envisaged that liberalization and the new legal framework will also encourage new entry, e.g., Internet service providers.

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The Government has indicated its willingness to look at various options that will be necessary to transform TSKL into an effective competitor. TSKL itself is supportive of the introduction of competition and recognizes the need for its own transformation and capability strengthening to be a credible competitor against new entrants.

The Project will support technical assistance to strengthen the capacity of MCTTD and TAK to effectively regulate and manage the liberalized ICT sector, including through the retention of specialist advisers recruited internationally. It is envisaged that, wherever possible, advisers will provide training to local staff in order to increase the sustainability of their assistance and input.

43. Implementation risks. The proposed risk rating is “High.” The main risks are institutional and managerial. Skills shortages both in Government and in the telecommunications/ICT sector pose a continuing risk to implementation of the reform program as a whole. Other implementation risks are similar to those encountered by other operations, including delays in procurement, submission of audit, and difficulties in attracting and retaining staff. These risks are to be mitigated through: (a) the use of the central PMU, which will engage project management specialists (including on procurement and financial management) upfront; (b) the PST which will provide dedicated project management and coordination support from within the MCTTD; (c) minimizing the number of contract packages; and (d) the involvement of the World Bank/ADB liaison office which will also provide additional oversight and supervision capacity.

VII. APPRAISAL SUMMARY

A. Economic and Financial Analysis

44. The Project is a technical assistance operation. A traditional economic and financial analysis has therefore not been undertaken for the Project as a whole. For Component 3, Outer Islands Connectivity, the technical assistance component in Phase 1, [i.e., Component 3(a)] will include economic and financial analysis to justify the proposed subsidy component in Phase 2 for each subproject to be financed. B. Technical

45. The Project will strengthen institutional capacity within the MCTTD and sector regulator, TAK. The scope of technical assistance envisaged (Components 1 and 2) is designed to support implementation of sector policy and legislation, in line with international best practice on telecommunications policy and regulation in a competitive market environment. The technical design of the Project corresponds with the needs and implementation capabilities of the institutions concerned. It also considers the Bank’s experience from previous operations in this sector. Component 3 includes technical assistance for the design of an Outer Islands connectivity program (sometimes referred to as a universal access scheme). This will take into account lessons learned with similar programs worldwide to extend the reach of communications services to rural and remote areas. The technical design of such a subsidy program will be further elaborated under the Technical Assistance component, taking into account sector development over the next three years.

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C. Financial Management

46. The financial management risk for this Project before mitigation is assessed as “high” in view of the factors contributing to risk under the various financial management (FM) elements, budgeting, accounting, internal controls and internal audit, flow of funds, financial reporting and external audit. The residual FM risk would decrease to be “Substantial” following mitigation measures and through the use of the central PMU, already established within MFED and currently maintaining the accounts for Kiribati Roads Rehabilitation Project and the Aviation Project, to carry out the FM functions that would limit the likelihood of insufficient FM capacity. The format for the quarterly interim unaudited financial reports was agreed during the negotiations and attached in the Minutes of Negotiations. The FM members of the task team will monitor the progress and provide implementation advice as required.

D. Procurement

47. A procurement capacity and risk assessment of MCTTD and the central PMU under MFED has concluded that MCTTD would require procurement and contract management support, given its limited in-house capacity (the assessment and mitigation action plan is available in the Project Risk Assessment & Management System [PRAMS, in the operations portal]). The MCTTD will appoint a dedicated Project Manager to the PST who, in coordination with the TAK and TSKL, will be responsible for providing technical inputs to the central PMU (the international procurement advisor and national procurement officer assigned to support the ICT project) for preparing and processing all Project procurement activities. Additionally, TAK will hire consultants to provide technical support for the procurement and supervision of the Outer Islands connectivity contracts. The procurement-related risk is rated high. Risk mitigation measures are provided in Annex 3.

E. Social (including Safeguards)

48. Significant social benefits are expected. The Project is expected to have significant social benefits: it will help to improve phone and Internet coverage, quality and the availability of communications services throughout the country, including on the underserved Outer Islands, increasing domestic and international communications. The Outer Islands will benefit from the Project as they are extremely isolated from the rest of Kiribati given infrequent, limited and unreliable air and boat services, limited telecommunications services. Improved Internet availability and connections and phone services will help to bridge this communications gap and provide people with improved access to information, and increased social and economic opportunities.

49. Involuntary resettlement. The Project will not finance any activity that requires involuntary resettlement or the involuntary acquisition of land. However, there is a possibility that the acquisition of a small amount of land or assets may be necessary under Component 3(b) in order to install telecommunications equipment and infrastructure in the Outer Islands. Any necessary land or asset acquisition would be undertaken through the Government in full consultation and negotiation with landowners. The civil works that might be undertaken under Component 3(b) are expected to be small and consist mainly of, for example, the installation of antennas or towers. It is expected that the legislation establishing the Outer Islands access scheme will contain consultation requirements involving government, local communities, the regulator, service providers and users regarding: (a) the nature of any services to be provided; (b) the infrastructure that would need to be

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installed; and (c) any land that would be affected by the installation of infrastructure. It is expected that compensation arrangements would also be undertaken with affected people using the valuation rates for crops and trees provided by the Department of Lands and, if needed, the lease rates for lands (updated every three years).

50. In this regard it is also important to note that the Project would not be directly financing the civil works under Component 3(b): the Project provide a subsidy for potential service providers who would be financing the works. Nevertheless, it is considered that the activities under the Outer Island access scheme financed by a subsidy under Component 3(b) would be linked to a World Bank activity. For that reason, the policy on Involuntary Resettlement, OP4.12, is triggered at this stage, although the precise nature and scope of activities to be financed under Component 3(b) will only be known after the conclusion of the analytical work under Component 3(c). A compensation framework consistent with OP 4.12 has been prepared (disclosed in-country on February 17, 2012 and in the World Bank’s InfoShop on February 24, 2012). This provides specific steps and guidance for service providers, together with Government, to negotiate the potential acquisition of lands and properly document the process once Outer Islands connectivity projects have been identified.

F. Environment (including Safeguards)

51. Environmental issues have been considered in relation to Component 3 (b). The Project will assist the Government in designing and implementing a strategy for the Outer Islands and, based on the strategy, may provide a subsidy for Outer Islands communications. As noted above, the subsidy is intended to mobilize private sector investment for the introduction of services beyond that offered by operators on commercial terms, improving economic and social outcomes. The infrastructure which may potentially be constructed to supply such communications services are typically, communications satellite dishes, towers, masts and antennae. These structures would occupy a very small area composed of a dish or tower sitting on a concrete base. A small room adjacent to the dish or tower would house the ancillary electronic equipment. OP 4.01 is triggered by this Project because of the potential impacts of this infrastructure. However, the construction activities involved in the establishment of these structures would be very minimal, the impacts of which are predictable, easy to mitigate, and short term. An environmental code of practice, or ECOP, has been prepared by the MCTTD to mitigate any likely impacts of the construction. The ECOP will be part of the contract for any infrastructure investment and will form part of the contractual obligations of the winning bidder. The ECOP was disclosed locally on February 17, 2012 on the TAK website and local press and was published by the World Bank InfoShop on February 24, 2012. The local agency in charge of environmental matters, the Ministry of Environment, Lands and Agricultural Development has not required an environmental assessment for this project because of the minimal scale of the construction involved. G. Other Safeguards Policies Triggered

No other safeguards policies are triggered.

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Annex 1: Results Framework and Monitoring

REPUBLIC OF KIRIBATI: Telecommunications & ICT Development Project

Project Development Objective (PDO): The Project development objective is : to strengthen the legal, regulatory and institutional environment enabling transition to a market-driven telecommunications sector and facilitating improved connectivity for the Outer Islands

PDO Level Results Indicators*

Cor

e

Unit of Measure Baseline

Cumulative Target Values**

Frequency Data Source/ Methodology

Responsibility for Data

Collection

Description (indicator definition

etc.) YR 1 YR 2 YR3 YR 4 YR5 Indicator One: Improved ICT sectpr policy framework

Basic ICT policy in place.

MCTTD prepares draft policy statements on cyber-security, privacy, e-commerce, e-government

Cabinet approves new sector policies on cyber-security, privacy, e-commerce, e-government

Cabinet approves a review of 2011 sector policy and approves any desired policy adjustments

MCTTD completes review of all current ICT sector policies

Yearly MCTTD Annual Report

MCTTD

Indicator Two: Improve d legal and regulatory framework

Telecommunications Act 2004 and associated instruments in need of revision.

New law enacted; regulations under preparation

New regulations approved and gazetted

Regulations enforced and updated. New law enacted implementing new ICT policies (e.g. cyber security, privacy, e-commerce, e-government)

Sector law and regulations updated, as appropriate, in line with latest Government policy initiatives

Sector law and regulations updated, as appropriate, in line with latest Government policy initiatives

Yearly TAK Annual Report

TAK

Indicator Three: Increase in penetration of mobile telephones and Internet, including number of direct beneficiaries (% of population, of which 53% female)

12 12 15 20 30 40 Yearly TAK Annual Report

TAK

Indicator Four: Increase in penetration of mobile telephones and Internet in Outer Islands

% of population

<10 12 15 20 25 30 Yearly TAK Annual Report

TAK

Indicator Five: Decrease in tariffs of mobile services and internet access March 2012

US($) Yearly TAK Annual Report and ICT licensees

TAK

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Price of 3 minute local mobile call

0.3 0.3 0.3 0.27 0.25 0.2

Price of 3 minute call to Australia

3.0 3.0 3.0 2.7 2.5 2.2

Price of monthly Internet service (256 kbps)

70.0 70.0 70.0 65.0 60.0 53.0

INTERMEDIATE RESULTS

Intermediate Result (Component One): Intermediate Result indicator One: TSKL restructured

No strategy in place for transforming TSKL

Options analysis completed for restructuring TSKL

Cabinet approves preferred option for TSKL restructuring. Implementation of preferred options commences

TSKL transformation strategy fully implemented

Yearly MCTTD Report, TSKL Report

MCTTD, TSKL

Intermediate Result (Component Two): Intermediate Result indicator One: New licensing regime in place

Multi-operator licensing regime not developed.

Draft licensing regime prepared

New licensing regime operational, allowing new operators to enter

Yearly TAK Annual Report

TAK

Intermediate Result indicator Two: Reformed spectrum management

Existing spectrum plan designed for sole operator

Draft spectrum management plan prepared that facilitates multiple operators

New spectrum management plan operational

Yearly TAK Annual Report

TAK

Intermediate Result indicator Three: Updated telecom numbering plan adopted

Five digit numbering plan in use

Draft new number plan prepared

New six or seven digit number plan operational.

Yearly TAK Annual Report

TAK

Intermediate Result indicator Four: Interconnection regime adopted

No interconnection regime.

Draft interconnection rules prepared

Interconnection regime operational

Yearly TAK Annual Report

TAK

Intermediate Result indicator Five: Dispute and mediation procedures in place

No dispute and mediation procedures in place

Draft dispute and mediation procedures prepared

Dispute and mediation procedures operational.

Yearly TAK Annual Report

TAK

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Intermediate Result indicator Six: Award of other telecommunications licenses

0 0 1 1 1 1 Yearly TAK Annual Report

TAK

Intermediate Result indicator Seven: Internet broadband (minimum 256Kbps) subscribers (% of population)

% <1 20 Yearly TAK Annual Report

TAK

Intermediate Result indicator Eight: Number of direct beneficiaries (including 51% female)

12,000 20,000 40,000 Yearly TAK Annual Report

TAK

Intermediate Result (Component Three): Intermediate Result indicator One: Mobile penetration in Outer Islands (% population)

<10 20 40 Yearly TAK Annual Report

TAK

Intermediate Result indicator Two: Internet penetration in Outer Islands (% population)

<1 3 7 10 15 20 Yearly TAK Annual Report

TAK

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Annex 2: Detailed Project Description

REPUBLIC OF KIRIBATI: Telecommunications & ICT Development Project 1. Overview of the Project. The overarching objective is to increase access to communications in Kiribati. The Project is structured primarily as a technical assistance program to support the Government on policy and regulatory issues focused on the enabling environment for telecommunications/ICT service provision, i.e., the institutional development of MCTTD and TAK and the reform of the Government-owned operator TSKL in preparation for the introduction of effective competition. The Project is also designed to provide a subsidy to support the provision of communications in the Outer Islands. Specifically, the Project will:

(a) assist the Government with the transition from a monopolistic to a liberalized market oriented telecommunications sector, including strategic options for reforming and strengthening the incumbent Government-owned service provider, TSKL;

(b) support the development of an enabling environment for telecommunications and ICT service provision, and the transfer of policy-making, legal, regulatory, and technical expertise to help develop fully-functional oversight institutions for the ICT sector; and

(c) assist the Government in designing and implementing a strategy for a sustainable connectivity program for the Outer Islands and, based on that strategy, provide a subsidy for Outer Islands communications.

2. The Project has three core components and an administrative support component.

Component 1. ICT Sector Policy and Legal Support. US$ 1.3 million

3. The Project will build the technical capacity of the MCTTD to lead the sector through effective policy making. This component has been divided into three subcomponents.

(a) ICT policy review and coordination: including (i) coordinating and updating sector policy in line with industry developments and Government objectives, including second-generation reforms and application of ICT in other sectors, and monitoring ICT sector development; and (ii) leading the Government’s work on international agreements related to telecommunications;

The pro-competitive ICT Sector Policy adopted by the Government in April 2011 has demonstrated the Government’s commitment to sector reform and underpins the current phase of development. The Government, with the assistance of technical assistance provided by the World Bank, has developed and provided to the MCTTD an example new legal enabling framework toward supporting market liberalization and to giving effect to the April 2011 Policy. The Policy assistance component will support the Government further in the following activities:

(i) drawing on international best practice, reviewing the Government’s ICT Sector Policy April 2011 and identifying and detailing new policy initiatives for the ICT sector, including for example cyber-security, privacy, e-commerce, e-government,

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information disaster management and broadcasting (including spectrum, digitalization, delivery and content regulation); and

(ii) considering possible changes to legislation or introduction of new legislation (addressing issues arising under the first phase of reforms or giving effect to new policy initiatives for the sector), including preparation of drafting instructions for both amendments and new legislation, and facilitating the passage of legislation through the political processes.

It is important to carry out a post-implementation review of significant reforms to ensure that the Government’s policy objectives are being achieved. Accordingly, the policy/legal assistance component will include a review of the new legal framework that the Government intends to enact in mid-2012 to facilitate the introduction of competition. The review could take place approximately two years after introduction of the new law and, in addition to addressing any urgently needed amendments, should focus on whether any amendments are needed to respond to circumstances in the market that are not well addressed in the law.

The timing of the work on new policy initiatives should allow first for the (at least partial) stabilization of the new legal framework and the new market structure, including the licensing of any second mobile operator. Because the ICT sector is an enabling platform for the expanded use and deliver of ICT services, its trajectory (coverage, services and costs) should be sufficiently identifiable as an input to wider ICT policy development. Another key criterion regarding the timing of policy initiatives will be the capacity of the MCTTD (and other Government agencies as appropriate) to lead the work.

(b) TSKL transformation: in coordination with the MFED, technical assistance including the retention of a firm specialising in providing financial/legal/transaction advice for identifying and implementing options for restructuring TSKL. Such options may include the introduction of an equity investor, or other strategic partner for TSKL, or privatization. The objective is to enable TSKL to position itself as a credible competitor in a competitive market structure and to ensure the workably competitive market over the medium term. The Project will finance the options assessment and technical assistance to Government for implementation of the preferred option, but will not provide direct financial assistance to TSKL. The consultancy will include the following tasks: (i) detailed scoping study and implementation plan; (ii) legal due diligence; (iii) preparation of financial statements; (iv) valuation; (v) assessment of possible investor interest; (vi) preparation of transaction documents; (vii) preparation of a communications strategy; (viii) assistance with the transaction.

(c) Legal and regulatory advice: legal and regulatory advice, as needed from time to time, including advice regarding legislative and regulatory reforms, drafting and other advice necessary to give effect to Government policy and sector development (including specialist legal advice for the Office of the Attorney General). The first key task under this subcomponent will focus on assisting the Government to produce a Bill for Parliament, drawing on the example legal framework which has been prepared for the MCTTD, including supporting the Office of the Attorney General as necessary and

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undertaking any appropriate public consultation in connection with any new or amending telecommunications legislation needed to give effect to Government policy.

Component 2. ICT Regulatory Support. US$1.2 million

4. The Project will build the capacity of the TAK to regulate the sector, develop and implement the new legal and regulatory framework. The component includes:

(a) New market entry: in coordination with the MCTTD, as appropriate, assist in the design and implementation of an open, competitive international selection process for the award of a license that will permit a second operator to offer mobile services. The advisors’ main tasks will include assisting in the: (i) preparation of tender documents and procedures for the selection of the new operator; (ii) launch and administer the tender process for the selection of the operator; (iii) identification of possible entrants; and (iv) evaluation of offers made by, and strengths of, potential investors.

(b) General regulatory assistance: technical assistance and capacity-building for the TAK to regulate efficiently a monopoly or dominant operator, or a competitive market with multiple operators, consistent with the new legal and regulatory framework. This component will include a regulatory support services contract to provide a broad range of assistance in the areas covered by the proposed new legal / regulatory framework, including (but not limited to) the following areas:

issuing licenses and other authorizations, monitoring compliance and enforcing sector legislation and regulatory instruments;

establishing and regulating the technical and commercial aspects of the wholesale access regime, including the interconnection regime;

regulating competition; limiting anticompetitive behaviour;

coordinating with MCTTD, as appropriate, drafting regulations, rules and other subordinate instruments as needed for the effective management and implementation of ICT sector legislation, including consumer protection and consumer codes of practice;

resolving disputes between operators, and establishing resolution frameworks for disputes between operators and users;

allocating, assigning, and supervising relevant national resources required by operators such as radio spectrum, numbering, and other technical regulation matters (including development of a spectrum management and monitoring system through procurement of specialized equipment and software).

(c) Technical management and training: assistance for TAK regarding the development of a

spectrum management and monitoring system through procurement of specialized equipment and software, and capacity-building (formal training) for TAK staff at external training institutions, under a comprehensive and prioritized training plan. The component will also finance limited computer/office equipment for TAK.

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5. Regulatory priorities. The priorities for the regulator for the first year will be on: (a) carrying out the selection and licensing of a new mobile service provider; and (b) developing internal procedures and a work-plan to assist it in performing its responsibilities under the new legal framework with an initial emphasis on private sector based network and services extension. It is expected that the regulator will seek input from Government and ICT sector stakeholders in helping it to determine and prioritize its activities.

Component 3. Outer Islands Connectivity US$2.2 million

6. The Project is designed to include the option to finance one-time subsidies for telecommunications network expansion and public access, led by the private sector, which may be applied to the capital and operating costs incurred in supplying a specified service for the Outer Islands. The following factors have been considered in the design of this component:

(a) Types of services. The types of services to be supported by the subsidy will be set by the Government’s universal access policy priorities. The first imperative is to increase the availability of designated communications services on the Outer Islands. The range of projects could include (but will not be limited to) voice and data access services, backhaul or service specific infrastructure or demographic or geographic focussed delivery arrangements for services availability extension, which could be based on support for mobile voice or data network expansion, Internet cafes, maritime communications, and voice or data access points.

(b) Project selection. The nature of the projects for which a subsidy will be available will depend on the extent of commercial rollout and connectivity gaps. The Project will assist Government in developing a selection mechanism for identifying and ranking possible projects, having regard to the overall total subsidy that is available to support connectivity projects. The selection criteria could include for example consideration of the: (i) the least subsidy required to facilitate and leverage investment of the private sector; (ii) expected economic benefits per inhabitant; and (iii) expected social benefits per inhabitant; (iv) nature of existing services; and (v) distribution of services throughout Kiribati.

(c) Subsidy delivery mechanism. The mechanism for delivering subsidies to support increased connectivity for the Outer Islands will depend largely upon the structure of the market and the number of telecommunications providers who will be interested in competing to provide services with the support of an Outer Islands connectivity subsidy. The Project will support Government in developing a strategy for bidding subsidies for Outer Island communications competitively if two or more operators are interested in and technically capable of providing services. Alternatively, a mechanism for dealing with a single supplier will need to be developed if a competitive market for subsidies cannot be created.

(d) Timing. It is important for the market to be given time to test the extent of commercially sustainable services and coverage and, accordingly, this component will be progressed in phases. There needs to be a balance between providing industry certainty and avoiding regulatory gaming on the part of the industry in relation to subsides for works that the operators would be prepared to undertake without a subsidy. Accordingly, subsidies should not be made available until after the private sector has maximised network rollout

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on a commercial (no-subsidy) basis. This will enable the Government to identify services that are not profitable on a commercial basis and for which a subsidy is needed.

7. Component 3 has therefore been designed in two phases: (a) Phase 1 comprises technical assistance for MCTTD and TAK for program design. (b) Phase 2 entails bidding, contracting and disbursement of subsidies for Outer Islands connectivity subprojects identified in Phase 1.

(a) The Phase 1 Subsidy Component will include Technical support to the MCTTD and TAK for:

(i) Preparation. Policy support to MCTTD for development of an appropriate Outer Islands connectivity policy and strategy, including technical and financial feasibility analysis, and stakeholder consultations;

(ii) Project identification. Identify, analyse, evaluate, and prioritize possible coverage extension projects and possible financing/risk-sharing mechanism (such projects might include voice and/or data; broadband/backbone infrastructure and/or access facilities); and

(iii) Regulatory instruments. Support to develop and establish the necessary regulatory instruments, instructions and practical procedures needed to implement the regulatory regime (including legislative and licensing obligations, and environmental safeguards management) in relation to Outer Islands’ coverage.

(iv) Project documentation. Capacity building, including for the preparation of project documentation, selection process for identifying and contracting with an operator for the supply of specified services; and ongoing monitoring and audit of the service being subsidized, possibly including specialized equipment and software.

(v) Awareness-raising. Design and implementation of awareness-raising and training programs for Outer Islands communities on the use of telecommunications and ICTs to improve livelihoods.

8. The Phase 2 Subsidy Component will finance Outer Islands subsidy payments to be contracted through competitive bidding for least-cost subsidy for identified works or maximum deliverables for fixed subsidy contracts to support identified Outer Islands subprojects.

(a) Development of the least-cost subsidy model.

9. A least cost subsidy model has been developed to assess possible subsidy scenarios and the costs of providing mobile telecommunications services throughout Kiribati, including in the Outer Islands. The model assesses the economic feasibility of private sector led investment and estimates the level of subsidies that will be required to encourage operators to enter the market and to offer mobile telecommunications services. In a number of the most remote locations it is possible that the level of operating costs will be too high to make the service profitable for a commercial operator over the life of the capital infrastructure in perpetuity. In these circumstances, the model estimates the one-off payment that would be needed to make the

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location profitable (assuming returns on capital are measured across the operator’s whole network).

10. The estimate of costs of the Outer Islands Connectivity is based on the likely subsidy needed to incentivise the private sector to supply mobile phone services across Kiribati. The model takes into account the capital and operating costs of the infrastructure that would be required to supply a mobile service, the estimated revenue of the market, and the need for a commercial investment rate of return. In each case, operating costs were calculated and capitalised on the basis of net present cost of the future outlays (based on reasonably likely internal costs of capital) and added to the prime capital cost. This approach provides an estimated ‘one off’ subsidy that would be needed for a private sector operator to supply a service in a market that is revenue negative (i.e., in circumstances where a capital subsidy alone would not be sufficient to incentivise supply).

11. The approach also ensures there is no residual burden on the Government to provide additional financing over the life of the infrastructure. The model indicates that, assuming the fund is applied towards mobile services, ‘one-off payment’ subsidies needed to cover capital and operating costs in perpetuity over the life of the capital infrastructure would likely amount to approximately US$2.2 million. An example extract of the possible cost per island is shown in the table below. However, each mobile operator will have its own business and network practices and policies that will determine actual costs and a market strategy, which in combination will determine the level of subsidy demanded; accordingly the data below should be considered as indicative. Moreover, it is intended that the subsidy should be offered competitively if two or more operators are interested in (and technically capable of) providing services. Competition for the subsidy may reduce the total amount of subsidy that is required under the scheme.

12. Key assumptions and bases for this calculated quantum of subsidy are as follows.

• Island locations that are non commercial should still have a level of service commensurate with modern society, the minimum being 2.5G mobile (for low cost handsets) providing voice, SMS and basic Internet access from the hand held phone.6

• High speed /broadband Internet access (256/512 Kbps) will be available at the Island Council centre; the one location that will have electricity supply adequate for laptop /desktop computing.

6 The subsidy approach is a modelling exercise that considers the capital and operating costs of providing second generation mobile network infrastructure (voice with basic GPRS/EDGE data) for each inhabited island of Kiribati (except Kanton) and takes into account the nature/ utility of infrastructure already in place on each island. The subsidy amount is then a one time payment calculated for each island that will both offset the capital costs to the point where investment is commercial and provide for an annuity (based on typical internal investment returns (WACC) of firms in the Pacific region) that will offset the identifiable operating costs of services to that island to the point where typical provider internal profitability measures can be met. The calculation process considers likely contribution from customer revenues for a period of three years only as telecommunications predictions beyond this term are difficult. This methodology is potentially more generous to a network provider than traditional methods and has the potential to result in better than 2G infrastructure and services outcomes. It also greatly simplifies the subsidy management process (internal and consultancy costs, complexity and potential disputes) for the regulator.

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• Usage and spending by customers on these Outer Islands will be similar to that on other islands (average revenue per user/ARPU in Tarawa is the benchmark and a 2006 study of household incomes in these islands indicates adequate disposable income).

• Subsidy is based on ‘three years to breakeven’ on revenue per customer and usage growth patterns of the region coupled with network build and operate costs reflecting region experiences and published investment returns of operators in the region.

• The installation at an outer Island will be a single 30 to 40 meter tower, generally located near the Island Council premises (to link with desktop based Internet access) with solar/diesel power and batteries, colocated satellite link antenna. All services outside the Island Council premises are delivered by mobile infrastructure.

• Backhaul (necessarily by satellite) and other operating costs are to be incorporated into a once off subsidy payment with no residual burden on the basis of typical cost of capital and internal rate of return for telecommunications firms.

• Practicable infrastructure sharing will be a condition of subsidy grant (although it is unlikely; resale being the more likely competition format in these islands).

• Project identification studies commence as soon as commercial limits become apparent and subsidy based network and services extensions grants contracted as soon as practicable thereafter (first grants expected in year three of project).

Table 6. Estimated Possible Subsidy Costs Per Island (in US$)

Break even Penetration

without subsidy %

Break even penetration

with subsidy %

Island Revenue (3Yrs-Voice /SMS)

(originating & terminating)

Capital costs of addit’l infrastr. (2G network)

Est. one-time Subsidy

(capex and ongoing opex)

North Gilberts

Banaba 138 30 54,577 128200 430,000 Makin 10 10 432,448 76700 0

Butaritari 6 6 594,730 60200 0

Marakei 9 9 496,998 71200 0

Abaiang 4 4 997,623 71200 0

Subtotal

430,000 Central + South Gilberts

Maiana 17 13 345,959 110700 110,000 Abemama 7 7 617,213 71200 0 Kuria 22 13 196,188 71200 120,000

Aranuka 20 13 209,969 71200 110,000

Nonouti 10 10 576,416 78200 0 Tabiteuea (North + South) 7 7 888,105 121200 0

Beru 20 14 393,283 128200 160,000

Nikunau 22 14 346,684 128200 180,000

Onotoa 26 15 298,090 128200 220,000 Tamana 49 19 158,655 128200 340,000

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Break even Penetration

without subsidy %

Break even penetration

with subsidy %

Island Revenue (3Yrs-Voice /SMS)

(originating & terminating)

Capital costs of addit’l infrastr. (2G network)

Est. one-time Subsidy

(capex and ongoing opex)

Arorae 33 16 227,738 128200 280,000

Subtotal

1,520,000 Line Islands

Teeraina 26 14 209,425 78200 180,000

Tabuaeran 15 13 460,371 128200 80,000

Kritimati 0 0 927,452 0 0

Subtotal

6 260,000 Capital

Tarawa 0 0 6,583,593 0 0

South Tarawa 0 0 5,559,531 0 0

North Tarawa 0

1,024,062 0 0

Subtotal 0 0 0

Kanton 0 0 Not Considered Not Considered Not Considered

TOTAL 0 6 2,210,000

13. The foregoing discussion considers the possible subsidy requirements for the universal provision of mobile services and makes indicative estimates. However, it is intended that the Government will develop a more comprehensive universal access model that will permit the application of subsidies towards a range of ICT services, including for example voice, data, maritime safety, health and educational applications, and other services. Based on the experience internationally and around the Pacific region, it is important that the subsidy scheme is flexible and that the Government is able to tailor and adapt its support depending on a range of factors including the specific needs of the local community (e.g., coverage out to sea for safety). The subsidy amounts needed to support the supply of different ICT services will vary depending on the capital and operating costs of supplying the specified service and the commercialization of those services.

14. It is envisaged that the terms and conditions for each subsidy will be set out in the new ICT sector law and regulations, and in the service contract signed with the operator selected to provide the designated services. However, both at the project design phase and during bidding and contracting phase, the quality, availability of service and the duration of service obligations will be critical matters for the Government to consider and evaluate, especially since the more onerous the obligations, the higher the subsidy that would be demanded by operators. As described above, the scheme is envisaged to provide one-off subsidies needed to cover capital and operating costs in perpetuity over the life of the capital infrastructure in markets that otherwise would not receive services. Nevertheless, at the end of the term of a service contract (e.g., contract commencement plus 7 years), a number of outcomes are foreseeable, including e.g., (a) the operator elects (for commercial or other reasons) to maintain the service, meeting all future capital and operating costs; (b) the operator elects to maintain the service, but will not meet the costs of any significant new capital investment, such as might be needed to replace

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broken parts; or (c) more likely in the most remote and commercially unviable locations, the operator elects to cease supplying the service once its service obligations end. Accordingly, in certain circumstances, it is foreseeable that further subsidies may be needed, including donor-financed assistance, if the Government wishes to retain a service beyond the term of the initial service period covered by the initial subsidy.

Component 4. Project Management US$0.4 million.

15. Overall Project administration and fiduciary matters will be handled by the central PMU within the MFED, established to support all World Bank and ADB-financed operations. In addition, MCTTD will establish a small PST for each Project within its portfolio. Component 4 will therefore finance the following:

(a) ICT Project Manager in MCTTD.

(b) International procurement advisor in the central PMU on a cost-sharing basis (time-based contract);

(c) Computer equipment and peripherals for the ICT PST in MCTTD;

(d) Incremental operating costs; and

(e) Project audit.

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Annex 3: Implementation Arrangements

REPUBLIC OF KIRIBATI: Telecommunications & ICT Development Project Project Institutional and Implementation Arrangements

1. Technical responsibilities. MCTTD and TAK will share technical responsibility for Project implementation in line with their functional responsibilities. MCTTD will implement Component 1, Component 3 (a)-with technical support from TAK and Component 4. TAK will implement Component 2 and Component 3 (b).

2. Project administration, specifically relating to fiduciary support and liaising with development partners, will be handled by a central PMU established within the MFED to maximize efficiency across development partner-supported projects. This central PMU is being financed under the Roads Rehabilitation Project (IDA P122151) and is responsible for administration of all World Bank and ADB-funded operations. The PMU structure and staffing are illustrated below. When fully staffed, the central PMU will include: a PMU Manager, two procurement officers and two financial management specialists, plus internationally-recruited project management and procurement advisors. As of April 2012, the PMU Director, international procurement advisor, international financial management advisor and two financial management staff are in place. For the specific technical administrative requirements of the ICT Project, MCTTD will recruit an ICT Project Manager and assign administrative staff as its ICT Project Support Team (PST). These arrangements are summarized in Figure A3.1.

Figure A3.1. Project Implementation Arrangements

Financial Management, Disbursements and Procurement

3. Financial management tasks will include the following: preparation of the budget for all the resources financing the Project from various sources; execution of the budget in

Central Project Management Unit (Associated with MFED) PMU Manager, 1 x International Project Management Advisor 1 x International Procurement Advisor 2 x National Procurement Officers 2 x National financial management specialists

MCTTD Project Support Team1 1x ICT Project Manager

MCTTD Project Support Team2 1x Airports Project Manager

Other Project Support Teams (Other Ministries) Roads Rehabilitation, Water supply, Sanitation

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accordance with approved work plans; monitor, control and correctly recording all the financial transactions financed under the project in the books of accounts (computerized systems), preparation of periodic financial reports and financial statements for the management and other users as required in the Grant Agreement. The central PMU, already established within MFED and currently maintaining the accounts for Kiribati Roads Rehabilitation Project and the Aviation Project, will be responsible for the financial management of the Project, including authorizing withdrawal applications. The Project will use direct payments for major contracts, and have a designated account. The designated account has already been established. 4. Country issues: The most recent analytical diagnosis of the Kiribati Public Financial Management framework was conducted through a Public Expenditure Financial Assessment in early 2010. The diagnosis identified a number of weaknesses in the PFM systems and processes. In particular, serious weaknesses were found in such as inaccuracies in the budgets, significant delays and substantial challenges in the quality of records and reporting the financial information. In addition, internal controls were considered deficient and the internal audit very weak to perform the function properly. In view of these shortcomings in the public financial management environment, it would not be prudent to rely of the existing country system for financial management, except for the Kiribati National Audit Office (KNAO), which is legally mandated to audit and report on the use of public financial resources. KNAO is by law authorized to subcontract such audit to independent private auditors (firms) if the need arises. 5. Financial management arrangements: The financial management assessment was carried out in accordance with the “Financial Management Practices in World Bank-Financed Investment Operations” issued by the Financial Management Sector Board on November 3, 2005 and further rationalized in the “Principles Based Financial Management Practice Manual” issued by the Board on March 1 2010. Under the Bank’s OP/BP 10.02 with respect to projects financed by the Bank, the borrower and implementing agency are required to maintain financial management systems—including accounting, financial reporting, and auditing systems adequate to ensure they can provide the Bank with accurate and timely information regarding the project resources and expenditures.

6. The financial management risk for this project before mitigation is assessed as “High” in view of the factors contributing to risk under the various elements, i.e., budgeting, accounting, internal controls and internal audit, flow of funds, financial reporting and external audit. The residual FM risk would decrease to be “Substantial” following mitigation measures and the use of the central PMU to carry out the FM functions that will limit the likelihood of insufficient FM capacity. Each of these elements is reflected hereunder. While MCTTD and TAK are the implementing agencies, given the limited accounting capacity within the Ministry and Kiribati more broadly, the central PMU will undertake all the financial management aspects of the Project. These arrangements should be formalized in a Memorandum of Understanding between the MCTTD and the MFED, or in the Project Operations Manual that will be adopted by the PMU and the MCTTD and TAK, which will provide that the PMU through the MFED is undertaking the responsibility for carrying out the fiduciary requirements of the project. The main risk will be if there is insufficient staff and FM capacity within the PMU to ensure FM requirements of the Project are met. The availability of a pool of staff in the central PMU partially mitigates the capacity risk, although until there is a formal understanding between projects on the allocation of the staff time between projects this still remains as a potential risk. The financial management members of the Task Team in the World Bank Office in Sydney will

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monitor the progress and provide the necessary implementation support to the PMU as required, including at least two FM implementation reviews each year. 7. Budget: The Project budget will be on a cash basis, formulated from the agreed work plans to cover the life of the Project, broken down into each financial year on a quarterly basis (to feed the interim financial reports [IFRs]) of the Government of Kiribati which spans from January to December. The budget will be an aggregate of the activities whose costs will be estimated at the start of the project and updated annually. MCTTD and TAK will provide all the annual planning, budgeting and procurement plans to the PMU for consolidation. 8. Accounting system: The administration, accounting and reporting of the Project will be handled exclusively by the central PMU in accordance with the existing Government of Kiribati financial management regulations and processes and the Financial Management section of the Project Operations Manual. The central PMU will be responsible for managing, monitoring and maintaining Project accounting records and hence the project accounts will be kept on the accounting system used by the central PMU. To ensure adequate oversight from the implementing agency, it is recommended MCTTD and TAK authorise all payments. Original supporting documents will be retained within the PMU and accounts will be on a cash basis. 9. Internal control and internal audit: As reported in the Public Expenditure Financial Assessment, internal controls were considered deficient and the internal audit controls very weak. The central PMU will be required to build on the existing internal controls within the framework of the Government of Kiribati, implementing appropriate measures to strengthen the internal controls to an acceptable level. The FM advisor for the Aviation project is also preparing an operations manual for the central PMU, which will outline the internal controls in place, including authorizations, segregation of incompatible duties and controls over assets. 10. Flow of funds: An advance will be made into a designated project account in AUD, which has been set up at ANZ Bank and will be managed by the central PMU. All payments will be realized by the PMU. No funds will be transferred to MCTTD and TAK. The central PMU will be directly responsible for the management, maintenance and reconciliation of activities in the designated account, including preparation of withdrawal applications and supporting documents for Bank disbursements. The authorization of the withdrawal applications will remain with either MCTTD and/or the MFED. 11. Financial reporting: Unaudited IFRs will be required to be prepared on a calendar quarter basis for the project. The format of IFRs was developed and agreed by the MFED and the World Bank and attached in the Minutes of Negotiations. If needed, these formats could be adjusted and approved by the World Bank, during project’s implementation. The due date will be within 45 days following end of the calendar quarter being reported on. 12. The annual financial statements will be prepared on basis of the accounting standards used by the Government for its own annual accounts on cash basis of accounting. The Kiribati financial year (January to December) will also be the accounting period for this project. Concerning the disbursements Category 2, any subsidy contract will be a "performance-based" service contract following the principles of output-based aid. Verification of continued service operation would be required as follows:

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Output Description Payment

(%) Upon contract signature 10 Upon start of operation in 50 percent of the CAPs

Start of operations of 50 percent of the CAPs included in the tender, represented as a CAP with full installation of equipment, internet availability and service delivery at the level of quality as specified in the Service Agreement.

25

Upon start of operation in 100 percent of the CAPs

All CAPs have been installed and are operating according to the standards set in the tender and agreed by the contractor/franchiser.

25

At the end of Year 2 Supervision of all CAPs to check upon service delivery, hours of operation, pricing schemes, quality of Internet connection and fully equipped.

20

At the end of Year 3 Supervision of all CAPs to check upon service delivery, hours of operation, pricing schemes, quality of Internet connection and fully equipped

20

13. External audit: External audit of all Kiribati government agencies, including state owned enterprises for the use of public funds is the responsibility of the KNAO, as mandated or provided by law. Consequently, KNAO will therefore conduct the annual audit of the project financial statements including activities of the designated account to be established for this project. The Government is accordingly responsible for ensuring the audited annual project financial statements and the auditor’s report and the management letter are submitted to the Bank within six months after the end of the fiscal year to which they relate. 14. Disbursement: All the available disbursement methods will be at the disposal of the project. These are: advance method; reimbursement method, direct payment method and Special Commitment method, whose usage is expected to be seldom. The documentation of the expenses will be transaction based. Retroactive financing will be available up to an aggregate amount not to exceed SDR 140,000 equivalent for Eligible Expenditures under Category (1) that are paid or incurred on or after 12 month from the date of the Financing Agreement. Details and additional instructions on disbursement will be provided to the Government in the disbursement letter included in the negotiated documents following discussion and agreement with Government during negotiations. Procurement

15. Procurement guidelines. Procurement for the proposed Project will be carried out in accordance with the World Bank’s “Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011(Procurement Guidelines); and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011 (Consultant Guidelines); and the provisions stipulated in the Financing Agreement.

16. Procurement arrangements. The central PMU under MFED will be responsible for ensuring that all procurement activities financed under the Project are carried out efficiently and effectively. This will include advertisement of bids, bid/proposal evaluations, conducting negotiations with consultants, and contract supervision, with technical inputs provided by the ICT Project Support Team in MCTTD. .

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17. Procurement activities to be financed under the project. Key procurement activities under the Project include hiring of consultants for technical support, advisory services, capacity building, and project management support. Contracting of telecommunications service provider(s) for the Outer Islands, following performance (output) based procurement procedures will be undertaken in accordance with the provisions of paragraphs 3.16 and 3.17 of the Bank’s Procurement Guidelines. Service provider/s will be selected competitively based on bid/s requiring the lowest subsidies. Customized bidding documents, acceptable to the Bank, will be used for this procurement activity. Works contracts and procurement under national competitive bidding procedures are not envisaged.

18. Procurement-related risks and mitigation measures. The procurement-related risks identified under the project are:

• poor bidder/consultant interest due to remoteness of the country and or size of the telecommunications market.

• noncompliance with agreed procedures, processing delays, contractual delays and poor quality outputs/deliverables, due to inadequate in-house expertise in MCTTD;

• risk of corruption and loss of records due to inadequate space being provided for secure record-keeping.

19. The following mitigation measures to address the risks have been agreed between MCTTD and the Bank team:

• processes and procedures in compliance with the Bank's Procurement and Consultant Guidelines and the Government of Kiribati’s approval processes, together with agreed procurement-monitoring indicators, will be included in a project Operations Manual;

• The central PMU under MFED will assign one of its procurement officers to prepare and process all Project procurement activities, which will be overseen by the International Procurement Advisor in the central PMU;

• MCTTD will appoint a dedicated Project Support Team, headed by a ICT Project Manager, to provide all technical inputs to the central PMU for project procurement activities;

• wide-scale publicity will be used to seek to attract qualified service providers and consultants; and

• dedicated space will be provided for secure record-keeping.

20. Procurement plan. The different procurement and consultant selection methods, estimated costs, prior review requirements, and time frames have been agreed between MCTTD (and TAK, as appropriate) and the Bank task team, and provided in a detail procurement plan. The procurement plan will be updated annually or as required to reflect actual project implementation needs and improvements in institutional capacity.

21. Advance procurement actions. The Government is in the process of hiring consultants for advisory support under Components 1(a) and 1(b), to be financed by AusAID through PRIF. The selection of these consultants was subject to prior review by the Bank. MCTTD is also in the

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process of hiring the ICT Project Manager for the PST. Retroactive financing will be available for the ICT Project Manager’s contract, and other administrative support for the PST.

22. Frequency of procurement supervision. In addition to the transaction prior reviews, procurement review missions will be carried out every six months by the Bank staff, and post review reports will be prepared annually.

23. Procurement reviews by the Bank. Contracts to be prior reviewed by the Bank will be agreed in the procurement plan. All other contracts (not indicated as subject to prior review in the procurement plan) will be subject to post review. Additionally, terms of reference and selection process for consultant contracts which will be subject to prior technical review only will be identified in the procurement plan.

24. The Bank’s no objection will be required prior to: (a) inviting firms to offer the services of individual consultants in accordance with paragraph 5.1 of the Consultant Guidelines, and (b) terminating negotiations with a selected individual and proceeding to negotiate with the next best individual. 25. Summary of procurement of goods:

Ref. No. Description

Estimated Cost (US$

million) Procurement

Method

Domestic Preference

(yes/no)

Review by Bank (Prior / Post) Comments

1. Spectrum equipment 0.120 ICB No Prior Spectrum mgmt and monitoring equipment

2. Spectrum management system database

0.035 Shopping No Post

3. ICT equipment and software for TAK

0.020 Shopping No Post First two contracts subject to prior review

4. ICT equipment and software for project management

0.020 Shopping No Post

5. Outer Islands connectivity under least-cost subsidy arrangement

2.000 ICB/ Performance

Based

No Prior

26. Summary of selection of consultants:

Ref. No.

Description

Estimated Cost (US$ million)

Review by Bank

(Prior / Post) Comments 1. Contracts under competitive

selection (QCBS/QBS/LCS/FBS)

1.996 Prior for all contracts >$100,000

2. Contracts under CQS 0.520 Prior for all contracts

>$100,000 All

3. Individual consultant (IC) contracts

0.520 Prior for all contracts Long term contracts subject to prior review are identified

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in the Procurement Plan. The Project Manager contract is subject to prior review and will be retroactively financed.

Abbreviations: QCBS – Quality & Cost Based Selection, QBS – Quality Based Selection, LCS – Least Cost Selection, CQS – Selection Based on Consultant’s Qualifications

Environmental and Social (including safeguards)

27. Involuntary resettlement: The Project will not finance any activity that requires involuntary resettlement or the involuntary acquisition of land. However, the policy on Involuntary Resettlement OP 4.12 is being triggered because the Bank would be providing a subsidy for potential service providers who would be carrying out civil works. There is a possibility that a small amount of land or assets acquisition may be necessary, e.g., to install backbone/broadband infrastructure, antennae or towers in the Outer Islands. Service providers would consult with Outer Island communities to identify the infrastructure needed as well as the land area where the equipment would be installed. Compensation arrangements would also be undertaken with affected people using the valuation rates for crops and trees provided by the Department of Lands and, if needed, the lease rates for lands (updated every three years).

28. The Compensation Framework disclosed in-country on February 17, 2012 and in the World Bank’s Infoshop on February 24, 2012, details the key principles for land use and compensation for damaged assets. These principles include:

(a) Consultations with, and support from, communities as a first step in subproject preparation;

(b) No financing for subprojects that require involuntary resettlement or involuntary land acquisition or the destruction of physical infrastructure; and

(c) Minimize land acquisition and damage to assets through appropriate design of civil works.

29. In addition, the Compensation Framework includes guidelines on: undertaking and documenting community consultations; preparing compensation plans; designing and implementing grievance systems; and, management arrangements and responsibilities.

30. Environmental safeguards are applicable to Component 3 (b), Outer Islands Connectivity. The Project will assist the Government in designing and implementing a strategy for the Outer Islands and, based on that strategy, may provide a subsidy for Outer Islands communications. Such a subsidy is intended to mobilize private sector investment for the introduction of services beyond that offered by operators on commercial terms, improving economic and social outcomes. The infrastructure which may potentially be constructed to supply such communications services are typically, communications satellite dishes, towers, masts and antennae. These structures would occupy a very small area composed of a dish or tower sitting on a concrete base. A small room adjacent to the dish or tower would house the

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ancillary electronic equipment. OP 4.01 is therefore triggered because of the potential impacts of this infrastructure. However, the construction activities involved in the establishment of these structures would be very minimal, the impacts of which are predictable, easy to mitigate, and short term.

31. MCTTD has prepared an Environmental Code of Practice (ECOP) to mitigate any likely impacts of the construction. The ECOP will be part of the contract for any infrastructure investment and will form part of the contractual obligations of the winning bidder. It includes a checklist of assessment criteria and guidelines for contractors related to construction and oversight activities. The ECOP was disclosed in Kiribati on February 17, 2012 on the TAK website and local press and was published by the World Bank Infoshop on February 24, 2012. The local agency in charge of environmental matters, the Ministry of Environment, Lands and Agricultural Development has not required an environmental assessment for this Project because of the minimal scale of the construction that is likely to be involved.

Monitoring and Evaluation

32. A monitoring and evaluation framework has been included in Annex 1. The information required to monitor and evaluate progress of the Project will be collected by the MCTTD. Sources of information and data will include the MCTTD, TAK, TSKL, and national entities responsible for collecting economic and demographic data. Over the course of the Project, in close consultation with TAK, the MCTTD will develop capacity to collect and analyze information for its ongoing purposes. MCTTD and TAK capabilities will be supported and strengthened by the Project in this regard. At the regional level the Pacific ICT Regulatory Resource Centre, also supported by PRIF, will review/benchmark the performance of Kiribati’s sector reforms vis–à–vis other regional neighbors.

Role of Partners 33. AusAID and the Government of New Zealand will cofinance the Project through the Pacific Region Infrastructure Facility (PRIF). PRIF offers a framework for collaboration and continuous briefing/engagement among its partners, ADB, AusAID, EIB and the Government of New Zealand as well as the World Bank. PRIF cofinancing has been formalized through a separate Grant Agreement signed with the Government of Kiribati on 13 February 2012, amended June 2012. PRIF partners will be invited to participate throughout the preparation and implementation review phases.

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Annex 4: Operational Risk Assessment Framework (ORAF) REPUBLIC OF KIRIBATI: Telecommunications & ICT Development Project

Stage: Appraisal

Project Stakeholder Risks Rating Low

Description : Change in political commitment and cooperation of telecoms industry (opposition to move from monopoly to competition).

Risk Management : (i) Continuous consultation and awareness-raising around benefits of improved connectivity. (ii) Consultation and advice to Government and industry stakeholders, including public awareness process to continue throughout the implementation period. (iii) Co-operation between MCTTD ICT Policy Unit and TAK.

Resp: Stage: Due Date : Status:

Implementing Agency Risks (including fiduciary) Capacity Rating: High

Description : Inability to attract and retain suitable professional staff to MCTTD or TAK. This risk is highest at the outset and expected to decrease over time.

Risk Management : (i) The support program includes the back-up option that some regulatory management positions be filled by internationally-recruited staff, should recruitment of qualified national staff face delays. This arrangement addresses the immediate needs for a credible regulatory unit during the transition stage, pending the recruitment and training of national staff. On the job training and mentoring is essential. (ii) TAK will have its own salary scale in the same way as other established regulatory entities and will be self-financing.

Resp: Stage: Due Date : Status:

Fiduciary Rating: High Description : Procurement and financial management problems delay the preparation and/or implementation.

Risk Management : (i) The project includes TA to specifically assist with procurement, financial management & project management. (ii) fiduciary support to be provided by the central Project Management Unit established in the Ministry of Finance and Economic Development, shared with other World Bank Project(s).

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Resp: Stage: Due Date : Status:

Governance Rating: Medium Description : Governance for selecting /overseeing partner for TSKL or new mobile entrant is inadequate. Governance arrangements for Outer Islands coverage processes not clear.

Risk Management : (i) Steering committee to oversee sector reform and promote transparent and sound governance; help define works and priorities; transparent planning and competitive bidding mechanism for Outer Islands subsidy to be established. The Bank's experience from other countries will be utilized.

Resp: Stage: Due Date : Status:

Project Risks Design Rating: Medium

Description : Project activities will be carried out with limited domestic technical capacity. Outer islands remoteness is a major hindrance to sustainable connectivity and other infrastructure development programs. Difficulties attracting sustainable private sector investment.

Risk Management : (i) Acknowledge limited national expertise in the sector, and strict monitoring of TA quality and timeliness, including knowledge transfer and capacity-building efforts. Engage international specialist TA, potentially in “substitution” role. Supplementary donor-financed technical assistance may be required to support ongoing regulatory and policy functions required under a liberalized telecommunications sector. (ii) Acknowledge that it will be difficult attracting private sector investment and not directly attributable to the Project. The Government needs to design the legal and regulatory framework in such a manner that it maximizes the attractiveness of the ICT sector as an investment destination. (iii) Outer islands subsidy program design to take into account operating and maintenance issues in particular. Sector reform will prompt new investment in telecommunications by the private sector. IDA funding will be used only if the private sector does not finance investment. Additional donor funding may be needed in certain circumstances beyond the term of the existing subsidy provided under this Project.

Resp: Stage: Due Date : Status:

Social & Environmental Rating: Low Description : Adverse environmental and social impacts.

Risk Management : (i) An Environmental Code of Practice has been prepared and adopted (ECOP). (ii) Should there be any acquisition of land, the Government has institutional capacity for addressing the issues, pursuant to established procedures and a recently adopted ICT Compensation Framework. The Government can identify affected people and pay compensation payments, particularly if done on a small scale. (iii) The Government has in place a grievance mechanism that allows people to file complaints at the Magistrates Court and make appeals at the High Court in Tarawa. Similar arrangements exist in the Outer Islands. However, these systems can be

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overburdened and slow. (iv) If necessary, the project will work with the Magistrates Courts to ensure that they can address any grievances related to the Project expediently.

Resp: Stage: Due Date : Status:

Program & Donor Rating: Low Description : Inadequate donor coordination.

Risk Management : Coordination with development partners in-country and through PRIF mechanism.

Resp: Stage: Due Date : Status:

Delivery Monitoring & Sustainability Rating: High Description : Procurement delays resulting in implementation delays

Risk Management : Shared Project management arrangements, and specifically procurement processing through centralized Project Management Unit (PMU) within the Ministry of Finance and Economic Development, including qualified procurement advisor.

Resp: Stage: Due Date : Status:

Legal and regulatory risks Rating: Medium Description :

Delays in implementing legislative and regulatory reforms.

(ii) New legislation & regulations do not provide a sound framework, having regard to international best practice and/or the needs of Kiribati

Risk Management:

Work on a new legal enabling framework will be well advanced prior to Project Effectiveness.

Project will support the legal and regulatory reform process, including additional subordinate regulations and instruments, as needed, as the regime develops.

Resp: Stage: Due Date : Status:

Overall Implementation risk Rating: High

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Annex 5: Implementation Support Plan

REPUBLIC OF KIRIBATI: Telecommunications & ICT Development Project

Strategy and Approach for Implementation Support

1. The strategy for implementation support has been developed based on the nature of the Project and its risk profile. Risks considered to be significant relate to capacity constraints within the implementing entities, commitment to institutional reforms, the ability of Government to attract new private sector investment into the sector and to sustain competition, and the quality of infrastructure to be built. The proposed mitigations measures to contain these risks are integrated into various project design features and targeted technical assistance packages. Specifically, the strategic approach for implementation support includes the following measures: 2. Capacity constraints. These risks to be mitigated through: (a) the establishment and staffing of the proposed central PMU which will engage project management specialists (including on procurement and financial management); (b) the PST which will provide dedicated project management and coordination support from within the MCTTD; (c) minimizing the number of contract packages; and (d) the involvement of the recently established World Bank/ADB liaison office which will also provide additional oversight and supervision capacity. 3. Commitment to reform agenda. Upfront adoption of a sector policy and new legislative framework for the sector. Furthermore, the project design includes specific technical assistance related to the reform agenda, in particular transformation TSKL. TSKL supports the introduction of competition and recognizes the need for its own transformation and capability strengthening to be a credible competitor against new entrants. 4. Ability to attract new investment. The Project will support technical assistance in order to maximize the likelihood of attracting a second mobile operator, including international marketing, transaction and licensing processes. It is also envisaged that liberalization and the new legal framework will encourage new entry, e.g., Internet service providers. 5. Delivery quality. Minimization of contracts to support the principal activities under the project to facilitate supervision. Phasing of Component 3 to avoid crowding out the private sector. Implementation Support Plan 6. The Project implementation will be supported primarily by field-based staff, including fiduciary and operational support, technical, and safeguards. The Task Team Leader is also based in the EAP region. This will ensure that it is possible to rapidly mobilize team members should the need arise. Formal missions will be conducted at least three times during the first year of implementation, and then semi-annually afterwards. These will be complemented by twice-monthly conference calls. The World Bank/ADB liaison Office in Tarawa will also facilitate implementation reviews. 7. The Bank’s implementation plan is supported by a series of technical reviews and capacity building activities. In addition to periodic reviews by the task team and inputs

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(monitoring, training) from procurement, financial management, and safeguards specialists, the plan identifies appropriate technical expertise (such as telecommunications legal and regulatory support) to provide periodic review.

Time Focus Skills Needed Resource Estimate

(SWs) Years 1-2 Technical review of TA documents and outputs Technical Specialists 10

Legal specialist 10 Environmental Monitoring Environ. Specialist 2 Social Monitoring Social Specialist 2 Review of financial management & training Financial mgmt Specialist 4 Review of procurement & training Procurement Specialist 4 Implementation Support Operations officer 8 Implementation Support Program Assistant 4 Team Leadership Task Team Leader 8

Years 3-5 Outer islands subsidy review Technical Specialists 6 Technical Reviews of TA Outputs Technical Specialists 20 Legal Specialist 15 Environmental Monitoring Environ. Specialist 4 Social Monitoring Social Specialist 4 Review of procurement documents Procurement Specialist 12 Review of financial management Financial Specialist 8 Implementation Support Operations officer 32 Implementation Support Program Assistant 15 Team Leadership Task Team Leader 20

Skills Mix Required

Skills Needed Number of Staff Weeks Number of Trips Comments Program Assistant 19 0 Technical Specialist 36 10 Legal Specialist 25 5 Environ. Specialist 6 2 Financial Mgmt Specialist 12

10

Procurement Specialist 12 10 Social Specialist 6 2 Operations officer 40 10 TTL 30 10

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Partners

Name Institution/Country Role Robert Guild Asian Development Bank Director, Transport, Energy and Natural

Resources Division Simon Barnes AusAID Interim Program Manager-Kiribati Ginny Chapman Government of New Zealand Kiribati program John Claasen Government of New Zealand Kiribati Development Manager, International

Development Group, Ministry of Foreign Affairs &Affairs and Trade

TARAWA

Makin

Marakei

MaianaAbemama

Aranuka

NikunauOnotoa

EnderburyKanton

McKean Birnie

Nikumaroro

Rawaki

Teraina

Tabuaeran(Fanning I.)

Kiritimati(Christmas I.)

Malden

Starbuck

MilleniumVostok

Flint

ManraOrona

AroraeTamana

TabiteueaBeru

NonoutiBanaba(Ocean Island)

Butaritari

Abaiang

Kuria

L i n e I s l a n d s

P h o e n i xI s l a n d s

GilbertIslands

Palmyra Atoll(U.S.)

Kingman Reef (U.S.)

Cook Islands(N.Z.)

Tokelau(N.Z.)

AmericanSamoa(U.S.)

Wallis and Futuna Islands(France)

Jarvis I.(U.S.)

Baker I. (U.S.)Howland I. (U.S.)

TONGA

K I R I B A T I

FIJ I

VANUATU

SAMOA

SOLOMONISLANDS

TUVALU

NA

UR

U

MARSHALLISLANDS

PACIFIC OCEAN

Mon

day

Sund

ay

Inte

rnat

iona

lD

ate

Line

10°N

0°

10°S

20°S

0°

20°S

170°E

170°E

170°W 160°W180°

170°W 160°W 150°W180°

KIRIBATI

0 200

0 100 200 300 400 Miles

400 Kilometers

IBRD 33427

FEBRUA

RY 2005

K IR IBATI

NATIONAL CAPITAL

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.