SCCD: G.G.

AFRICAN DEVELOPMENT BANKAFRICAN DEVELOPMENT FUND

PROJECT COMPLETION REPORT

TELECOMMUNICATIONS II PROJECT(ADB Loan N°B/MLW/TEL/91/003 - ADF Loan N°F/MLW/TEL/92/21)

MALAWI

INFRASTRUCTURE DEPARTMENT ONINNORTH, EAST & SOUTH REGIONS MAY 2004

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TABLE OF CONTENTSEquivalents And Abbreviations, List of Annexes, Executive Summary, i-ixBasic Project Data

1 Introduction 1

2 Project Objectives and Formulation 12.1 Project Objectives and Description 12.2 Project Formulation and Origin 22.3 Preparation, Appraisal, Negotiation, and Approval 2

3 Project Execution 33.1 Effectiveness and Start up 33.2 Modifications 43.3 Implementation Schedule 43.4 Reporting 43.5 Procurement 53.6 Financial Sources and Disbursements 5

4 Project Performance and Results 74.1 Overall Assessment 74.2 Operating Results 84.3 Institutional Performance 84.4 Management and Organizational Effectiveness 94.5 Staff Recruitment, Training and Development 104.6 Performance of the Consultants, Contractors, and Suppliers 104.7 Loan Conditions 114.8 Financial Performance of the Executing Agency 124.9 Financial and Economic Viability 12

5 Social and Environmental Impact of the Project 135.1 Social Impact 135.2 Environmental Impact 13

6 Project Sustainability 13

7 Performance of the Bank, the Borrower and Executing Agency 147.1 Performance of The Bank/Fund 147.2 Performance of the Borrower and the Executing Agency 14

8 Overall Performance and Rating 15

9 Conclusions, Lessons Learnt and Recommendation 159.1 Conclusions 159.2 Lessons Learnt 169.3 Recommendations 16

This report was prepared by Messrs. M. Assefaw (Senior Financial Analyst) and F. Asfaw(Telecom Engineer, Consultant) following a Project Completion Mission to Malawi in February2003. Any enquiry relating to this report may be referred to either the authors or Mr. N.Matondo-Fundani, Manager ONIN.2 (2519).

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Annexes

1.1 Malawi Telecom II Project – Project MPDA Matrix1.2 Map of Malawi2.1 Comparative Organization Chart of the Executing Agency2.2 Comparative Project Implementation Schedule2.3 List of Contractors, Suppliers and Consultants2.4 Details of Procurement Activities3.1 Project Costs by Component – Actual vs. Financing Plan3.2 Yearly Disbursement by Source of Finance4 Summary of Malawi Telecommunications Ltd’s Financial Performance5 Calculation of Internal Rates of Return (Financial and Economic)6 Performance Evaluation and Rating7 Recommendations and Follow up Matrix

Tables

Table 3.1 Comparative dates for implementation of Frond End ActivitiesTable 3.2 Financing plan – At Appraisal and at PCRTable 3.3 Disbursement of Bank’s Funds – Appraisal Estimates and PCRTable 4.1 Project Output: Appraisal against ActualTable 8.1 Summary of Project Performance Rating

List of References:

1 Malawi: Telecommunications II Project – Appraisal Report.2 Financial Statement of Malawi Telecom Ltd (2001 and 2002)3 Project Completion Report by Executing Agency4 Supervision Summary Report5 Bank Disbursement Records

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EQUIVALENTS AND ABBREVIATIONS

Currency Equivalents

MWK = Malawi KwachaUA = Bank’s Unit of Account

Appraisal PCR(June 1991) (February 2003)

1 UA = US$ 1.422266 US$ 1.376541 UA = MWK 3.76564 MWK 118.467

MEASURES

Hz = HertzMHz = Mega Hertz (Hz * 106)GHz = Giga Hertz (Hz * 1012)Mbs = Mega bits per second (106 bits/sec)m = meterkm = kilometer ( m * 103)

ABBREVIATIONS

ADB = African Development BankADF = African Development FundCEO = Chief Executive OfficerCIDA = Canadian International Development AgencyCSP = Country Strategy PaperDEL = Direct Exchange LineEA = Executing AgencyEIA = Environmental Impact AssessmentEIRR = Economic Internal Rate of ReturnEU = European UnionFC = Foreign CurrencyFIRR = Financial Internal Rate of ReturnFY = Financial YearGDP = Gross Domestic ProductGOM = Government Of MalawiICB = International Competitive BiddingIDA = International Development Association

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ISD = International Subscriber DialingINTELSAT = International Satellite OrganizationITU = International Telecommunications UnionMDF = Main Distribution FrameMOCT = Ministry of Communications and TransportMPO = Malawi Post OfficeMPTC = Malawi Post and Telecommunications CorporationMTL = Malawi Telecommunications LimitedNTE = National Transit ExchangeOFC = Optical Fibre CablePCR = Project Completion ReportPDH = Pseudo-synchronous Digital HierarchyPIU = Project Implementation UnitPMU = Project Management UnitROI = Return On InvestmentSDH = Synchronous Digital HierarchySIDA = Swedish International Development AuthoritySTD = Subscriber Trunk DialingTRP = Telecommunications Restructuring ProgrammeUA = Unit of AccountUNDP = United Nations Development Programme

FISCAL YEAR

1 April – 31 March

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EXECUTIVE SUMMARY

1 In May 1991, the Bank approved an ADB loan of UA 15 million and ADF loan of UA 11.05million to the Government of Malawi (GOM) to finance the foreign costs of Telecommunications IIProject. The main objective of the project was to modernise the telecommunications facilities in andthe adjacent areas of the Capital City Lilongwe and the municipality of Zomba and some nearbyareas, by replacing old equipment, and expanding the Network to meet the demand fortelecommunications services.

2 The project comprised the provision and installation of digital exchanges in Lilongwe andZomba areas, interface equipment at Blantyre and Mzuzu to link with Lilongwe and Zomba,exchange interconnecting transmission equipment in Lilongwe and Zomba, as well as buildings andassociated equipment. External and subscriber plant are also provided for both Lilongwe andZomba. In addition, vehicles, equipment as well as consultancy services were also provided as partof the project.

3 The project on completion cost UA 33.51 million, which is 106.2% of the appraisal estimate.The total project cost was financed by ADB, ADF, and GOM, which contributed, respectively, UA15.0 million (44.7%), UA 11.06 million (33.0%), and UA 7.46 million (22.3%).

4 The long time taken in the fulfillment of ‘Conditions Precedent to Entry into Force’contributed to delays in the implementation of the front-end activities, which in turn delayed thecompletion of the project. The delays were caused by the unfavorable socioeconomic situation thatprevailed during 1991-1994 and the suspension of Bank Group operation in the country.

5 The Project was completed five years behind schedule in comparison to what was envisagedat appraisal. Nonetheless, the project was able to achieve the envisioned outputs. The facilitiesprovided under the Project are operating properly. The implementation of the Project hascontributed to the improvement of telecommunication services in the Country and the ExecutingAgency is benefiting as a result. The long outstanding waiting list for telephone services wasalmost fully covered immediately after Project commissioning and the quality of telephone servicehas also improved as a result of the project. The Executing agency did not experience majorproblems in implementing the Project and the work carried out by the Executing Agency, thecontractors and the suppliers is commendable. Furthermore, the project generated financial andeconomic returns of 15.3% and 23.9%, respectively which are comparable to those envisaged atappraisal (FIRR=14.5%).

6 The project included Engineering Consultancy Services to facilitate procurement, as well asdesign and construction supervision Teleconsult of India was the consulting engineer of the project.Their performance during design and supervision of the transmission and plant works was good. Thepersonnel of the consultant firm were mostly of good quality and very experienced, and firm’s overallperformance was rated highly satisfactory.

7. Several contractors were engaged in the construction of the project facilities. These includedMessrs. Mitsui (Japan) for the supply and installation of Exchanges and Transmission Equipment;TCIL (India) for the supply and installation of underground cables, PVC and associated accessories;and Alcatel for the supply and installation of subscriber equipment. In view of the works done, theperformance of Mitsui and Alcatel was rated satisfactory, while the performance of TCIL was ratedfully satisfactory. Messrs. S. R. Nicholson was the contractor for the construction of buildings. In viewof the problems faced in completing the building works, its performance was rated as substandard. Inaddition, several suppliers were involved in the project. These included, Messrs Toyota Malawi for the

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supply of vehicles, B&C for air conditioning, ICL for computers and Xerox for photocopy machines.The performance of all the suppliers were rated fully satisfactory.

8 The performance of the Executing Agency was rated satisfactory. It was able to monitor andcontrol the engagements of the contractors and consultants. However, the executing agency couldhave done more to fulfill the loan conditions. On the other hand the performance of the Borrowerwas sub-standard. It took more than 29 months to fulfill the conditions precedent to entry into force.Furthermore, the borrower failed to monitor and ensure the fulfillment of some of the loanconditions. The Bank’s reaction to the urgent calls of the borrower was timely and very muchappreciated by the country. The bank processed the project documents and the project was approvedtimely. However, the Bank was not proactive to induce timely start up of project activities so thatproject objectives could be achieved as envisaged at appraisal. It was only after 1997 that the Bankstarted proactively monitoring the activities of the project. Thereafter, the Bank supervised theproject 5 times between 1998 and 2001, i.e. on average 1.25 supervisions per year. The Bank’ssupervision was quite instrumental in providing impetus to the progress of the project. However, asthe composition of the supervision missions was not balanced the Bank failed to ensure themaintenance of separate project accounts, submission of periodic audit reports and fulfillment ofsome of the loan conditions. Overall, the performance of the Bank is rated as satisfactory.

9 This PCR is prepared based on visits to the project sites and detailed discussions held with theExecuting Agency and the Borrower. The project benefits are being realized. Inspection of the workson the ground shows that the quality of construction of the exchanges and transmission equipment areto current standards. Furthermore, the Executing Agency had the technical skills to undertake theoperation and maintenance of the facilities provided under the project.

10 The following are the lessons learnt in the implementation of the project:

The Executing Agency/PIU did not keep separate financial records of the project and failed tosubmit the audited project financial statements regularly. In the future, the Bank should undertakeclose financial supervision and take measures, including suspension of disbursement, to ensure thatExecuting Agencies maintain separate accounting records of projects and that audited projectfinancial statements are submitted to the Bank regularly.

The borrower did not fulfill some of the loan conditions. It is noted that the Bank’s supervisionmission did not properly monitor the fulfillment of these conditions. In the future, the Bank’ssupervision missions should be well balanced in terms of professional composition in order toaddress properly all technical, institutional and financial issues of projects. Furthermore, the Bankshould not shy away from taking necessary measures, including suspension of disbursement, inorder to ensure that all pertinent loan conditions are fulfilled.

As regards the conditions precedent to entry into force related to the institutional transformation ofMPO, the Bank should have actively contributed in the transformation process by including acomponent, as part of the project, to facilitate the process. In facilitating such institutionaltransformation, the Bank should avoid putting conditions, in particular conditions beforedisbursement, that might take long time to fulfill.

The implementation of the project was adversely affected by staff turnover in the PIU and theBank. As one of the loan conditions, the CVs of the counterpart staff to be attached to the PIUhave to be reviewed and approved by the Bank. However, it was noticed that staff replacementswere never communicated to, nor approved by, the Bank. In the future, the Bank should ensurethat PIU are staffed with personnel acceptable to the Bank. Furthermore, the Bank shouldminimise turnover of its staff in charge of a project in order to facilitate communication/familiarityof project management.

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Exchange rate fluctuations, particularly the appreciation of the JPY against the UA, caused projectcost over runs in UA. The EA/GOM was obliged to use its scarce foreign exchange resources tocover the financing gap. The financing gap resulted from contracts that were denominated inspecific currency (in this case in JPY) while the loans were denominated in UA, and theappreciation of the contract currency against UA. In this regard, in order to assist the borrowers,the Bank should enhance the selection of financial products, including loan currencies, and providerisk management products to borrowers from ADF countries as well.

11 It is recommended that the Bank continue to support the development of thetelecommunications sector in the country. It is recommended that the lessons learnt in theimplementation of Telecommunications II Project be taken into account in the design andimplementation of future projects.

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BASIC PROJECT DATA

1. Loan Number B/MLW/TEL/91/003 (ADB)F/MLW/TEL/92/21 (ADF)

Borrower The Government of Malawi (GOM)Guarantor GOMBeneficiary Malawi Telecommunications Limited (MTL)Executing Agency MTL

A. LOAN

1. Amount:ADBADF

UA 15 Million (100%)UA 11.05 Million (100%)

2. Interest Rate Type(ADB) Variable rate on amount disbursed3. Commitment Charge 1% p.a. on undisbursed amount4. Repayment Period ADF/ADB 50/20 years5. Grace Period 10/5 years6. Loan Negotiation Date April 19917. Loan Approval Date 21 May 19918. Loan Signature Date 2 August 1991 (ADB)

13 May 1992 (ADF)9. Date of Entry into Force 10 February 1994

B. PROJECT DATAAppraisal Estimate Actual

1. Total Cost(UA/Million) 31.56 33.51 (106.2%)

2. Financing Plan(UA/Million)At Appraisal Actual

Source Total % Total %ADB 15.00 47.5 15.00 44.7ADF 11.06 35.0 11.06 33.0GOM/MTL 5.50 17.5 7.46 22.3Total 31.56 100.0 33.52 100.0

Appraisal Estimate Actual3 Date of First Disbursement October 1991 June 19944 Date of Last Disbursement December 1997 December 20025 Commencement of Project

Implementation ActivitiesJanuary 1992 June 1994

6 Completion of Project ImplementationActivities

December 1995 December 2000

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C. PERFORMANCE INDICATORS

1 Cost Overrun/(Under run) UA 1.96 Million2 Time Overrun/Under run

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

29 Months60 Months5 Years2 Times

3 Project Implementation Status Completed4 List of verifiable indicators and levels of

achievement (expressed as % of plannedlevels: (all the set objectives achieved) Increase telephone lines by 40800 Reduce telephone waiting list Reduce no. of faults in the system Increase call completion rate

115%satisfactorysatisfactorysatisfactory

4 Institutional Performance Satisfactory5 Contractor Performance Satisfactory6 Consultant Performance Satisfactory7 FIRR 14.51% (Appraisal)

15.31% (PCR)8 EIRR - (Appraisal)

23.9% (PCR)

C. MISSION

Mission Composition Man/daysIdentification (1988) Telecom Eng. 7Preparation (March 1990) Telecom Eng. 7Appraisal (Feb 1991) Telecom Eng.+Financ. Analy. 20Supervision (January 1998) Telecom Eng. 7

Supervision (March 1999) Telecom Eng. 7

Supervision (November 1999) Telecom Eng. 7

Supervision (April 2000) Telecom Eng. 7

Supervision (February 2001) Telecom Eng. + Division Mgr 10

PCR (February 2003) Telecom Eng. + Finan. Analyst 20

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D. DISBURSEMENT (ADB and ADF Loans)

ADB Loan ADF LoanAppraisal Actual % Appraisal Actual %

Total Disbursed 15,00 15,00 100 11,06 11,05 100

Amount CancelledUnused BalanceYearly disbursements:

19911992 1,55 0

1993 5,30 0

1994 8,49 0 4,20 0

1995 5,48 0,48 9 0,331996 1,03 0,09 9 0,591997 0,43 0,041998 3,23 0,511999 5,94 3,832000 2,99 5,072001 1,85 0,662002 - 0,03

Total Disbursement 15,00 15,00 100 11,05 11,05 100

F LIST OF CONTRACTORS, SUPPLIERS AND CONSULTANTS

The list is presented in Annex 2.3 of this PCR.

1 INTRODUCTION

1.1 The Bank was first involved in Malawi’s telecommunications sector in 1983, when theBank Group accorded an ADF loan of UA 9.252 million to finance the Malawi Telex Network(Telecommunications I) Project. The project comprised provision of equipment for theexpansion of the telex network and training in the Digital Technology for most of the technicalstaff to be carried out in Malawi. Telecommunications I project was completed in 1991.

1.2 In 1988, while Telecom I Project was under implementation, the Government of Malawiexpressed its interest in the Bank Group’s additional assistance for a Telecom II project. In 1991the Board of Directors approved the Telecommunications II Project (the Project) for a total loanof UA 26.05 million. The project was in line with the Government’s medium term adjustmentand growth strategy as published in its “ Statement of Development Policies 1987-1996”. Theproject aimed at institutional strengthening and modernization and expansion of thetelecommunications facilities in and the adjacent areas of the Capital City Lilongwe and themunicipality of Zomba and some other areas. The project was expected to complement thebenefits from the Telecommunications I project.

1.3 Telecommunications II Project was approved in 1991; however, it took more than twoyears to fulfill the loan conditions precedent to first disbursement. Subsequent to entry into forceof the Loan in 1994, the project was implemented between 1994 and 2000. The project hasrealized an additional capacity of 47,060 direct exchange lines to the telecom network and theequipment installed is operating without any major problems.

1.4 Major positive changes had taken place in the Telecom Sector since the appraisal of theproject. In line with the recommendations of a management study, the Department of Posts &Telecommunications (DPT) (within the Ministry of Transport and Communications) wastransformed into an autonomous parastatal - Malawi Posts and Telecommunications Corporation(MPTC) in April 1995. MPTC was responsible for postal and telecommunications services inMalawi. The Communications Act, which is the basis for a modern and functional legal andregulatory framework for the communications sector in the country was enacted in 1998. The Actset up an independent regulatory authority – the Malawi Communications Regulatory Authority(MACRA) in 1999/2000, and consequently the telecommunications network was reorganised alongcommercial lines. A second operator in the telecom sector concentrating on Mobile services wasgiven a license in 2000. The provision of posts and telecommunications services were separatedinto two entities – Malawi Posts (MP) and Malawi Telecommunications Limited (MTL). MTL wasformed on 1 April 2000 as a parastatal to provide high quality telecommunications services oncommercial principles in Malawi.

1.5 This PCR is based on the review of information gathered from the appraisal report,project files in the Bank, Borrower's quarterly progress reports and PCR, assessment of the projectimplementation on site, and discussions with the Borrower and Executing agency during a Bankmission to Malawi in January/February 2003.

2 PROJECT OBJECTIVES AND FORMULATION

2.1 Project Objectives and Description

2.1.1 The main objective of the project was to modernise the telecommunications facilities inand the adjacent areas of the Capital City Lilongwe and the municipality of Zomba and somenearby areas, by replacing old equipment, and expanding the Network to meet the demand fortelecommunications services.

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2.1.2 The project constituted the provision and installation of digital exchanges in Lilongweand Zomba areas, interface equipment at Blantyre and Mzuzu to link with Lilongwe and Zomba,exchange interconnecting transmission equipment in Lilongwe and Zomba, as well as buildingsand associated equipment. External and subscriber plant were provided for both Lilongwe andZomba. In addition, consultancy services and training were provided as part of the project.

2.1.3 At appraisal the project components were a) Exchanges, b) Transmission, c) ExternalPlant, d) Subscriber Plant, e) Vehicles and Equipment, f) Consultancy Services, and g) Training.

2.1.4 The project was implemented as envisaged at appraisal, and all the project objectiveswere achieved fully. It compriseda) 17 exchanges (13 local exchanges in Lilongwe and 4 in Zomba) with a total of

40,800 lines, 3,960 trunk lines and interface equipment for Blantyre and Mzuzu;b) Transmissions comprising 17 units of Multiplexes of 140, 34 and 8 MB/S, 200 km of

2/4 pairs of optical fibre cables;c) External Plant: 77,000 km pairs of cables, 65,000 metres of PVC ducts, accessories,

mechanical aids, tools, test instruments and associated works;d) Subscriber Plant: 2,700 km of drop wires, 16,600 telephones and associated wires

and accessories;e) 65 Vehicles, 14 computers and accessories as well as 6 photocopy machines;f) Consultancy Services: 3 Experts and 4 counterparts for four years; andg) Training: Training equipment and associated trainers plus a maintenance expert for

one year. (more than 160 staff trained)

2.2 Project Formulation and Origin

2.2.1. During one of the supervision missions of the Bank-financed Telecom I Project (TelexNetwork Project), the Government of Malawi expressed its interest in the Bank Group’sadditional assistance to finance the modernization and expansion of the telecommunicationsfacilities in and adjacent areas of the Capital City, Lilongwe, and the municipality of Zomba andsome other areas. The project was in line with the Government’s medium term and growthstrategy as stated in the “Statement of Development Policies 1987-1996” and its implementationwas a matter of urgency in view of its socio-economic implications to the country.

2.2.2. As a follow up to the government’s interest for additional Bank assistance, a Bankmission visited Malawi in March 1990 to discuss the details of the project, including financingrequirements. The mission concluded that if nothing was done quickly, the two centers wouldhave no telecommunications services in five years time as the suppliers of the existingequipment which use the old (analogue) technology would have stopped manufacturing spareparts for the equipment and would shortly cease supplying those spare parts. The Government ofMalawi then sent to the Bank the Official Request on 28 August 1990.

2.3 Preparation, Appraisal, Negotiations and Approval

2.3.1 Responding to the GOM request, the Bank undertook an Appraisal Mission to Malawi inFebruary 1991. During the Appraisal Mission, the various components of the Project werereviewed in detail with the borrower and executing agency. The Bank and the GOM agreed tofinance different components of the Project, estimated cost not to exceed UA 31.65 million.

2.3.2 Following the appraisal of the project, loan negotiations were conducted in the Bank’sheadquarter in April 1991. A number of loan-specific conditions, which were required for thesuccessful implementation of the project and enhancement of the efficiency of the Malawi Posts

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Office (MPO), a department within the Ministry of Transport and Communications werecovered in the negotiations. The main issues discussed during negotiations were i) the need toensure commercial viability of the Executing Agency, (MPO) by transforming it into anautonomous body; ii) the need to ensure timely settlement of outstanding bills (governmentalbodies and other customer); and iii) the need to take measures to reduce the foreign exchangerisks associated with bills of international telecommunications. Following extensive discussions,agreement was reached that these would be conditions of the ADB/ADF loans.

2.3.3 In May 1991, the Bank approved UA 26.05 million comprising an ADB loan of UA 15million and an ADF loan of UA 11.05 million to finance the project. The Bank’s contributionwould cover approximately 82.5 % of the total Project cost of UA 31.56 million. The loanAgreements were subsequently signed on 2 August 1991 (ADB) and 13 May 1992( ADF).

3 PROJECT EXECUTION

3.1 Effectiveness and Start-up

3.1.1 The entry into force of the ADB and ADF loans were subject to the fulfillment of section5.1 of the Bank Group’s General conditions and two conditions related to the conversion ofMPO into an autonomous entity and assignment of counterpart staff to the PIU. The borrowerwas able to fulfill the general conditions and the condition related to the counterpart staff of thePIU within six months after the signing of the loan agreements. However, the borrower tookmore than 29 months to fulfill the condition related to the transformation of MPO intoautonomous entity.

3.1.2 The fulfillment of conditions for loan effectiveness and the implementation of front-endactivities took more time than envisaged at appraisal. Table 3.1 below compares the dates ofimplementation of the front-end activities against the dates planned at appraisal. In summary, thestart up of project implementation was delayed mainly due to delay in the fulfillment of the‘Conditions Precedent’ and the effectiveness of the Bank Group loans and consequent availabilityof funds.

Table 3.1Comparative Dates for Implementation of Front-end Activities

Front-end Activities Planned Date atAppraisal

ActualImplementation Date

Slippage(Months)

Loan Approval May 1991 May 1991 0Loan Signature August 1991 2 August 1991 (ADB)

13 May 1992 (ADF)09

Loan Effectiveness October 1991 February 1994 29Recruitment of the EngineeringConsultant

December 1991 April 1994 28

Start up of Physical Implementation April 1993 March 1998 59

3.1.3 All conditions precedent to entry into force of the loan agreements were eventuallyfulfilled and the loans were declared effective on 10 February 1994. Project implementationactivities commenced thereafter in April 1994 and the first contract covering supervisionconsultancy contract was awarded on 20 April 1994. The first contract for the major componentsof the project was awarded on 11 February 1997. The delay in start-up of the physicalimplementation of the Project was therefore approximately five years after loan approval.

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3.2 Modifications

The list of goods and services was modified in 1997, at the time the project activities were tostart. As the start up of the project activities was delayed, and there were changes in the prices ofsome of the components, the list of goods and services of the project was revised. The revisionwas also necessary to facilitate tendering and contract management (i.e. the list of items inComponent 1 and Component 2). Similarly, the Training component, which was originallyprogrammed as a separate component, was revised to be incorporated with other relevantcomponents. As such, trainings related to Exchanges and Transmission Equipment wereincluded in the component/contract of Exchanges and Transmission Equipment. Similarlytrainings related to External Plant and Subscriber plant were included with the related ExternalPlant and Subscriber plant component/contracts. In addition, more vehicles, computers andoffice equipment (including photocopy machines) were required for the running of the newlyformed telecom entity. These additional vehicles and equipment were acquired as part of theproject due to favourable prices during tendering. Annex 3.1 – Project costs by Component –Actual vs. Financing Plan - shows a comparison of project costs as envisaged at appraisal,revised in 1997 and the actual costs at completion.

3.3 Implementation Schedule

A chart comparing the implementation schedule envisaged at appraisal and actual implementationis presented in Annex 2.2. Physical implementation of the project was completed in December2000, with an overall delay of almost 5 years. The delay was predominantly caused by thedelays in the effectiveness of the ADB and ADF loans. These delays in the effectiveness werepartly caused by the unfavourable socio-political situation that prevailed during 1991-1994 inMalawi and the suspension of Bank operations during the same time. However, after the loansbecame effective implementation progressed timely. The project components were implementedfrom 1996 to 2000, i.e. over a period of 60 months. This is largely in line with the workprogramme at appraisal that envisaged project activities to be implemented over 57 months.Despite the initial unforeseen delays in the start up of project activities, in summary the durationof physical implementation of each activity as envisaged at appraisal was realistic.

3.4 Reporting

3.4.1 Pursuant to the provisions of the General Conditions of the Loan Agreement, theexecuting agency was expected to submit quarterly progress reports to the Bank regularly. But itwas noted that the EA submitted such progress reports sporadically and the reports were notprepared in line with the Bank’s required format. As such the contents of the progress reports interms of keeping the Bank continually informed of the technical status of the project was notsatisfactory. The reports did not provide the required information on the financial aspects of theproject.

3.4.2 The Executing Agency did not keep proper project accounts separately. The project’saccounting records did not fully capture the contributions of the Executing Agency towardsmeeting the local costs of the project. The contribution of the Executing Agency had therefore tobe estimated during the preparation of the PCR.

3.4.3 The Executing Agency failed to submit the audited financial statement of the projectregularly as required by the General Conditions of the Loan. Though implementation of projectactivities started in 1994, the project was audited only once in 1999. Thus, the executing agencysubmitted only one audited project account for 1999. Despite repeated requests from the Bankfor audited projects accounts for 2000, no audit report has been prepared and submitted to the

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bank. Although the responsibility to undertake annual project audits rests primarily with theBorrower and the executing agency the sub-optimal composition of the Bank missions thatsupervised the project are also partly to be blamed. The Bank’s supervision missions wereinadequately staffed and comprised only a Telecom Engineer. The failure of the executingagency to submit regular audited project accounts could have been corrected if the Bank tookaction to suspend disbursements.

3.4.4 The executing agency after repeated demands from the Bank submitted the Borrower'sPCR in December 2002, i.e. two years after project completion. The Borrower's PCR providedpartial information as it did not provide adequate information on the financial aspects of theproject.

3.5 Procurement

3.5.1 Goods and services of the various components of the project were procured inaccordance with the Bank’s Procurement Rules of Procedure and using methods stipulated in theLoan Agreements. Procurement for Switching Equipment, Transmission Equipment, ExternalLine Plant, and Subscriber Line Plant were carried out through International CompetitiveBidding (ICB). Motor Vehicles, Computers, Photocopy Machines and Air ConditioningEquipment were procured through National Competitive Bidding. Consultancy services wereprocured through short listing of consultants. Details of the suppliers, contractors and consultantis provided in Annex 2.3.

3.5.2 All the procurement activities of works and supply of goods were carried out betweenSeptember 1995 and April 1998. The contracts of the same packages were also awarded betweenFebruary 1997 and April 1998. Details of the tendering process are presented in Annex 2.4. Tenderprocessing, from tender floating up to contract award, took 12 to 16 months. The tendering ofthe Air conditioning system took about 25 months, as the package was re-tendered as the EA didnot follow the Bank’s procurement procedures. A detailed review of the tendering processcomprised the following breakdown: (a) 2-9 months for tender floating; (b) 1-8 months fortender evaluation by the Executing Agency (c) ½-7 months for review of Tender EvaluationReport by the Bank; and (d) ¼ to 1 ½ months for negotiations and award of contract. Undernormal conditions, the tendering process up to contract award for the procurement of works andsupply of goods is estimated to take on average 6-7 months. Overall, the tendering process tookmore time. Therefore the performance of the project in terms of procurement was notsatisfactory. The main reasons for the delays in the procurement process were lack of exposureof the Executing Agency to the Bank’s Procurement Procedures and delay by the Bank (about 6months) in reviewing tender documents.

3.6 Financial Sources and Disbursements

3.6.1 At appraisal the project was estimated to cost UA 31.56 million, and was envisaged to befinanced by ADB, ADF and GOM by contributing respectively, UA 15 million (47.5%), UA11.06 million (35%) and UA 5.5 million (17.5%). Two of the major contracts were denominatedin JPY, which appreciated against the UA by more that 25% during the period 1998 to 2000(from 175 at the beginning of 1998 to 143 by end of 2000). The exchange rate fluctuationcaused a deficit in the financing plan of the project. The GOM/EA was obliged to top up orcover the financing gap created as a result of the exchange rate movement. Hence, GOM/EA’scontribution increased from UA 5.5 million envisaged at appraisal to UA 7.46 at the completionof the project. At completion, the total project cost was UA 33.51 million, which is 106% of theappraisal estimates. The project was financed by ADB, ADF, and GOM. The Bank Groupcontributed UA 26.06 million (78%), while GOM contributed UA 7.46 million (22%). Table 3.2

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below provides a comparison of the financing plan as envisaged at appraisal vis-a-vis actualfinancing. Further details are provided in Annex 3.2.

Table 3.2Financing Plan: At Appraisal and PCR (in UA)

Appraisal (Estimates) ActualSource Total % Total %ADB 15.00 47.5 15.00 44.7ADF 11.06 35.0 11.06 33.0GOM/MTL 5.50 17.5 7.46 22.3Total 31.56 100.0 33.51 100.0

3.6.2 Funds from the ADB/ADF loans were disbursed by direct payments to the contractors andconsultant. It is noted that the extended delays in the effectiveness of the Bank Group loans, and theconsequent slippage in the start up of the project activities has significantly affected the disbursementschedule. At appraisal, disbursements were planned to commence in 1991, however no disbursementstarted till June 1994. Because of the delays in the start-up of project activities, the deadline for lastdisbursement was postponed twice. At the time of loan signature the deadlines for last disbursementsof both the ADB and ADF loans were set 31 December 1997. The deadlines were first extended to31 December 2000, followed by another extension to 31 July 2001. Table 3.3 below presents acomparison of the disbursement profiles of the ADB/ADF funds as envisaged at appraisal and actualdisbursements.

Table 3.3Disbursement of Bank's Funds: Appraisal Estimates and PCR (in UA)

Appraisal (Estimates) At PCR (Actual)Year ADB ADF Total % ADB ADF Total %

1990/91 - - - -1991/92 1,55 1,55 5,9 - -1992/93 5,30 5,31 20,4 - -1993/94 8,49 4,20 12,69 48,7 - -1994/95 5,48 5,48 21,0 0,48 0,33 0,81 3,11995/96 1,03 1,03 4,0 0,09 0,59 0,68 2,61996/97 - - 0,43 0,04 0,47 1,81997/98 - - 3,23 0,51 3,74 14,41998/99 - - 5,94 3,83 9,76 37,51999/00 - - 2,99 5,07 8,06 30,92000/01 1,85 0,66 2,51 9,62001/02 - - - 0,03 0,03 0,1

Total 15,00 11,05 26,06 100,0 15,00 11,05 26,05 100,0

3.6.3 From the Bank’s records, it was noted that most disbursements were effected on time, exceptthat a few were delayed due to incomplete disbursement requests submitted by the Borrower.However, the Borrower and the executing agency had expressed their dissatisfaction with the delaysin disbursement as well as in getting feedback on disbursement issues from the bank. In addition, asthe loan was denominated in UA, while contracts with the suppliers/contractors were in US$ andJapanese Yen, fluctuations in the exchange rate caused the proceeds of the ADB and ADF loans notto be enough to cover the obligations of some of the contractors. This problem caused frustrations tothe contractors, the borrower and the executing agency. The frustrations could have been minimizedif the Bank’s supervision mission were properly staffed to address financial and disbursement issues.

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It is also noted that had the project activities started on time, as envisaged at appraisal, the problemsrelated to exchange rate fluctuations would not have affected the implementation of the project.

4 PROJECT PERFORMANCE AND RESULTS

4.1 Overall Assessment

4.1.1 The Project was completed five years behind schedule in comparison to what wasplanned at appraisal. Nonetheless, the project achieved the outputs envisaged at appraisal. It is alsonoted that the project was completed with cost overrun of UA 1.95 million (+6.2%). The projectgenerated financial and economic returns of 15.3% and 23.9%, respectively which are better thanthose envisaged at appraisal (FIRR=14.5% and EIRR= na).

4.1.2 Notwithstanding the delays in the commencement of project activities, the Project hasbeen executed successfully and the facilities provided under the Project are operating properly.The implementation of the Project has contributed to the improvement of telecommunicationservices in the Country and the Executing Agency is benefiting from the Project. The longoutstanding waiting list was almost fully covered immediately after Project commissioning andthe quality of telephone service has also improved as a result. The Executing agency has notexperienced major problems in implementing the Project and the work carried out by theExecuting Agency, the contractors and the suppliers is commendable.

4.1.3 Some of the loan conditions were not complied with and to date remain unfulfilled. Thisis due to the Executing Agency’s lack of effort and attention on the issues, and the failure by theBank to monitor the fulfillment of the conditions. The outstanding loan conditions are reductionof accounts receivable collection period to less than 60 days, and reduction of foreign exchangerisk pertaining to the billing of international telecommunications.

4.1.4 At appraisal the fulfillment of the condition precedent to entry into force related to thetransformation of MPO into an autonomous entity should have been expected to take longertime. Thus, this condition should have been formulated as one of the other conditions of theloan, rather than a condition precedent to entry into force.

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4.2 Operating Results

4.2.1 Table 4.1 below compares the outputs of the project against those planned at appraisal.

Table 4.1: Project Outputs: Appraisal Against PCR

4.2.2 At appraisal provision was made for installing a total of 40,800 lines on all of theexchanges in the Project area. The Project has surpassed that target and implemented equippedcapacity of 47,060 lines (15% more lines than envisaged). It has also supplied spare wiredcapacity for the future. The increase in DELs resulting from the Project is about 135% of thecapacity that existed at appraisal.

4.2.3 In addition to the towns where new exchanges have been installed, 4 towns/villages inLilongwe area and 5 towns/villages in Zomba area have been served by remote concentratorunits.

4.2.4 The total number of vehicles procured was 65 versus the envisaged number of 54 atappraisal. All the vehicles procured under the project were useful for the operations andmaintenance as well as customer services crew of the newly formed autonomous telecom entity.Similarly, the total number of computers provided by the Project was 17 against 14 envisaged atappraisal.

4.3 Institutional Performance

4.3.1 At appraisal, Department of Posts & Telecommunications, within the Ministry of Transportand Communications, was assigned the role of Executing Agency. In April 1995 the departmentwas transferred into an autonomous parastatal known as Malawi Posts and TelecommunicationsCorporation (MPTC). MPTC was responsible for postal and telecommunications services inMalawi. The transformation of the department (MPO) into MPTC was done on the basis of therecommendations of the Management Study report, which was on going during appraisal. The

Component Appraisal PCR PCR/APP

A- Exchanges

Digital exchangesLilongwe area 13 13 100%Zomba area 4 4 100%Lines 40,800 47060 115%

Trunk switching

Lilongwe and Zomba (lines) 3960 3960 100%Interface equipmentBlantyre and Mzuzu 100%

B- TransmissionMultiplexes of 140, 34, 8 MBPS(units) 17 17 100%2/4 pairs optical fibre cables(km) 200 200 100%DRMASS 6 6 100%

C- External Line plant:Cables(Kmpairs) 77,000 77,000 100%PVC(km) 65,000 65,000 100%

D- Subscriber Plant:

Drop wires(km) 2,700 2,700 100%Internal Wire Telephones 16,600 16,600 100%

E- Vehicles and Equipment:Vehicles 54 65 120%Computers 10 17 170%Photocopy machines 4 9 225%

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transformation of the department into an Autonomous entity was one of the conditions of theBanks’ loan Agreements.

4.3.2 Major positive changes had taken place in the Telecom Sector since the appraisal of theproject. The Communications Act which is the basis for a modern and functional legal andregulatory framework for the communications sector in the country was enacted in 1998. The Actset up an independent regulatory authority – the Malawi Communications Regulatory Authority(MACRA) in 1999/2000 to exercise control over the communications sector and provide regulatoryfunctions in the provision of telecommunications, broadcasting, postal, and the radio frequencyspectrum with the aim of promoting competition among the providers of these services in thecountry.

4.3.3 The Ministry of Information has implemented several measures towards the restructuringof the telecommunications sector with the aim of attaining the sector goals. These measures,which are in line with the communication Bill of 1998, included the re-organisation of thetelecommunications network along commercial lines, and the separation of posts andtelecommunications into two entities. MPTC was spinned-off in two entities – Malawi Posts andMalawi Telecommunications. Malawi Telecommunications Ltd (MTL) was formed on 1 April2000 with the main objective of providing high quality telecommunications services oncommercial principles in Malawi.

4.4 Management and Organisational Effectiveness

4.4.1 With the development of the Telecommunications sector and the transformation ofMalawi Post office from a department in the Ministry of Communication (at appraisal) to theestablishment of MTL in April 2000, the structure of the entity has improved significantly. Atappraisal the department used to be headed by the Post Master General, who reported to theMinistry of Transport and Communications. The Post Master General managed postal andtelecommunications services together. Like all the other departments in the ministry, MPO hadlittle administrative and financial autonomy. As this had resulted in declining operational andfinancial performance, the GOM recruited a consultancy firm to review the operational andfinancial performance of MPO and recommend an action plan. The implementation of therecommendations of the study were made conditions of the ADB and ADF loans.

4.4.2 In 1995 MPO was transformed into MPTC; and in 2000 MPTC was separated in to two, outof which MTL was formed to provide telecommunications services on commercial principles. Theorganization of MTL consists of a Board of Directors responsible for general policy andsupervision. The day-to-day management of the entity is the responsibility of the Chief ExecutiveOfficer (CEO), who is appointed by the Board. The CEO is assisted by four Executive Directors(for Finance, Networks, Customer Services, and Company Secretary & Administration). At theoperational level he is assisted by 11 deputy directors and 22 Business Unit managers.

4.4.3 The Network and Customer Services Departments run the core services of the company.The Networks department is responsible for overall planning and operation of the networkincluding management of all major projects. The responsibility for the implementation of theproject was under this department. While the customer services department is responsible for salesand services, installation of subscriber's apparatus, and maintenance of the customer network restswith the Networks department. Both the NetWorks and Customer Services departments areorganized into 22 business units geared to the needs of customers. The business unit managers havefull responsibility for decisions affecting their respective units in terms of cost control andprofitability.

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4.4.4 The finance department is responsible for financial planning and management functions,while the Secretary & Administration department covers general administration, human resourcesmanagement and development, as well as security and transport functions. Important innovations tothe organization are the inclusion of Corporate Planning Unit, Internal Audit Unit, as well asInformation Technology units reporting directly to the CEO. A comparison of the organizationcharts of the executing agency at appraisal and at the time of PCR is attached in Annex 2.1.

4.5 Staff Recruitment, Training and Development

4.5.1 At appraisal MPO had a total staff complement of 3,580 out of which about 2,135worked in the telecommunications section. This corresponds to 12 exchange lines per staff,which was one of the lowest in the world, indicating overstaffing of the entity. In April 2000when MTL was established it had 3240 staff, but later on the number was reduced to 2415 byend of December 2002. More than 60% (1438) of the staff are at lower level or unskilled. Afterits establishment in 2000, MTL had down sized its staff by taking stock of active staff,eliminating ghost staffs and separating of 500 employees. With the expansion of thetelecommunications business in the county, the ratio of exchange lines to staff has improvedfrom about 14 at appraisal to 21 at the time of PCR. However, as this level is still very low incomparison to internationally accepted levels (more than 40 exchange lines per staff) much isstill to be done to optimise the staffing situation of the company.

4.5.2 The company has a good staff compensation system, which is comparable to the systemused by other parastatals in the country. MTL is committed to the professional upgrading of itsstaff, and provides its staffs with technical and non-technical training at all levels. MTL providestechnical training for junior level staffs in telecommunications equipment, such as Optical Fiber &Cable testing, telegraphic, fault locating, etc. In addition it gives higher-level technical training inengineering as well as non-technical training (in finance and management) through short term andlong-term courses. The company is benefiting from a training programs funded by CommonwealthTelecommunications Organization (CTO) and International Telecommunications Union (ITU).

4.5.3 The Project has also provided training to more than 160 staff in technical areas related to theproject components, including switching, transmission, DRMASS, External Network, and inLaying of Optical Fibre Cable. The training was provided as on the job training linked to eachcomponent of the project. The on job training was designed to upgrade staff's exposure andcapacity to enable them to operate and maintain the project facilities properly.

4.6 Performance of Consultants, Contractors, and Suppliers

Consultants

4.6.1 The Bank financed the Engineering Consultancy Services covering design, preparationof tender documents as well as construction supervision. Teleconsult (India) provided theengineering consultancy services. The design work in the transmission and external plant sectorswas quite good. In addition, the supervision of works by the consulting firm was good that theexecuting agency benefited a lot. The design and supervision was conducted in a spirit of mutualunderstanding and support with the executing agency. The personnel of the consultant firm weremostly of good quality and very experienced. They were able to understand and settle localproblems quickly. The overall performance of the consultant was highly satisfactory.

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Contractors/Suppliers

4.6.2 The contract for the supply and installation of Switching and Transmission equipmentwas awarded to Mitsui of Japan. The quality of their work was very good. It is noted that Mitsuiwas very sensitive in carrying out the job according to the agreed schedule in both the switchingand transmission works. However, it has been indicated that the contractor got stacked severaltimes with software problems in the switching sector and interference problems (collidingfrequencies on existing and new radio equipment) in the transmission system. The repeated effortsto solve these nagging problems had some impact on the progress and work spirit of the staff untilthe problems were fully eliminated. Overall, the performance of Mitsui was satisfactory.

4.6.3 TCIL was the contractor for the supply and installation of 77,000km pairs ofunderground cable, including 65,000 meters of PVC ducts, accessories, mechanical aids, tools, testinstruments and associated works. It has been noted that TCIL supplied all the facilities under thecontract without any problem. TCIL was good in sticking to schedules and completing work as perplan. TCIL's rapport with both the executing agency and the Consulting firm Teleconsult was quitegood. The performance of TCIL is considered fully satisfactory.

4.6.4 Alcatel was the supplier of Subscriber equipment and wires (16,600 telephones, 2,700km of drop wires, 345 km of internal wires and associated accessories) for the project. Factoryinspection and delivery of the facilities was conducted with out any problem. Alcatel's rapportwith both MTL and the Consulting firm Teleconsult was quite good. Overall the performance ofAlcatel is rated satisfactory.

4.6.5 The contract for building construction was awarded to S.R.Nicholas. The contractorwhile having done quite well with the construction of all equipment rooms and buildings, someproblems finishing the electrical works in the final stages of the building works. This was causedby financial problems experienced by the electrical sub-contractor and misunderstandings withthe building contractor. MTL took over the works itself to complete the building project in orderto avoid delays in the installation of the equipments and facilities. As a result, the overallperformance of S.R.Nicholas is rated as substandard.

4.6.6 Vehicles were procured from Toyota Malawi. The supplier of the vehicles performedquite well in fulfilling the requirements of the contract and had a good working relationship withboth MTL and the consulting firm. This has helped a lot in facilitating the operation andmaintenance of the vehicles. The performance of the vehicle supplier is therefore rated fullysatisfactory.

4.6.7 The performance of the other suppliers, namely B&C for the supply of air-conditioningsystem, ICL for the supply of computers, and Xerox for the supply of photocopy machines, wererated fully satisfactory.

4.7 Loan Conditions

4.7.1 The conditions of the ADB and ADF loans were the same. As per the Loan Agreements,there were three conditions precedent to entry into force and five other conditions. The conditionsprecedent to entry into force focussed on a) the formation of the PIU, particularly the CVs andqualification of the PIU counterpart staffs, b) the transformation of MPO into an autonomous entity,and c) finalization of the management study on MPO. The fulfillment of the latter two conditions (band c) took more than two years. The fulfillment of these conditions precedent to entry into forcewas delayed and the Loans were declared effective in February 1994, more than two years aftersignature. As these conditions were related to institutional transformation process that might take

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more time, it would have been appropriate to formulate them separately as other conditions so thatthe effectiveness of the loans was not compromised and the risk of delayed start-up of projectimplementation activities would have been minimized.

4.7.2 The other conditions of the Loans required the Borrower to a) provide evidence of theconversion of MPO into an autonomous entity, b) ensure that telephone bills of government bodieswere settled within two months of billing, c) maintain separate project accounts d) ensure that MPOtook necessary actions to reduce the average receivables collection period to less than two months,and e) to ensure that MPO took appropriate actions to cover the foreign exchange risk pertaining tothe billing of International Telecommunications. It is noted that while the first two conditions werefulfilled, the last three conditions (c, d, and e) are still not fully fulfilled. The executing agency didnot keep separate accounting records for the project. As regards the condition related to thereduction of receivables collection period, it is noted that MTL is taking appropriate measures,including application of prepaid billing system to reduce the average collection period. As regardsthe condition that requires the executing agency to take appropriate actions to cover the foreignexchange risk pertaining to the billing of International Telecommunications, it was observed that noaction has been initiated to address the issue.

4.8 Financial Performance of the Executing Agency

4.8.1 The MPO and MPTC, which were the predecessors of MTL never prepared and auditedtheir annual financial statements. The first audited financial statement of the executing agencyavailable to the public was that for the year ended 31 March 2001, the first year of operation ofMTL. A summary of MTL's financial statements for the years 2001 and 2002 is provided inAnnex 4. The operating revenue of MTL increased by 11.3% from MK 2.4 billion in 2000/01 toMK 2.7 billion in 2001/02. The growth is mainly due to high volume of calls and increases innew connections. The operating expenses during the same period increased by 31.7%, from MK1.6 billion to MK 2.1 billion. The increase in the operating expenses is mainly due to increasedcosts related to staff costs, depreciation, electricity and other utility bills. Thus the operatingprofit fall by 30% from MK 801 million in 2001 to MK 558 million in 2002. Nonetheless, thenet profit, which was supported by other income mainly gains from foreign exchange, increasedfrom MK 129 million to MK 415 million.

4.8.2 MTL's asset base increased from MK 6.96 billion in March 2001 to MK 8.2 billion inMarch 2002. However, the company had a current ratio of 0.75 and 0.85, respectively showingthat the company faced short term liquidity problems. This was basically due to problems ofrevenue collections. The average collection period worsened from 7.5 months of sales in 2001 to10.5 months in 2002. In order to redress the problem, the company introduced a prepaid billingsystem in February 2002. The debt to capital employed ratio increased from 25% to 33%,showing that the company is optimizing its capital structure by using long-term borrowingsinstead of short-term loans.

4.9 Financial and Economic Viability

Financial Viability

4.9.1 At appraisal, the Financial Internal Rate of Return (FIRR) of the project was estimated at14.51%. The computation of the FIRR was based on “with or without the project” analysiswhich took into account the incremental revenues and costs resulting from the implementationof the project. The recalculated financial rate of return of the project is based on the actual costsof the project, the incremental operating and maintenance costs, and the incremental revenueattributable to the project.

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4.9.2 The recalculated FIRR of the project is estimated at 15.3%, which is higher thanestimated at appraisal (14.51%). The recalculated FIRR is higher than the appraisal estimatemainly due to higher incremental revenue that is being generated by the project.Economic Viability

4.9.3 The economic benefits of the project were determined on the assessment of itscontribution to the development of the economy of Malawi. Specifically, the project willstrengthen the telecommunications network and increase the number of telephone subscriptionin the country. It is contributing to the increase of teledensity and availability of telephone andinternet services to the existing major and small customers; it will also avail telecommunicationservices to small and medium scale enterprises and households in the project areas. Besides, theproject contributed in job creation for the local people during construction.

4.9.4 The Economic Internal Rate of Return (EIRR) of the project at PCR is estimated at23.9%. No information on the EIRR was available as of appraisal of the project. Annex 5provides both the assumptions and the detailed calculation of the FIRR as well as the EIRR ofthe project at PCR.

5 SOCIAL AND ENVIRONMENTAL IMPACT OF THE PROJECT

5.1.1 Social Impact

5.1.1 The project has contributed to the exposure of several urban and peri-urban areas to modernmeans of communication which contributed effectively in promoting the interaction of the peoplewith the outside. The Project has also connected many schools and health clinics to the nationaltelecommunications network. It has also enabled different projects in the social sector to delivertheir objectives.

5.1.2 In addition, the project has provided employment opportunity in the communicationsindustry, in the form of internet cafes, and telephone kiosks which have employed local people.These new job opportunities will result in increased incomes of affected households, therebyimproving the well being of the people of Malawi. During the construction of the project temporaryjobs were also created, which benefited mostly Malawians.

5.1.2 Environmental Impacts

5.2.1 The project had no noticeable environmental impact. Optical fiber and external line plantcables have been laid in plastic ducts buried on routes along existing roads. Even thoughclearing of some trees and plants was inevitable for constructing the buildings needed for theProject, it has been observed that the compounds are still green and covered with grass.

5.2.2 Interference by intruders stealing batteries and cables from power rooms, may causeinterruptions and hazards from battery acids and fires from tampering with electric lines. MTL istaking necessary measures against these acts.

6 PROJECT SUSTAINABILITY

6.1 Sustainability of the benefits of the project depends on the continued operation andmaintenance of the various systems and facilities provided under the Project. In this regard it isnoted that MTL has stocks of subscriber line units and critical spare parts that may be neededanytime. MTL is also addressing problems related to stations without standby generators and the

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repeated problems from external interference in the stations’ facilities (theft or vandalism) whichhampered smooth operation of the facilities.

6.2 The exchanges buildings constructed under the project are kept in good condition andsufficient room exists for future accommodation of additional equipment as service grows. Thecompounds housing these buildings are quite spacious with the possibility of constructingadditional buildings if the business areas grow to handle all customer issues locally. Theequipment provided under the Project is state-of the-art that is able to sustain for the design lifewithout problem.

6.3 The operation and maintenance (O & M) cost of the project facilities is financed by MTL.The current tariff policy allows for full cost recovery, including recovery of capital investment. Theaverage tariff at present is sufficient to enable MTL to cover not only the O&M costs, but alsocapital investments. The project has helped MTL to modernize its infrastructure and providemodern telecommunications services to its customers. This will in turn assure MTL to generatesufficient and sustained revenue to cover O & M costs and recover capital investments.

6.4 MTL after its formation was able to recruit and retain high caliber staff. The project has alsoassisted it to develop capacity in various technical fields including exchange, transmission, opticalfiber cables, and project management. Over the course of the project implementation MTL staffwere provided with on the job training. MTL staff were attached and worked closely with thecontractors and consultants. MTL has therefore adequate human capacity for the operation andmaintenance of the project.

7 PERFORMANCE OF THE BANK, THE BORROWER AND THE EXECUTING AGENCY

7.1 Performance of the Bank/Fund

The Bank’s reaction to the demand by the borrower to assist the country by financing the projectwas timely and very much appreciated by the GOM. The bank processed the project documents andthe project was approved timely. However, the effectiveness of the loans took a long time. In theperiod following the effectiveness of the loans, 1994 to 1996, the bank was relatively passive anddid not induce the fulfillment of the conditions and timely start up of project activities. However,after 1997, the Bank became more proactive in monitoring the activities and supervised the project5 times between 1998 and 2001, which is on the average 1.25 supervisions per year. It is noted thatthe Bank’s supervision was quite instrumental in providing impetus to the progress of the projectand in resolving issues arising between the Executing Agency and the Contractors. However, as thecomposition of the supervision missions was not balanced the Bank failed to enforce the fulfillmentof all loan conditions. The Bank should have undertaken close financial supervision in order toensure fulfillment of loan conditions on time, maintenance of separate proper project accounts, andregular submission of audited accounts of the project. Overall, the performance of the Bank is ratedas satisfactory.

7.2 Performance of the Borrower (GOM) and the Executing Agency

7.2.1 The Borrower negotiated and agreed that the effectiveness of the loans was subject to certainconditions being fulfilled in time. It took more than 29 months for the borrower to fulfill the agreedconditions. Furthermore, the borrower failed to monitor and to ensure the fulfillment of theremaining loan conditions. Overall the performance of the borrower is substandard.

7.2.2 The Project Implementation Unit (PIU) comprising staff of the Executing Agency and theConsultant (Teleconsult) was responsible for coordinating and monitoring the implementation of

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the Project. It is understood that because of delays in Project start up, certain staff of MTL andTeleconsult have been deployed to other projects, and staff turnover in the respectiveorganizations led to change of the PIU staff several times. The PIU staff were replaced withoutconsulting the Bank, which was a breach of the loan condition. The PIU had limited executivepowers, and had to refer issues to the Executing Agency’s top management. Despite the aboveproblems, the PIU succeeded in implementing and commissioning the Project and its presencewas vital in keeping momentum in the implementation of the project. It had been providingreports to the parties concerned and kept both the Executing Agency and the Contractors on trackwith their duties and responsibilities in the Project. However, the PIU was not effective to ensurethe fulfillment of the outstanding loan conditions

7.2.3 The Executing Agency’s performance in implementing the Project was quite good.Monitoring and controlling the engagements of the contractors and consultants by the ExecutingAgency was properly carried out. However, the executing agency could have done more to fulfillthe loan conditions. Overall the performance of the executing agency is satisfactory.

8 OVERALL PERFORMANCE AND RATING

Detailed rating of the project is presented in Annex 6 while Table 8.1 below provides asummary of the same. Recommendations and follow up actions are presented in Annex 7.

Table 8.1 – Summary of Project Performance Rating

Indicator Rating1 Implementation Performance Satisfactory2 Bank Performance Satisfactory3 Relevance and Achievement of Objectives Highly Satisfactory4 Institutional Development Highly Satisfactory5 Sustainability Highly Satisfactory6 Economic Returns Highly Satisfactory7 Overall Assessment Satisfactory

9. CONCLUSIONS, LESSONS LEARNT AND RECOMMENDATIONS

9.1 Conclusions

9.1.1 The project suffered delays in the effectiveness of the loans and start up of project activities.Consequently, project benefits were not realized on schedule. Nonetheless the project was able toachieve its objectives of modernizing the telecommunications facilities in and the adjacent areas ofthe Capital City Lilongwe and the municipality of Zomba and some nearby areas, by replacing oldequipment, and expanding the network to meet the demand for telecommunications services. Theproject objectives have been met successfully. The project is contributing towards realizing thesector goal of providing modern and efficient communications systems and services to a large crosssection of the population, and to the various economic sectors so as to enable it act as a catalyst toeconomic growth and the improvement of quality of life.

9.1.2 This PCR is prepared based on visits to the project sites and detailed discussions held withthe Executing Agency and the Borrower. The physical implementation of the project wascompleted with five years of delay and cost overrun of 1.95 million UA (+6.2%); however, theproject benefits are being realized. Inspection of the works on the ground shows that the quality ofthe works done on the exchanges, transmission equipment, external plants and subscriber plants aremodern and good standard. The Executing Agency had not encountered any major problem in the

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operation of the project facilities since its completion. Furthermore the Executing Agency had thetechnical skills to undertake the operation and maintenance of the networks. The project’s financialprojections show that it will generate adequate returns (FIRR=15.3% and EIRR= 23.9%) to coverits operation and maintenance costs and service the loan.

9.2 Lessons Learnt and Recommendations

9.2.1 The Executing Agency/PIU did not keep separate financial records of the project and failedto submit the audited project financial statements regularly. In the future, the Bank shouldundertake close financial supervision and take measures, including suspension of disbursement, toensure that Executing Agencies maintain separate accounting records of projects and auditedproject financial statements are submitted to the Bank regularly.

9.2.2 The borrower did not fulfill some of the loan conditions. It is noted that the Bank’ssupervision mission did not properly monitor the fulfillment of these conditions. In the future, theBank’s supervision missions should be well balanced in terms of professional composition in orderto address properly all technical, institutional and financial issues of projects. Furthermore, theBank should not shy away from taking necessary measures, including suspension of disbursement,in order to ensure that all pertinent loan conditions are fulfilled.

9.2.3 As regards the conditions precedent to entry into force related to the institutionaltransformation of MPO, the Bank should have actively contributed in the transformation processby including a component, as part of the project, to facilitate the process. In facilitating suchinstitutional transformation, the Bank should avoid putting conditions, in particular conditionsbefore disbursement, that might take a long time to fulfill.

9.2.4 The implementation of the project was adversely affected by staff turnover in the PIUand the Bank. As one of the loan conditions, the CVs of the counterpart staff to be attached to thePIU have to be reviewed and approved by the Bank. However, it was noticed that staffreplacements were never communicated to, nor approved by, the Bank. In the future, the Bankshould ensure that PIU are staffed with personnel acceptable to the Bank. Furthermore, the Bankshould minimise turnover of its staff in charge of a project in order to facilitatecommunication/familiarity of project management.

9.2.5 Exchange rate fluctuations, particularly the appreciation of the JPY against the UA,caused project cost over runs in UA. The EA/GOM was obliged to use its scarce foreign exchangeresources to cover the financing gap. The financing gap resulted from contacts being denominatedin specific currencies (in this case JPY) while the loans were denominated in UA, and theappreciation of the contract currency against UA. In this regard, in order to assist the Borrowers, theBank should enhance the selection of financial products, including loan currencies, and provide riskmanagement products to borrowers from ADF countries as well.

9.3 Recommendation

It is recommended that the Bank continue to support the development of the telecommunicationssector in the country. It is recommended that the lessons learnt in the implementation ofTelecommunications II Project be taken into account in the design and implementation of futureprojects.

Annex 1.1

Malawi Telecom II Project – Project Matrix (Prepared in retrospect at PCR)

Narrative Summary(NS) Verifiable Indicators (VI) Means ofVerification(MoV)

Important Assumptions

Goal1. Provision of efficient

communications systemsand services to largecross section of thepopulation.

1.1. New data services, such asInternet and TV using telecomservices

1.2. Reduction in networkcongestion

1.1 Quarterlyabstract ofstatistics

(Goal to super goal)

Project Objective:1 To modernize the

telecom facilities inLilongwe and Zombaand other areas byreplacing existingequipment with modernones as well as to expandthe network to meet thedemand for telecomservices.

1.1. Number of new customers onwaiting list

1.2. Number of faults per 100 phonesper year

1.3. Number of new services data,TV using telecom services

1.4. Reduction in network congestion1.5. increase in telephone density1.6. increased access to telephone

services

1.1 MPTC -Quarterlyabstract ofstatistics

1.1 MPTC is re-organized tooperate as a commercialentity and private capital isattracted.

1.2 Yearly adjustment intelephone tariff is made inline with CPI.

1.3 MPTC is able to mobiliselocal funds to complimentforeign costs to projectsfunded by MDIs.

Outputs:1 Upgraded and expanded

telecom network2 Optimised use of

existing networks byprovision of high trafficrate on trunk routes

3 Improved quality ofservices offered byMPTC and reducedO&M costs

4 Improved performanceof the network

1.1. Number of new customersconnected to the network

1.2. Efficiency of existing network1.3. Number of complaints by

customers1.4. Number of faults in the system1.5. call completion rate

1.1 Commissioningreport of theexpansion works

1.2 MPTC quarterlystatistics

1.3 Customerssatisfactionsurvey reports

1.1 Project is implementedeffectively and according toschedule

Activities:1 Procurement of Goods

and Services of theproject includingrecruitment of consultant

2 Installation of newcables and equipment

3 Execution of the worksby contractors andsuppliers

4 Testing andcommissioning of theproject

1 Inputs (UA millions)Appraisal Actual

Exchanges 13.84 8.78Transmission Eqpt .85 3.63External Plant 10.94 15.21Subscriber Plant 1.20 1.22Vehicles & Eqpt 1.14 1.45Consultancy Serv 2.66 3.23Training 0.93 ___Total 31.56 33.51

1.1 Appraisal report1.2 Loan Agreement1.3 Tender reports1.4 Progress Reports1.5 Bank Supervision

mission reports1.6 Inception reports1.7 Commissioning

reports

1.1 Required funding is madeavailable on time

1.2 MPTC is able to honour itscommitment on time

1.3 Loan become effective ontime

1.4 Project implementationschedule is adhered to.

Annex 1.2MALAWI – TELECOM II PROJECT

MAP OF MALAWI

Annex 2.1Fig. 1 - Organization Chart of Malawi Post Office at Appraisal.

Fig. 2 - Organization Chart of Malawi Telecommunications Ltd at PCR.

Personnel & Training Controller of Postal Services

Northern Region Central Region Southern Region

Operation & Maintenance Development & Planning

TelecommunicationsChief Engineer

Finance & Supply Investigation

Post Master General

CorporatePlanning

InformationTechnology

InternalAudit

Administration&HRM

Company SecretaryAdminstration

FinancialAccounting

ManagementAccounting

Finance

Planning &Projects

NetworksServices

Special NetworksServices

Networks

Marketing &Public Services

Customer Sales &Services

Customer Services

Chief Executive Officer

Board of Directors

Annex 2.2

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

1 - Recruitment of Consultant

2 - Tender Documents Preparation

3 - Tendering, Evaluation and

Contract Award

4 - Manufacturing

5 - Shipping and Delivering

6 - Installation

7 - Commissioning

8 - Project Completion Report Preparation

Legend

Appraisal Estimate

Actual Time

19981991 1992 1993 1994 2002

COMPARATIVE PROJECT IMPLEMENTATION SCHEDULE

MalawiTelecommunications II Project

1999 2000 20011995 1996 1997

1

Annex 2.3

List of Contractors, Consultant, and Suppliers

A Name Mitsui Ltd (Japan)

Responsibility Switching Equipment

Date Contract Award 11 February 1997

Contract Duration 31 Months - March 98 to October 2000Amount in UA 7,042,882

B Name Mitsui Ltd (Japan)

Responsibility Transmission

Date Contract Award 11 February 1997

Contract Duration 31 Months - March 98 to October 2000Amount in UA 3,453,723

C Name Extenal Plant

Responsibility Telecommunications Consultants of India (TCIL)

Date Contract Award 19 January 1998

Contract Duration 30 Months - June 98 to December 2000Amount in UA 11,261,010

D Name Alcatel

Responsibility Supply of Subscriber Equipment and Plant

Date Contract Award 14 May 1997

Contract Duration 1 June 1998Amount in UA 1,165,340

E Name Teleconsult

Responsibility Consultancy Services

Date Contract Award 20 April 1994

Contract Duration 70 Months - June 94 to April 2000Amount in UA 3,061,881

F Name Toyota Malawi

Responsibility Supply of Vehicles

Date Contract Award 19 January 1998

Contract Duration 22 October 1998Amount in UA 844,344

G Name ICL Malawi

Responsibility Supply of Computers

Date Contract Award 28 April 1998

Contract Duration 14 March 1999Amount in UA 111,469

H Name Xerographics

Responsibility Supply of Photocopying Machines

Date Contract Award 27 April 1998

Contract Duration 31 June 1998Amount in UA 68,261

1

Details of Procurement Activities

Procurement Activity\Component A A B C C D E E

Swiching

Equipment

Air

Conditioning

plant

Transmission

Equipment

External

Plant

External

Plant

(Retender)

Subscriber

Plant Vehicles Computers

Mode of Procurement ICB NCB ICB ICB ICB ICB NCB NCBShort list approval

I SPN - National 9/25/1995 12/12/1996 9/25/1995 11/13/1995 11/13/1995 4/24/1996 12/12/1996 12/12/1996II SPN - International 11/30/1995 11/30/1995 12/15/1995 12/15/1995

III Deadline 2/23/1996 5/23/1997 2/23/1996 2/23/1996 5/9/1997 7/12/1996 5/23/1997 9/12/1997IV Tender Evaluation sent to Bank 6/24/1996 1/19/1998 6/24/1996 6/24/1996 3/21/1997 9/2/1997 10/16/1997V Bank approval of Tender Evaluation 1/21/1997 4/21/1998 1/21/1997 1/6/1998 4/2/1997 1/6/1998 4/15/1998VI Contract Award 2/11/1997 6/3/1998 2/11/1997 1/19/1998 5/14/1997 1/19/1998 4/28/1998

Contractor/Supplier Mitsui (Japan) B & C

Mitsui

(Japan) TCIL (India) Alcatel

Toyota

(Malawi) I C L (Malawi)

Analysis of tendering period(III-II or I) Tender period (Days) 85 162 85 70 79 162 274

(IV-III) Evaluation of tenders by the EA (Months) 4.1 8.0 4.1 4.1 NA 8.4 3.4 1.1(V-IV) Bank Review (Months) 7.0 3.1 7.0 NA 0.4 4.2 6.0

(VI-V) Negotiations and Award of Contract (Days) 21 43 21 - 13 42 13 13

(VI-I or II) Total Procurement processing time (Months) 14.6 17.9 14.6 25.5 12.8 13.4 16.7

2

Annex 3.1

Project Costs by Component - Actual versus Financing Plan

Appraisal Revised 1997 Completion

Components F L Total % F L Total % F L Total %

Exchanges 12,869 966 13,835 43.8 6,676 966 7,642 24.2 7,813 970 8,783 26.2

Transmission Equipment 851 - 851 2.7 3,102 - 3,102 9.8 3,630 - 3,630 10.8

External Plant 7,084 3,853 10,937 34.7 11,208 3,853 15,060 47.7 11,236 3,970 15,206 45.4

Subscriber Plant 1,150 46 1,196 3.8 1,161 46 1,207 3.8 1,165 50 1,215 3.6

Vehicles & Equipment 794 345 1,139 3.6 967 345 1,312 4.2 1,101 350 1,451 4.3

Consultancy Services 2,484 173 2,657 8.4 2,939 173 3,112 9.9 3,061 170 3,231 9.6

Training 828 115 943 3.0 - 115 115 0.4 - - - -

Total 26,059 5,497 31,556 100 26,053 5,497 31,550 100 28,006 5,510 33,516 100

Annex 3.2Annual Disbursement by Source of Finance

Appraisal Actual at March 2002

Year ADB ADF GOM Total % ADB ADF GOM GOM/MTL Total %1990/91 0.03 0.03 0.1 - -

1991/92 1.55 1.07 2.62 8.3 - -

1992/93 5.31 1.21 6.52 20.7 - -

1993/94 8.49 4.20 1.09 13.78 43.7 - -

1994/95 5.48 1.05 6.53 20.7 477,416 333,159 810,575 2.4

1995/96 1.03 1.05 2.08 6.6 91,461 587,388 678,849 2.0

1996/97 - - 425,761 40,088 465,849 1.4

1997/98 - - 3,233,294 506,875 3,740,169 11.2

1998/99 - - 5,935,365 3,825,088 1,055,443 10,815,896 32.3

1999/00 - - 2,987,903 5,071,999 641,289 8,701,191 26.0

2000/01 1,848,723 661,876 409,028 2,919,627 8.7

2001/02 - - 26,482 996,749 4,357,538 5,380,769 16.1

Total 15.00 11.06 5.50 31.56 100.0 14,999,923 11,052,955 3,102,509 4,357,538 33,512,925 ######

47.5% 35.0% 17.4% 100.0% 7,460,047 1.0645% 33% 9% 13% 100%

78%

Annex 4

Summary of MTL's Financial Situation

(Millions of Malawi Kwacha)

For the years ended March 31

2001 2002

Income Statement

Operating Revenue 2,443.08 2,718.99

Operating Expenses 1,641.63 2,161.34

Operating profit 801.45 557.65

Other Income and expense (Net) (443.32) 126.88

EBIT 358.13 685.43

Net Profit After Tax 129.48 415.47

Balance Sheet

Cash and Cash Equivalent 38.54 35.68

Accounts Receivable 1,544.66 2,377.53

Current Assets 1,729.85 2,634.34

Investments 94.66 93.02

Fixed Assets, including Work in progress 5,128.49 5,502.98

Total Assets 6,953.00 8,230.34

Current Liabilities 2,212.12 3,114.95

Long Term Liabilities 1,198.13 1,670.62

Shareholders Equity 3,542.76 3,444.77

Net Invested Capital 4,740.88 5,115.39

Margins %

Operating Profit Margin % 32.81% 20.51%

EBIT margin% 14.7% 25.2%

Net profit margin% 5.30% 15.28%

Rate of Return

Return on Total Capital Employed (Gross) 15.1% 13.9%

Return on LongTerm Assets (Inv&Fixed) (Gross) 13.7% 12.7%

Return on Equity(Net) 7.3% 11.9%

Ratios

Current ratio 0.78 0.85

Average Receivables collection period (Months) 7.6 10.5

Debt to capital employed ratio 25.3% 32.7%

Annex 5Page 1 of 2

Year

Investment

Costs

Incremental

Operating &

Maintenance Costs Total Costs

No. of Connections

Differential

Incremental

Revenue

Net Cash

Flow2,600.00

1991 - -1992 - -1993 - -1994 - -1995 105,375 105,374.75 (105,375)1996 88,250 88,250.37 (88,250)1997 60,560 60,560.37 (60,560)1998 486,222 60,840 547,061.97 (547,062)1999 1,406,066 91,260 1,497,326.48 (1,497,326)2000 1,131,155 121,680 1,252,834.83 13,000 405,600 (847,235)2001 379,552 187,200 566,751.51 20,000 624,000 57,2482002 699,500 234,000 933,500.01 25,000 780,000 (153,500)2003 292,500 292,500.00 31,250 975,000 682,5002004 365,625 365,625.00 39,063 1,218,750 853,1252005 440,482 440,481.60 47,060 1,468,272 1,027,7902006 440,482 440,481.60 47,060 1,468,272 1,027,7902007 544,585 440,482 985,066.60 47,060 1,468,272 483,2052008 440,482 440,481.60 47,060 1,468,272 1,027,7902009 440,482 440,481.60 47,060 1,468,272 1,027,7902010 440,482 440,481.60 47,060 1,468,272 1,027,7902011 440,482 440,481.60 47,060 1,468,272 1,027,7902012 544,585 440,482 985,066.60 47,060 1,468,272 483,2052013 440,482 440,481.60 47,060 1,468,272 1,027,7902014 440,482 440,481.60 47,060 1,468,272 1,027,7902015 440,482 440,481.60 47,060 1,468,272 1,027,7902016 440,482 440,481.60 47,060 1,468,272 1,027,7902017 440,482 440,481.60 47,060 1,468,272 1,027,790

Sum 5,445,850

60,509FIRR 15.31%

O & M 30%Revenue per line /month 2,600.00 20.00

SensitivityO& M increase by 20% 13.67%

(in NAD ' 000)

MalawiTelecommunications II Project

Computation of Financial Internal Rate of Return

1992 - -1993 - -1994 - -1995 113,594 113,593.98 (113,594)1996 95,134 95,133.90 (95,134)1997 65,284 65,284.08 (65,284)1998 524,147 63,882 588,029.28 (588,029)1999 1,515,740 95,823 1,611,562.67 (1,611,563)2000 1,219,385 127,764 1,347,148.91 13,000 608,400 (738,749)2001 409,157 196,560 605,716.53 20,000 936,000 330,2832002 754,061 245,700 999,761.01 25,000 1,170,000 170,2392003 307,125 307,125.00 31,250 1,462,500 1,155,3752004 383,906 383,906.25 39,063 1,828,125 1,444,2192005 462,506 462,505.68 47,060 2,202,408 1,739,9022006 462,506 462,505.68 47,060 2,202,408 1,739,9022007 587,063 462,506 1,049,568.31 47,060 2,202,408 1,152,8402008 462,506 462,505.68 47,060 2,202,408 1,739,9022009 462,506 462,505.68 47,060 2,202,408 1,739,9022010 462,506 462,505.68 47,060 2,202,408 1,739,9022011 462,506 462,505.68 47,060 2,202,408 1,739,9022012 587,063 462,506 1,049,568.31 47,060 2,202,408 1,152,8402013 462,506 462,505.68 47,060 2,202,408 1,739,9022014 462,506 462,505.68 47,060 2,202,408 1,739,9022015 462,506 462,505.68 47,060 2,202,408 1,739,9022016 462,506 462,505.68 47,060 2,202,408 1,739,9022017 462,506 462,505.68 47,060 2,202,408 1,739,902

Sum

FIRR 23.91%

O& M 30%Revenue per line /month 3,900.00 30.00

SensitivityO&Mincrease by20% 22.62%

AssumptionsInvestment costs - An adjustment factor of 1.1 has been applied to the foreign costs to reflect scarcity ofInvestment costs - An adjustment factor of 1.1 has been applied to the foreign costs to reflect scarcityofforeign exchange.O& M- An adjustment factor of 1.1 has been applied to the foreign components (estimated to represent50%of the total of O&M) to reflect scarcity of foreign exchange.Revenue - An adjustment factor of 1.5 has been applied to reflect the scarciy of telecomservices had it not been for the supportof the project. This is a proxy to reflect the premiumthat customers have to pay to get the telecomservices.

Annex 6 Page1 of 3

MALAWI TELECOMMUNICATIONS II PROJECTPROJECT COMPLETION REPORT (PCR)

FORM IP 1IMPLEMENTATION PERFORMANCE

Component Indicators Score(1 to 4)

Remarks

1. Adherence to Time Schedule 1 5 years Time over run

2. Adherence to Cost Schedule 3 7.5% cost overrun

3. Compliance with Covenants 2 Some conditions still outstanding

4. Adequacy of Monitoring & Evaluationand Reporting

2 Quarterly progress reports submittedoccasionally; Only one audit report

submitted

5. Satisfactory Operations (if applicable) 4 No problems encountered in operationof facilities

TOTAL 12

Overall Assessment of ImplementationPerformance

3

FORM BP 1E. BANK PERFORMANCE

Component Indicators Score(1 to 4)

Remarks

1. At Identification 3 Bank was able to adhere the request of GOM, on time.

2. At Preparation of Project 2 Bank was able to adhere the request of GOM, on time.

3. At appraisal 2 Conformed to Bank guidelines, but put a lot ofconditions precedent to entry into force of loans.

4. At Supervision 2 Initially no supervision; starting 1998 adequatesupervision undertaken (average 1.3/yr); howeverunbalance professional mix.

Overall Assessment ofBank Performance

2 Satisfactory

Annex 6Page 2 of 3

FORM PO 1PROJECT OUTCOME

No. Component Indicators Score(1 to 4)

REMARKS

1 Relevance and Achievement ofObjectives*

i) Macro-economic Policy 3 Major contribution to economic growth

ii) Sector Policy 3 Project is in line with sector development goals

iii) Physical (incl. production) 4 outputs envisaged at appraisal fully achieved

iv) Financial 3 Contributes to a stroger financial performance of EA

v) Poverty Alleviation & Social &Gender

3 A number of jobs in the provision of telephone andinternet services anticipated

vi) Environment 3 Minimal environmental impact, implementation fullycomplied with EMP

vii) Private sector development 4 Provides infrastructure to support the development ofthe private sector

viii) Other (Specify) -

2 Institutional Development (ID)

i) Institutional Framework incl.Restructuring

4 Transformation of MPO from a department withinthe ministry to MTL - an autonomouscommercialized public entity

ii) Financial and ManagementInformation Systems includingAudit Systems

3A lot of progress MTL started a new FinancialManagement, Information system & Auditprocedures

iii) Transfer of Technology 4 Staff benefited from technology transfer by workingclosely with contractors and the consultants duringproject execution; there was also on site trainingpackage

iv) Staffing by qualified persons(incl. Turnover), training &counter-part staff

3 EA is able to recruit and retain qualified personnel;has in place a sound staff training programme

Annex 6Page 3 of 3

3 Sustainability ***

i) Continued Borrower Commitment 3 GoM committed to sector developmentpolicy & reforms

ii) Environmental Policy 3 Project conforms to GoMEnvironmental Policy guidelines

iii) Institutional Framework 3 On going reforms will restructure thetelecom sector and improve competition

iv) Technical Viability and Staffing 4 Technology is modern, EA has trainedstaff to operate/maintain projectfacilities

v) Financial Viability including costrecovery systems

3 Project output is efficiently priced toensure cost recovery, tariff approachingLRMC

vi) Economic Viability 3 EIRR is adequate

vii) Environmental Viability 3 Minimal environmental impact

viii) O&M facilitation (availability ofrecurrent funding, foreignexchange, spare parts, workshopfacilities etc.)

3Project generates adequate funds tocover O&M; spare parts available fromsuppliers & workshop facilitiesprovided under the project

4 Economic Internal Rate ofReturn

3 Adequate

TOTAL 66

Overall Assessment of Outcome 3.3 Satisfactory

Annex 7

RECOMMENDATIONS AND FOLLOW-UP MATRIXMAIN FINDINGS & CONCLUSIONS RECOMMENDATIONS FOLLOW-UP ACTIONS RESPONSIBIL

ITYFormulation & Project Rational the project was formulated in response to the

emergency situation caused by the deterioratingtechnological standard of the telecommunicationsfacilities in the country; and

Project objective and rationale derived from nationaland sector goals in the country.

Project ImplementationDespite the initial delays of 5 years in starting up projectactivities, the physical implementation of the project wasperformed over 60 months – almost as scheduled.

Compliance with Loan Conditions & Covenants An extensive delay to fulfill the conditions precedent to

entry into force Some of the loan conditions are still not fulfilled All

loan conditions were fulfilled by Borrower.

Borrower must be made to appreciate clearly alldocumentation required for fulfilling conditions for loaneffectiveness; and some of the conditions related to institutionaltransformation should have been anticipated to take longer timefor fulfillment; hence formulated as other conditions.

Conditions related to keeping separate project accounts;reduction of accounts receivable collection period; and reductionof exposure to foreign exchange risk associated with the billingof international calls are not fulfilled. The bank should havetaken bold actions to enforce the fulfillment of these conditions.

Incorporate lessons learnt in theimplementation of new projects.

Bank supervision mission’smade more effective by balancingthe composition to enable themhandle all the technical as well asnon-technical issues of a project;Bank to take appropriate actionswhen loan conditions arebreached.

MTL/ADB/ADF

GOM/MTL/ADB/ADF

Performance Evaluation & Project OutcomeThe Project output is an increase/ensure in capacity fortelecom services in Malawi. Physical outputs includedconstruction of a) 17 exchanges (with a total of 40800 lines,3960 trunk lines and interface equipment); b)Transmissions comprising 17 units of Multiplexes of 140,34 and 8 MB/S, 200 km of 2/4 pairs of optical fibre cables;c) External Plant: 77000 km pairs of cables, 65000 metresof PVC ducts, accessories, and associated works; d)Subscriber Plant: 2700 km of drop wires, 16600 telephonesand associated wires and accessories; e) 65 Vehicles and 14computers plus accessories as well as 6 photocopymachines.

SustainabilityThe project is technically sustainable. With the projectionfor substantial growth in the demand for telecom servicesand the commitment to cost reflective pricing; the financialsustainability of the project is assured.

Reduce the receivables collection period to less than 60days; and revise tariffs of international calls to reduce theforeign exchange risk associated with international calls.

MTL