FOR OFFICIAL USE ONLY Report No. 3133-TA Public...

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Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. 3133-TA STAFF APPRAISAL REPORT TANZANIA TELECOMMUNICATIONS PROJECT TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TI April 2, 1981 Transportation, Water and Telecommunications Department Eastern Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

Transcript of FOR OFFICIAL USE ONLY Report No. 3133-TA Public...

Document of

The World Bank FILE COPYFOR OFFICIAL USE ONLY

Report No. 3133-TA

STAFF APPRAISAL REPORT

TANZANIA

TELECOMMUNICATIONS PROJECT

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TI

April 2, 1981

Transportation, Water and Telecommunications Department

Eastern Africa Regional Office

This 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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CURRENCY EQUIVALENTS

US$1.0 = T Sh 8.3T Shl = US$0.120

:FISCAL YEAR

Government: July 1 - June 30TPTC : January 1 - December 31

LIST OF ABBREVIATIONS AND ACRONYMS USED IN THE REPORT

Carrier - A system of providing a number of circuits over one radiolink, coaxial cable, or a pair of wires

Channel - One circuit of a carrier system carrying speech or tele-graph signals

DELs - Direct exchange lines

EAPTC - East African Posts and Telecommunications Corporation--anautonomous government-owned public corporation responsiblefor the operation of all public services in the telecommuni-cations sector in Kenya, Tanzania and Uganda. The corpora-tion has now ceased to operate with the break up of the EastAfrican Community.

HF/UHF/VHF - High frequency radio up to 30 MHz; ultra high frequencyradio beyond 300 MHz; and very high frequency radio between30 MHz and 300 MHz

TPTC - Tanzania Posts;and Telecommunications Corporation--anautonomous government-owned public corporation responsiblefor the opetation of all public services in the telecommuni-cations sector

MHz - Megahertz

Microwave - A wavelength term normally applied to systems workingat frequencies:above 1,000 MHz.

Multiplex - Part of the equipment.in a carrier system--see above

Telex - Telegraph exchange service for subscribers'

TAC - Tanzania Audit Corporation

FOR OFFICIAL USE ONLY

TANZANIA

TELECOMMUNICATIONS PROJECT

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. THE TELECOMMUNICATIONS SECTOR ............................... 1

Background and Organization. 1Access to and Usage of Service. 2Quality of Service and Existing Facilities. 3Demand for Service. 4Sector Goals. 5Sector Constraints. 7Bank Group Role. 8

II. THE PROGRAM AND THE PROJECT. 8

The Plan and the Program. 8Project Concept. 9The Project. 9Project Costs .11Contingencies .12Project Financing ........................................... 13Procurement .............. 13Disbursements ................. , ..... 13Project Implementation .14Performance Indicators and Monitoring .15

III. ECONOMIC ANALYSIS ........................................... 15

Telecommunications and Economic Development . 15The Distribution of Benefits ................................ 16Tariff Policies .18Least Cost Solution .19Return on Investment .20Risks ... ,.... 20Environmental and Health Aspects .20

This report is based on the findings of a Bank appraisal mission which visitedTanzania in April/May 1980, comprising Messrs. D. Lomax and H. Ruud, TWTTL.

This 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.

Table of Contents (Continued)

Page No.

IV. THE IMPLEMENTING AGENCY ..................................... 21

Organization ................................................ 21Management and Control ...................................... 21Staff and Training .......................................... 21Accounting and Budgeting .................................... 22Billing and Collection ...................................... 23Audit ....................................................... 23

V. FINANCIAL ANALYSIS .......................................... 24

Postal Operations ........................................... 24Past Financial Performances ................................. 25Present Financial Position .................................. 25Valuation of Assets ......................................... 26Financing Plan .............................................. 27Future Financial Performance ................................ 28

VI. RECONMENDATIONS ............................................. 29

LIST OF ANNEXES AND CHARTS

Page No.

1. International Telephone Statistics ........................ 30

2. Existing Facilities as of December 31, 1979 .... ........... 31

3. Description of Works in TPTC's Program, 1980-84 .... ....... 32

4. Program and Project Costs ................................. 35

5. Schedule of Disbursements ................................. 36

6. Implementation Schedule ................................... 37

7. Performance Indicators .................................... 38

8. Schedule of Telecommunications Tariffs and Charges 39

9. Study of Tariff Structure - Draft Terms of Reference 42

10. Return on Investment .45

11. Organization Chart .47

12. Profit and Loss Accounts .................................. 48

13. Estimated Source and Application of Funds .50

14. Balance Sheets .51

15. Documents and Data Available in Project File .53

Map - IBRD 15091

I. THE TELECOMMUNICATIONS SECTOR

Background and Organization

1.01 Tanzania has a land area of about 945,000 square kilometers, alarge part of which is high, arid plateau. The population of approximately17.5 million (1978) increases by about 3% per annum. Five percent of thetotal population live in Dar-es-Salaam and five percent in the twenty otherbiggest urban centers; the rural population, making up the major part orabout 90% of the total, is well spread over the territory, with higherdensities near the three main Indian Ocean ports of Dar-es-Salaam, Tanga,and Mtwara, and in the Lake Victoria area, the highlands around Kilimanjaro,and the southern highlands near Lake Nyasa. Per capita GNP for 1979 isestimated at US$230. About 90% of the active population is engaged in agri-culture, which accounts for about 50% of GDP and 80% of export earnings(mainly cotton, coffee, sisal, tobacco, and cashew nuts). The small butgrowing industrial sector includes textile and sugar mills, tobacco process-ing, two cement factories, an oil refinery, and diverse other small plants.Government has been trying hard to increase the country's agriculturalproduction, both food crops and export crops, and to create additionalemployment opportunities. The efforts during the last decade have focusedon measures to organize the rural population (in villages, districts, andregions), to accelerate its social development, and to decentralize develop-ment action responsibility, to the district level in particular. Further-more, collective and cooperative farming and the establishment of small-scale industries are being encouraged. However, scant access to telecom-munications services, poor road conditions, and limited transport facilitiesimpair government efforts, slow down the impact of any administrative andsocial reforms, and make very difficult the marketing of agriculturalproducts and the timely delivery of agricultural inputs. The country'seconomic development has also been constrained by a serious foreign exchangeshortage, caused by a need to import foodstuff during years of seriousdrought (mainly 1973 and 1974), as well as by the more recent war in Uganda.

1.02 With the breakup of the East African Community (EAC), includingthe East African Posts and Telecommunications Corporation (EAPTC), theGovernment of Tanzania established in 1977 the Tanzania Posts and Telecom-munications Corporation (TPTC), which is an autonomous government-ownedcorporation under the Ministry of Communications and Transport. In additionto its handling the postal services of the country, TPTC is responsible forthe establishment, expansion, operation, and maintenance of all local,national and international telecommunications services. (Annex 11 shows theorganizational setup of TPTC.) In addition to the military organizations,the Ministry of Home Affairs and the Aerodromes Department operate, underlicenses issued by TPTC, some telecommunications services for theiradministrative needs. Private users can operate point-to-point telecom-munications services after obtaining a license from TPTC. These licensesare issued only when TPTC is not in a position to provide such servicesadequately; they are renewed on an annual basis. Tariffs for telecommuni-cations services are fixed by the Minister of Communications and Transport

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upon recommendation by TPTC. With a sufficient separation between thepostal services and the telecommunications services being provided for(para. 4.02), the telecommunications services are adequately organized.Furthermore, there is no fragmentation in the responsibility for handlingof the telecommunications monopoly, as this is clearly assigned to TPTCby the legislation. The country has no industry of significance for themanufacture of telecommunications materials and equipment.

Access to and Usage of Service

1.03 In Tanzania, the number of direct telephone exchange lines inservice (DELs) per 100 population, about 0.21, is among the lowest in theworld. For Africa as a whole, except for the Republic of South Africa, thecorresponding average figure is 0.4; for Asia, except for Japan and thePeople's Republic of China, it is 0.9; for Latin America 3.2 and forNorth America 32. (Comparisons of telephone densities among countries arepresented in Annex 1.) Forty-four percent of the DELs of Tanzania are inDar-es-Salaam, with five percent of the population, which makes 1.8 DELsper 100 inhabitants there. Another 42% of the DELs are installed in theother regional capitals, making the average telephone density there about1.4 DELs per 100 inhabitants. This leaves 14% of the DELs for the ruralareas with 90% of the population, making an average density of only 0.04DELs per 100 inhabitants in the vast countryside, including district andother development centers. All the regional capitals (20 on the mainlandand 5 on Zanzibar with Pemba) have some telephone service, but about one-fourth of those district centers which are not co-located with regionalcapitals are not yet satisfactorily connected to the telecommunicationsnetwork. About 60 other towns have manual telephone service of varyingquality and, in addition, about 200 remote places are equipped with radiocall service, 1/ but most towns and villages have no access to telecommu-nications facilities.

1.04 No precise figures are available in regard to categories ofsubscribers or users. However, it is known that 60% of telecommunicationsrevenues comes from government users, including the parastatal entities.This category dominates the number of subscribers in the regions outsidethe capital city, whereas private business and residential subscribersamount to nearly one-half of the total number in Dar-es-Salaam. It isalso known that very few telephones are used solely for residential pur-poses. Due to the prevailing shortage of lines, a telephone is normallyused mostly for business transactions, even when it is installed in aresidence. The fact that business communications make up a big portion ofthe total traffic is reflected in pronounced peaks in the traffic load ofboth local and long distance facilities during working hours. The numberof pairs for telephone connections available in local cable networks and

1/ A shortwave radio facility for emergency and specialized purposesbut unsuitable for public communications.

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particularly in the Dar-es-Salaam network is almost exhausted. This is themain reason for the high number of telephones connected to the same line(2.3 as an average for the whole country), which is detrimental to goodservice in a network of the Tanzanian type, as is also the fact that manyof the exchange equipment have no more available lines. The high degree ofutilization of the available facilities leaves little flexibility for newconnections and has hampered growth during the last two to three years.However, for the lines that can be connected, TPTC has an allocation systemwhich gives priority to essential services and works satisfactorily.By modifications in the tariff structure, price considerations should to someextent make the allocation to priority services automatic in the future (seepara. 3.11).

1.05 Eighty-two percent of the total number of telephones in the countryare connected to local automatic exchanges, the rest to manual exchanges.Ninety-five percent of the local traffic and ninety-four percent of the inter-urban traffic is automatic. The manual local exchanges have the followingopening hours:

less than 25 subscribers: 8 hours a day

25 to 60 subscribers : 12 hours a day

60 or more subscribers : 24 hours a day.

The international telephone traffic is operator-handled, except for thetraffic to Kenya and Uganda, which is operated and charged in the samemanner as are inland calls. Most of the international telephone trafficand telex traffic (except for Kenya and Uganda) is routed via a satelliteearth station, operating since September 1979 in the INTELSAT system andgiving fully satisfactory service. Telephone satellite circuits have thusbeen established with Italy, United Kingdom, Japan and Seychelles, andtelex circuits with Italy and the United Kingdom. HF circuits, havinglimited working hours and giving less than satisfactory service, areoperating between Tanzania and Burundi, Zambia and Mozambique, for tele-phone traffic, and between Tanzania and Mozambique, United Kingdom andZambia, for telegraph traffic.

1.06 There are 426 telex subscribers in the country, of which 110 areoutside Dar-es-Salaam. The latter are connected to either of the two telexexchanges in Arusha and in Dar-es-Salaam. Of the regional capitals, 15 havetelex subscribers, and in these places TPTC uses teleprinters connected tothe telex network for telegram transmission.

Quality of Service and Existing Facilities

1.07 Due to a much heavier demand for services than the network wasdesigned to handle, the local telephone exchanges, the interurban exchanges,and the long distance transmission lines are all heavily congested duringdaytime. Many of the transmission lines are frequently out of order for lackof spare parts or inadequate maintenance, whereby the number of availablechannels is constantly reduced below the nominal number and the congestionproblem is further aggravated. The high number of telephones per DEL (see

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para. 1.04) also contributes to the problem. In reality the congestionmakes it difficult for a client to gain access to the telephone network andto complete calls from about 9:30 a.m. to 2:00 p.m. during working days.Thus it is not unusual that, during this period, dialing tone is obtainedin Dar-es-Salaam only after ten or more attempts and that a direct dialedlong distance communication can only be completed after hours of trial.Sample studies show that only 5.5% of call attempts are successful. Morethan 70% of long distance call attempts, made during any time of day andnight, are not completed due to equipment or circuits being congested, and24% due to called subscriber station being busy (which in many cases isdue to him being engaged in trying to make another call). Waiting timefor manually connected long distance calls amounts in most cases to hoursor days, which often makes the service of little value and discouragesclients. (The number of cancelled calls is likely to be high; no statisticson cancellations are available at this time.) The external plant in Dar-es-Salaam and other cities consists mainly of underground cables, many of whichare old and cause faults by poor joints and, during the rainy season, byleakage. In spite of this problem, the quality of service of the localcable networks is not too bad: there was an average telephone failure rateof approximatley 1.2 faults per telephone during the year 1979. Less thanone-half of the faults were cleared the day they were reported, with most ofthe balance cleared within 48 hours. This performance is reasonable.

Demand for Service

1.08 In spite of the facts that a potential subscriber has to beregistered on a waiting list for an average period of more than two years,and that he is normally not given any fixed delivery time promise at the timeof registration, the official waiting lists contained as many as about 18,000registrations as of December 31, 1979. There is in addition a latent demand,of approximately the same size, which shows itself from area to area, asexpansion works are undertaken. Of the 18,000 potential subscribers, about9,000 could not be connected due to lack of both cable pair and exchangeequipment lines and a further 5,000 (approximately) due to lack of cablepair. For the remainder a variety of reasons were given. The increase by3,700 in the number on the waiting lists from the end of 1978 to the end of1979 can be compared to the increase during the same period of the number ofDELs by about 2,900 to 38,283 (9.3% increase) and the number of telephonesby about 6,300 to 88,684 (8.7%).

1.09 Practically all the registrations on the official waiting listrelate to Dar-es-Salaam and other relatively important cities. This doesnot reflect a lack of demand in smaller cities and rural areas but ratherthe fact that potential clients have been discouraged by long waiting timesand by poor service from established facilities. At the time of Bankappraisal, there was no sign that the number of new demands would decrease.However, with the capacity of TPTC to increase the annual addition of newconnections by resources provided under its investment program (Chapter II),the amount of the unsatisfied demand is tentatively projected to decrease by

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1984 to perhaps as low as 12,000 or two-thirds of the end 1979 figure. TPTCwill also consider tariff measures that would help in channeling the demandfor new subscriber connections in a manner which is desirable to achievegovernment development objectives (para. 3.11). The exact demand for tele-phone communications has not been quantified; from the discussions on thequality of service (para. 1.07), it is evident, however, that the demanddoes now and will in the next few years greatly exceed TPTC's actual capacityfor traffic handling and investment implementation, and thus cause longwaiting times.

1.10 The number of telex subscribers increased from December 31, 1978,to December 1979 by 22% to 426, while the waiting list was extended by 76 to314 during the same period. The reasons for the latter, relatively largefigure, is a shortage of exchange lines and shortage of teleprinters. Thetelex service is, more than the telephone service, dependent on the economicactivity in Tanzania and internationally. However, it has been projected,on the basis of enquiries and studies within TPTC, that once the presentwaiting list has been eliminated by means made available during the invest-ment program, the unsatisfied demand for new telex subscriptions willstabilize at around 150 a year.

Sector Goals

1.11 Telecommunications development objectives are in harmony withthose of the national development plans which give priority to rural develop-ment and dispersal of the development effort away from major cities, togetherwith overcoming the isolation of areas within the country. Rapid two-waycommunication is seen as an important means of achieving this goal. In thecurrent five-year plan the objectives established for telecommunicationsinclude:

(a) measures to improve substantially the functional efficiencyof the present installations;

(b) measures to improve communications to rural development areasand establish an infrastructure enabling such improvement;and

(c) measures to expand and improve Tanzania's internationaltelecommunications.

1.12 After having considered the present shortcomings in its services(paras. 1.07-1.10) and the objectives set in paragraph 1.11, TPTC hasformulated in concrete terms the targets of its 1980-84 investment program.These targets, which have been endorsed by Government, are as follows:

(a) to install manually operated facilities in unserviceddistrict centers and in other towns with major ruraldevelopment importance;

(b) to provide satisfactory telecommunication channels to allneighboring countries and to install manually operatedtelephone facilities in all border towns;

(c) to provide subscriber long distance dialing between allregional capitals;

(d) to increase the extension, reliability, and capacity of thelong distance network so as to ensure the likelihood ofcall completion attaining acceptable levels;

(e) to increase the reliability and capacity of the localswitching and cable networks at various cities and towns,reducing the present number of outages and reducing thenumber of unsatisfied demands registered on the waitinglists (including the additions up to the end of 1984) totwo-thirds of the present level;

(f) to install at least one public call box at all places witha telephone switchboard installation;

(g) to provide teleprinter installations at all district centersand at some other towns with major rural development impor-tance, for rapid and reliable transmission of telegrams andfor public access to the telex network; and

(h) to develop and train the staff of TPTC.

These targets appear to be well established, with a view to achieving develop-ment towards a telecommunications network that is well balanced, technicallyand economically, and that can support the country's economic and socialdevelopment to a desirable degree including government administration of thecountry, the rural development effort, and private sector business.

1.13 The main components of the investment program are:

(a) to increase the country's total telephone switching capacityby about 54,000 automatic and 7,000 manual lines and thelocal cable networks by about 75,000 lines;

(b) to install about 30,000 new DELs, about 700 private branchexchanges, and about 60,000 telephones;

(c) to construct about 70 VHF, UHF or microwave radio links forreliable long distance circuits, and to increase thecapacity of existing links by adding equipment for channelingand switching;

(d) to increase the capacity of the telex central office inDar-es-Salaam by 900 lines and adding about 1,400 teleprintersand telegraph transmission equipment as needed;

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(e) to improve the reliability of power supply facilities fortelecommunications installations; and

(f) to complete the construction of TPTC's new training center.

1.14 The following table outlines the result of some of the physicalachievements expected from the implementation of the 1980-84 investment pro-gram, which achievements are in addition to a higher degree of reliability andefficiency of the telecommunications services than at present, and to TPTC'sgeneration of a significant amount of local funds (para. 5.11) during theprogram period.

end 1979 end 1984

Telephone line density (DELs per100 inhabitants) - Total 0.21 0.32

Urbanl/ 1.80 2.00Rural 0.04 0.09

Telephone availability in rural areas- number of rural towns served 114 156- percent of total rural populationwith relatively convenient accessto telephone service 3.60 4.70

Unsatisfied demand for telephonesubscription in areas with service 18,000 12,000

1/ The term "'urban" covers towns and cities with 20,000 or moreinhabitants.

Sector Constraints

1.15 The autonomy, responsibility, and organization of TPTC are adequatefor the operation and expansion of the Tanzanian telecommunications services.The officials of TPTC management are well qualified for their tasks, andstaff with both training and experience is available on all levels in theorganization. There is, however, a shortage of such trained and experiencedstaff, which shortage has made difficult the much needed increase of efficiencyin the utilization and maintenance of the existing installations and inexpansion work. Realizing this shortcoming, the Government has caused TPTCto include a strong training department in its organization. Training facili-ties, however, are extremely inadequate (para. 4.05).

1.16 The other major constraint which has impeded progress in the telecom-munications sector has been the lack of secured long-term foreign exchangefinancing. This has caused slow and somewhat erratic expansion, and resultedin inability to implement continuous longer term planning, in high equipmentcosts, and in a failure to sustain an adequate maintenance program.

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Bank Group Role

1.17 Prior to 1977, the telecommunications services in the East AfricanCommunity (Tanzania, Kenya, and Uganda) were managed by EAPTC. The Bank hasbeen associated with these services since in 1967 it approved a US$13.0 millionloan (483-EA) to EAPTC to help finance a project designed to increase localand long distance facilities. The project was satisfactorily completed inearly 1974. A second loan (675-EA) for US$10.4 million was approved in 1970to finance a project to further extend the telecommunications services.This project was satisfactorily completed in June 1975. The combined projectperformance audit report on these first two projects, while holding an overallpositive view of the achievements by the Bank's association with EAPTC, pointsto delays in project implementation caused by inadequate planning and projectmanagement, to problems in procurement, and to failure to meet demand forservice. A third loan (914-EA) was approved in May 1973 for US$32.5 millionto further extend telecommunications services. Due to problems in the EastAfrican Community, leading to its breakup, the works to be undertaken on thethird project have been delayed. The Tanzania part of the project is nowanticipated to be completed in 1981.

1.18 IDA first became associated specifically with the telecommunicationssector in Tanzania through a sector mission in January 1979 followed by aproject identification mission in September 1979. IDA's proposed role in thetelecommunications sector in Tanzania is focused upon institutional develop-ment and staff training, provision of independent technical and economicadvice, promotion of an improved tariff structure, and provision of a soundlong-term foreign exchange base on which plans can be prepared and implementedand equipment and facilities costs reduced. While the three EAC projects,mentioned in paragraph 1.17, were managed by EAPTC in a not completely satis-factory manner, the mission expects that TPTC, which will manage the proposedproject, would, with planned training initiatives, have the ability to imple-ment it satisfactorily as it has now a significant experience in planning,engineering, and construction of telecommunications installations. Thisexperience was partly gained during execution of Tanzanian part of earlierprojects (para. 1.17). Furthermore, TPTC is now conversant with Bank Group'sguidelines for procurement and in the process of preparing bidding documentsfor procurement of goods in the project.

II. THE PROGRAM AND THE PROJECT

The Plan and the Program

2.01 The telecommunications investment program was designed within theoverall framework of the national development plans (para. 1.11). The tele-communications component has been approved by Government and is not expectedto be modified. TPTC and the Ministries of Finance and of Planning havealways maintained close links concerning the preparation and approval oftelecommunications programs and required budgetary allocations. TheseMinistries are thus aware that this sector cannot ensure completion of itsagreed program commitments and designs without an assured long-term fundsavailability.

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2.02 The updated program for telecommunications investment covers theperiod 1980-84. The program is set out in detail in Annex 3 and includesthe following:

(a) the proposed project (para. 2.03); and

(b) other program works (see Annex 3 for more details):

(i) completion of works under the third EAPTC project(para. 1.17);

(ii) other ongoing works; and

(iii) preliminary works needed for expansion of thetelecommunications facilities from 1985 onward.

2.03 The complete program is estimated to cost about T Sh 1,715 million(US$207 million) with a foreign exchange component of about T Sh 1,100 million(US$133 million) (Annex 4).

Project Concept

2.04 The proposed project has been designed within the framework ofthe TPTC's current investment program (paras. 1.13 and 2.02). It comprisesworks to be undertaken principally during the years 1981, 1982 and the firsthalf of 1983, which are essential for the successful implementation of theprogram.

2.05 In addition to providing physical facilities and help TPTC generatesignificant amounts of local funds (para. 5.11), the project has a number ofbroad objectives. It aims at improving and developing TPTC as an institution,and increasing its capacity for training staff. It aims at focusing theservices expansion in rural areas and at spreading the network to presentlyunserved or insufficiently served areas, both urban and rural. Since in anetwork of this size and stage of development, it remains necessary to estab-lish reasonably uncongested and reliable urban and long distance networksinto which, naturally, most of the traffic from rural users would be flowing,the project aims at supporting a technical and economic balance of the program.Finally, the project will facilitate an increase to acceptable levels of thereliability and functional efficiency of the present installations.

The Project

2.06 The proposed project provides for (references are made to theoverall investment program targets outlined in para. 1.12):

(a) construction of about 550 km of overhead line routes andof about 12 VHF or UHF links, as well as installation ofabout 850 channels of rural carrier equipment and of powersupply equipment for telecommunications facilities at

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about 90, mostly rural, centers. These facilities will beused to connect district centers and other rural towns, aswell as border towns to the telecommunications networks(items (a), (b) and (d) of para. 1.12), and to ensurereliable service;

(b) construction of four microwave links and installation ofabout 600 channels of multiplex equipment in new and existingbroadband transmission systems. This equipment is essentialin the development of the principal long distance network(items (b), (c) and (d) of para. 1.12);

(c) expansion of the local cable network at about 90 urban andrural centers; pressurization of junction cables in Dar-es-Salaam, and provision of dropwire. The local cable and thedropwire correspond to outside network plant and subscriberinstallations foreseen in items (e) and (f) of paragraph 1.12.(The necessary switching equipment and telephone instrumentsare partly available or under installation; the supply of theremainder is being secured under bilateral financing);

(d) provision of about 700 teleprinters. This equipment is neededduring the first two years of the project, for connection oftelex subscribers (about two-thirds), for leased circuitterminals, and for installations under item (g) of paragraph1.12;

(e) provision of cement and other building material. The localproduction of cement and certain other building material doesnot adequately supply the needs of the country; the balancehaving to be imported. The quantity included in the projectcorresponds to what is needed for antenna tower foundations,cable ducts, and operational buildings, so as not to allowthe shortage of such material to cause delays in the comple-tion of the project;

(f) provision of spare parts: for existing power supply andtelecommunications installations, for air-conditioninginstallations in equipment rooms, and for vehicles that areneeded in the installation of project items and in theoperation of telecommunications facilities. The generalshortage of foreign exchange has caused extreme difficultiesfor TPTC's ongoing activities. Thus, about one-third of thevehicle fleet is garaged, waiting for spare parts. Parts ofthe long distance network are out of use, due to lack ofspare parts. Some equipment installed in the coastal areaswill have its life length reduced by corrosion, due to thefact that the air-conditioning does not work for lack ofspare parts. The provision of spare parts under the projectaims at rectifying the situation as far as possible;

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(g) provision of an air-conditioning plant and of training equipment.These items are critical in the completion of the new trainingcenter and in starting up the activities there (para. 4.05).They cannot be procured locally;

(h) provision of 40 vehicles. These vehicles are specialized orfour-wheel-drive vehicles for handling of cable drums and otherheavy or bulky items and for other installation and maintenancework. In computing the number of vehicles needed, it has beenassumed that practically all of the vehicles now garaged (item(f) above) will be brought back into service;

(i) installation of a digital telephone exchange in Zanzibar cityas a pilot project preceding the introduction of similar equip-ment on a large scale in various parts of Tanzania;

(j) provision for training fellowships and overseas study tour.These are intended for specialization in such essential fieldsas outside plant engineering, construction, and operation, instores and supplies management, etc., and will complement thelocally available training; and

(k) provision of consultancy services for, inter alia, a study ofthe impact of improved telecommunications on the economic andsocial development of the country.

Project Costs

2.07 The estimated cost of the project is about T Sh 390 million (US$47.0million), with a foreign exchange component of about T Sh 224 million (US$27.0million). The cost details are given in Annex 4 and summarized below:

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T Sh million US$ millionLocal Foreign Total Local Foreign Total

Local NetworkCables, accessories, dropwire 68 75 143 8.36 8.78 17.14

Interurban NetworkOverhead lines and rural/line carrier - 15 15 0.09 1.78 1.87VHF, UHF and microwave links 21 28 49 2.62 3.30 5.92Multiplex equipment 1 8 9 0.08 1.04 1.12Power supply equipment 1 4 5 0.05 0.54 0.59

Telex and Gentex NetworkTeleprinters 1 17 18 0.20 2.03 2.23

Support for Installation and OperationCement and other building material 1 7 8 0.14 0.82 0.96Spare parts 1 7 8 0.10 0.82 0.92Vehicles 1 4 5 0.10 0.50 0.60Pilot Project 4 11 15 0.36 1.60 1.96

Training and Consultancy ServicesTraining equipment and air conditioning 11 6 17 1.32 0.73 2.05Fellowships, study tours andconsultancy services - 3 3 0.01 0.30 0.31

Subtotal 110 185 295 13.43 22.24 35.67

Physical contingencies 6 8 14 0.65 1.00 1.65Price contingencies 50 31 81 5.99 3.76 9.75

Total Financing Required 166 224 390 20.07 27.00 47.07

2.08 The cost estimates (figures represent the expected cost level atthe latter part of 1980) are based on prices quoted in Tanzania and similarcountries for similar types of equipment. No taxes or duties are charged onimported telecommunications equipment. The local costs are based on preva-lent costs of civil works, or costs of small equipment and services availablein Tanzania.

Contingencies

2.09 A physical contingency of 5% has been provided on foreign and localcosts. Price contingencies have been applied for all equipment and materialson an annual price escalation of 8% in foreign costs and 17% for local costs.They are considered adequate and reflect the declining cost in real terms oftelecommunications equipment. The resulting estimated overall price escalationamounts to about 26% of the estimated base cost plus physical contingencies.

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Project Financing

2.10 Project costs will be financed as follows:

US$ million %

IDA 27.0 57

TPTC 20.0 43

Total 47.0 100

2.11 The proposed IDA credit of SDR 22.1 million (equal to US$27.0million using the rate SDR 1.00 = 1.22) would be to the Government ofTanzania on standard IDA terms and would finance about 57% of total projectcosts. In line with conditions applied in government onlending to otherparastatals, Government would onlend the proceeds of the proposed IDAcredit, at an interest rate of 10% per annum, for a period of 20 yearsincluding a grace period on capital repayments of five years with TPTCcarrying the foreign exchange risk. Assurances were obtained in thisregard during negotiations. The execution of a subsidiary loan agreementbetween Government and TPTC acceptable to the Association and reflecting theabove is to be a condition of credit effectiveness.

Procurement

2.12 All equipment to be financed by the proposed IDA credit will beprocured through international competitive bidding (ICB), except for a fewitems costing a total of about US$1,500,000. The items excluded from ICBand proposed for negotiated purchase on the grounds of compatibility arespare parts for existing vehicles and for existing telecommunications andauxiliary equipment (US$750,000). The prices paid for the negotiatedpurchases would be subject to IDA approval and would have to be reasonablein terms of ICB prices offered on similar items. Furthermore, contracts forcivil works materials and sundry maintenance equipment and spares costingless than US$150,000, and not exceeding a total of US$750,000, would beawarded following TPTC procurement procedures which are satisfactory.

Disbursements

2.13 Funds would be disbursed on the following basis and, for eachcategory, disbursement would cover 100% of foreign expenditures and 85% oflocal expenditures.

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Category US$ (000's)

(a) Cables and accessories 9,000(b) Rural line and carrier equipment 1,750(c) Microwave and UHF equipment 3,500(d) Power equipment 500(e) Multiplex, VHF and radio call equipment 1,000(f) Teleprinters 2,000(g) Civil works raw materials (cement and

reinforcing rods) 1,000(h) Vehicles 500(i) Spares for telecommunications equipment,

air conditioning equipment, powerequipment, and vehicles 1,000

(j) Training and research equipment(including air conditioning) 550

(k) Fellowship and consultancy services 400(1) Pilot project 1,800(m) An unallocated amount transferable to

above categories as appropriate 4,000

Total 27,000

An estimated schedule of disbursements is given in Annex 5.

Project Implementation

2.14 The Tanzania Posts and Telecommunications Corporation (TPTC) willbe responsible for project implementation. TPTC staff will prepare engineer-ing designs for all equipment, prepare bidding documents, evaluate bids andprepare contract documents. TPTC will lay and commission all local andjunction cables and install subscriber facilities both in provincial townsand the metropolitan area. TPTC will also install the microwave, multiplexand radio equipment. TPTC's management and staff are sufficiently experi-enced and are capable of managing the above work satisfactorily. TPTC staffare currently preparing bid documents and technical specifications fornearly all IDA-financed goods. Implementation and operations within TPTChave been hampered by lack of spare parts for vehicles (currently about 35%of vehicles are off the road awaiting spare parts). The project provides forspare parts and tools, and the status of vehicle maintenance will be monitoredduring supervision. During the execution of the project, IDA supervision ofprocurement will also ensure that equipment will be properly deployed andprocured or delivered only when the building or structure for this equipmentis certain to be completed by delivery time and only when any necessaryancillary equipment (switching, etc.) is certain to be ready for systemlinkup. An estimated project implementation schedule is given in Annex 6.

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Performance Indicators and Monitoring

2.15 Performance indicators to help monitor TPTC's project implementa-tion and operational and financial performance are given in Annex 7. Thesewere discussed and agreed upon during negotiations and will be included inTPTC project progress reports to be sent to IDA. Project execution reportswill be prepared and submitted on a quarterly basis, financial reports inaccordance with paragraph 4.10 below. The performance indicators and thefigures showing their expected annual variations have been chosen so as todemonstrate TPTC's degree of success in installation of facilities providedunder the project, in making agreed staffing improvement, in acceleratingits training activities, in utilizing spare parts provided under the project,in keeping down the level of outstanding subscriber accounts receivable, andin improving its financial performance as projected.

III. ECONOMIC ANALYSIS

3.01 The economic analysis discussed in this chapter related to the1980-84 telecommunications investment program, of which the project formsan integral part. The program is designed to facilitate achievement ofthe objectives of the telecommunications sector which are derived from theNational Development Plans (para. 1.11).

Telecommunications and Economic Development

3.02 Inside Dar-es-Salaam and a few other big cities, the existing tele-communications facilities are congested, particularly during office hours.Moreover, the main long distance network is almost always congested duringdaytime hours, and often faulty. The characteristic feature of the ruralnetwork is a very sparse availability, circuits often out of order and heavilycongested (paras. 1.03-1.09).

3.03 Government development efforts, which are focused on rural devel-opment (para. 1.01), have an indispensable need for a countrywide network ofreasonably well functioning telecommunications services. In the actualsituation described above, these efforts are being seriously hampered,particularly so by the inadequacy or unavailability of communicationschannels between Dar-es-Salaam and the other regional capitals, and betweenthem and the district centers and other principal towns. For example, animportant long distance telecommunications link in the country goes betweenKigoma, situated on Lake Tanganyika, and Dar-es-Salaam. Kigoma is importantnot only as capital of region but also as point of transfer of goods betweenthe railway to Dar-es-Salaam and the shipping lines, particularly the one toBurundi. Usually, between two and four hours are required to establish acall on this link during office hours, and this poor service contributes todifficulties for the transporters to avoid transit delays, to difficultiesto comply with plans for Kigoma's development, and to Government's diffi-culties to monitor the situation.

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3.04 The lack of access to rapid communications over most of the vastexpanse of Tanzania has created significant problems or aggravated existingproblems in the coordination and management of all sectors. Major problemshave, for example, been encountered in creating and maintaining a nationaltransport system, and in coordinating trips to minimize fuel consumption;many of these are related to a lack of information and reliable communica-tion channels. Trucks often return to base empty even though there arecargoes waiting to be picked up; breakdowns are not quickly reported andthere are delays in analyzing mechanical problems and sending a repairteam with suitable parts and tools. Agricultural development efforts alsosuffer because of slow and unreliable communication. There are many instancesin which supplies are not ordered or provided on a timely basis, and informa-tion on prices, transport, and administrative problems is either untimely,unavailable, or sometimes grossly misleading. Among other things, thisdirectly or indirectly reduces the quantities of agricultural productsexported and reduces the quantities and the timeliness of locally producedfoddstuff available in the domestic consumer markets. This in turn hasundesirable consequences for the country's economy at large and for theproducers' development endeavors.

3.05 Government officials, responsible for project implementation,who require daily information from parastatals and other ministry depart-ments, spend up to three hours a day travelling, due to the fact thatinadequate telecommunications links necessitate frequent trips by car.In the absence of adequate long distance telephone connections, othergovernment officials must make monthly or even weekly, costly and time-and fuel-consuming trips. Instead of a situation where adequate telecom-munications services contain the pressure on the strained transport system,the present inadequacy of these services exaggerates the burden on thesystem. Furthermore, due to shortage of both means of telecommunicationsand of transport, day-to-day problems and bottlenecks remain frequentlynot reported or inadequately attended to.

3.06 The investment program (para. 1.13) has been designed to improvethe reliability and efficiency of the present telephone installations tomore acceptable levels. It will also increase the capacity of the localand long distance networks, so as to enable automatic and manual calls tobe established without excessive delay. It will expand the network toabout 42 presently unserved towns, enabling access both from public tele-phone booths and from subscriber installations. Although the program willnot eliminate unsatisfied demand for subscriber connections or for immediateaccess, it will significantly improve the present situation, thus alleviatingsome of the difficulties indicated in paragraphs 3.02 to 3.05.

The Distribution of Benefits

3.07 Most segments of Tanzanian society will feel, directly or indirectly,the benefits of TPTC's 1980-84 investment program, since the completion ofthe program will contribute to greater efficiency in business, transportation,and Government administration and rural development, health, and educationalprograms.

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3.08 By end 1984, the access to the network and the quality of communi-cations should have improved greatly. In general, the targets described inparagraph 1.12 should have been fulfilled as follows:

(a) the remaining 17 district centers and other presently unservedtowns which are important in the economic and social develop-ment would have been connected to the telecommunications net-work and been provided with a manual switchboard, one or morepublic telephone booth(s), and the possibility for connectionof subscribers;

(b) all border towns would have been provided with rapid andreliable telephone connections; none has it at present;

(c) high quality links with the eight neighboring countries wouldhave been established or would be in the process of beingestablished; more or less satisfactory links to three of thesecountries now exist, with very poor links to the other five;

(d) the principal long distance network would consist entirely ofcircuits complying with international standards and wouldenable approximately the following:

(i) direct dialing between all regional centers, withnot more than one failure in five attempts;

(ii) manual traffic to and from all district centers andborder towns, with less than half an hour waitingtime;

(iii) manual traffic with other towns connected to thenetwork with less than an hour waiting time; and

(iv) international traffic of acceptable quality;

(e) the reliability of the local networks at about 90 urban andrural cities and towns will have been improved (the number offaults per telephone and year reduced from 1.2 to 0.7) andtheir capacities extended. About 60,000 new telephones andabout 300 additional public call boxes will have been installed.The updated waiting list for new subscribers, in areas withservice, will have been reduced to about 12,000; and

(f) teleprinters will have been installed and connected to thetelex networks, at all district centers and at about 50 otherplaces with important economic activity.

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3.09 By end 1984, the telephone density will have increased from 1.80to 2.00 in urban areas and from 0.04 to 0.09 in rural areas (para. 1.14),and the long distance network will have been improved and additional publiccall boxes been installed (para. 3.08) Although the level of the telephonedensity will still be much higher in urban areas, the relative increase ismuch bigger in rural areas (125%) than in urban areas (11%). As a result,the benefits of the program will be felt significantly in the activitiesof economic and social development in rural areas, including those of thesmall farmers and small businessmen and their families.

3.10 Inside Dar-es-Salaam and other urban communities, the greatestbenefits would flow to Government administration, including parastatals,and to commercial activities. Benefits would also be reaped by a rela-tively limited number of senior civil servants and others who can afforda private telephone installation, and by the large number of people whocan utilize public call boxes. The expected flow of benefits is acceptable.However, tariff measures should be considered that can in the future guidethe flow of benefits further (para. 3.14). The proposed project will havea favorable financial impact on government development programs in othersectors and will generate significant public savings. Over the projectperiod, it is estimated that TPTC will generate a net amount of US$84million equivalent in local currency revenue, which Government may use forother purposes (para. 5.12).

3.11 During negotiations, assurances were obtained that by December 31,1982, TPTC will have carried out the study of the impact of improved tele-communications services on the economic development of Tanzania under termsof reference satisfactory to IDA. Such study shall include a survey on theusage of telecommunications services by current and potential customers.

Tariff Policies

3.12 The last tariff increase was in February 1975. TPTC has a tariffreview committee consisting of the director general, the two assistantdirector generals, and the directors of finance and of research andcorporate planning. This committee sends its recommendations to the TPTCBoard, which forwards for approval final recommendations to the Ministry ofCommunications and Transport. The telephone access allocational aspectsof tariff policy have not in the past been a prime factor in determiningtariff level or structure.

3.13 A table of existing tariffs is at Annex 8. The installation cost(US$36) and the annual rental (US$58) for telephone are the same in ruraland urban areas, as is the charge (US$0.08) for an untimed local call.The charges for long distance domestic calls vary with the distance betweencaller and called station (US$0.16 to.US$1.10 per minute; during "cheaprate hours" the charge is one-half). The installation fee is relativelylow by developing country standards, and the long distance call, charges

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relatively high; the annual rental charge and untimed call charge compareapproximately to the average of charges in other countries. On the average,about 80% of the calls made from urban residential or office telephones arelocal calls and about 20% are long distance domestic or international calls.For rural telephones, the ratio is approximately the opposite. Hence, thedistributional result of the tariff structure for telephone calls is thatit favors urban clients by relatively low total charges. The structure,however, corresponds to costs for installation, maintenance, and operationwhich are lower in cities. Nevertheless, the relatively high costs forsubscribers in rural areas are not conducive to a higher usage which may becommensurate with Government rural development efforts, and which over aperiod of time, could render TPTC's installations in rural areas profitable.

3.14 TPTC will, therefore, undertake a tariff study under terms ofreference as discussed during the negotiations (draft terms of referenceare at Annex 9). The study should be completed by December 31, 1982 andthe results and implementation implications should be reviewed with IDAnot later than June 30, 1983. The study should compute the costs of thevarious elements of the telecommunications services provided, and estimatethe needs for the services of the various groups of existing and potentialusers. It should attempt to rationalize tariff structure and level towardascertaining what changes, if any, might improve channeling of the utili-zation of the telecommunications network to high productivity users,and to attempt to distribute the benefits of investments throughout theentire country in such a manner as to promote equity and balance and toefficiently support Government and private efforts for economic and socialdevelopment.

Least Cost Solution

3.15 The design of the telecommunications network has been based onwhat is considered to be appropriate technology and standard engineeringmethods for minimizing capital and recurrent costs. Experienced engineerswithin TPTC have carried out the planning and design for each componentof the network expansion. Appropriate intervals for extension of the varioustypes of plants have been adopted.

3.16 For the programmed expansion of the present central offices andfor installation of new switching facilities, register controlled crossbarequipment of recent design will be used, since the Tanzanian installationand maintenance personnel is familiar with this kind of equipment, andsince appropriate arrangements have been made in the stores organizationand in staff training. During the next program, the major portion ofswitching equipment added is likely to be electronic digital; the pilotinstallation at Zanzibar, provided for under the present project, will givevaluable planning information in this regard. Subscriber dialing, insteadof the operator-handled setting up of calls for traffic between the regionalcapitals, is thought to be desirable despite this solution being somewhatless labor intensive and slightly more demanding on initial capital. Thisis primarily because automatic operation has distinct time, reliability, and

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efficiency advantages, for both TPTC and the clients, on the high trafficroutes in question, with a significant amount of the traffic originatingbeyond the regional capitals, in manual exchange areas.

Return on Investment

3.17 The internal financial rate of return on the program, defined asthe discount rate which equalizes the present value of cost and revenuestreams (at 1980 prices) attributable to the 1980-84 program, is 17%.

3.18 This rate of return understates the real benefits to be derivedfrom the investment program, partly because the benefits stream used inthe calculation does not take into consideration a major portion of theindirect and external benefits which are received by nonusers of the ser-vice. It also does not include much of the consumer surplus which telephoneusers receive. In recent years, inflation has resulted in telephone tariffsfalling in real terms, and, in the absence of tariff changes (para. 3.12),they will continue to do so. As an example of the significance of this,a portion of the consumer surplus is estimated by (a) tabulating over theprogram period the prices in 1980 real terms, which the existing subscribersand existing registered applicants have demonstrated a willingness to pay;and (b) assuming that the new applicants will also be willing to pay thesame real amount as existing subscribers and waiting applicants havedemonstrated a willingness to pay. Given these assumptions, all of whichare considered reasonable, and after shadow pricing the foreign exchangeelements of the program at US$1.0 = T Sh 12.0, the quantifiable estimate ofthe economic rate of return would be 24%.

Risks

3.19 The project offers limited risk. The principal risk is the pos-sibility of delayed physical implementation due to unforeseen circumstances.In telecommunications projects, which comprise a relatively large numberof independent activities, delay in the completion of a few works doesnot generally prevent the use of other newly created assets. Furthermore,costs and benefits are often delayed in roughly the same degree, so theimpact on the rate of return may not be significant. A sensitivity analysison the economic rate of return (Annex 10) shows that a combination of10% higher capital costs and 10% lower revenues would result in a returnof 19%.

Environmental and Health Aspects

3.20 Telecommunications projects have very little direct impact onthe environment. The plant is mostly unseen and it consumes little energy.Through its use as an alternative to communications involving physicalmovements, however, telecommunications has the potential to conserveenergy, reduce environmental pollution, and facilitate such items as healthservices delivery and emergency care.

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IV. THE IMPLEMENTING AGENCY

Organization

4.01 Established by the Tanzania Posts and Telecommunications Corpora-tion Act, 1977, dated December 2, 1977, TPTC, the project implementingagency, is an autonomous government-owned public corporation responsible forall domestic and international postal and telecommunications services inTanzania. It started operations on February 3, 1978.

4.02 TPTC has a board of directors on which are representatives of,among others, Ministries of Finance and of Communications and Transport, ofParliament, and of the employees' union. The day-to-day operations of TPTC,which have a commercial orientation, are controlled by a director general,who has reporting to him a director of research and corporate planning, andtwo assistant directors general in charge of operations, and finance andadministration. Postal and telecommunications share the common services ofresearch and corporate planning, of finance and administration, and ofbuildings. From an accounting point of view, the operations of postal andtelecommunications services are separately identified. TPTC's presentorganization chart is shown at Annex 11.

Management and Control

4.03 The management, budgeting, and control systems in TPTC operatereasonably well, although there are some areas which require strengthening(para. 4.07). The flow of management information is not always presentedin a way that could lead to effective action. TPTC is working on amanagement information system which is expected to be completed during thenext 12 months.

Staff and Training

4.04 Estimated telecommunications staff distribution by category isgiven in the following table:

Staff Classification Numbers

Senior engineers 155Technicians and specialist workers 911Operators 962Laborers 724Administrative 402

Total Communications Staff 3,154

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This number of staff is on the high side when compared with the number oftelephones now in service (77 per 1,000 DELs). With the introduction ofmore sophisticated systems, TPTC, during the project period, does notanticipate expanding its staff at the same rate as in the past (about 7%p.a.) and expects that by end 1984, staff density will have reduced toabout 58 per 1,000 DELs, which is acceptable pending further reduction insubsequent years.

4.05 TPTC has a great need for training of its staff, both in order toimprove operation and maintenance of existing installations and to cater toforeseen expansion. Currently, TPTC has two training campuses, both inDar-es-Salaam. In addition, TPTC has the possibility to send some studentsfor managerial and administrative training to a multi-national traininginstitution in Arusha. The available facilities are, however, very inade-quate, and a new training center is being built in the outskirts of Dar-es-Salaam. Completion is expected in early 1983, at which time the activitiesat all the campuses will be consolidated. The major part of the trainingwill be done at the new center, although some will still be undertaken atthe TPTC's present centers and some students be sent to the Arushainstitution.

-4.06 Instruction and training programs within TPTC cover most signifi-cant aspects of its business (engineering, maintenance, postal matters,finance, civil works, etc.). There is both in-house and on-site training,with instructors having formerly worked on site. Maintenance personnel are,on the average, retrained for two weeks per year. Middle- and senior-leveltechnicians are sent overseas for short- and medium-term courses. Swedishaid has provided a number of instructors for the schools and this aid is tocontinue. Several small items of equipment as well as air conditioningfor the machinery rooms are required. The project provides for these, thusensuring that external financing requirements for the training componentare covered. The present plans for TPTC's training activities foresee asuccessive increase of up to 14,000 student-weeks in 1984, up from 6,000 in1979. This corresponds to the need of the organization. The increase innumber of student-weeks will only be attained, however, if the plannedactivities are implemented in a timely fashion.

Accounting and Budgeting

4.07 TPTC enjoys a considerable degree of financial autonomy and preparesits accounts on a commercial basis. TPTC is required by the TPTC Act topresent its audited accounts within six months of the end of the financialyear. Up to now, this has not been possible due to various delays (para. 4.10).TPTC prepares annual budget forecasts and these are presented to the board forits review, comment, and approval, in September of each year (three months inadvance of fiscal year). Capital development budgets are forwarded for finalapproval to the central government authorities via the Ministry of Communica-tions and Transport, and it is in this area that full financial autonomy forTPTC is not achieved. Government is in control of foreign exchange resourceallocation to TPTC and in this role can determine the size and scope ofexpansion. Tanzania's extreme shortage of foreign exchange funds has been a

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major constraint on sector development (para. 1.16). TPTC operating resultsare presented separately for telecommunications and postal operations (para.5.02). The annual balance sheet is prepared for TPTC as a whole, with tele-commdnications and postal assets separately identified. TPTC's accountingoperations are slow but otherwise reasonably well controlled and managed.

Billing and Collection

4.08 Rentals are billed monthly in advance and call charges are billedmonthly after they have been incurred. The billing system at the issuingoffice in Dar-es-Salaam is computerized. At present, bills are on averageissued about three-and-a-half months after the period to which they relate.Two months of this delay occur prior to receipt of billing information by the

centralized computer center in Dar-es-Salaam. Subscribers can pay at anypost office and are expected to do so within two weeks of their receivingthe bill. The policy is that, if a subscriber has not paid the bill withinone month after receipt of the bill, the telephone is disconnected. Thispolicy, however, does not seem to be uniformly applied in all cases. Accountsreceivable as of December 31, 1979, are estimated to be T Sh 170 millionrepresenting private and parastatal sector users. This is an overdue factorof about six months, which equates to two-and-a-half months payment delay ordoubtful debts and three-and-a-half months bill issuance delay. In order toclarify and improve the accounts receivable situation, TPTC will use theirreceivables ageing analysis by type of user to institute procedures to ensurea reduction of the level of outstanding receivables so that they do notexceed the equivalent of four months of gross telecommunications revenues byDecember 31, 1982, and three months by December 31, 1984. Assurances wereobtained during negotiations that TPTC accounts, billings and computersections would investigate and suggest methods of improving the three-and-a-half months delay in the present bill issuance and forward the report ofinvestigation with implementation implications and actions to IDA byDecember 31, 1981. One critical factor in the current bill issuance delay isthe lack of vehicles for the billing services. This should be partly takencare of under the project [para. 2.06(f) and (h)]. A recent mission toTanzania has confirmed that elements of this study have already startedand that progress has been made to the extent that total delay hasrecently been reduced to about two and a half months.

Audit

4.09 TPTC has an internal audit section which, since December 1979, hasbeen expanded to 19 personnel. This section operates with an audit programand covers both routine accounting and management control procedures. Everytwo months, an internal audit report is issued to management.

4.10 The Tanzania Audit Corporation (TAC) is TPTC's external auditor.The audit of the 1978 accounts has recently been completed; delays haveoccurred both in the presentation of draft accounts and in the auditing work.The situation has improved somewhat, although the one major delay is the

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billing delay (para. 4.08). During negotiations, assurances have been ob-tained that TPTC will continue to employ independent auditors acceptableto the Association and will conform to the following timetable with respectto forwarding reports to IDA.

Fiscal Year Audited Accounts(months after end of fiscal year)

1981 81982 71983 61984 61985 6

V. FINANCIAL ANALYSIS

5.01 The final division of the East Africa Posts and TelecommunicationsCorporation (EAPTC) assets and liabilities 1/ among the former partner states,after the breakup of the EAC in 1977, is still pending. The independentmediator, appointed in January 1978 to advise on the division, has presentedhis report in March 1980, but the acceptance of his recommendations and thefinal settlement may take some time. Government has authorized TPTC tooperate EAPTC assets in Tanzania. However, these assets cannot be declaredthe property of TPTC until final agreement is reached. This situation impliesthat historic and projected financial statements presented for TPTC areprovisional and may be adjusted according to a future final settlement ofEAPTC's assets and liabilities. The financial covenants would be drafted tobecome operative on a specific date subsequent to final agreement of themediation. During negotiations, agreement was reached on how to applythe principles underlying these covenants on provisional financial data, untilsuch time as the mediation exercise has been concluded and final financialstatements are available.

Postal Operations

5.02 In addition to telecommunications, TPTC operates the postalservices. For the years 1976 to 1979, postal revenues covered operatingexpenditures, leaving a profit margin of about T Sh 1.0 million. Postal

11 Including also the assets and liabilities of East African ExternalTelecommunications Corporation, a company which was owned by EAPTCand which had been established for the purpose of operating theinstallations for international telecommunications services.

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services are supposed to operate on a break-even operating basis. Sometelecommunications funds will, however, over the project period, be usedto finance postal capital works. The accounting system of TPTC separatespostal and telecommunications operations (para. 4.07). Postal net fixedassets accounts for about 10% of the total assets now managed by TPTC.The analysis in this chapter relates to the whole of TPTC's operations.

Past Financial Performances

5.03 The past financial performance of TPTC has been good. A summaryfor the years 1977 to 1979 is given below.

1977 1978 1979(T Sh millions)

Operating revenues 249.7 298.4 329.3Operating costs 104.3 132.9 156.9Operating surplus before tax 145.4 165.5 172.4Taxation - 70.5 60.0

Net operating surplus 145.4 95.0 112.4

Operating ratio (%) 42 45 48

Rate of return on revalued assetsbefore tax (%) 27 24 21after tax (%) 27 14 14

As can be seen, operating ratios and rates of return both before and aftertax are acceptable.

Present Financial Position

5.04 A summary of TPTC's estimated balance sheet as at December 31,1979, is shown below.

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T Sh US$(millions)

Assets (Book Value)

Fixed AssetsTelecommunication net plant in operation 385.9 46.5Postal net plant in operation 118.5 14.3Work in progress and materials and supplies 230.0 27.7

Total net fixed assets 734.4 88.5

Financial assets 109.0 13.1

Current assets 369.5 44.5

Total assets 1,212.9 146.1

Liabilities

Equity capital 641.1 77.2Reserve funds 132.4 16.0

Long-term debt 257.0 30.9

Current liabilities 182.4 22.0

Total liabilities 1,212.9 146.1

Financial assets consist of investment of INTELSAT 1/ and pension liabilityfunds. The book value of EAPTC Tanzania based assets are included above.However, these EAPTC assets, which have yet to be legally vested to TPTC,represent less than 10% of the value of TPTC's net fixed assets.

Valuation of Assets

5.05 TPTC's records on fixed assets are incomplete and historic cost foreach item cannot be firmly established. Plant accounts are maintained,however, and present asset figures and future projections are considered tobe reasonably accurate.

1/ Covering the right to participate in the INTELSAT system for telecommunicationvia satellites.

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5.06 TPTC has never established the effect of inflation on the value ofits fixed assets. A consultant study of EAPTC assets valuation, datedJanuary 1976, concluded that the gross book value of the estimated Tanzanianshare needed to be increased by 21% to reflect replacement cost at December1974. To reduce possible distortion in assets value by price inflation onthe one hand and declining unit costs of telecommunications assets fromimproved technologies on the other, TPTC's total net fixed assets in operationhave been adjusted on a trial basis to reflect the current value of the assets,by being revalued from the 1974 base by 6% per annum.

5.07 During negotiations, assurances were obtained that, not later thanSeptember 30, 1981, TPTC would propose and agree with IDA on a method forthe annual revaluation of its total fixed assets. Assurances would also beobtained that TPTC would review the value of its fixed assets annually there-after, in accordance with the methods agreed on with IDA for the purposes ofcalculating the rate of return on the telecommunications assets.

Financing Plan

5.08 The forecast of sources and application of funds is based uponTPTC's capital expenditure program and is shown in Annex 13. Following is asummary of the financing plan for the period 1980-84.

T Sh US$(millions)

RequirementsProposed project 390 47Other program works 878 105Future programs preinvestment 446 54

Total program cost 1,714 206

Increase in reserve and netcurrent assets 592 71

Total requirements 2,306 277

SourcesInternal cash generation 1,249 150Less debt service 316 38Net cash generation 933 112Medium- and long-term financing 1,373 165

Total sources 2,306 277

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Medium- and long-term financing consists of: multilateral agencies (IDA) -T Sh 224 million; bilateral agencies (Japan and Sweden) - T Sh 800 million;suppliers' credits and Government - T Sh 349 million. Of this financing,approximately T Sh 680 million is already confirmed, and the items forfinancing ensure effective implementation of the project vis-a-visancillary link-up equipment.

5.09 TPTC has a good net internal cash generation which finances theequivalent of 54% of program costs. Long-term debt and increase in netcurrent assets are both high as debt is required for foreign exchangeexpenditures; hence, there is a large build-up in the accounts of localcurrency. The Ministry of Finance has in the past swapped local currencyfor foreign exchange. As there can be no certainty of this for the future,it has not been assumed in any financial projections.

Future Financial Performance

5.10 Financial statements for the fiscal years 1980-85 are given in Annex 12through Annex 14. A summary of TPTC's expected future financial performance,assuming inflation on operating costs (17% on local and 8% on foreign costs)consistent with those used for estimating project costs, is given below:

Fiscal Years Ending December 31: 1980 1981 1982 1983 1984 1985

Operating revenues (T Sh million) 377 461 565 692 850 979Operating expenses (T Sh million) 187 235 297 361 435 507Operating surplus (T Sh million) 190 226 268 331 415 472Operating ratio (%) 50 51 52 52 51 52Rate of return on revalued assets (%)

before tax 24 24 24 22 22 23after tax 13 12 13 12 12 12

Current ratio (times) 2.9 3.1 3.4 3.6 4.0 4.7

5.11 TPTC's projected financial performance over the project period isgood. The operating ratio at 52% and rates of return are considered satis-factory. From 1983 to 1985 the current ratio is high due to the localcurrency build-up mentioned in paragraph 5.09.

5.12 In respect of tariffs, it has been assumed for the financial pro-jections that there will be no increases during the project period sinceTPTC's rate of return on revalued assets remains acceptable, despite inflation,due to an almost doubling of DELs during the program period and to an increasedutilization of the services. The present forecasts show the annual rate ofreturn on the estimated revalued assets to be not less than 12% after tax, andnot less than 22% before tax. Each of these rates is adequate to meet TPTC'sfuture financial requirements. The payment of tax and interest would result

- 29 -

in a transfer to Government from the telecommunications sector during theproject period of about T Sh 700 million (US$84.0 million) (para. 3.10).

During negotiations, assurances were obtained that TPTC would maintaintariffs at a sufficient level to achieve a rate of return on revalued averagenet telecommunications fixed assets of at least 12%, after tax, each year.

VI. RECOMMENDATIONS

6.01 During negotiations, assurances were obtained that the followingbe a condition of effectiveness of the proposed credit:

that TPTC and Government had signed a subsidiary loanagreement acceptable to the Association, whereby the pro-ceeds of the IDA credit be onlent to TPTC at an interestrate of 10% per annum for a period of 20 years, includinga five-year grace period, and with foreign exchange risksto be borne by TPTC (para. 2.11).

6.02 During negotiations, the following major assurances were obtainedthat:

(a) by December 31, 1982, TPTC will have carried out the study ofthe impact of improved telecommunications services on theeconomic development of Tanzania under terms of referencesatisfactory to IDA. Such study shall include a survey on theusage of telecommunications services by current and potentialcustomers;

(b) TPTC will study the level and structure of its tariffs; thestudy to be completed by December 31, 1982, and that TPTCwould review with IDA the implications of the implementationof the conclusions of this study not later than June 30, 1983(para. 3.14);

(c) not later than September 30, 1981, TPTC would propose andagree with IDA on a method for revaluation of its fixed assetsand would review the value of its fixed assets annuallythereafter for the purposes of calculating the rate of return(para. 5.07); and

(d) TPTC would maintain tariffs at a sufficient level to achievea rate of return on revalued average telecommunications netfixed assets of at least 12% after taxes each year (para. 5.12).

6.03 Provided the above conditions are met, the proposed projectconstitutes a suitable basis for an IDA credit to Government of Tanzania ofSDR 22.1 million (equal to US$27.0 million using the rate SDR 1.00 = US$1.22equivalent).

- 30 -

A2N.;EX 1

TANZANIA

TANZANIA POSTS AND TELECOMOUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

International Telephone Statistics

TELEPHONES - JANUARY 1978

Principal Rest of Percent of

National Cities Country National

1977 Population Percent Principal

(OOOs) Per Average Autom- Per Per Cities

Prin- 100 Annual atiza- 100 100 Pop-

cipal Rest of Total Popu- Growth tion Total Popu- Total Popu- ula- Tele-

Country Total Cities Country (000s) lation 1969-78 (Z) (000s) lation (COOs) lation tion phones

WORLD 4,138,000 NA NA 423,082 10.22 6.6 99 NA NA NA NA NA NA

AFRICA 438,000 NA NA 4,237 12.80 4.3 86 NA NA NA NA NA NA

Algeria 18,100 1,991 16,109 298 1.64 7.5 87 176 8.84 122 0.76 10 59

Burundi 4,100 NA NA 5 0.11 5.5 99 3 0.80 NA NA 10 100Ethiopia 28,609 1,855 26,754 79 0.28 9.1 100 60 3.24 19 0.07 6 76

Kenya 14,384 1,385 12,963 144 1.00 9.3 100 116 8.38 28 0.22 10 81Madagascar 7,995 1,165 6,830 29 0.36 2.0 94 29 2.09 0 0.00 15 100Mauritius 894 143 751 29 3.24 6.8 100 12 8.39 17 2.26 16 40Nigeria 79,059 2,139 76,920 128 0.16 6.0 30 71 3.32 57 0.07 3 55Rhodesia 6,860 1,044 5,816 197 2.87 6.0 94 159 15.23 38 0.65 15 81

Rwanda 4,800 NA NA 4 0.08 6.5 100 4 0.80 NA NA 10 100Seychelles 619 160 459 5 7.37 29.2 100 4 23.73 1 0.17 24 83

South Africa 26,130 8,909 17,221 2,320 8.88 5.8 87 1,703 19.08 617 3.58 34 73

Sudan 18,000 1,971 16,029 62 0.34 3.8 91 56 2.84 6 0.04 11 90Tanzania 16,132 1,216 14.916 74 0.46 10.1 80 59 4.80 15 0.10 7 80Zambia 4,067 1,855 2,212 54 1.32 2.9 97 44 2.32 10 0.46 46 82

AMERICAS 577,000 NA NA 192,789 33.41 5.0 99 NA NA NA NA NA NABrazil 119,004 26,729 92,275 4,708 3.96 7.9 98 3,597 13.46 1,111 1.20 23 77

Canada 22,943 10,308 12,635 14,506 63.23 5.7 100 7,445 72.73 7,061 55.88 45 51

Jamaica 2,000 823 1,177 111 5.55 6.9 100 97 11.79 14 1.19 41 87

Mexico 66,944 25,477 41,467 3,712 5.54 13.6 98 3,133 12.30 579 1.40 38 85Trinidad & Tobago 1,067 100 967 75 7.03 4.9 100 46 46.00 29 3.00 9 61

United States 217,000 43,441 173,559 161,448 74.40 4.5 100 36,365 83.70 125,083 72.07 20 23

ASIA 2,319,000 NA NA 62,877 2.71 9.9 98 NA NA NA NA NA NA

Bangladesh 81,800 NA NA 89 0.01 NA 70 49 NA 40 NA NA 55

Burma 31,500 9,000 22,500 33 0.10 4.4 69 27 0.30 6 0.03 29 82

China (Taiwan) 16,866 5,340 11.526 1,685 9.99 22.1 100 986 18.46 699 6.06 32 59Hong Kong 4,567 4,567 - 1,251 27.39 12.7 100 1,251 27.39 - - 100 100

India 632,099 31,051 601,048 2,247 0.36 8.8 86 1,200 3.86 1,047 0.17 5 53

Indonesia 138,341 15,036 123,305 325 0.23 6.7 68 249 1.66 76 0.06 11 77

Iraq 12,500 11,500 1,000 320 2.56 12.7 96 223 1.94 97 9.70 92 70

Isreal 3,651 1,924 1,727 930 25.47 9.8 100 685 35.60 245 14.19 53 74

Japan 114,620 19,281 95,339 50,626 44.17 10.7 99 11,895 61.69 38,731 40.62 17 23

Korea (South) 35,860 14,643 21,217 1,978 5.20 16.8 97 1,419 12.77 432 0.19 41 71

Malaysia 13,086 1,439 11,647 375 2.86 10.2 99 226 15.70 149 1.28 11 60Nepal 13,130 303 12,827 9 0.07 6.4 83 8 2.85 1 - 2 92

Philippines 44,980 8,912 36,068 567 1.26 10.0 95 519 5.82 48 0.13 20 92Singapore 2,325 2,325 - 455 19.57 16.1 100 455 19.57 - - 100 100

Sri Lanka 13,970 955 13,015 74 0.52 2.8 97 47 4.92 27 0.21 7 64

Thailand 44,273 6,475 37,798 367 0.83 13.8 97 308 4.76 59 0.16 15 84

EUROPE 781,000 NA NA 154,829 19.82 8.0 99 NA NA NA NA NA NAFrance 53,183 9,664 43,519 17,519 32.94 10.7 100 7,129 73.77 10,390 23.87 18 41Germany, Fed.Rep. 16,767 4,216 12,551 2,860 17.06 9.3 100 1,173 27.82 1,687 13.44 25 41

Italy 56,601 20,677 35,924 16,119 28.49 9.3 100 9,236 44.67 6,883 19.16 47 57Portugal 9,766 1,736 8,030 1,175 12.03 7.4 95 627 36.12 548 6.82 18 53Spain 36,230 11,203 25,027 9,528 26.30 12.5 95 4,611 41.16 4,916 19.64 31 48

Sweden 8,267 3,598 4,669 5,930 71.73 4.6 100 2,882 80.10 3,048 65.28 44 49Switzerland 6,292 2,173 4,119 4,145 65.88 5.6 100 1,919 88.31 2,226 54.04 36 46

Turkey 41,758 8,343 33,415 1,379 3.30 13.9 81 924 11.08 455 1.36 67 20

United Kingdom 55,844 17,522 38,322 23,182 41.51 7.5 100 9,064 51.73 14,118 36.84 33 39USSR 260,000 25,324 234,676 19,600 7.50 8.9 98 5,194 20.51 14,406 6.14 10 26

OCEANIA 23,000 NA NA 8,350 36.30 5.6 97 NA NA NA NA NA NA

Australia 14,074 8,964 5,110 5,835 41.40 6.2 97 4,435 49.50 1,400 27.50 64 76Fiji 588 87 501 33 5.61 9.5 90 16 18.39 17 3.39 15 48

New Zealand 3,146 2,181 965 1,715 54.51 4.5 96 1,308 59.97 410 42.49 69 76

Papua New Guinea 2,914 250 2,664 38 1.30 9.8 99 33 13.20 5 0.19 9 87

Source: AT&T's "The World's Telephones," a statistical compilation as of January, 1978. Data for Principal Cities for theUnited States and Japan is in respect of cities with 500,000 or more telephones only.

-31- ANNEX 2

TANZANIA

TANZANIA POSTS AND TELECOMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Existing Facilities as of December 31, 1979

I. Local TelephoneCapacity of telephone exchanges, lines 48,198

of which automatic " 35,703

manual " 12,495

Number of automatic telephone exchanges 23

Number of manual telephone exchanges 122 1/

Number of telephones 88,684

Number of subscriber connections (DEL) 38,283

Annual growth in DELs (last 4 years) percent 10.0

Average exchange fill, percent 79.4

Unsatisfied demand, number on waiting list 18,275 2/

II. Long Distance TelephoneTotal number of long distance circuits (microwave, VHF,

UHF, HF, tropospheric scatter, line-carrier) 724

Number of Radiocall Service Subscribers 227

Number of Radiocall Control Centers 3

III. Telegraph and TelexNumber of telegraph offices 149

Number of telex offices 2

Number of telex subscribers 426

Unsatisfied demand for telex subscription, number on

waiting list 314

IV. International Facilities (apart from circuits to Kenya

and Uganda)Number of telephone circuits 29

Number of telex circuits 28

Number of telegraph circuits 4

V. StaffTotal telecommunications staff 3,154

Number of staff per 1,000 DELs 77

1/ Does not include places with Radio Call installation only; those are

about 200.

2/ TPTC estimates that, in addition, there is a latent demand amounting

to at least this figure.

- 32 - ANNEX 3Page 1 of 3 pages

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Description of Works in TPTC's Program, 1980-1984

1. TPTC's 1980-1984 telecommunications development program has thefollowing components:

(a) works of this telecommunications project;

(b) other program works, which are to be completed prior toDecember 31, 1984; and

(c) works which will be completed after 1984 ("future work").

2. The following is a brief description of the major works in groups(a) and (b):

Works in Group (a):

Local Network

(i) to expand the local cable network by about 75,000 pairsin about 90 cities and towns throughout the country; topressurize junction cables and primary cables in Dar-es-Salaam and to provide dropwire for about 23,000 newdirect exchange lines;

Interurban Network

(ii) to construct approximately 550 km of overhead lineroutes in rural areas and to install about 850 channelsof rural carrier systems;

(iii) to construct about 16 VHF, UHF or microwave links, forreliable 24-hour connection of regional and districtcenters and other rural towns to the telecommunicationsnetwork. Telephone service will be introduced at 70places, mostly rural towns, which have had no access totwo-way telecommunications service--about 30 places willhave public call office and about 40 places a manualexchange;

-33- ANNEX 3Page 2 of 3 pages

(iv) to install multiplex equipment for about 600 channels, inorder to increase the traffic-handling capacity oncongested routes;

(v) to install equipment for power supply to telecommunicationstransmission facilities, with solar cell equipment at about70 places and with motorgenerators/batteries at about 20places, most of the places being located in rural areas;

Telex and Gentex Network

(vi) to provide about 700 teleprinters for telex subscribersand for the TPTC telegram service, in various parts ofthe country;

Support for Installation and Operation

(vii) to provide cement and other building material to beimported for a timely completion of the project;

(viii) to provide spare parts for telecommunications equipment,for power supply installations, for air conditioninginstallations in equipment rooms, and for vehiclesneeded for project installations and for operation andmaintenance of telecommunications installations;

(ix) to provide about 40 specialized or four-wheel-drivevehicles for handling of cable drums and for otherinstallation and maintenance work;

Training and Consultancy Services

(x) to provide a minor amount of training equipment and anair conditioning plant for the new training center;

(xi) to provide for fellowships and overseas study tours inoutside plant engineering, construction, and operation,in stores and supplies management, and in other sectorsof the TPTC's activity, as needed;

(xii) to provide consultancy services for the study of the impactof improved telecommunications services on the country'seconomic, social, and cultural development, and for variousother purposes; and

(xiii) to provide a pilot installation of a 4,000-line digitalelectronic telephone exchange in Zanzibar city, this installa-tion to provide basic planning information for a large-scaleintroduction of such equipment in various parts of Tanzania.

- 34 - ANNEX 3Page 3 of 3 pages

Works in Group (b):

Local Network

(i) to install automatic switching equipment, of a total ofabout 54,000 lines, for extension of the capacity ofexisting local exchanges and primary centers and forestablishment of new ones;

(ii) to increase the capacity of manual local switching(magneto-boards) by about 7,000 lines;

(iii) to install about 700 private branch exchanges andabout 60,000 telephones;

Interurban Network

(iv) to increase the interurban switching capacity by about770 lines and the international by about 350 lines andto install about 130 automanual switchboards;

(v) to construct approximately 50 HF, VHF, UHF or microwavelinks; and to increase the capacity on heavy-trafficportions of the existing transmission network;

Telegraph and Telex

(vi) to replace the present 360 lines' crossbar telex exchangein Dar-es-Salaam by an electronic exchange for about 900subscriber lines and to move the crossbar exchange toArusha where an increase of capacity is needed;

(vii) to acquire approximately 700 teleprinters for new telexsubscribers;

(viii) to quadruple the capacity of the voice frequency telegraphnetwork; and

Training

(ix) to complete the construction of the new training centerfor about 300 students (of which 240 boarders), and tomove the main training activities to this center.

-35 - ANNEX 4

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Program and Project CostsT Sh (millions)

1980 1981 1982 1983 1984 Total

Local NetworkCables and drop wires - 56.5 35.7 34.4 16.4 143.0

Interurban NetworkOverhead lines and rural/line carrier - 5.0 4.0 3.0 3.0 15.0VHF, UHF and microwave link - 12.7 22.1 10.4 3.8 49.0Multiplex equipment - 1.0 6.0 2.0 - 9.0Power supply equipment - 2.0 1.0 1.3 .7 5.0

Telex and GentexTeleprinters - 3.9 14.1 - - 18.0

Support for Installation and OperationsCivil Works materials - 3.0 3.0 2.0 - 8.0Spare parts - 4.0 4.0 - - 8.0Vehicles - 2.0 2.0 1.0 - 5.0Pilot Project - - 1.7 9.1 6.6 17.4

TrainingTraining equipment and air conditioning - 6.0 6.0 5.0 - 17.0Fellowships, study tours, and

consulting services - .2 1.0 1.2 .3 2.7

Project Base Costs - 96.3 100.6 69.4 30.8 297.1

Physical contingencies - 4.9 4.9 3.0 1.2 14.0Price contingencies - 11.0 25.2 25.4 17.4 79.0

Total Project Costs - 112.2 130.8 97.8 49.4 390.1

Other Program Costs(inclusive of contingencies) 301.3 248.8 284.1 324.1 166.1 1324.4

Total Program Costs 361.0 414. 421.9 215.5 1714.5

- 36 -ANNEX 5

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Schedule of Disbursements

Disbursements During Cumulative DisbursementsIDA Quarter at end of Quarter

Fiscal Year & Quarter US$000's US$000's

1981June 1981 0 0

1982September 1981 0 0December 1981 0 0March 1982 250 250June 1982 500 750

1983September 1982 500 1,250December 1982 1,000 2,250March 1983 1,250 3,500June 1983 2,300 5,800

1984September 1983 1,500 7,300December 1983 2,000 9,300March 1984 2,000 11,300June 1984 3,200 14,500

1985September 1984 2,000 16,500December 1984 3,500 20,000March 1985 3,500 23,500June 1985 2,000 25,500

1986September 1985 500 26,000December 1985 500 26,500March 1986 500 27,000

TANZANIATANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

Telecommunications ProjectImplementation Schedule

1981 1982 1983 1984 1985

,~~~ . 2- a_ - 4 -_- -- -_ - -_ - -4-

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 __3 4

Local Cable Networks D3 - a

Interurban Network

Overhead Lines and Carrier __

VHF Links and Rural Call Offices O -_ _ - -. -_

UHF and Microwave Links D3_

Multiplex Equipment - - -

Telex Teleprinters CO , _ 0 - - _-

Power Supply Equipment - - -

Civil Construction Material

Spare Parts 4I

Air-Conditioning for Training Centerand Vehicles O3 ^ --- _4

Pilot Project C -

Fellowships, Study Tours, ConsultancyServices --

M ARCH 19, 1981____ _ _ _ __ _ _l_X0 Distribution of calls for bids World Ban k-22692

O Signing of contract and start of implementationI Completion of implementation, preliminary acceptance

- 38 - ANNEX 7

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Performance Indicators

A set of indicators which would assist in monitoring TPTC'sfuture performance during the project period is given below. TPTC isexpected to indicate in its periodical progress report to the Bank theactual performance relating to the projected figures.

For Fiscal Year Ending December 31: 1981 1982 1983 1984 1985

1. Additional telephone connections(DELs) installed 5,400 6,000 6,800 7,700 -

2. Additional telex lines installed 110 130 160 200 -

3. Number of employees per 1,00DELs 72 67 63 58 58

4. Gross operating revenues(T Sh million) 461 565 692 850 979

5. Operating ratio (%) 51 52 52 51 52

6. Rate of return on revaluedassets before tax (%) 24 24 22 22 23

after tax (%) 12 13 12 12 12

7. Current ratio (times) 3.1 3.4 3.6 4.0 4.7

8. Subscriber accounts receivables(as % of total telecommunicationsrevenues) 40 35 30 25 25

9. Training (student-weeks)-L/ 8,500 10,500 12,000 14,000 14,000

10. Faults per DEL per year(average for all regions) 2.3 2.0 1.8 1.5 1.5

11. Duration of faults (%):-less than 24 hours 54 58 62 65 65-24 hours or more 46 42 38 35 35

12. Vehicles in garage for serviceor repair (average vehicle--calendar-days per year) 100 60 45 30 30

/1 One-third of the figures relate to postal training.

- 39 - ANNEX 8Page 1 of 3 pages

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Schedule of Telecommunications Tariffs and Charges(in effect since February 1975)

T ShA. Telephone

1. Annual rental for a single telephone:-/Individual line 480.00Shared line 400.00

2. Installation costs:Initial charge for an installation at not morethan 5.2 km from a central office2/ 300.00

Deposit is only required in certain cases andthen with an amount decided specifically

3. Call charges:For an untimed local call 0.65For an operator-timed interurban call, chargeper minute (3 minute-minimum), depending onradial distance between caller and called 3station 1.30-9.1G0-

For an interurban call dialed by the subscriber,a unit fee of T Sh 0.65 is charged for aduration of call varying with the distancebetween the caller and the called station,from 30 seconds to 4.3 seconds. During"reduced rate period" the call duration forone unit charge is doubled

For an international call:To Kenya or Uganda the same as for an inter-urban call within Tanzania

1/ Additional charge for multiple telephone.

2/ For greater distance an additional charge is made.

3/ For a call during "reduced rate period" the charge is one half.

- 40 - ANNEX 8Page 2 of 3 pages

T ShTo other countries, examples of charges perminute (with a minimum charge for threeminutes):

Ethiopia, Zambia 16.00United Kingdom, Sweden 24.00United States 30.00Brazil 40.00

B. Telegrams

1. Internal tariff:Ordinary telegram, per word (10 words minimumcharge) 0.30

Urgent telegram, per word (10 words minimumcharge) 0.60

Press telegram, minimum charge for up to 40 words 1.65For additional 10 words or part thereof 0.65

Greetings telegram, with a choice of 50 standardtexts, per telegram 1.50Extra charge for de luxe form 0.75

Transmission and delivery of telegram throughtelex ("printergram service"): telex call charge 75.00

Telegraphic address, per year

2. International tariff:

Ordinary telegram, examples of charge per word(with a minimum charge for seven words):To Burundi, Rwanda, Ethiopia 1.50To Zambia 0.85To United Kingdom 2.60To Sweden 5.30To USA 3.10To Brazil 8.30

For certain destinations letter-telegrams areaccepted with the charge being one half ofcharge for ordinary telegram and minimumnumber of words being 22

Urgent telegram, charge per word double that ofordinary telegram

Press telegram, the charge being approximatelyone third of that of ordinary telegram, with aminimum charge for 14 words

C. Telex

1. Annual rental charge for a basic installationh 8,000.00

1/ For ancillary apparatus, like preperforator and autotransmitter,additional charges are made.

- 41 - ANNEX 8Page 3 of 3 pages

T Sh

2. Installation costs:The connection charge for a basic installationk/within 5.2 km from the exchange_! 1,500.00

3. Call charges:For inland calls, manually connected, charge perthree minute period, depending on the radialdistance between the "charge points" 1.60-9.60

For inland calls, automatically switched, timelength of writing per unit charge (at T Sh 0.80)varies with distance between "charge periods"from 90 seconds to 15 seconds

For international calls, examples of charges perminute of writing (with a minimum charge forthree minutes):To Burundi, Rwanda 21.00To Ethiopia, Zambia 15.00To United Kingdom 30.00To Sweden 32.00To USA, Brazil 43.00

1/ For ancillary apparatus, like preperforator and autotransmitter,additional charges are made.

2/ Additional charge for longer distance.

- 42 - ANNEX 9Page 1 of 3 pages

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Study of Tariff Structure

Draft Terms of Reference

1. The purpose of the study is to develop the principles which shouldguide formulation of an appropriate structure of tariffs for telecommunica-tions services in Tanzania, and to apply these principles in the form of arecommended structure of tariffs for application for 1982 through 1984.

2. The basic approach to establishing an appropriate tariff structurewill be that of marginal cost pricing, with the constraint that overallrevenue generation must be sufficient to ensure financial viability of thetelecommunications entity. Marginal cost, or the amount which would besaved to the economy if marginal demand (e.g., an additional telephone line,an additional call) were not met, may take either of two forms:

(a) cost to the telecommunications entity of supply, wherecapacity exists to meet the demand; and

(b) cost to the other competing user of doing without theservice, where capacity is insufficient to meet thedemand.

Thus the study has to have both a cost accounting dimension and a demandassessment dimension, as well as to include a financial analysis to assessthe adequacy of revenues generated from the point of view of financialviability.

Cost Accounting

3. The purpose of this part of the work is to identify the marginalcosts of the principal different telecommunications services offered,distinguishing between Dar-es-Salaam, major regional towns and country areas:

(a) provision of telephone connection;

(b) local calls;

(c) long distance calls;

- 43 - ANNEX 9Page 2 of 3 pages

(d) international calls; and

(e) telex, and same subcategories.

Such costs will be specified in 1981 values.

4. The base of the calculations will be:

(a) financial accounts of the enterprise;

(b) operating records of the enterprise;

(c) spot-checks to establish on a sample basis the marginalcosts of particular services; and

(d) relevant data available from other telecommunicationsadministrations.

Demand Assessment

5. The purpose of this part of the work is to assess the strengths ofdemand for each of the different services offered by the telecommunicationsentity, and the sensitivity of that demand to the prices which might becharged. This is needed for two purposes: (a) in order to estimate thecost to users (or potential users) of doing without the service, for caseswhere it is not possible to meet demand fully; and (b) in order to identifythose services which are in least elastic demand (i.e., demand will beleast affected by price changes), so that they should be made to bear themajor part of any mark-up necessary to cover overheads and enable the tele-communications entity to attain overall financial viability.

6. This work will require thorough review of existing records onapplications for service, calling rates, ineffective calls, etc., followedby surveys of a sample of existing and potential users in order to deepenknowledge of the strength of demand for the different services and of theamounts that customers would be prepared to pay for the different services(or that they would suffer as losses, or extra expenses, if the serviceswere not available).

Social and Developmental Considerations

7. Attention must be given, in connection with the Demand Assessment,to the possible need to charge certain incipient users, e.g., services indistant rural areas, or public call offices, at rates below those that wouldbe indicated by marginal cost and financial viability considerations, as ameans to stimulate socially highly desirable use. Certain limited cross-subsidization of this nature may be a worthwhile means of bringing telecom-munications facilities within the reach of development centers and poorerpeople who would otherwise be excluded.

- 44 - ANNEX 9Page 3 of 3 pages

Financial Analysis

8. The approximate tariffs for the different services (some of whichmay turn out to need to be cost-based while others may need to be moredemand-based) must then be multiplied by estimated levels of service require-ments to assess total revenues for 1981 and the following five years. Theseshould be compared with updated projections of costs, to assess the futurefinancial status of the enterprise.

9. Iterations may be required in order to produce a structure oftariffs that is consistent with financial viability.

Final Results

10. The results of the study should be a recommended set of prices forthe various services, with alternative possibilities where appropriate, andprojections of the effect of application of such prices on the enterprise'srevenues and financial performance. Recommendations should also be made asto how the tariffs should be adjusted over time in light of changes in costsincluding inflation.

Resources Required

11. The study will require approximately six weeks of effort on thepart of an economist, a financial analyst and an engineer, each with experi-ence in telecommunications, and supplemented by the necessary staff toassist with survey work.

-45 - ANNEX 10Page 1 of 2 pages

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Return on Investment

1. The benefit period of the program extends from 1980-2000, when onaverage the equipment provided under the program is expected to have sub-stantially completed its useful life.

2. Capital expenditures are based on the estimated requirements duringthe program period, excluding preinvestments for future programs. Assetvalues have been adjusted to reflect 1980 values.

3. Incremental revenues assigned to the program are primarily basedon the expected additional telephone and telex subscribers and the trafficincrease brought about by the program. Incremental costs excluding depreci-ation and interest are based on the additional assets, traffic and staffrequirements expected from the program. All revenues and costs have beendeflated to bring them to their comparable 1980 price levels.

4. A summary of the program's incremental cost and benefit stream at1980 price levels is as follows (in T Sh millions):

Capital OperatingYear Expenditure Costs Revenues Benefits

1980 459 - - -4591981 303 15 70 -2481982 237 33 139 -1311983 127 53 218 381984 55 68 287 164

1985-2000 - 81 315 234

5. The internal rate of return for the above benefit stream is 17%.

6. Applying a shadow price for foreign exchange of US$1.00 = T-Sh 12.0,and estimating the future consumer surplus by tabulating over the programperiod the prices in real terms (1980 level) which existing subscribers andapplicants are demonstrating a willingness to pay, and assuming that new

- 46 - ANNEX 10Page 2 of 2 pages

subscribers are prepared to pay the same real amount, the economic rate ofreturn is 24%. Labor has not been shadow priced as TPTC mostly employsskilled staff of which there is no surplus in Tanzania.

7. A sensitivity analysis on the above rate of return shows that with10% higher capital costs and 10% lower revenues the rate of return will be 19%.

TANZANIATANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION ITPTC)

Organization Chart

| Board of Directors |

Off ice ofteCarairoctor Genetal _ Office of the

CO",B tionScea D irec tor Ge net al

Director Research Public Relationisand Corporate

Planning

Resouirce Planning Operational Network Transmission && Project Postal

Scheduling Planning OEngineerig Power Engineering

Assistant Director General Assistant Director General

Operations & Developinent Finance & Administration

| Director Internal l n Director Finance

1 Telecommunications i and Accounts

Director External/II

_ Telecormmunications Accoults Finance Computer

_ Director Postal .; Developmenit &

_}DDirector Buildingsa: t

18 Regional Managers

Regional Manager

I .

iHead Telecom. Head Postal | f Heads Traffic|munications Section | I Section I

Section

World Bank - 21686

- 48 - ANNEX 12Page 1 of 2

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Profit and Loss Accounts

1 9 7 8 1Y 1 9 7 9 11 1980 1981 1982 1983 1984 1985

DELs at year end (000's) 35.0 38.3 43.1 48.5 54.5 61.3 69.0 69.0Average revenue/DEL (T Sh) 7,600 7,900 8,300 9,130 10,043 11,047 12,152 13,367Telexes (nos.) 350 426 515 624 755 913 1,115 1,115Average revenue/telex (T Sh) 121,000 108,000 112,000 112,000 112,000 112,000 112,000 112,000Average DEL (000's) 33.3 36.6 40.7 45.8 51.5 57.9 65.2 69.0Average telex (nos.) 321 388 470.5 569.5 689.5 834.0 1,014.0 1,115.0

T Sh (million)Operating RevenueTelephone revenue (T Sh million) 255.0 288.0 337.8 418.2 517.2 639.6 791.7 922.3Telex revenue (T Sh million) 39.0 46.0 52.7 63.8 77.2 93.4 113.6 124.9Connection charges 3.0 3.0 2.9 4.1 4.6 5.2 6.0 6.0Miscellaneous 15.0 15.0 17.0 17.0 18.0 18.0 18.0 18.0

312.0 352.0 410.4 503.1 617.0 756.2 929.3 1,071.0Less international fees 14.0 23.0 33.8 41.8 51.7 64.0 79.2 92.2

TOTAL NET REVENUES 298.0 329.0 376.6 461.3 565.3 692.2 850.1 979.0

Operating Costslleadquarters and operating 49.0 62.0 65.6 68.9 72.3 75.9 78.7 82.6Accommodations 10.0 11.0 11.4 12.0 12.6 13.2 13.9 14.6Maintenance 22.0 29.0 31.9 42.0 54.7 67.8 78.8 84.2Training 7.0 10.0 9.9 10.4 10.9 11.4 12.0 12.6Miscellaneous 21.0 11.0 10.0 10.0 10.0 11.0 11.0 11.0Depreciation 17.0 27.0 38.0 50.0 65.6 81.3 94.6 101.0Pension 7.0 7.0 7.1 7.5 7.9 8.3 8.7 9.1Total costs before inflation,

interest and tax 133.0 157.0 173.9 200.8 234.0 268.9 297.7 315.1

Inflation - - 12.2 32.6 60.6 89.6 134.3 188.0Total costs before tax and interest 133.0 157.0 186.1 233.4 294.6 358.5 432.0 503.1

Loss on posts (estimated) - (1) 1.0 1.5 2.0 2.5 3.0 3.5

TOTAL COSTS 133.0 156.0 187.1 234.9 296.6 361.0 435.0 506.6

Net before tax and interest 165.0 173.0 189.5 226.4 268.7 331.2 415.1 472.4

Interest 11.0 12.0 17.5 34.0 43.7 59.0 69.0 63.1Taxable surplus 154.0 161.0 172.0 192.4 225.0 272.2 346.1 409.3Taxation 70.0 60.0 86.0 96.2 112.5 136.1 173.1 204.6

NET PROFIT 84.0 101.0 86.0 96.2 112.5 136.1 173.0 204.7

/1 Unaudited accounts, taxation for 1978 and 1979 is provisional. 1980-85 accounts are projections.

-49 - ANNEX 12Page 2 of 2

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Notes and Assumptions with Respect to Projected

Profit and Loss Accounts

1. As per program forecasts DEL's are increased at about 12-1/2%per annum.

2. Average revenue/DEL anticipated to increase at 10% per annumreflecting both improved and expanded services.

3. Telex machines are increased at 20% per annum as per programforecast.

4. Telex revenue is held constant reflecting no increase due tocompensation by greater use of telephones.

5. Headquarters and operating and accommodations estimated to increaseat 5% per annum in real terms.

6. Maintenance equivalent to 5% of gross assets in real terms.

7. Depreciation equivalent to 6% of gross assets.

8. Inflation is based on 8% per annum on foreign exchange contentof operating costs and 17% per annum for local costs.

9. Taxation estimated at 50% of taxable surplus assuming depreciationequivalent to capital expenditure allowances.

- 50 - ANNEX 13

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Estimated Source and Application of Funds(T Sh million)

1980 1981 1982 1983 1984

Sources

Net profits 86.0 96.2 112.5 136.1 173.0Add depreciation 38.0 50.0 65.6 81.3 94.6Self generated funds 124.0 146.2 178.1 217.4 267.6

Net borrowings 241.0 290.0 332.5 339.0 171.1

Total Sources 365.0 436.2 510.6 556.4 438.7

Applications

Program investments 301.3 361.1 414.8 421.9 215.5

Increase (decrease) in-/ netcurrent assets, non operationalassets and reserves 63.7 75.2 95.8 134.5 223.2

Total Applications 365.0 436.2 510.6 556.4 438.7

Self-generated contributionsto program investments (%) 41 40 43 52 124

/1 The large buildup in current assets is represented by cash being the resultof having to borrow foreign exchange while at the same time having plentyof local currency.

- 51 - ANNEX 14Page I of 2

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Balance Sheets(T Sh million)

1! 1/1978- 1979- 1980 1981 1982 1983 1984 1985

ASSETSFixed Assets - Gross 482 573 637.2 839.3 1,093.5 1,355.5 1,576.5 1,684.4

Accumulated depreciation 163 187 224.3 274.3 339.9 421.2 515.8 616.8± 319 386 412.9 565.0 753.6 934.3 1,060.7 1,067.6

Postal net fixed assets 100 118 145.5 172.5 199.5 226.5 253.5 253.5

Work in progress 71 130 339.3 471.2 604.5 737.4 702.4 597.0

Materials and supplies 52 100 100.0 100.0 109.4 135.6 157.6 168.4

Financial assets 100 109 116.1 123.6 131.5 139.8 148.5 157.6

Current AssetsStores 24 26 28.7 37.8 49.2 61.0 70.9 75.8Receivables 182 170 184.7 201.2 216.0 226.9 232.3 267.8Prepayments 24 54 38.0 46.2 57.8 70.0 85.0 101.3Cash 115 119 178.4 220.4 315.1 457.6 724.8 1.048.2

Subtotal 345 369 429.8 505.6 638.1 815.5 1,113.0 1,493.1TOTAL ASSETS 987 1,212 1,5436 1,93_7.9 2,436.6 2.989.1 3.435.7 3.737.2

LIABILITIESCapital and Reserves 456 540 641.1 727.1 823.3 935.8 1,071.9 1,244.9Add surplus for year 84 101 86.0 96.2 112.5 136.1 173.0 204.7

Subtotal 540 641 727.1 823.3 935.8 1,071.9 1,244.9 1,449.6

Net Long-Term Debt 188 257 498.0 788.0 1,120.5 1,459.5 1,630.6 1,630.6

Reserve FundsPension and sinking funds 129 132 144.4 164.5 192.5 233.8. 284.4 335.6

Current LiabilitiesPostal orders 22 20 21.0 22.0 23.0 25.0 27.0 30.0Tax 70 130 86.0 96.2 112.5 136.1 173.1 204.6Interest 4 5 5.0 5.0 5.0 5.0 5.0 5.0Mail conveyance 1 2 2.0 2 0 2.0 2.0 2.0 2.0International traffic 26 24 28.7 35.5 43.9 54.4 67.3 78.4Others 7 1 1.4 1.4 1.4 1.4 1.4 1.4

Subtotal 130 182 144.1 162.1 187.8 223.9 275.8 321.4

TOTAL LIABILITIES 987 1,212 1,543.6 1,937.9 2.436.6 2,989.1 3.435.7 3,737.2

Revalued average net operating assets 703.0 854.0 1,113.0 1,381.0 1,679.0 1,866.0

Rate of return on revalued assetsbefore tax (%) 24 24 24 22 22 23after tax (%) 13 12 13 12 12 12

/1 Unaudited accounts, 1980-1985 are projections.

- 52 - ANNEX 14Page 2 of 2

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Notes to Balance Sheet

1. Increase in gross fixed assets is related to transfer in work inprogress as such work becomes revenue-producing. Work in progress onaverage is transferred to fixed assets equally over the succeeding two years.

2. Materials and supplies is built up to remain at about 10% ofgross fixed assets.

3. Financial assets represents investment in Intelsat and pensionfunds.

4. Receivables are estimated on the following % of gross telecommuni-cations revenues: 1980, 40%; 1981, 35%; 1982, 30%; and 25% thereafter.

5. Net long term debt is made up of bilateral loans and multilateralonlending.

6. Fixed assets are revalued at 6% per annum and net surplus tocalculate rate of return is adjusted for increased depreciation chargenecessary following such asset revaluation.

- 53 - ANNEX 15

TANZANIA

TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC)

TELECOMMUNICATIONS PROJECT

Documents and Data Available in Project File

A. General Reports and Studies on the Sector

1. Telecommunications Sector Report No. 23522. Project Identification Report

B. General Reports and Studies Relating to the Project

1. 1980-1984 Program Detailed Plans2. TPTC Act3. TPTC Training Plans

C. Selected Working Papers

1. Project Costs2. Internal Rate of Return Calculations3. Schedule of Disbursements4. Debt Statement and Analysis5. TPTC Projected Financial Statements, Working Papers

and Assumptions

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