World Bank Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7197 PROJECT COMPLETION REPORT BURMA SECOND TELECOMMUNICATIONS PROJECT (CREDIT 958-BA) April 11, 1988 Asia Region

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 7197

PROJECT COMPLETION REPORT

BURMA

SECOND TELECOMMUNICATIONS PROJECT(CREDIT 958-BA)

April 11, 1988

Asia RegionCountry Department IIIndustry and Energy Operations Division

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

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TM WORLD BANKWashgtao. D.C. 20433

US.A.

06Kc of Osiet-Guwai

April 11, 1988

HEHORANDUN TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on BurmaSecond Telecomnunications Project (Credit 958-BA)

Attac%ed, for information, is a copy of a report entitled

"Project Completion Report on Burma Second Telecommunications Project

(Credit 958-BA)" prepared by the Asia Regional Office. Further evaluation

of this project by the Operations Evaluation Department has not been made.

Attachment

This document bha restriced dbisbuton and may be used by mcipients only in the perfonnanceof their oMfcl dutes Its cootents may not otewise be disclsed without World ank autbolon|

BURMA

SECOND TELECOMMUNICATIONSI PROJECT (CREDIT 958-BA)


Abbreviations and Acronyms

DEL - Direct Exchange LineGOB - Government of BurmaITU - International Telecommunication UnionOECF - Overseas Economic Cooperative Fund, JapanOTD - Operator Trunk DialingPCM - Pulse Code ModulationPTC - Posts and Telecomnuunications CorporationPTD - Posts and Telecommunications DepartmentSTD - Subscriber Trunk DialingTELEX - Teleprinter Exchange SystemUNDP - United Nations.Development Program

This document has a restricted distribution and may be usod by recipients only in the performaceof their officia duties Its contents may not otherwise be dislosed without World Bank authoriltion.

BURMA

SECOND TElECONMUNICATIONS PROJECT (CREDIT 958-BA)


Table of Contents

Page No.

BAIPAT HE ................................................. ±5BASIC DATA SHEET ........ *it

HIGHLIGHTS .............. vi

le INTRODUCTION 1

II. PROJECT PREPARATION AND APPRAISAL ........................ 1

Preparation, Appraisal and Negotiations .............. 1Project Objectives ................ ***..*****.*.****** IProject Description . ........... ...................... Project Cost Esti.ate...e..o ...................... 00 3Covenants ............................................ 3

111. PROJECT IMPLEMENTATION ................. ............... 4

Credit Effectiveness and Start-up .................... 4Project Revision 5.........................**..... 5Implementation Schedule ...................... 5Cofinancing 5..................................*..... 5Project Costs * ......... ....... *.*.......... 6Disbursements 006000000 0.0....... 00000000..0.00000...600. 7Credit Allocation 7............... 7Reporting a00000000..........0.00.0.0........00000 8Procurement .......... . .0... 8Performance of Consultants, Contractorsand Suppliers ..................................... 9

IV. OPERATING PERFORMANCE .................................... 9

V. FINANCIAL PERFORMANCE *o...........................*...... 9

Financial Performance ................... t 9Financial Posit'on ................................... 11Sources and Application of Funds ..................... 11

This Project Completion Report was prepared by Ms. S. Pai, SeniorTelecommunications Engineer, Mrs. C. Ramsay, Financial Analyst, andMr. S. Sathar, Consultant, based on a report prepared by the Burma Postsand Telecommunications Corporation and other information in IDA's projectfiles.

Table of Contents (Cont.)

Page No.

VI. INSTITUTIONAL PERFORMANCE ..........* ....... ....... 13

Organization and Managemen,t .......................... 13Staff Recruitment, Training and Development ..**e...s. 13Accounting .. s............... ...... ..... 14Biling and Collection . ..........................*... 14Audit *..................s.e .... ... ss..e.. 15Tariffs B ........................ 15

VII. PROJECT JUSTIFICATION .......................... . . 15

Project Achievements .................. .............. 15Project Spin-off .................. 4 16

Least Cost Solution *.................. 16Rate of Return .......o............................... 16

VIII. IDA's PERFORMANCE *oeo .......... 16

Overall Performance .... ...... *** ........ ......... e 16

Supervision . 17Working Relationship ....................*o............ 17

IX. CONCLUSIONS ....* ooeooo......... ooo.0.e.os..osoooeseeosooo 17

ANNEXES

1. Compliance with Covenants ....................... 182. Revised Description of the Project ............... 203. Estimated and Actual Project Costs ............... 214. Performance Indicators ........................... 225. Income Statements 0.o..o........ ooo** ooo........... 296. Balance Sheets ...............oo.......o........... 307. Funds Flow Statements ...... ...................... 318. Summary of Principal

Telecommunications Tariffs ....o.....*.**.***.*e 329. Return on Investment ........-.................... 33

ATTACHMENT 1

Comuments from the Borrower .... ****** ** . 35

_i A

BURMAL

SPFlQD TELECOMMUNICATIONS &ROJECT (CREDIT 958-BA)


PREFACE

1. This report covers the Second Telecommunications Project in Burmasupported by IDA Credit 958-BA. The cre4it of US$35 million to theGovernment of Burma, for onlending to thi Posts and TelecommunicationsCorporation of Burma, was approved on November 27, 1979, became effectiveon March 3, 1980 and was closed on December 31, 1985, one year after theoriginally planned closing date.

2. This Project Completion Report was prepared by the Asia TechnicalDepartment, based on a report prepared by the Burma Posts andTelecommunications Corporation and other information on file at IDA.

3. Following standard procedures, OED sent copies of the draftreport to the Borrower and Executing Agency for comments. The commentsreceived have been taken into account in the preparation of the finalreport and are reproduced as Attachment 1.

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SECOND TELECOU UNICATIONS PROJECT (CREDIT 958-BA)

PROJECT ERM&TION REPORT

Bsoic Data Sheet - Xer Projent Data

AppraisalIteu Expectation Actual

Total project cost (US$ million) 93.0/79.7 f 80.3Overrun , _ (11)Credit amount (US$ million) | 35.0 35.0Disbursed ,5.0 35.0Canceled - -

Date for completion ofphysical components 12/31/83 03/31/87Proportion completed byappraisal target date (2) 100 63Proportion of time overrun (S) - 75

Sconomic rate of return (Z) 15.6 13.8Financial performance Satisfactory SatisfactoryInstitutional performance Satisfactory

a/ The project was revised eliminating some components; the cost of therevised project as per the appraisal estimates would be about US $79.7million. The comparison is between the actual and estimated costs ofthe revised project (par&. 3.06).

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BURMA

SECOND TELECOMMUNICATIONS PROJECT (CREDIT 958-BA)


Basic Data Sheet - Other Project Data

OriginalItem Plan Revisions Actual

First mention in files ortimetable 12/76

Government's application 07/77Negotiations 09/12/79 to 09/17/79Board approval date 11/27/79Credit agreement date 12/18/79Effectiveness date 03/03/80Closing date 12/31/84 12/31/85 12/31/85Project Completion date 12/31/83 03/31/87Borrower The Socialist Republic of the Union of BurmaExecuting agency The Burma 'osts and Telecommunications

CorporationFiscal year of Borrower April I-March 31

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BURMA



Basic Data Sheet - Mission Data

No. of Date ofItem Date Duration Persons Staffweeks Report

of Days

Identification 04/78 7 1 1.0 05/18/78Appraisal b6/78 20 3 8.6 07/17/78Update mission 07/79 12 2 3.4 07/20/79

Total 39 13.0Supervision I 04/80 8 2 2.3 06/06/80Supervision II 12/80 7 2 2.0 01/23/81Review mission 06/81 7 1 1.0 07/17/81Supervision III 02/82 7 2 2.0 02/26/82Supervision IV 07/82 ,7 2 2.0 07/27/82Supervision V 04/83 7 2 2.0 05/02/83Review mission 07/83 7 2 2.0 07/22/83Supervision VI 10/83 10 1 1.4 01/20/84Supervision VII 05/84 7 2 2.0 06/07/84Supervision VIII 06/85 9 2 2.6 06/28/85Supervision IX 03/86 18 4 2.Oa/ 04/15/86Supervision X 12/86 7 1 1.0- 02/11/87

Total 1l0 22.

a/ This mission was primarily for pre-appraisal of a possible thirdproject. Tte time spent on supervision of the second project has beenproportionately allocated.

BURMA



Basic Data Sheet - Country Exchange Rates

Year Exchange Rate(Kyats per US$1.00)

Annual Average

1979 6.701980 6.601981 7.151982 7.701983 7.951984 8.251985 8.451986 7.451987 6.90

Appraisal year averae 6.70Intervening average 7.65Coupletion year average 6.90

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BURMA

SECOND TELECOMMUNICXTIONS PROJECT (CREDIT 958-BA)


HIGHLIGHTS

1. In July 1977, the Government of Burma requested IDA support tofinance a Second Telecommaunications Project to be implemented during1980-84 under the Government's fourth and fifth four-year National EconomicPlans. This followed the First Telecommunications Project (1975-80) whichwas supported by an IDA credit of US$21 million.

2. The Second Projent aimed at improving the quality of service toexisting subscribers, providing access in existing and new service areas tomeet part of the unsatisfied demand for service, establishing serv4ces tofacilitate the aore efficient use of limited transport capacity andimproving the organization and productivity of the Posts andTelecommunications Corporation thFough basic institution building.

3. The original estimatedicost of the project was US$93.0 millionequivalent, with a foreign exchange component of US$42.4 million. Inaddition to the IDA financing of US$31.5 millionL/, cofinancing from OECFJapan was obtained to bridge the project's foreign exchange cost gap ofabout US$10.9 million. Due to cost increases, the scope of the project wasreduced during execution, eliminating some components with lower priority.The actual cost of this revised project was about USS80.3 millionequivalent, about 1% higber than its estimated cost in dollar terms (para3.06).

4. There was a delay of over three years in completion of theproject. While several factors contributed to the delay, the principalfactors were: (a) the slow start-up in PTC due to discontinuity in projectmanagement, (b) delay in establishing a dedicated project control unit, and(c) the considerable delay in securing the services of an expert toprepare technical specifications for digital switching systems, followingPTC's decision, after appraisal, to procure state-of-the-art systems.Delays in acquiring suitable sites for the new exchange buildings inRangoon was another contributing factor. In retrospect, the projectimplementation schedule was tight and had no provision or slack for delaysoccasioned by unforeseen circumstances.

The total IDA credit was $US35.0 million, of which $US3.5 million wasapplied to cover the foreign cost overrun of the FirstTelecommunications Project.

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5. The project achieved the targetted Increase of 80.5X ln thenumber of subscriber connections though with a delay of about three years.Telecommunicatiois facilities were extended to 34 new townships.Subscriber trunk dialing (STD) was extended to 20 major provincial centersand operator trunk dialing introduced in 54 towns. Telephone billprocessing was isproved by establishing a computerized billing facilityunder the project.

6. PTC achieved rates of return as covenanted and, except for thedelay in submission of the audited financial statements and the continuingarrears on Government accounts, met other covenants substantially. Theverall financial performance of PTC was satisfactory with the exception ofthe accounts receivable.

7. PTC was able to achieve productivity targets by decreasing theoverall staff-telephone ratio from 118/1,000 in 1979 to 83/1,000 in 1987.PTC also strengthened its planninxg and training capabilities although inthe planning area further intensive effprts are needed.

8. Thus, except for the delay in physical implementation mainly dueto initial start-up delays (para. 4), the project was a success as itachieved all its physical, financial and institutional objectives.

9. IDA was considering a third follow-up telecommunicationsoperation in 1986 but this was postponed as the Government decided toutilize its scarce foreign resources in other higher priority sectors.

BURMA



I. INTRODUCTION

1.01 All public telecommunicat -~z services in Burma are provided andoperated by the Posts and Telecommunications Corporation (PTC) under theMinistry of Transport and Communications. Tha Managing Director of the PTCis appointed by the Council of State of Burma. A small Posts andTelecommunications Department (PTD) under the Ministry is responsible forthe control of the radio frequency spectrum, frequency regulations andliaison with the International Telecommunication Union (ITU). PTC providessubstantial support in all these areas to the PTD.

1.02 IDA has been associated with the telecommunications sector inBurma since 1974 through two credits. The first Credit 551-BA ofUS$21.0 million was declared effective in July 1975 and closed in June1980. In November 1979, IDA approved a second Credit 958-BA ofUS$35.0 million for the second telecommunications project. This was closedon December 31,19851/ and is the subject of this completion report.

1I. PROJECT PREPARATION AND APPRAISAL

Preparation Appraisal and Negotiations

2.01 In July 1977, the Government of Burma (GOB) requested IDAassistance in financing the foreign exchange cost of the secondtelecommunications project to be implemented during 1980-84 under theGovernment's third and fourth four-year National Economic Plans (1978-1982and 1983-1986 respectively). The project was appraised in June 1978.During appraisal, need was identified for external financing of aboutUS$10.9 million equivalent, in addition to the US$35.0 million IDA Credit,to meet the full foreign exchange cost of the project. Following assurancereceived in April 1979 that financing from OECF Japan would be available tobridge this gap, an updating mission visited Burma in July 1979.Negotiations were held September 12-17, 1979 in Washington and the creditwas approved by IDA's Executive Board on November 27, 1979. The credit ofUS$35.0 million included US$3.5 million to cover the foreign cost overrunof the first project due to appreciation of the Japanese yen. The CreditAgreement was signed on December 18, 1979 and the credit became effectiveon March 3, 1980.

Proiect Objectives

2.02 The objectives of the project were the following:

1/ IDA honored withdrawal applications received upto June 30, 1986- (para 3.07).

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(a) improve the quality of service to existing subscribers;

(b) provide-access to new subscribers in existing serviceareas;

(c) extend telecommunicatiots facilities to the moreimportant urban and rural areas without service;

(d) establish essential telecommunications services neededto facilitate the more efficient use of limitedtransport capacity; and

(e) carry out basic institution building, improving theorganization of PTC and its productivity throughtraining.

Project Description

2.03 The project consisted of the high p1iority works in PTC'stelecommunications development program (1981-85) and also included itemssuch as open wire carrier systems and a billing processor which had beendeferred from the first project. Specifically it provided for:

(a) installation of 31,20b lines of telephone exchangeequipment (including 7,200 lines to replace existingobsolete systems), together with the associated externalcable networks and subscriber terminal equipment toconnect 29,636 new subscribers;

(b) extension of telecommunications facilities to 54townships and 13 villages by installation of smalltelephone exchanges and public call offices connected tothe national network;

(c) extension of the long distance network by expandingexisting trunk exchanges by 1,800 lines, addingmultiplex equipment on existing microwave routes andproviding new microwave systems for the Pegu-Meiktila-Taunggyi and Mandalay-Lashio routes, together with 11VHF/UHF systems, 26 3-and-12 channel open-wire carriersystems for spur routes, and associated multiplexequipment;

(d) installation of marit4me radio telephone equipment atthe three main coast stations, mobile radio telephonesystems for transportation and remote access on the mainnational routes;

(e) expansion of telex and gentex systems;

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(f) miscellaneous equipment and materials, including theinstallation of a billinig processor, improvement ofstorage-end transportation facilities, and the urgentrehabilitation of Rangoon's telephone system;

(g) consulting services;

(h) completion of ongoing works of the first project(Credit 551-BA).

Project Cost Estimate

2.04 The cost of the project was estimated at Kyats 623.2 million(US$93.0 million equivalent) with a foreign exchange component of Kyate284.2 million (US$42.4 million equivalent). Of this component, IDA was tofinance US$31.5 million and OECF tthe balance of about US$10.9 million. Thelocal costs estimated at Kyats 339.0 million (US$50.6 million equivalent)were to be financed by PTC.

Covenants

2.05 In addition to the IDA/Bank's standard covenants on procurement,management and reporting, the main covenants in the Credit Agreementprovided that Government shall cause PTC to:

(a) employ engineering snd telecomunications consultantswhose qualifications, experience and terms andconditions of employment shall be satisfactory to IDA;

(b) strengthen its technical planning unit in a mannersatisfactory to IDA;

(c) meet productivity targets agreed to by the Borrower, PTCand IDA:

(d) carry out a staff training program satisfactory to IDA;

(e) furnish unaudited financial statements as soon asavailable and, not later than six months after the endof each year, the certified copies of audited financialstatements and reports;

(f) review the value of PTC's fixed assets and, beginningFY1981, revalue its fixed assets for purposes ofcalculating the rate of return;

(g) produce an annual rate of return of not less than 92;

(h) not incur any additional borrowing unless debt serviceis covered by net revenue by at least 1.5 times;

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(1) not make any additional investment in any fiscal yearover US$1 million equivalent unless IDA is given anopportunity to comment;

(j) not apply funds arising out of its telecommunicationsoperations for other purposes unless such funds are inexcess of its telecommunications operational andinvestment requirements;

(k) charge rates for all of its telecommunication servicesin accordance with sound commercial principles.

Government also undertook to ensure that all charges for telecommunicationsservices to Government subscribers from 1980 would be paid promptly and allaccounts in arrears would be settled by March 31, 1981.

2.06 The status of compliance with these covenants is indicated inAnnex 1. PTC has generally complied with the covenants except for (a)delays in the submission of audited financial statements and reports;(b) inadequate support to the planning unit, and (c) drop in productivitytargets in some years. There have also been delays in Government's paymentfor telecommunications services.

III. PROJECT IMPLEMENTATION

Credit Effectiveness and Start-up

3.01 The Credit Agreement specified March 20, 1980 as the terminaldate for effectiveness of the Credit. In addition to the standardconditions, the special conditions of effectiveness for this credit were:

(a) execution of a subsidiary loan agreement between GOB andPTC, duly ratified by all necessary corporate andgovernment actions; and

(b) arrangements by GOB, satisfactory to IDA, for obtaininga firm commitment of the OECF loan.

The subsidiary loan agreement between GOB and PTC was signed on January 29,1980, and the loan agreement between GOB and OECF was signed onDecember 24, 1979. After review of these two agreements and all otherconditions of effectiveness having been met, IDA declared the crediteffective as of March 3, 1980.

3.02 Initial start-up action for procurement, except for the billingprocessor, was slow, mainly due to (a) the absence of a dedicated projectcontrol unit, similar to the one which contributed largely to the smoothexecution of the first project, and (b) discontinuity in developmentproject management with change of Managing Director and transfer of theDeputy Project Manager who was in charge of the first project. Establish-ment of the project control unitswas approved by GOB in April 1981 but ittook considerable time thereafter to function effectively.

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Project Revision

3.03 Once procurement action started, it became apparent that theproject faced a cost overrun due to the higher than estimated prices forthe transmission and switching equipment (para 3.06). Due to difficultiesin securing other sources of foreign funds and the need to keep within thelimit of available funds, PTC decided to postpone lower priority itemswhich did not affect the project's overall financial viability. The radiocommunication systems for maritime services were dropped as the maritimeradio needs were met partly by facilities provided by the Burma PortsCorporation. The radio facilities for transportation/remote access werepostponed, eliminating the need for the consultancy services provided forthis component. The number of townships to which telecommunicationsfacilities were to be extended was reduced and the long distance microwavelink between Mandalay and Lashio was excluded. There were also some minorchanges in the scope of the local switching equipment. IDA and GOBmutually agreed in September 1984 to a revision of the project descriptionand the reallocation of proceeds of the credit (para 3.08). Annex 2 givesa description of the revised project. Earlier, due to the higher-thanr-estimated price for the computer equipment, PTC decided to purchase acomputer jointly with the Burma Ports Corporation to keep its share of thecosts down without reducing the offered facilities.

Implementation Schedule

3.04 At appraisal, the project was expected to be completed byDecember 31, 1983. Although the IDA credit was completely disbursed byJuly 3, 1986, physical completion of the project was delayed untilMarch 1987, about 39 months behind appraisal estimate. Whilst delay ininitial start-up (para 3.02) was partly responsible, the greatest delay inproject execution occurred in telephone exchange installations. Subsequentto appraisal, PTC decided, with the concurrence of IDA, to procurestate-of-the-art digital switching systems instead of electromechanical

* systems for the Rangoon exchanges. As in-house expertise was notavailable, consultant assistance was required for preparation of thetechnical specifications. The process of identifying and getting esuitable consultant through the ITO, as PTC preferred, took considerabletime. Thus, a call for bids for switching equipment for the Rangoon andprovincial exchanges was delayed until January 1983. Bids were opened inMay 1983 and contracts signed in May 1984. Delays in acquisition of land,particularly for the Rangoon exchanges, also added to the overall delay.The project was completed in March 1987 with the cutting into service ofthe Rangoon exchanges and connection of the targetted number of subscriberlines.

Cofinancing

3.05 The need for cofinancing, to meet the full foreign exchange costsof an integrated viable project, was foreseen at the time of appraisal.The financing gap was estimated at about US$10.9 million (para 2.01).Government, In consultation with IDA, identified the OECF Japan as an

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appropriate source for this cofinancing. Vigorous efforts were made during1978 and early 1979 to secure a firm commitment from the OECF; this wasalso made a condition for effectiveness of the IDA credit (para 3.01). TheOECF loan agreement was signed on December 24, 1979. The loan ofYen 2.2 billion (about US$11 million) was used for financing telexequipment, extension of automatic telephone exchanges iln 13 towns andexpansion of long distance microwave systems installed under the firsttelecommunications project.

Project Costs

3.06 As indicated in paragraph 3.03, the original project was revised,with deletion of some components and modifications to others. Annex 3details the estimated and actual costs in kyats of the revised project.The estimated costo are based on appraisal estimates for the cost of theproject components retained in the revised project. The local, foreign andtotal costs of the revised project in equivalent US dollars using theexchange rates at appraisal and As actually prevailing during projectexecution are snmmarized in Table 3.1:

Table 3.1 - Estimated and Actual Costs of Revised Project

Appraisal Estimates Actual CostsLocal Foreign Total Local Foreign Total

Kyats million 294.47 239.61 534.08 291.63 324.94 616.57

USS milliona/ 43.95 35.76. 79.71 37.99 42.33 80.32

a/ The exchange rate for the Kyat at appraisal was US$1 - Kyats 6.7;the annual exchange rate variations have been taken into account indetermining the actual costs in US dollars. This results in aproforma rate of US$1 - Kyats 7.7 during the project period.

The above table indicates that there was a savings of about 1% in localcosts (in kyate) and an increase of about 18% in foreign costs (indollars). The overall cost of the project in equivalent dollars increasedby about 1%, although in terms of kyats there was a cost increase of about152. The major reason for the 18% increase in foreign costs was theunderestimation by nearly 752 (in dollar terms) in the costs of longdistance equipment.

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Disbursement

3.07 Table 3.2 provides a comparison of the estimated and actualdisbursement-of the IDA credit.

Table 3.2 - Cumulative Disbursements(USS million)

IDA FY Appraisal Actual as PercentageEnding June Estimate Actual of Appraisal Estimate

1980 3.0 - -1981 7.0 3.3 471982 17.5 3.9 221983 27.0 11.3 421984 32.5 16.0 491985 35.0 27.4 781986a/ - 34.8 991987b/ - 35.0 100

/ Credit closing date was December 31, 1985. IDA honoredwithdrawal applications received upto June 30, 1986.

b/ Last disbursement made on July 3, 1986.

Credit Allocation

3.08 The original credit allocation and the project description(para 3.03) were revised in September 1984, to reflect the cost increasesin the long distance and local telephone ne-tworks (Categories 1 and 2), thedeletion of project components under Categories 3 and 5 (para 3.03) and theavailability of UNDP/ITU technical assistance (Category 7 and para 3.11).The final allocation reflecting actual disbursements under the variouscategories differs only slightly from the allocation revised in 1984.Table 3.3 indicates the original, revised and final allocation of thecredit proceeds.

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Table 3.3 - Allocation of Credit Proceeds(US$)

No. Category Original Revised FinalDisbursemet.t

1 Local telephone network;exchange equipment, cablesand subscriber equipment 17,250,000 18,200,000 18,763,602

2 Long distance network;microwave, VHF/UHF systemsand open wire lines 6,500,000 11,478,000 11,047,197

3 Transportation/remote accessradio telephone, maritimeradio communication equipment 1,800,000

4 Miscellaneous equipment,materials for rehabilitatingRangoon telephone systems,billing processor, etc. 1,400,000 1,762,000 1,733,154

5 Rural telecommunication:open wire and radio equipment 2,850,000 -

6 Existing coatracts for equip-ment and materials under thefirst IDA Credit (551-BA) 3,500,000 3,457,000 3,456,047

7 Consultants' services 200,000 -

8 Unallocated 1,500,000 103,000

Total 35,000,000 35,000,000 35,000,000

Reporting

3.09 PTC submitted regular quarterly reports on the physical progressof the project and operations. However, the audited financial statementswere received on an average 14 months after the close of the financial yearagainst the covenanted six months due to delayed response by the AuditorGeneral.

Procurement

3.10 No major problems were encountered during procurement except forthe delay in initial start-up of procurement action, and the delay insecuring the services of a consultant for preparation of the technicalspecifications of the digital switching systems (para 3.04).

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Performance of Consultants, Contractors, Suppliers

3.11 Exclusion of the remote access radio systems component from therevised project eliminated the need for consultancy services provided forthis component (para 3.03). PTC obtaitizd technical assistance for othercomponents of the project through a UNDP/ITU technical assistance program.Under this program, ITU provided experts for the preparation of technicalspecifications for the digital switching systems and PCM transmissionsystems and for the test and acceptance of the PCM and microwavetransmission systems. The performance of these experts was satisfactory.The performance of all the suppliers and contractors was satisfactory.

IV. OPERATING PERFORMANCE

4.01 At appraisal PTC was expected to increase the capacity of themain exchanges from 31,530 lines (on March 31, 1979) to 76,190 lines (byDecember 31, 1983) and the DELs from 26,662 to 56,298. These and otherproject objectives were realistic and achievable, but the projectimplementation schedule as proposed did not have any allowance for delaysdue to unforeseen circumstances. The project objectives were achieved byMarch 31, 1987, that is after a delay of three years due to initial projectstart-up delay occasioned by: (a) delay in establishment of a dedicatedproject management unit; (b) discontinuity of senior levels of the projectmanagement; (c) delay in securing services of an expert for preparation ofdigital switching specification; and (d) acquisition of exchange sites fordigital exchanges in Rangoon. Annex 4 gives details of projectimplementation.

4.02 Telephone service was extended to 34 new townships over theproject period. In addition, service in 10 provincial towns wasautomatized raising the percentage of lines with access to automatictelephone service from 66% to about 89%.

4.03 The long distance services in the country were extended bybringing 20 major provincial centers serving about 84% of the provincialtelephones into the national subscriber trunk dialing (STD) network and byintroducing operator trunk dialing (OTD) service in another 54 towns.

4.04 The quality of the local telephone service in Rangoon cityimproved with the partial rehabilitation of the Rangoon telephone systemunder the project. The service in the provinces also improved withinstallation of automatic telephone exchanges and reliable transmissionlinks.

V. FINANCIAL PERFORMANCE

Financial Performance

5.01 Table 5.1 summarizes PTC's financial performance for fiscal years1981 through 1986. Detailed financial statements are provided in Annexes 5through 7.

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Table 5.1 - Financial Performance Summary - Current Terms

FY ending March 31: 1981 1982 1983 1984 1985 1986-

DELSAppraisal 36,495 42,250 49,395 58,598 68,218Actual 34,944 37,862 40,800 42,863 44,175 47,571

Operating Rev. (Kyats Million)Appraisal 116.3 136.8 163.8 195.1 228.2 -Actual 90.2 129.8 159.6 188.6 199.4 224.4

Operating Exp. (Kyats Million)Appraisal 47.6 58.8 72.2 88.5 106.2 -Actual 54.1 61.2 67.4 72.6 80.3 113.1

Operating Ratio (%'Appraisal 41 43 44 45 46 -Actual 60 47 42 38 40 50

Rate of return ( a/Appraisal - 17 13 12 10 9 -Actual 11 11 15 18 18 13

Debt-Equity Ratio (%)Appraisal 69/31 72/28 73/27 72/28 70/30 -Actual 64/36 58/42 56/44 53/47 51/49 48/52

Current Ratio (times)b/Appraisal = 2.6 2.5 2.7 2.6 2.3 -Actual 2.0 3.2 2.9 3.1 3.5 3.4

Telephone Revenue perDEL (Kyats)Appraisal 2,179 2,201 2,236 2,270 2,275 -Actual 2,001 2,718 3,010 3,040 3,111 3,124

Debt Service Coverage (times)Appraisal 2.2 2.1 2.1 2.2 2.3 -Actual 2.0 1.2 1.5 1.7 1.6 1.5

Account Receivables (Telecom:in days)c/Appraisal 91 77 77 58 58 -Actual 102 74 79 104 107 84

a/ On average net revalued fixed assets from 1931 onwards.b/ UGCF balance is excluded in calculating the ratio.c/ Receivables due from subscribers only. Excludes miscellaneous

receivables primarily international in payments.

- 11 -

5.02 PTC's financial performance was good over the project period.Operating revenues increased in 1981 and 1982 as anticipated during projectappraisal as a result of (a) a tariff increase averaging 35% in fiscal year1981, (b) increased international traffic following installation of thesatellite B earth station and (c) a sharp increase in long distance trafficwith the introduction of STD dialing. While revenue/DEL exceeded expectedlevels, gross revenues were below levels projected at appraisal due toslower than expected growth in DELs. The number of DELs increased at 9.4%per annum over the project period, in contrast to the 17% per annum growthexpected. PTC consistently maintained its rate of return above thecovenanted rate of 9%. The rate fell substantially in 1986 as assets fromthe second project were placed in service. Nevertheless, the rate of 13%in FY86 was still well above covenanted level.

Financial Position

5.03 With the exception of accounts receivable, PTC's financialposition has very been satisfactory. Plant in operation increased sharplyin FY86 as a large portion of equipment acquired under the second projectwas placed in service. Work in progress at March 31, 1986 of Kyats 266million will be placed into service during FY87 and FY88.

5.04 Levels of subscriber accounts receivable in 1986 at the end ofthe project period were lower than levels in 1981 but the target of 58 daysrevenues at end 1985 was not realized (see table 5.1). Difficulties withboth billing and collection resulted in a poorer than expected performancein this area (see paras 6.06, 6.07). Since 1983, international inpaymentshas become a significant percentage of accounts receivable; the level ofaccounts receivable shown on the balance sheet has therefore been adjustedwhilst reviewing PTC's pertormance with respect to subscriber accountsreceivable.

5.05 In all other areas, PTC's performance was in line with or betterthan expected at appraisal. The current ratio while below appraisalestimates in 1981 exceeded projections for the remainder of the period.The debt/equity ratio was consistently below appraisal estimatesparticularly as surplus local funds were used to prepay existing loans.

Sources and Applications of Funds

5.06 PTC's funds flow statements, actual and projected, are summarizedin Table 5.2 below. Annual cash requirements, and thus total borrowings,were less than expected due to slower implementation of the five-yearinvestment program and postponment of future investments. Higher thanexpected traffic per line increased internally generated funds overappraisal estimates despite the slow growth in DELs. External financingwas provided by IDA (32%), government (30%) and OECF (9%). Subscriberdeposits provided 2% of total financing.

- 12 -

Table 5.2 - Funds Flow Summary

Forecast (80-85) Actual (81-86)K (million) %K (million)

SourcesNet income before interest 422.3 425.2Depreciation 216.7 229.5Internal cash generation 639.0 49 654.7 86Less: Debt service 299.7 23 482.6a/ 63Net internal cash generation 339.3 -6 17Y2.1 23

Subscribers' deposit 12.8 1 14.8 2

Drawndowns:IDA Credit 551-BA 44.2 4 16.2 2OPEC Fund 14.3 1 3.0 -IDA Credit 958-BA 211.0 16 242.2 32OECF 73.2 6 68.2 9Government & other borrowings 597.4 46 228.7 30Japanese Grant - - 8.3 1UNDP Grant - - 8.0 1

TOTAL SOURCES 1,292.2 100 761.5 100

ApplicationsOngoing works 205.2 16 NA NAProposed project 712,1 55 NA NAFuture works 381.4 30 NA NA

1,298.7 T 5i U7T. &TChanges in working capital - 6.5 - 1 83.1 11

TOTAL APPLICATIONS 1,292.2 100 761.5 100

a/ Includes repayment of principal of OPEC subsidiary loan and IDA firstcredit made in advance of the schedules.

5.06 PTC's operattons contributed substantially to governmentfunding. PTC is required to pay commodity taxes and customs duties on allequipment and materials, the total of which is estimated as approximatelyequal to 75Z of the CIF value of imports. Additionally, PTC pays an annualcontribution to government. currently 30% of net income. All loans arerepaid at commercial interest rates including those provided to governmenton concessionary terms. Over the project period, total net transfers togovernment increased from K 4.4 million in 1981 to K 135.9 million in1986.

-13-

VI. INSTITUTIONAL PERFORMANCE

Organization and Management

6.01 PTC's management strLcture has remained unchanged since 1975.PTC is administered by a Board of Directors, chaired by the ManagingDirector who is appointed by the Council of State. The Managing Directorconducts the day-to-day affairs assisted by headquarters staff headed by aGeneral Manager. The urganization at headquarters underwent some changessince 1980. The Planning and Operations Department, under a Deputy GeneralManager, was converted to an Operations and Inspections Department; aPlanning and Training Department was created under a new Deputy GeneralManager. As agreed with IDA, a planning unit was established in 1982 inthis Department. However, due to shortage of experienced high level staff,the unit is understaffed and planning work continues to be done byexperienced staff from other operational units. The trainint, --ing of theDepartment oversees the local and overseas training programs as well as theactivities of the postal and telecommunications training center establishedunder UNDP funding. The dedicated unit for monitoring the implementationof development works which functioned efficiently through the FirstTelecommunications Project was terminated in 1980 at its conclusion. Asimilar unit for monitoring the Second Telecommunications Project wascreated in 1981, but without the full complement of staff. Thisdiscontinuity adversely affected the initial implementation of the secondproject (para 3.04). However, the situation improved considerably in thelater stages of project execution.

6.02 Management of PTC was stable throughout the 1980-86 period. In1986 a new Managing Director was appointed. Other changes in the principalofficers were new appointments due to the retirement of the General Managerand the transfer of the Chief Accounts Officer in 1984.

Staff Recruitment, Training and Development

6.03 On March 31, 1979 the total telecommunications staff was 4,030giving a ratio of 118 employees per 1,000 telephones. The credit agreementcalled for an increase in productivity to 87 employees per 1,000 telephonesby 1985. PTC maintained a modest growth of staff at an average rate ofabout 5Z per annum and at the end of March 31, 1987 the total staff was5,780. By March 1987, PTC attained a staff ratio of 83 per 1,000telephones which exceeded the covenantled productivity target of 87 staffper 1,000 telephones. Table 6.1 indicates the projected and actual staffratio per 1,000 telephones over the project implementation period.

- 14 -

TABLE 6.1 - Staff Ratio Per 1,000 telephones

March 31 of 1981 1982 '1983 1984 1985 1986 1987

Appraisal estimate 111 108 101 93 87 - -

Actual 99 91 97 98 100 98 83

6.04 With technical assistance from UNDP/ITU, PTC established atraining center for telecommunications and postal staff; these facilitieswere upgraded and expanded under subsequent phases of the technicalassistance program. In addition to training newly appointed staff, thecenter provides refresher courses and has been conducting seminars forhigher level staff. From 1979 until 1986 the PTC training center conductedabout 200 courses and trained 3,400 employees. The quality of training issatisfactory.

Accounting

6.05 PTC's branch offices at states and divisions maintain theiraccounts on cash basis. These cash accounts are converted to accrualaccounts monthly at PTC head office. Accounting is centralized at PTCheadquarters in Rangoon. Most accounting processes are performedmanually. While subscriber billing is computerized, it still requiressubstantial manual support (see para 6.06), consequently delaying issue ofbills and availability of financial data. Despite the inefficiencies inPTC's system, it produces relatively accurate information and has adequateinternal controls. Significant improvement in the timeliness of financialinformation is unlikely without further computerization of accountingfunctions. Improving PTC's financial and accounting systems was one of theobjectives of the deferred third telecomunications project.

Billing and Collection

6.06 PTC's arrangements for billing were expected to improve with theinstallation of the automatic billing processor which was put into servicein April 1982. The billing processor did result in some improvements,allowing PTC to produce monthly bills and reducing the time required forprocessing bills from four to three months. Nevertheless, both billing andcollection procedures continued to be weak areas in PTC. Technicalmalfunctions in the automatic data recorders at exchanges and difficultiesin obtaining foreign exchange release for needed spares made it necessaryin 1984/1985 to introduce extensive manual verification procedures beforeissue of bills. The substantial time required to process the manual

- 15 -

portions of the monthly bill also made it difficult to achieve furtherreductions in the billing cycle. One of the objectives of the proposedthird project which was deferred was improvement of PTC's computerfacilities to allow further computerization of billing and other accountingfunctions.

6.07 It was recognized during project appraisal that the proceduresfor collection of bills from government subscribers needed improvement.The Credit Agreement provided that government (a) would settle all itsaccounts in arrears not later than March 1981; and (b) would promptly payall bills not later than 60 days after their submission by PTC. The recordof settlement of government as well as private accounts has not beensatisfactory despite PTC's efforts. Telephone accounts rece4vable in daysincreased from 74 in 1982 to 104/107 in FY 1984 and FY 1985. Governmentaccounts represented about 50% of this total. While collection in generalwas better for private subscribers, the fact that the corporation wasprohibited for almost a year during FY Z&185 from disconnecting privatesubscribers for nonpayment contributed to the generally poor collectionperformance. Significant improvement wai made in government accounts in1985 (telex and telegraph) and in 19b< /telephone) through special effortby PTC. Collection of Government Accounts is likely to continue to be aproblem area.

Audit

6.08 PTC's accounts are audited by the Auditor General. It takes PTCabout five months to reconcile accounts and to prepare financialstatements. The Auditor General requires a further three to five months onaverage to complete the annual audit. Thus PTC was unable to meet thecovenanted requirement of submission of audit reports within six monthswhich were received in the Bank, on an average, 14 months after the closeof the financial year due to delayed response of the Auditor General.However, to assist IDA supervision, unaudited financial statements weresubmitted to IDA as soon as they were available; generally within sixuaonths of the close of the fiscal year.

Tariffs

6.09 PTC's telephone tariffs were increased from April 1, 1980 by anaverage of 35% and its telegraph tariffs by an average of 20%. This was inline with IDA's recommendations. In October 1984, another small increasein tariffs was made. Annual rentals on telephone connections wereincreased by about 12-1/2% and installation charges by about 20%. Thesemeasures increased telephone revenue by about K 3.9 million or 32 in 1985.A summary of tariff changes is given in the table at Annex 8.

VII. PROJECT JUSTIFICATION

Project Achievements

7.01 The project achieved the basic objectives which were to improvethe quality of existing service, to provide access to new subscribers, and

-16-

to increase the efficiency and productivity of the organization. However,with regard to access, only 38 new townships were connected to the networkinstead of the planned 54 townships and 13 villages.

Project Spin-off

7.02 The project provided support to the indigenous industriesmanufacturing concrete cable ducts and steel poles for overhead lineconstruction.

Least Cost Solution

7.03 The project design at appraisal represented the least costsolution. During implementation, the only major change was in theprocurement of digital telephone switching equipment instead of theelectro-mechanical systems envisaged at appraisal. The adoption of thistechnology is in keeping with the times ead the positive results of studiesand experience in other countries and is also appropriate for the BurmeseNational Network.

Rate of Return

7.04 Given the difficulty in separating the economic benefits of thefirst aud second telecommunications projects, the economic rate of returnwas calculated for PTC's FY'8 to FY87 investment program which encompassesboth projects. The overall rate of return was 13.8% (see Annex 9). Therate estimated at appraisal for the 1978 to 1985 program was 15.6%. Theactual economic rate of return is better than the calculated rate since itunderstates the overall economic benefit of the project such as theconsumer surplus and the network deterioration in the system which wouldhave resulted if the project was not implemented.

VIII. IDA'S PERFORMANCE

Overall Performance

8.01 In retrospect, IDA's assessment of the project size wasappropriate. However, the schedule of implementation, though realizableunder the circumstances prevailing at time of appraisal, did not have muchslack for delays due to changed conditions. Although electromechanicaliystems were envisaged at the time of appraisal for the new local and longdistance telephone exchanges, PTC decided, at implementation stage, toadopt the modern state-of-the-art digital switching systems which, by then,had been field-proven. This was in line with the trend in other developingcountries. IDA supported the change, even though it resulted in delays inprocurement. Other factors leading to delay (see Highlights para 4.0)could not have been foreseen. Cost of the long distance equipment wasunder-estimated by 75%, necessitating change in project scope. IDAprovided substantial support and assistance in the establishment of thecomputerized billing equipment and its operations.

17

8.02 IDA played an active role 4n obtaining cofinancing for theproject from the OECF Japan through its field missions and the ResidentMission in Tokyo. Good coordination was established with the ITU and theUNDP Resident Mission in Burma to facilitate the technical assistance andtraining support fez PTC for the project. IDA performance on the whole hasbeen satisfactory.

Supervision

8.03 IDA's supervisory effort on the project was adequate and therewere regular annual supervision missions.

Working Relationship

8.04 IDA maintained good working relationship with the Government andPTC. PTC made all relevant information readily available to IDA staff andthe response to enquiries was always prompt and adequate.

IX. CONCLUSIONS

9.01 The project achieved its major objectives. The basicinfrastructure of a modern national telecommunications network, establishedunder the first project was further consolidated and expanded with moderndigital switching systems. The growth of subscribers at 9.4X average,although short of the 17% anticipated at appraisal, was comparable withthat in most developing countries. The overall productivity of the staff

- improved substantially from 118 staff/1,000 DELs in 1979 to 83/1,000 In1987. PTC has strengthened its planning and training capabilities,although further efforts are needed in the planning area. PTC has beenable to consistently achieve an adequate rate of return and, despite ahistory of poor billing collection has exhibited good overall financialperformance. The record indicates that the Second Project was a success.

9.02 With regard to lessons learnt, while the appraisal team could nothave foreseen discontinuity in project managers or PTC's decision tochange-over to digital switching systems, it could have required a ProjectManagement Unit to be established before IDA approval of the credit. Also,some allowance could have been made in the otherwise tight implementationschedule for delays due to unforeseen circumstances.

9.03 A follow-on Third Telecommunications Project was consideredappropriate and would have continued the basic improvements and access toservice. It would have followed through the institution-building measuresinitiated under the First and Second Telecommunications Projects, withparticular emphasis on planning capability and improved financialmanagement and control. However, it was deferred because of other higherpriority demands on the country's available foreign resources.

- 18 -

BURMA ANNEX IPage 1 of 2

SECOND TELECOMMUNICATIONS PROJECT (CREDIT (958-BA)


- Compliance with Covenants

Section ofAgreement Description of Covenant Compliance and Comments

3.02 PTC to employ consultants with Yes.qualifications and experience

3.06 satisfactory to IDA.

PTC to strengthen its technical A nucleus unit was establishedplanning unit. in April 1982 under the charge

of Deputy General Manager,Planning and Training.However, due to shortage ofexperienced high level staff,staffing is inadequate andplanning work continues to bedone by experienced staffoutside the unit.

3.07 PTC to meet productivity targets Productivity targets met inagreed to with IDA. years 1981 to 1983. There was

a reversal in trend in 1984 and1985 due to effect of delay inproject implementation on lowstaff base. Target met in 1987on project completion.

3.08 PTC to carry out a staff Yes.training program satisfactory toIDA.

4.01(b) PTC to furnish unaudited No. Draft accounts received,financial statements as soon as but audit reports wereavailable; but not later than invariably delayed.six months after end of eachyear audited financialstatements.

4.03 Government should implement The implementation ofprocedures (a) not later than settlement of arrears was slow.April 1980 to ensure that Settlement of current billscharges for telecommunications improved in 1986.

- 19 -

AME 1Page 2 of 2

Section ofAgreemeat Description of Covenant Compliance and Comments

services shall be paidprouptly,and (b) not later thanMarch 31,1981 settle all itsaccounts in arrears.

4.04 Government shall cause PTC to Yes.review the value of its fixedassets and, beginning FY81,revalue PTC's fixed assets forpurposes of calculating rate ofreturn.

4.05 Government to cause PTC to pro- Yes.duce an annual rate of returnnot less than 9x.

4.06 No additional borrowing unless Yes.debt service is covered at least1.5 times.

4.07 No additional investment in any Yes.one fiscal year over the equiva-lent of USS1 million unless IDAgiven an opportunity to comment.

4.08(a) PTC not to apply funds arising Yes.out of its telecommunicationsoperations for other purposesunless such funds are in excessof its operational and invest-ment requirements.

(b) PTC to charge rates for all its Yes.services in accordance withsound commercial principles.

- 20 -

ANNEX 2

BURMA



Revised Description of the ProUect i/

The Project is part of PTC's Investment Program and consists of:

A. Installation of about 28,800 lines of telephone exchange equLpment(including about 4,800 lines for replacing existing obsolete systems)together with the associated external networks and subscribersequipment.

B. Extension of telecommunications facilities to 17 townshlps byinstallation of manual telephone exchanges and public call officesconnected to the national system.

C. Extension of the long distance network by expanding existing trunkexchanges by about 1,800 lines, addLng nultiplex equipment in existingmicrowave routes and providing new mLcrowave systems for Pegu-Meiktilaand Meiktila-Taunggyi routes together with 11 VHF/UHF system and 26openwlre, 3-and 12-channel carrier system for spur routes along withmultiplex equipment.

D. Expansion of telex and gentex systems.

E. Acquisition and utilixation of miscellaneous equipment and materials,includlng the installation of billing processor, the improvement ofstorage and transportation facilities, and the rehabilitation of theRangoon telephone system.

F. Utilization of consultants' services for studies, procurementsupervision and acceptance of installations.

0. Completion of ongoing works of the Project under the First Credit byflnacing existing contracts.

The project is expected to be completed by September 30, 1986.

1/ Revlsed ln September 1984.

a ~ ~ ~ ~ ~ ~ ~BURM4A

SECOND TELECOIIHNICATIONS PROJECT (CREDIT 958-BA)


Estimated and Actual Pro1ect Costs(In Kyats million)

Z Actual toAppraisal Estimatesl/ Actual

2/ Appralsal Estimates

Particulars Local Foreign Total Local Foreign Total Local Foreixn Total

1. Local Facilities

Local exchanges I/ 89.0Q 101.71 190.76 74.07 121.94 196.01 83.2 119.9 102.8Distribution network 64.35 57.50 121.85 61.30 74.43 135.73 95.3 129.5 111.4Subscriber apparatus 8.69 11.71 20.40 7.53 9.44 16.97 86.6 80.6 83.2

Subtotal 162.09 170.92 33T3.0 142.90 205.81 348.71 88 2 120.4 104.7

2. Long Distance Facilities

Extension of channel capacity 8.48 10.42 18.90 9.32 15.05 24.37 110.0 144.4 129.0Backbone routes VHF/UUF systems 24.92 33.09 58.01 41.53 71.86 113.39 166.7 217.2 195.5Open wire carrier systems 12.10 7.18 19.28 13.60 14.98 28.58 112.4 208.6 148.2

Subtotal 45.50 50.69 96.19 64.45 101.89 166.34 1.6 201.0 172.9

3. Telegraph and Telex Services 6.98 7.89 14.87 2.96 3.61 6.57 42.4 45.8 44.2

4. Rehabilitation of RasgoonTelephone System 6.59 3.79 10.38 9.45 10;65 20.10 143.4 281.0 193.6

5. Billing Processor 3.32 2.37 5.69 1.53 2.67 4.20 46.1 112.7 73.8

6. Vehicles, Construction Machines 6.71 2.37 9.08 0 0.31 0.31 0 13.1 3.4

7. Consultancy services 0.38 1.58 &.96 0 0 0 0 0 0

8. Buildings 62.90 0 62.90 70.34 0 70.34 118.8 0 111.8Subtotal (truncated project) 294.47 239.61 5348 291.6T 32.-94 6TM35r -g9. T135.6 1 37

9. Rural Telecom Facilities 23.17 19.92 43.09 0 0 0

IO.Transportation/Reaote AccessRadio Telephone Systems 9.50 10.70 20.20 0 0 0

1.Msarttime Radio Cou unication 1.66 1.95 3.61 0 0 0

12. Miscellaneous & 10.20 12.05 22.25 0 0 0

TOTAL (Project Cost) 339.00 284.23 623.23 291.63 324.94 616.57

1/ This includes contingencies.

2/ Apart from items 9, 10, 11 which were dropped, there were some reductions in the local switchingsystems and the Handalay-Lashio microvave system was dropped under long distance.

3/ Includes trunk facilities.

± Cost of M/t system for the Mandalay-Lashio route and cost of two provincial exchangeb which wereexcluded under long distance and local facilities respectively.

BURMA

SECOND TELECOMMUNLCATIONS PROJECT (CREDIT 958-BA)


Telephone Growth (Appraisal vs. Actual)

A. LINES

ActualA P P R A I S A L A C T U A L Connections

Connected - Connected to AppraisalYear end March 31 Capacity Lines Telephones Capacity Lines Telephones Estimate (2)

1980 42,895 31,195 39,774 41,620 29,449 _ 42,474 94 -

1981 45,005 36,495 46,531 45,825 34,944 46,096 101

1982 47,655 42,250 53,869 46,865 37,862 49,057 90

1983 64,390 49,395 62,979 47,810 40,800 51,303 83

1984 76,190* 56,298* 71,780* 48,265 42,863 53,141 76

1985 - - - 63,980 44,175 59,347 78

1986 - - 65,980 47,571 69,790 84

1987 - - - 79,390 60,450 - 107

*Appraisal estisates for December 31, 1983, (anticipated date of completion of project).

0

'lb

3*. :A AL I OGJCIL .

Number of Lines (Capacity)Actual at

* Completion Year of CommissioningI. Local Exchanges Expected of Project Expected Actual

a * RANGOONKaungtauley 11 4,000 4,000 83 85'Thingangyun 2.000 2,000 83 84Nayaagon 3,000 3,000 83 87Rangoon West 3,000 3,000 83 87Rangoon East 3,000 3,000 83 87

b. REST OF THE COUNTRYMandalay 4,000 4,000 83 84Moulmein 1,000 1,000 83 85Bassein 600 600 82 85Taunggyi 600 600 82 84Akyab 400 400 83 85Magwe 400 400 83 84Meiktila 400 400 82 84Pegu 400 400 82 84*ftome 400 400 82 84Lashlo 200 200 83 84Hyitkyina 200 200 83 85Toungoo 400 400 83 84Noaywa 600 600 83 86Myingyan 600 600 83 86Sagaing 600 600 83 86Tavoy 600 - 83 -Henzada 600 600 83 86Chauk 600 600 83 86Haka 600 - 83 -Loikaw 600 600 83 86Pa-an 600 600 83 86Pyinmana 600 600 83 87Pakokku 600 600 83 86Syrian 600 600 83 87

31,200 30,000 "aTRUNK EXCHANGES X HRangoon 1,000 1,000 82 85 0Kandalay 800 800 82 84

1,800 1,800

III. LONG DISTANCE SYSTEMS

Total Capacity Year ofChannel Capacity on Completion Commissioning

Expected Installed of Project Expected Actuala. MICROWAVE

Rangoon-Mandalay 480 480 960 82 85Rangoon-Moulmein 180 180 360Rangoon-Bassein 120 120 240Prome-Akyab 24 24 48Koulnein-Tavoy 36 36 72 -

Keiktila-Taunggyi 180 180 180 83 87iegu-Meiktila 240 240 240Mandalay-Lashio 160 - --

b. Bassein-Yegyi-Hensada 120 120 120 83 87Mandalay-Sagaing-Monyva 120 120 120 if

Popa-Chauk 120 120 120 if

Popa-Myingyan 120 120 120Popa-Pakokku 120 120 120Kinbu-Magwe 24 24 24Labutta-Bassein 24 24 24Thayet-Aunglan 24 24 24 if

Chaungzou-Moulmein 24 24 24 if

Syrian-Rangoon 24 24 24Syriam-Dalla 24 24 24 if

c. OPEN IRE CARRIER

12-Channel systems 156 156 276 83 87 L3-Channel systems 39 39 45 n-

910

.~~~~~~~~~~a~

IV. EXCHANCE CAPACITIES OVER PROJECT PERIOD

December 31, 1983Appraisal Targetat Completion of Completion of

Exchan8e Second Project Actual Second ProjectI - Local exchangesa- RangoonI Maungtaulay I 9,000 9,000 9,0002 Maungtaulay II 9,600 5,600 9,6003 Hanthawaddy 4,000 4,000 4,0004 Tamwe 3,000 3,000 3,0005 Mayangon 2,000 2,000 3,0006 Insein. 1,000 1,000 1,0007 Thingangyun 3,000 1,000 3,0008 Mingaladon 600 600 6009 Mayan-,on 3,000 3,00010 Rangoon-west 3,000 3,00011 Rangoon-east 3.000 3.000

Sub total 41,200 26,200 42,200b- Rest of the countryI Mandalay 7,000 3,000 7,0002 Moulaein 2,000 1,000 2,0003 Bassein 1,600 1,000 1,6004 Taunggyi 1,200 600 1,2005 Akyak 1,000 600 1,0006 Magwe 1,000 600 1,0007 Heiktila 1,000 600 1,0008 Pegu 1,000 600 1,0009 Pro" 1,000 600 1,000

10 Lashio 600 400 60011 Myttkyina 600 400 60012 Toungoo 800 400 80013 Ionywa 600 - 60014 4yingyan 600 60015 Sagaing 600 600 aU'16 Tavoy 600 * Auto. Postponed 817 Renzada 600 600 -PI18 Chauk 600 600 019 Haka bOO * Auto. Postponied20 Lolkaw 600 - 60021 Pa-an 600 600

* Manual exchanges.automatization postponed.

IV. EXCHANGE CAPACITIES OVER PROJECT PERIOD (continued)

December 31, 1983Appraisal Targetat Completion of Completion of

Exchange Second Proj ect Actual Second Project

22 Pyimana 600 - 60023 Maymyo. 400 400 40024 Pakokku 600 - 60025 Syriam 600 ____ 600

Sub total 26,400 10,200 25,200

Automatic (subtotal) 67,600 36,400 67,400Manual (subtotal) 8,590 11,560 11,990.Total capacity 76,190 47,960 79,390

Total exchanges 202 213 232of which (manual) 166 192 198

II-- Trunk exchangesa- Rangoon 1,800 800 1,800b- Mandalay 1,400 600 1,400

Total 3,200 1,400 3,200

I.Is

* ~~~~~~~~~~~. *

C. ACCESS TO TELEPHONE SERVICE

March 31, 1979 December 31, 1986Total No. of Township Total No. of TownshipWith Without With Without

States and Division Telephone Telephone Telephone Telephone

1. Arakan State 6 11 15 22. Chin State 3 6 8 13* Irrawaddy Division 26 - 26 -4. Kachin State 7 11 10 85. Karen State 4 3 5 26. Kayah State 1 5 3 37* Magwe Division 18 7 23 28. Mandalay Division 25 --4 27 29. Mon State 8 2 1010. Pegu Division 25 3 2811. Rangoon Division 38 1 38 112. Sagaing Division 25 13 26 1213.- Shan State 16 36 19 3314. Tenesseris Division 5 5 7 3

TOTAL 207 107 245 69

0Ph

D. WORWS NOT DONE

I.. Rtral Telecommincations Facilities

a. Installation of H.*F radio systems

b. Installation of 54 proposed manual ea:hanges in 16 Townships

2. Transportation Remote Access Radio Telephone System

3. Maritime radio communication system.

OSI*t

'~~~ ~~ .

g *~~~~~~~~~~~~

0aPROJECT COMPLETION REPORT * . .

BURMA SECOND TELECOMHUNICATIONS PROJECT (CREDIT 958-BA)

Income Statement - Kyats '000'

Year ending March 31: 1981 1982 1983 1984 1985 1986Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual

Operating Revenues

TelephoneLocal 48,048 29,735 55,736 36,558 65,211 46,269 77,601 47,814 90,018 52,645 53,604Long distance 23,288 27,002 27,946 47,642 33,535 57,867 40,241 62,048 48,290 62,096 64,987International 2.430 7.687 3.038 14,730 3.297 14.243 4,746 17,300 5.933 20.620 24.718

Subtotal 73,766 64,424 86,720 98,930 102,543 118,379 122,588 127,162 144,241 135,361 143,309

Telex 13,092 9,385 18,984 12,606 28,475 14,449 37,872 15,031 47,340 17,040 19,206Telegraph 28,418 16,131 29,839 17,864 31,331 26,402 32,898 20,559 34,542 16,909 17,774Rental of TV channels 0 0 0 0 0 0 0 25,509 0 28,753 42,132Other 1,008 311 1,210 392 1,452 372 1,742 296 2,090 1,295 1.969Total Revenue 116,284 90,251 136,753 129,792 163,801 159,602 195,100 188,557 228,213 199,358 224,390

Operating Expenses

Cost of operation 17,000 16,564 18,700 20,270 20,570 19,066 22,627 23,107 24,890 24,755 29,327Maintenance and repairs 2,400 3,246 2,880 3,185 3,456 7,371 4,147 4,317 4,977 4,894 4,865 oAdministrative cost 7,802 6,912 8,582 7,915 9,440 8,358 10,385 9,888 11,423 9,688 15,509Depreciation-:

On book value 19,453 25,471 26,777 26,187 35,587 27,100 46,401 27,768 57,647 31.199 49,515Reval adjustment 888 1,877 1,859 3,684 3,181 5,461 4.948 7,497 7.227 9,805 13,880

Total Expenditure 47,553 54,070 58,798 61,241 72,234 67,356 88,508 72,577 106,164 80,341 113,096

OPERATING INCOME 68,731 36,181 77,955 68,551 91,567 92,246 106,592 '15,980 122,049 119,017 111,294

Less: ContrIbution 12,739 3,827 12,863 12,724 13,552 19,565 15,206 26,035 17,759 25,905 22,415Intereet 26,267 22,091 35,079 26,403 46,393 25,121 55,906 29,199 62,852 32,668 36,579

Extraordinary 0 14 0 (526) 0 (289) 0 (2194) 0 (1.186) (3369)NET INCOME 29,725 10,277 30,013 28,898 31,622 47,271 35,480 58,552 41,438 59,258 48,931

Operating ratio (X) 41 60 43 47 44 42 45 38 47 40 50

Rate Base:Book value 318,293 0 457,959 446,973 622,541 434,144 821,871 418,910 1,019,745 420,819 543,348Revalued 331,729 0 486,540 481,963 671,979 494,153 898,930 500,073 1,131,672 522,469 665,385

Rate of return (1)On book assets 18 0 15 12 13 17 12 21 11 22 16On revalued assets 17 0 13 11 12 15 10 18 9 18 13

TP Rev/DEL (Kyats) 2,179 0 2,201 2,718 2,236 3,010 2,270 3,040 2,275 3,111 3,124TX Rev/Line (Kyats) 187,029 0 158,200 189,564 142,375 197,932 135,257 170,807 131,500 152,825 154,887


BURMA SECOND TELECOMMNICATIONS PROJECT (CREDIT 958-BA)

Balance Sheet - Kyats '000'

Year ending March 31: 1981 1982 1983 1984 1985 1986

Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual

ASSETS

Fixed AssetsPlant in Operation:

Book value 508,824 579,639 681,281 594,316 900,353 607,267 1,161,929 618,717 1,400,150 670,051 944,489

Revaluation adjustment 28.837 42.701 53 792 83.614 87 576 122 390 132 325 162 272 188 859 210,580 264 767

Subtotal 537,661 622,340 735,073 677,930 987,929 729,657 1,294,254 780,989 1,589,009 880,631 1,209,256

Less: Accumulated Depreciation:Book value 123,705 126,911 150,482 153,098 186,069 180,198 232,470 207,966 290,117 239,165 288,680

Revaluation adjustment 9.147 21 449 16.320 34 886 26.173 51,099 38,611 71,238 57.721 98.313 132.959

Subtotal 132,852 148,360 166,802 187,984 212,242 231,297 272,081 279,204 347,838 337,478 421,639

Net plant 404,809 473,980 568,271 489,946 775,687 498,360 1,022,173 501,785 1,241,171 543,153 787,617

Work in progress 260.690 7,451 350,139 39.523 389.463 169,768 346,740 284.821 328,972 379,42B 266.358

Total Fixed Assets 665,499 481,431 918,410 529,469 1,165,150 668,128 1,368,913 786,606 1,570,143 922,581 1,053,975

Current AssetsCash and banks 10,000 7,347 10,000 12,748 10,000 28,199 10,000 33,312 10,000 29,179 26,999

Accounts receivable 29,071 26,869 28,718 28,383 34,398 43,243 31,216 65,560 36,514 66,826 61,916

Inventories 14,821 8,167 17,044 14,563 19,601 19,888 22,541 19,395 25,922 14,785 37,177

U.G.C.F. 0 39,327 0 39,326 0 38,991 0 38,991 0 38,991 38,991

Others 2.906 10.080 3.197 18.682 3,517 5,067 3.868 3,618 4.255 6,971 14,148

Total Current Assets 56,798 91,790 58,959 113,702 67,516 135,388 67,625 160,876 76,691 156,752 179,231

TOTAL ASSETS 722,297 573,221 977,369 643,171 1,232,666 803,516 1,436,538 947,482 1,646,834 1,079,333 1,233,206

LIABILITIES

Capital 168,618 161,562 198,343 171,839 228,356 200,737 259,978 248,008 295,458 306,560 365,818

Current net income 29,725 10,277 30,013 28.898 31.622 47.271 35,480 58.552 41,438 59.258 48.931

Total Capital 198,343 171,839 228,356 200,737 259,978 248,008 295,458 306,560 336,896 365,818 430,976

Revaluation reserve 20.839 24,555 40,480 55,715 67.592 83.739 103,851 110,979 149,502 142,017 175.438

Total Equity 219,182 196,394 268,836 256,452 327,570 331,747 399,309 417,539 486,398 507,835 606,414

Long-term debts 480,146 342,129 682,460 353,617 875,403 427,492 1,003,144 478,562 1,121,684 516,787 562,153

Less current portion 9,300 9 300 93009 9 39 300 14.300

Total L/T debt 470,846 342,129 673,160 353,617 866,103 427,492 993,844 478,562 1,107,384 516,787 562,153

Subscriber deposits 10,142 8,986 11,962 9,940 14,172 10,880 17,012 11,511 19,972 20,763 23,304

Current liabilities 12,827 14,111 15,521 17,073 18,780 28,892

Current L/T debt 9,300 300 9,3009,3030 14.300 _

Total current liabilities 22,127 25,712 23,411 23,162 24,821 33,397 26,373 37,293 33,080 33,398 40,274

Allowance for losses 2,577 550 1,061 ITOTAL LIABILITIES 722,297 573,221 977,369 643,171 1,232,666 803,516 1,436,538 947,482 1,646,834 1,079,333 1,233,206

U~~ *


BURMA SECOND TELECOMMUNICATIONS PROJECT (CREDIT 958-BA)

Sources and Uses of Funds - Kyats '000'

Year ending March 31: 1981 1982 1983 1984 1985 1986Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Actual

Internal Sources

Net Income before interest 55,992 32,368 65,092 55,301 78,015 72,392 91,386 87,751 104,290 91,926 85,510Depreciation 20,351 27,348 28,636 29,871 38,768 32,561 51,349 35,265 64.874 41,004 63,395Total Cash Generation 76,343 59,716 93,728 85,172 116,783 104,953 142,735 123,016 169,1b4 132,930 148,905

Subscribers deposits 1,bli 586 1,820 954 2,210 940 2,840 631 2,960 9,252 2,541

Drawdowns

IDA Credit 551-BA 9,358 14,976 0 1,230 0 0 0 0 0 0 0OPEC Fund 4,255 2,649 0 380 0 0 0 0 0 0 0IDA Credit 958-BA 16,750 0 60,300 2,915 70,350 56,901 40,210 34,875 23,450 92,149 55,406OECF 34,840 0 30,150 0 8,241 36,452 0 21,283 0 10,454Governiaent andother borrowings 77,683 10,188 121.164 28,170 123,652 43,171 96,861 52,470 104,390 22,242 88.619Subtotal 142,886 27,813 211,614 32,695 202,243 136,524 137,041 108,628 127,840 124,845 144,025 ~

TOTAL SOURCES OF FUNDS 220,839 88,115 307,162 118,821 321,236 242,417 282,616 232,275 299,964 267,027 295,471

Uses of Funds

Ongoing works 44,323 1,023 0 0 0IDA Credit 958-BA 134,946 260,883 258,396 43,618 14,288Future works 0 0 0 175,235 206,165Total 179,269 54,731 261,906 46,749 258,396 143,196 218,853 126,503 220,453 145,941 161,368

Debt Service

Repayment 8,200 0 9,300 21,207 9,30U 62,649 9,300 57,558 9,300 86,620 82,432Interest 26,267 22X091 35,079 26,403 46,393 25,121 55,906 29,199 62,852 32,668 36,579Total Debt Service 34,467 22,091 44,379 47,610 55,693 87,770 65,206 86,757 72,152 119,288 119,011Change in working capital 7.103 11,293 877 24.462 7,147 11.451 1,443 19,015 7,359 1.798 15,092

TOTAL USES OF FUNDS 220,839 88,115 307,162 118,821 321,236 242,417 282,616 232,275 299,964 267,027 295,471-_---- - ,._ _

0.

- 32 -uNNu .8

*SURN&



Tariff Sumeary

As of 1/ As of As ofJuly 1979 April 1. 1980 October 1. 1984

1. Telelhone

Yearly rental (Automatic) 360 480 540Yearly rental (Manual) 480 600 660Internal extension 150 200 240External extension 200 250 300Connection charge 150 200 240DeposLt 300 300 500Local call charge 0.20 0.30 0.30

(Automatic)Trunk call charge (3 min.)

Under 50 miles 1.20 2.10 2.10SO to 100 2.40 3.00 3.00

100 to 200 3.60 5.40 5.40200 to 300 4.80 6.60 6.60300 to 400 6.00 8.10 8.10Over 400 7.20

2. Telex

Yearly rental 3,120 6,000 6,000Connectlon charge 100 500 500

3. Telegraph

First 16 words in 1.70 2.00 2.00Burusse or first 8words in Engllsh

Each additional word:Surmce 0.10 0.15 0.15English 0.20 0.30 0.30

/ Appraisal Tim

- 33 -

ANNEX 9Page I of 2

BURNA

SECOND TELECOHMUNICATIONS PROJECT (CREDIT 958-BA)


Return On Investments

1. The benefit period of the project extends from FY1986 to FY2006when on average the equipment provided under the project would have

b exceeded its useful life. PTC's FY81-86 program included parts of thefirst project which were completed in FY1982. The overlapping of the firstand second projects and the close _elationship between equipment installedunder the two projects and the total telecommunications investment programmake any attempt to separate incremental costs and revenues for the secondproject very arbitrary. The rate of return calculated in this annex,therefore, is for PTC's total FYs78-86 investment program. Specificationof incremental costs and benefits starts from FY78, when the first capitaloutlays under the first project were made, and finishes in FY88, when mostbenefits directly related to the expenditures made under the second projectwould have materialized.

2. All costs and benefits streams have been expressed in 1978prices.

3. Capital expenditures are for.PTC's FY78-87 investment program.Minor payments in FY88 to complete the-second project have been included.Taxes and duties have been excluded.

4. Operating costs were calculated on the basis of average cost perincremental subscriber. Incremental revenues are based on expectedadditional telephone traffic due to the program. From FY89 onwardoperating costs and revenues related to FY78-86 program are assumed toremain constant in real terms.

5. The cost benefit stream projected at appraisal for FYs78-85 issummarized below in millions of Kyats.

- 34 -

ANNEX 9Page 2 of 2

Fiscal Operating Net BenefitYear Deflator Expenditure Costs Revenue Stream

1978 1.00 102.0 0 0 (102.0)1979 0.94 104.7 0.5 2.1 (103.1)1980 0.89 100.9 3.3 23.1 (81.1)1981 0.84 116.0 3.6 53.4 (66.2)1982 0.79 153.4 4.7 66.8 (91.3)1983 0.75 143.8 6.5 85.7 (64.6)1984 0.70 23.2 8.3 104.2 72.71985 0.67 0'.2 9.7 122.1 106.21986 0.63 0 11.2 119.2 128.01987-2005 0.59 0 11.3 154.6 142.3

The net benefit stream above results in a rate of return of 15.6%.

The following table summarizes the actual and projected cost-benefit streamfor FYs78-87 program in millions of Kyats.

Fiscal Capital Operating NetYear Deflator Expenditure Costs Revenue Benefit

1978 1.00 917.5 0 0 (117.5)1979 0.94 99.5 1.5 1.9 (99.1)1980 0.89 56.2 4.0 7.0 (53.2)1981 0.89 28.5 6.8 36.3 1.01982 0.84 39.0 9.0 70.8 22.81983 0.80 107.3 10.8 90.3 (27.8)1984 0.76 65.7 11.8 99.1 21.51985 0.71 95.7 12.1 107.3 (0.6)1986 0.65 66.9 15.3 115.2 33.01987 0.65 20.7 16.3 115.2 78.21988 0.56 6.6 17.9 115.2 90.61989-2006 0.56 0 18.1 115.2 97.1

The rate of return is 13.8%.

- 35 -

ATTACHMENT 1

COMENTS FROM THE BORROWER

ZC2C DIST 6199 JWS 0924OEDD2REF: TCP HCOEDD2

JWS0924 JGL369 in 11/00:56 OUT 11/00:59MR. ALEXANDER NOWICKICHIEF, POLICY-BASED LENDING,ENERGY INDUSTRY AND URBANSECTORS DIVISIONOPERATIONS EVALUATION DEPTTHE WORLD BANKWASHINGTON, D.C.U.S.A.10 FEB 1988COPY TO U AUNG PE (E - 1330)

REF. YOUR LETTER JAN 6, 1988 REGARDING PCR-SECOND TELECOMS PROJECT 958-BA,EYE AM PLEASED TO ADVISE THE FOLLOWING CORRECTIONS MADE BY THE AGENCYCONCERNED.

AA. PG 9 PARA 4.01 LINE 6'MARCH 31, 1987' INSTEAD OF 'DECEMBER 31, 1987'

BB. PG 14 PARA. 6.05.

'PTC'S BRANCH OFFICES AT STATES AND DIVISIONS MAINTAIN THEIR* ACCOUNTS ON CASH BASIS, THESE CASH ACCOUNTS ARE CONVERTED TO* ACCRUAL ACCOUNTS MONTHLY AT PTC HEAD OFFICE' INSTEAD OF 'PTC

MAINTAINS ITS ACCOUNTS ON A CASH BASIS AND CONVERTS THEM TOACCRUAL ACCOUNTS AT THE END OF EACH YEAR.

REGARDSSOE THWINDIRECTOR GENERALF.E.R.D.

21233 FERDPF BN

-021)0527

Documents

World Bank Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7197 PROJECT COMPLETION REPORT BURMA SECOND TELECOMMUNICATIONS PROJECT (CREDIT 958-BA) April 11, 1988 Asia Region