Document of The World Bank FOR OMCIAL USE ONLY Reprt No. 7517 PROJECT COMPLETION REPORT SRI LANKA FIRST TELECOMMUNICATIONS PROJECT (CREDIT 1020-CE) NOVEMBER 22, 1988 Industry and Energy Operations Division Country Department I Asio 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 otherwise be disclosed without World Bank authorization. THS W ORLD BANK FOt OFmFCIAL USE ONLY Washington DC 20433 uSA Olke W D4gmECewfl November 22. 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Pass-Through kudit Report on Sri Lanka First Teleconxiu'iicaticns Project (Credit 1020-CE) Attached, for information, is a copy of a report entitled 'Pass- Through Audit Report on Sri Lanka - First Telecommunications Project (Credit 1020-CE)' prepared by the Sri Lanka Telecommunications Department. Full evaluation of this project has not been made by the Operations Evaluation Department. Attachment This document has restricted distribution and may be used by recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OUfCIAL I ONLY PROJECT COKPLETZOI 33101 SRI LANKA FIRST TILXCOOC ICATIOUS PPOJZC? 1Ltm?T 1020-Cl) SA ULOr Ttnm Pat . .AC. ............................................... I YSSIC DATA SEW S li zGLoI T S ....... ........................... 1 £1 U PQRT *PARIPND SY TME SRI LAMA T*LICO1WNICAIIOU DEPARSTMEN 1. IVTODUCSTON ...................................... it. PROJECT DESCUIPTION AND COVUANTS ................. I Preparation, Appraisal and Negottltt on 2 ........... 2 Project Objectives ................................ 2 Project Deesr£p tlon ............................... 2 Project Cost Z8t1i1te ............................. 3 Covenants.......................4.................... lII. PROJtCT TKPLHNTAT!IO .....................8 Credit Zffectivezess and Project Start-up. 8 Procuremt. .a Project Revision . Ipl.mntation.9 g Co-financing .................................,, 9 Project Costs ................................ 9 Diabureant ................................ 11 Reallocation of Credit ............................ 12 IV. OPERATING PERFOANCE ............................. 13 V. FINANCIAL PERFORMANCE ............................. 16 Introduction .............................. 16 Accounting .......... .................... 16 Audit ................................. 6 Financial Performance ............................. 18 Tariffs ................................ 19 Accounts Receivable ............................... 20 VI. INSTITUTIONAL PERFORMANCE ......................... 21 Organization and Management ....................... 21 Staffing, Recruitment and Training ................ 21 VIz. PROJECT JUSTIFICATION ............................. 23 Project Spin-off ............... z4 Rate of Return . 24 This document has as tricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be diskosed without World Bank authorization. TABLE OF CONTENTS (Cont.) ANNEX I: Telephone Growths (Appraisal vs Actual)... .... 26 ANNEX 2: Income Statemnts . . 37 Balance Sheets and Funds ... 38 Flow Statements. 191-1984 . . 39 ANNEX 3S Notes on Financial Statements .40 ANNEX 4i Physical and Financial Performance Indicators... 44 ANNEX 5: Principal Telecommunications Tariffs. 45 ANNEX 6: Rate of Return on Investment Programme .50 ANNEX 7: Organisation Chart of Telecommunications Department .52 ATTACHMENT Comments from the Borrower .. ....................... 54 PROJECT COMPLETION REPORT SRI LANMA FIRST TKLECOMMUNICATIONS PROJECT (CREDIT 1020-CE) PREFACZ 1. This Project Completion Report (PCR) presents a review of the Telecomiunications Project for which an IDA credit 1020-CE was provided for US$30.0 million to the Government of Sri Lanka for telecommunications developmnt undertaken by its Ports and Telecommunications Department (PTD) which subsequently became the Sri Lanka Telecommunications Department (SLTD). 2. The PCR was prepared by SLTD and submitted to IDA and reviewed in Sri Lanka in March 1988 by an IDA supervision mission. It provides a good description of the origins, ac, vements and problems in project implementation. The quality of report is acceptable and is attached as such. A few aspects noted or absent from SLTD's version have been incorporated in the wHighlights* section of the report. 3. In accordance with the revised procedures for project performance audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff. OED sent copies of the draft report to the Borrower and the Executing Agency for comments and the comments received have been annexed to the Report as an Attachment. - ii - PROJECT COMPLETION RPOR? SRI LANY FIRST TKLZCOHMUNICATIONS PROJECT (CREDIT .020-C&) BASIC DATA SHEET ISY PROJECT DATA Actual or Appraisal current Item expectation estimate KEY PROJtCT DATA Total Project costs (US$ million) 36.3 57.1 Overrun (1) - 58 Credit amount (VSS million) 30.0 30.0 Cancelled - S24 only Date Physical Components completed 12184 916? l1 Proportion completed at 12/84 (2) 100 10 Proportion of time overrun (2) - 55 Economic rate of return (t) 12 29 Financial performance Good Institutional performance Good Original Actual or Item Plan Revisions Expected date OTHER PROJECT DATA First mention in files or time table 1/79 Government's application n/a Negotiations 4180 4180 Board approval 6l80 5115180 Loan agreement date _ 6/24/80 Effectiveness date 9124/80 9110,80 Closing date 6/30/85 6130/86 6130/86 Borrower The Democratic Socialist Republic of Sri. Lanka Executing agency Posts and Telecommunications Department (later became Sri Lanka Telecommunications Department Fiscal Year of Borrower January 1 to December 31 Follow on Pruject A PPF for $750,000 was agreed to in 1986 for a possible second telecommunications project. z/ Substantial part of project was completed by this date; the situation in the Northern and Eastern areas has not permitted implementation In these areas (para. 3.06). - iii - HISSION DATA Number Number of Date of Item Month/year of days persons Man-weeks Report Identification 2-3/79 12 2 5 3/20/79 Prepa-ationj Preappraisal 6/79 7 1 1 7/16/79 Appraisal 11/79 18 2 5 12/6/79 Total 37 11 Supervision I 5/80 5 1 1 5/20/80 Supervision II 10/80 2 1 1 11/6180 Supervision III 2-3/81 5 2 2 3/31/81 Supervision IV 10/81 5 2 2 11/12/81 Supervision V 5/82 4 2 2 6/1/82 Supervision VI 11/82 7 2 3 12/21/82 Supervision VII 6/83 8 2 3 6/17/83 Supervision VIII 2184 5 2 2 3126/84 Supervision IX 5/85 6 2 2 6/28/85 Supervision X 3/86 8 1 2 4/15/86 Supervision XT 12/86 5 1 1 2/11/87 Completion XII a/ 3/87 12 2 5 6/22/88 COUNTRY EXCHANGE RATES Name of currer:y Sri Lankan Rupee (SLR) Appraisal year average US$1 - SLRs 15.60 Intervening year average US$l - SLRs 25.4 Completion year average US$1 - SRLs 29.6 a/ This mission was combined with the supervision of the PPF and the preparation of the telecommunication componLent of a Public Enterprise Restructuring Project. - iv - PROJECT COMPLETION REPORT SRI LANKA FIRST TELECOMMUNICATIONS PROJECT (CREDIT 1020-CZ) dIGHLIGHTS The Projoct Completion Report was prepared by the So;rower's Sri Lankan Telecommunication Department (SLTD) as agreed under the project (DCA, Section 3.04), and initially submitted to IDA Ln 1987. The report was reviewed in the field by an IDA mission in March 1988 and subsequently amended. The revised report provides a good description of the project's origins, execution, achievements and problems. It is of good quality and acceptable. To comply fully with standard Bank requirements, the following revisions have been made: - a basic data sheet has been prepared; - project cost tables have been revised (Attachment 1); and - IRR calculations have been revised (Attachment 2). The main objective of the Bank support for this first Telecommunication Project in Sri Lanka was to assibt the Government (GOSL) and SLTD in overcoming the major constraints that impeded the development of the sector: underinvestment, reliance on obsolete equipment and institutional deficiencies. Substantial progress was made in the development of the sector and institutional building. The mai.. Project achievements are set out below: (a) addition if about 38,700 subscribers; (b) improvement in local and long distance facilities with the increased digitalization of the network; (c) extension of the telecommunication service to rural areas with the establishment of 110 PCOS and multi-access radio system; (d) improvement in organizational structure with the separation of the Postal from Telecommunications services. This development initiated under the project was followea Lp with proposed legislation in 1988 to create an independent, commercial telephone company; (e) improvement of SLTD's financial performance with the ability to substantially fund its investments from internal sources; and, - v (f) turning a net outflow of hard currency into a net inflow ($10.0 million equivalent in 19a7) under revenue sharing agreemet,ts for international calls. The Borrower's Performance 2.1 The overall performance of GOSL., the Borrower, and SLTD, the beneficiary, has been quite satisfactory. Given that this was the first Bank-financed project in the telecoinunivations sector, SL-D very quickly adapted to the Bank procedures and procurement practices. The project reporting was regular. There were, however, substantial delays in project implementation, largely due to a late decision to move from analogue to di&ital technology and consequently the need to redesign part of the network. Digital technology has now become the world wide standerd for telecommunications switching and the delay caused by the change to this technology was well justified by the benefits in the form of lower operating costs, flexibility, additional services and advantages related to future expansion of the network. The conflict and unsettled conditions in the Northern and Eastern Provinces also delayed project implementation by disrupting the installation program in these areas. Governmetnt budgetary constraints resulted in a local currency shortage for SLTD and impeded the timely installation of some of the c.ble network for the Project. 2.2 Performance in the institutional areas has been exemplary. The Government moved quickly to establish a separate telecommunications department (August 15, 1980) wll in advance of the covenanted date (December 31, 1981). SLTD also established a Fundamental Planning Unit and introduced commercial accounting practices from 1981 as agreed under the project. The number of SLTD staff was brought down from 31,200 in 1981 to 8,600 in 1986, when the project was substantially completed, and the ratio of staff to 1,000 telephones was brought down from 117 in 1981 to less than 70 in 1986, which is better than SAR projections. 2.3 As agreed (DCA Section 4.06), in 1981 SLTD introduced new commercial accounting procedures, including revaluation of fixed assets. These procedures consisted of some new accounts and ye&r end adjustments of some SLTD cash accounts, which had to be maintained for GOSL budgetary purposes. This whybrid' (commercial and cash) accounting system provided adequate information on SLTD's commercial performance as well as serving Government cash accounting purposes. To avoid the need co maintain two complete accounting systems in public utilities required by Government to maintain cash accounts, this hybrid system could also be considered under other projects. Audited commercial accounts have been received up to 1986, although later than covenanted (DCA, Section 4:07). 2.4 SLTD's financial performance was satisfactory during the whole project period. The rate of return on ravalued assets in operation increased from 182 in 1981 to 262 in 1986 -- well above SAR projections of about 19% and the covenanted level of 152 (DCA, Section 4.09). Tariff increases in 1983 and 1985, together with lower operating costs per subscriber (para. 2.2) explain SLTD's good financial performance. At the - vi- end of the project period in FYs 86-87, SLTD generated over US$40.0 million internally , which permitted GOSL to take more funds out than invested in the sector. 2.5 In 1980, SLTD increased the collection rates for international calls as agreed under the project (DCA, Section 4.03) and has, except for traffic to India, maintained these rates above corresponding accounting ratei thereafter.l/ This change in tariff policy has been highly successful, and Sri Lanka now has more incoming than outgoiL; international calls from all major countriet (except India). In moretary terms, this means that a net outflow of hard currencies to pay for incoming international calls in 1980 has been turned into a net har_ "rrency surplus of ovez US$10.0 million in 1987, with a corresponding beneficial effect on Sri Lanka's balance of payments. IDA's Performance 3.1 IDA played a significant role in the development of the telecommunications sector under this project by supporting sector reorganization and institutional improvements, integrated nationwide development of telecommunication facilities with modern digital technology and extension of services to rurai areas through installation of multi- access radio system. The supervision of the project by IDA missions was very regular and helped Government and SLTD to focus on the priority needs of the sector and the project and to overcome implementation problems. Government's willingness to substantially restructure the sector can partly be attributed to the Bank's efforts (IDA has continued its support for further restructuring towards an independent, commercial telephone company under a PPF (P-372-CE)). In retrospect IDA's performance under this project has been constructive and flexible, and a continuing role for the Bank is foreseen it: IDA supporting Government's efforts to restructure the sector under the proposed Telecommunications Act of 1988. Project Costs 4.1 In SLTD's draft PCR the estimated project costs appeared to be on the high side, apparently due to inclusion of some non-project components. As a result of a review carried out in Sri Lanka during March 1988, SLTD submitted revised project cost estimates (Attachment 1) which have now been incorporated in the text and analysis of the PCR. Incremental Rate of Return (IRR) 5. 1 In SLTD's PCR, the IRR was estimated at 28Z. This IRR was recalculated with substantially different assumptions (Attachment 2) to conform to normally accepted Bank standards. This recalculation resulted in an IRR of 29Z, well above the appraised IRR of 172. 1/ In Annex 5 of the PCR, the main international rates are indicated. The headings to the tables in this annex have been switched, however, (accounting instead of collection and vice versa); the same error occured in the SAR. - vii - Conclusions 6.1 Substantial delays were caused by the need to adopt moderm digital technology in the switching and transmissions systems and ethnic conflicts in the North and Eastern areas; otherwise, the project was executed reasonably well. The expansions of substantially integrated digital facilities, local and long distance, improved the access to telecoumnunication service both in urban and rural comunities. The performance of the Borrower *nd the executing agency (SLTD) has been good. 6.2 The "hybrid" (commercial and cash) accounting system (para. 2.3) proved useful and could also be used in other Bank projects for public entities that are required by law to maintain cash accounts. The revision of collection rates for international calls led to sharply increased foreign exchange earnings; such revision should be made standard for telecommunications projects. 6.3 The results in the area of institution building have been very positive. The creation of a separate Departmex.t of Telecomwunications, the introduction cf commercial accounting and the current effort to create a new regulatory framework and an independent, commercial operating entity under the proFzsed Telecommunication Act are very encouraging. Continued IDA support for restructuring of the sector and a possible leading role in cofinancing would help considerably to consolidate the institutional improvements achieved under this Project. - viii - -__ ATTACHMENT 1 Si |*> DPage 1 of 2 Qh4J~ PIL4A ~OW&OLM SW } q¢ SW5gmL. i rteis I fIt/0l s I _*o ~ ~~~~~~~~~~~~ * f z_*~~ ~ ~ I- - I4Nl o n ¢.s AIIfOA *sWNOI Vaahimgto. n0- One ).* 0 433 , 06daw 327 TAS* qW l13 l wt* 0. am W&t Cqml 1- MA 1wd 5th O11 I gm aw- iannoial AArolt A4e' Fr E?.Setg. e 0 O Ineasty Dep iomrA en100t Poetot .t lerld Beeo h i luat 38.tract J.V. \, Whshimton D*04433, 9 a r M - .-Sorg Al U 3". t020 Ox jPO 1521. Reference to rweqetotd to off telex mssae et 4eh Maqy* t9a in replto your tele 13o3 d.0od 261h Aprl2 198. ffie lbo: t Costs for lnoluoton in Table 3tt of tbo Pr-joot wovadi be As X 3ovs t (in millions) 1 Lonal geilies 3.02 8.050 13.652 11.48 28.36 39.64 2* La. 4Lotm Facilties t.53 I1.-50 t13.03 1. g5 t12.91 U14t6 39 lllnodlanowo ¢wwelnd) ~~1.76 8.00 9*76 3.31 O. 3; 3.64 E~S bJMMI~~ ~ oji ju.uu 36.31 Coot8;^. uw UA. j1S -w -o - 5. otual Cost 16.04 41.40 57.44 6. fetal 36*31 Note 1 57.44 110" t s lWho foreign cost fUnding as asoertained fr.u Rweign Itt4nt files anA Lttorm of Ctodit ffiles ie an fellowas- cantd. . 2. - ix - ATTACHMENT 1 Page 2 of 2 (1) SO n Ulh.. 30.00 idllion yLbj p:f.we*9 'To ftodiv U.S..l 7.44 million (iii) 1he ano.n.e U.S.$. _ million U.*$*. 41.40 million -mu. A l1 costs are @onvirttd to USebollars t aAvernge rantes at UW for the petlrod 1981 to 1986 aooor4ng to vnrying rntes for Letteso of Credit. I shall &o pratodtl to have your observntiona for finalising the value as indicatud. in tho nabvo 'Tblo. ith Beat Regards, Tours fnithtully, U ~ 'Drootor of Toleoomunientions nkm/ Attachment 2 Page 1 of 1 SRI LANKA TELECOMMUNICATIONS PROJECT (1020-CE) PROJECT COMPLETION REPORT Rate of Return on SLTD's 1981-86 Investment Program 1. These IRR calculations were made on the same assumptions as the ones stated in Annex 6 of SLTD's PCR, with the following exceptions: (a) part of 1986 capital expenditures have been excluder as they belong to subsequent investment programs; (b) price and wage increases for material and labour required for the operation of pre 1982 installations have been excluded from incremental operating costs; (c) additional revenues from pre 1982 installations due to tariff increases have been excluded; and (d) cash flows have been inflated by the CPI up to 1988 (rather than the revaluation index used in SLTD's PCR). 2. A summary of resulting cash flows is given below in millions of Rot Indexed Capital Incremental Net Index Net Year Expenditures Op. Cost Revenues Benefits 1988-1.00 Benefits 1981 298.5 - - (298.5) 1.91 (570.1) 1982 348.4 12.2 108.9 (251.7j 1.72 (432.9) 1983 597.8 20.0 296.7 (321.1) 1.51 (484.9) 1984 590.3 30.0 480.6 (139.7) 1.29 (180.2) 1985 444.0 40.0 688.6 208.6 1.28 267.0 1986 331.1 45.0 847.2 471.1 1.18 555.9 1987 - 50.0 1,040.0 990.0 1.09 1,079.1 1988-2004 - 55.0 1,150.0 1,095.0 1.00 1,095.0 The above net benefit stream (at 1988 prices corresponds to an IRR of 29.2X. This compares favorably with appraised return of 16.6Z and the return calculated by SLTD in its PCR (28.O). REPORT PREPARED BY THE SRI LANKA TELECOMMUNICATIONS DEPARTMENT (SLTD) MARCH 1988 SRI LANKA FIRST TLELCOS MICATIONS PROJECT (CUDIT 1020-Cl) I. INTRODLICTION 1.01 Telecommunication Services in Sri Lanka are a Governmnt monopoly provided by the Sri Lanka Telecommunications Department functioning under the aegis of the Ministry of Posts & Telecommunications. A seperate Departmont known as the Department of Posts provides Postal Services but Post Offices are utilised by the Telecommunications Department for the bulk of the work in handling telegraph services. Overall telecommunications sector policy is determined by the Ministry of Posts & Telecommunications through which the Government Treasury allocates the funds r-equired by the Telecommunication Department both for capital investment as well as the recurrent costs. The revenue c4erived from its services is channelled directly into the Consolidated Ftind of the Treasury. The Director of Telecommunications heads the Telecommunications Department with one Deputy handliing international telecommunications and 4 other Deputies handling the work of the domestic network. 1.92 Recognition has been given by the World Bank to the fact that Telecommunication services in the Island form a vital part of the infrastructure necessary for economic development and this has resulted in an appraisal of the Telecommunication sector by the World Bank Staff in April 198C. On the basis of this appraisal and the associated discussions with the Government, the Bank agreed to provide a loan of US.$ 30 Million for improvements to the domestic telecommunication network. This loan whic h was guaranteed by tthe Government in the normal manner was scheduled to close on 30th June 1985. The project envisaged to be implemented with this loan is the subject of this report. 1.03 Particulars of telephone gr owth (Appraisal vs Actual) is given in Annex 1. The broad indications are that the targets expected were reached after about one year form the expected date. II. PROJECT DESCRIPTION AND COVENANTS 2.01 Prep4ration, Appraisal and Negotiations As mentioned earlier the appraisal of the project under consideration was carried out in April 1980 and was followed by negotiations which ultimately resulted in approval of the loar. by the Executive Directors of the Bank. The Loan Agreement was signed on June 24, 1980 and became 'effective on September 24, 1980. -2- 2. C2 Project Ob.lectives Th? broad objectives of the project were to improve the quality of ser5vice to existing subscribers, provide increased access to service in areas currently served and extend communications to the more important rural areas now unserved. The specific project objectives were: (a) To develop the internal network by installing switching equipment to replace some equipment which had served their ec:oiomic life. (b) To provide additional subscriber cable pairs to match the switching equipment, and, (c) To providep tih, t.r uni and iL rnction equipment necessary including cables for- a balanced and i ntegrated devel opmerrt. It was accepted that the above measures would go a long way towards meeting the existing unsatisfied demand for Telecommunication Services in the relcevant parts of the country. 2.03 Project Description (a) Installation of about 9,300°) lines of local autoMatic exchange equipment in 68 excharnges about 41,600 pair-kilometres of telephone cables, and associated subscriber plant for connection of about 16,200 lines and 250 local public call offices; (b) Replacement of 7,900 lines of antiquated, worn--out local switching equipment in 268 exchanges (144 manual exchanges and 46 rur-al automat c exchanges to be absorbed by other exchanges and 78 eXchanges to be replaced) and about 31,400 pair--km. of old cables. (c) Installation of three riew trunk automatic exchanges with about 65C.0 terminations, and expansion of existing eight trunk automatic exchanges by about 65E) terminations; (d) Installation of automatic number identification equipment (ANI) in all existing local exchanges and automatic message accounting equipment (AMA) in four tertiary trunk automatic exchanges for intr oduction of toll-ticketing and installation of bill processor; (e) Upgrading of two mict'owave routes and installation of five new microwave systems, about 150 UHF/VHF systems and associated multiplex equipment for about 5,250 channel ends -3- (f) Installation of about 500 long distance call offices for extension of service to rural population centres with post offices, but currently without telephone service: and (g) Civil works and other facilities for implementing the project. 2.04 Project Cost Estimate The total cost of the project was estimated at SL Rs. 566.4 Million (UJ.S.* 36.3 Million) with foreign cost of U .S.$ 30 Msil1lio-n) as indicated. Table 2 Estimated Project Costs Item SL Rs Million US $ Million Local Foreign Total Local Foreign Total Local Facilities Switching equipment 16.06 76.0'0 94.06 1.03 5.00 6.03 Cable & accessories 26.05 78.00 104.05 1.67 5.00 6.67 Subscriber's Plant 5. 00 7.680 12.80 0.32 0.50 0.82 Sub-to.tal 47.11 163.80 210.91 3.02 10.50 13.52 Long Distance Facilities Switching equipment 2.50 15.60 18.10 .0.16 v.00 1.16 Microwave Systems 5.92 46.80 52.72 0.38 3.00 3.38 UHF/VHF systems 14.82 78.00 92.B2 0.95 5.00 5.95 ANI & AMA equipment and bill processor 0.62 39.00 39.62 0.04 2.50 2.54 Sub-total 23.86 179.40 203.26 1.53 11.50 13.03 -4 Air conditioning 1.10 7.80 8.90 0.07 0.50 0.57 equipment Standby generators 1.IC) 7.80 8.9C0 0.07 0.50 0.57 Vehicles & cable laying equipment 2.zS 15.60 17.93 0.15 1.00 1.15 Training equipmenit & office machirnes 1. 00>C 7. 8X: 8. 8C) C0. 06 0.50 0.56 Consultancy ser vice 0.10 7.80 7.90: 0.01 0.50 0.51 Estimated base costs 76.68 390.00 466.60 4.91 25.00 29.91 Contingericies Physical 1.56 7.80 9.36 I1) 50) 0.60 Price 20.28 70.20 90.48 1.30 4.50 5.80 Total contingencies 21.84 78.00 99.84 1.40 5.00 6.40 Estimated total prpject costs 98.44 468.00 566.44 6.31 30.00 36.31 2.05 Covenants In addition tc the banks standard covenants on the procurement, management and reporting, the main covenants in the Loan Agreement provided that: Section 4.03 - The Borrower shall increase, by September 30, 1980 the Collection Rate for interndtional telephone and telex calls originating in its territory, to the level of the Accourting Rate. For the purposes of this Section, the term "Accounting rate" means the rate on which payments to, or payments received from, foreign telecommunication entities, a-e based. This requirement has been met. Section 4.C)4 - The Borrower shall establish by December 31, 1981 and thereafter maintain within its Ministry of Posts and Telecommunications, a f eparate Telecommunications Department with powers, resources and staff satisfactory to the Association, for the efficient and effective management,operation and development of telecommun4cation services. A seperate SLTD has been established with effect from 15th August, 1980. Section 4.05 - The Borrower shall cause PTD, by December 31, 19Y2, to establish and thereafter maintain as part of its organizational structure a fundamental planning unit in a manner and under terms of reference satisfactory to the Association, among others, to study the long-term (10 to 20 years) development needs of the public tele- communications sector in Sri Lanka, establish the objectives and priorities in that sector, and determine the means and plans most suitable for the achievement of said objectives and priorities. A unit has bee. established to meet this requirement. Section 4X)6 - The ourrower shall Lause FTDa (a) by January 1, 1981, to commence implementation of accounting practices satisfactory to the Association; and (b) beginning with its fiscal year 1981, to maintain records, including financial statements, adequate to reflect the financial performance of its tele- communications operations in accordance with such accounting practices. The requirements of both (a) and (b) have been met. Section 4.07 The Borrower shall cause PTD to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements for its telecommunications operations) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by auditors acceptable to the Associationg (ii) (A) furnish to the Association as soon as available but in any case not later than eight months after the end of each such year copies of its financ4el statements for its telecommunications operations for such year; and (B) furnish to the Association as soon as available-but in any case not later than ton months after the end of each year, the report of such audit by said auditors, of such scope and in such detail as the Association shall have reabionably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of PtD and the audit thereof as the Association shall from time to time rea,onably request. Audited accounts upto 1985 have been forwarded to the World Bank; unaudited accounts for 1986 are also with the Bank and steps are being taken to have them audited early while accounts are being finalised for 1987. Section 4.08 For the purpose of calculating the rate of return specified in Section 4.09 of this Agreement, the Borrower shall cause PTDs (a) by March 31, 1981, to complete an inventory and classification of its fixed telecommunication assets and propose to the Association a method for their valuation or revaluation to be carried out at all times in accordance with consistently maintained procedures satisfactory to the Association. The method of re-valuation of fixed assets had been agreed with the World Bank Mission and steps are being taken to complete inventory and classifiction of fixed assets; the extent and complexity of the task as well as the current conditions in Sri Lanka have resulted in a delay in implementing the inventorisation (b) commencing with fisca- year begining January 1, 1981, to calculate said rate of return on the basis of the average value of its net fixed telecommunication assets in operation as determined each year in accordance with the methods of valuation and revaluation referred to in paragraph (a) above- For the purpose of this Section, the term "value of PTD's net fixed telecommunication assets in operation" has the meaning assigned to it in Section 4.09 (c) (ii) of this Agreement. -7- Section 4.09 (a) The Borrower shall cause PTD tos (i) maintain its tariffs at not less than the October 1, 1990 level, and (ii) take, from time to time all such measures (including adjustment to the structure and level of its tariffs) as shall be required to realize an annual rate of return of not less than fifteen per cent (15%) in each of its fiscal years 1980-1984 on the average value of its net fixed telecommunication assets in operation. The Borrower shall cause PTD to determine by June 30, 1984 a rate of return satisfactory to the Association, to be realized for the period after December 31, 1984. (b) Before June 30 each year, the Borrower shall cause PTD on the basis of realistic f-recasts, to review thm adequacy of its tariffs to meet the requirements set forth in paragraph (a) above for the next following fiscal years, and shall furnish to the Association a copy of such review upon its completion. (c) For the purposes of thic Sections (i) the term "net operating income" means gross revenues from all sources related to PTD's telephone operations less all expenditures incurred on account of such operations, including expenses of administration, adequate maintenance and taxes or any payments in lieu of taxes, and provision for depreciation, interest and other charges on debt shall not be deducted from gross revenues; and (ii) the term "value of PTD's net fixed telecommunication assets in operation" means the gross value of PTD's fixed telecommunication assets in operation less the amount of accumulated depreciation, both as valued from time to time in accordance with the methods of valuation or revaluation referred to in Section 4.08 of this Agreement. These requirements have been met. - 8.- III - PROJECT IMPLEMENTATION 3.t:)1 Credit Effectiveness and Project Start Up The Credit Agreement specified Seitember 10, 1980 as the initial date of Credit Effectiveness with no special conditions. Although the intention was to commence procurement immediately after the start of the project the process of procurement suffered some delay due to technical considerations, in particular, the decisio,i to go in for digital technology instead of analogue equipment originally envisaged. Another factor which led to some delays in procurement was the divergent sources that were involved. 0.n2 Procurement Althoucjh the intention was to commence procurement immediately after the commencement, there was a certain amount of ur-avoidable delay due main7ly to the technical considerations. These arose mainly as a result of the decision to go in for digital tethnology instead of the analoque equipment originally envisaged. Moreover due to th-e somewhat wide geographical dispersion of the areas to be cover-ed by the project, on the spot appraisals became necessary. However-, these problems were overcome during the course of time. .0:,.( The other aspect affecting procurement was the fact that th7e local funding which was accepted on a year by year basis from the Sri Lanka Treasury was found to be inadequate to meet the supplementary local expenditure. In addition there was also the fact that throughout the duration of the project tthere was a continuing depreciation of the Sri Larka. 3.0.4 Project Revision Technically a major revision in the project arose is a result of supplanting analogue equipment by digital equipment. This resulted in a certain measure of -e-lesign particularly of the microwave radio systems and in some instances it was necessary even to change the routing of the radio path. Pulse code modulation was also extensively used in the provision of junction circuits while the number of multiaccess systems a,so had to be increased. The above revisions were necessitated by the fact that the time appraisal was one of transitiou; in technology from analogue to digital. However, although the changes resulted in a certain amount of delay in the implementation of the poject and an increase in project costs they also provided a rapid transformation in the island's telecommunications system from one of analogue technology to digital technology. 9- Implementation _____ ________ 3.05 At appraisal the project was sch-dul-d for completion by 31.12.1984. Several forces contributed towards the delay in implementation. One of the initial reasons was the necessity to do a considerable amount of re-thinking on the *change over from analogue to digital systems of transmi-sion based on rapidly changing trends in the technology. The project covered in a geographical sense several areas which would be considered as rural and practically all these were a considerable distance away from tolombo and apbrt from each other by long distances. As a matter of fact the Nothern most area Jaffna which was included in the project has up to date not benefited from the project since it has not been possible becauue of terrorist activity to install the equipment which has been transported there. Another factor that contributed towards the delay was that although the bank had agreed to loan U.S * 30 million, loc-al funds were not provided by the Government as scheduled due to constraints in the National Budget as a tesult of the ethnic problems in the country. Hence some of the -equired equipment such as generators air-conditioning and even the PCM equipment had to be pr3cured from the subsequent annual allocations. This led to a situation where items procured under the bank credit could be installed, but not commissioned and utitised meaningfully until the balance inputs wore fourtd and installed. 3.06 The Major part of the project was completed by December, 1986 w*'cept for two or three areas that were commissioned in 2987. Howevor, the situation in the Northern anf-i Eastern parts' of the Island has not permitted thb, implementation of the.Projec.t in the Jaffna & Trincom'rnAle areas. In Jaffna 2,00. lines of switching equipment hA' been lying in the crated in which they were taken about years ago and th. condition of the equipment cannot 1 ascertained at present. At Trincomalee too the Mastc Exchange has been lelstroyed completely. The credit wau fully utilised by 31st December 1986. Co-financinqg. 3.07 No co-financing was envisaged, but wherever appropriat use was made of commodity credit from Japan and foreigi, exchange allocations from thq Treasury. Project costs 3.06 A comparison of the cost of the project as estimated as appraisal anld the actual costs as of December 31, 1986 'summariasd below in Table 3.1. - 10 - Table 3.1: ESTI)4TED AND ACTUAL PROJZCT COSTS (in LSS million) Appraisal Estimate Actual Cost Local Foreign Total Local Foreign Total Local facilities 3.02 10.50 13.52 11.48 28.16 39.64 Long distance facilities 1.53 11.50 13.03 1.25 12.91 14.15 Miscellaneous (including contingencies) 1.76 8.00 9.76 3.31 0.33 3.64 Total 6.31 30.00 36.31 16.04 41.40 57.44 1.11 Actual total costs up to 31.12.86 increased by almost 58Z. The main reasons for the cost variations are explained below: (a) General. The scope of the project as envisaged earlier was expanded considerably in order to eliminate as many imbalances in the network as possible in each of the individual areas taken up under the project. This required modificatio .s of the extent and capabilities of local network and the routing of trunk circuits. These modifications coupled with heavy local reinstatement costs and the variations in exchange rates between the US Dollar, the Japanese Yen and the Sri Lanka3 Rupee gave rise to an unanticipated increase. (b) Local Costs. Apart from the design modification, local costs also increased about 154Z (in equivalent US$) due to inflation and payment of custom duty and turnover tax. - 11 - (c) Forelgn Costs. The increase in foreign costs of about 361 resulted from the expanded scope of the work and the devaluation of the Sri Lankan Rupee relative to both US Dollar and the Japanese Yen. 1.12 Accuoulated Disburemeant Alainst IDA Proiect. Estimated and actual disbursements of the IDA credit is shown below in Table 3.2: Table 3.2: ACCUMULATED DISBURSEMENT ($ '000) IDA FY Actual as Percent of end Appraisal Actual of Appraisal Estimate 1980 - Nil z 1981 4.0 Nil 1982 16.0 Nil - 1983 27.0 6.60 M 24.44 18R4 29.0 23.80 M 82.06 1985 30.0 29.17 M 97.23 1987 30.0 29.99 M 99.96 - 12 - 3.11 The rate of disbursement was not unsatisfactory considering the aforementioned impediments that were encountered after the initiation of the project. Although tthe nrojrect was expected to be implemented by 30 June 1984, in actual fact there was a timte over-run of about 2-1/2 yFiar s, buit it was possible tO eISisure that praLtic:ally the whole of the credit available was utilised within the expanded time-frame. 3.12 The oriqinal and revised allocation and actual expenditure of loan proceeds is presented below in Table 3. Z TABLFE - .3 Cr etli t. 1l20-CE Reallc,cation of Credit Description of Item Original Revised Actual 1. Local tele-phone 5, 7t5-0,)Q00 11,5)00,000 1/ 12, 3,01,769. 51 -excharncqe equipniinrit 2. Telepho,ne CablIe-s, 'J 75': 000 I 'C, 000)1C00I0C 7,161,342.17 assc..ciat.ed P:1 cnt .tnd J 'c.essor1es ..kSbt>criber fFici-- 7 It5u . .- 11tieS, UbliiC. telephone i nritru- nient. and a Si 1 at e p 1 ¢, I t 4. Tr unki: A.ttomttic I 1 , I Vi, fICL k (n: t l .] fi I ter n 1 e>:xc hange eqUi pinent R rraur-,Ltal trUnk e; Aut(:TIatC- r-, nUmbe.:bFr C Od)I , iL)U,C)W-) 2', 1 4 1 5, 802.16 1 d ent i f i cat i Ct-r, nd I)e~ sa qe a.C C on t. 1 r- g eq.*i pmint: , and Lill] pr OcLe-s sor 6. Mi c:r owa VFe UHF , VHF 9 000 ,) C) 8, 0 )0 ) 9, 107 ,81 2. 16 and cd oa(: L i al c ab l e syst.ernC , mLnltipl , equipment and assc.ciated plant. - 13 - 7. Air conditioning 2,250,000 -3/ equipment standby diesel generator vehicles and cable laying equipment. 8. Training equipmef,t 750:),0(0O -3/ and office mechines 9. Consultance service 500,000 -3/ 10.Unallocated 1,l00,000 TOTAL 30, 0C)00, 000 30, oCoc. 000 29,986,726. 00 1/ Inclusive of trunk automatic exchange equipment (category 4).Cost overrun of US$ 5.4 Million party due to the higher overrun of cost per- line of the digital equipment for remote exchanges (whic:h will be compensated by the reduced cost per line orn expansion) and the additional cost for installation of the digital equipment. (At appraisal time, the analogue equipment proposed to be purchased was expected to be irn,talleu by SLTD's own staff). 2/ For bill processor only. ALutomatic number identification - and message acCounting eqLuippment was finanr:ed from other sources. --3/ Financeci fr-om other SonUrec:s. IV - Operating Performance 4.01 At the time of 'appraisal the SLTD had drawn Ltp a development programme for Telecommunications containing on-going works from the previous period and other works to be executed during the programme period as well as plans for investment tu be undertaken at a subsequer-nt stage, in addition to the dievelopment proposed under the IDA project. While the on-going works carried over were completed, all other aspects proposed suffer-ed serious setbacks dcue to the scarcity of foreign and local funding. Under the F4ank project, some 17,200) lines of local automatic exchange equiprrent were to be installed by December 31, 1986 and approximately 13,600 lines had - 14 - been completed. Of the 73,000 pair kilometers of telephone Lables and associated subscribers plant envisaged, abouIt 71,000 pair ki lometres comprising appro-timately 95% of work had been done. It is expected that the balance of switchirg equ.ipment would be completed and commissioned by the enci of 1987. 4.02 As regards the three new Trunk Automatic- Exchanges with about 650 terminations proposed, the work has been completed with 750 terminations while the existing 8 trunk automatic exchanges tave been expanded by about 780 terminations as agairnst. the expected 650. 4.03 Number identification equipmcnt has been installed and tested and partialy commissioned. The commissioning will be completed when the processor capacity of the existing tertiary centres is augmented. 4.04 In respect of the 150 UHF/VHF systems and the multiplex equipment for about 5250 channel ends for the radio systems, the designated parameters hadi been changed and about 60 UHF systems commi ssi oned with some 2600 channel ends. 4.05 One aspect in which the implementation +ell far short was the installation of about 500 long distance call offices for rural population centres. Only about 110 of these have been installed. 4.06 At the time of appraisal, the number of applicants awaiting service in the Island were about 40,000 with about 20,000 of these beiing in Colombo and the balance being in the rest of the Island.The lor-ng waiting time is mairnly attributable to lach of traff:iccable capacity in the networ-k to accept new subscribers. Si1nce such long periods of waiting would reflect on the accuracy of these numbers, in 1985 the SltTD decided to call for fresh registrations with a registration fee of 9L Rs.2505/- from all those who had been registered up to that time. As a result of this e++ort, tte number of registrations reduced drastically to some 23, 000. Pr- i or to the app' ication of a regi-stration fee about 9,0)Cio new applications were registered annually and the average - 15 - waiting period around 31st December 1986 was about two years. The present indications are that the number of new applicants would continue to increase every year at a rate of approximately double the number of the previous year. During the period of implementation of the Project the number of new connections provided was approximately 6,000 per year. Without taking into account'any new connections the demand i.e. existing subscribers (95,C00) plus those waiting for service (75,000) for the next three years is estimr,ated at around 170,000 about 60% of which would be in Colombo Metropilitan area. The major difficulty in expanding the services continues to be lack of funds allocated by the Treasury and hence the access to service continues to be poor. As at 31st December 1986, the average telephone penetration was about 6 DEL and e telephone stations per thousarnd of population. 4.07 Deficiencies in the Telecommunications network identified at the tirr.e of &ppraisal have been remedied to a certain extent by the implementation of the Project. The project also facilitated a major change from analogue to digital technology and provided subscriber direct dialling to many areas. This in turn has stimulated the growth of telephone traffic and incidentally resulted in increased pressure on the system. The multi access systems installed under the Froject have facilitated provisiion of service to remote subscribers, thus improving the quality of service but the increased number of subscribers has occasionally introduced congestion into the system. - 16 - V - FINANCIAL PERFORMANCE Intrgductigon 5.01 The Financial Performance of the Telecommunications Department, throughout the project period, was more satisfactory than was forecast at the appraisal stage, as will be seen from the graphical illastration Annex 6 and 7 and para.5.O8 to 5.10 below. Account inas 5.02 The accounts o' the Sri Lanka Telecommunications Department (SLTD) are maintained on a Cash Basis. In addition, Year-end adjustments are made to these accounts in order to produce commercially oriented financial statements. The accounts of SLTD are kept manually but some computerisation is expected to take place within about a year including the possible use of P.Cs. 5.03 During negotiations, assurances were given that commencing January 1, 1981 SLTD would introduce satisfactory accounting routines and that these would be reflected on financial statements for the fiscal year 1981 onwards. This has been achieved and audited commercial accounts for 1981 and 1982 have already been forwarded to the Bank. Provisional commercial accounts for 1983 through 1985 were prepared for internal purposes by the SLTD staff and these were forwarded to the world Bank in June 1986. Commercial accounts for 1986 are also being prepared by the SLTD staff and are expected to be forwarded to the World Bank shortly. 5.04 As a Government department, SITD's accounts are by law audited by the Auditor-General and his staff.In addition, SLTD has its own internal audit unit. 5.()5 During negotiations, assurances were given that SLTD would provide thze Association with financial statements within eight months of the end of each fiscal year and the corresponding audit report about two months later. Unfortunately, it has not been possible to achieve these deadlines. 5.06 M/s Kulatunqa and Company (who ar-e a firm of local Chartered Accountants) were engaged by SLTD to prepare the accounts of SLTD for the calendar years 1981 to 1984 inclusive on commercially accepted principles. The accounts for 1981 and 1982 were prepared and submitted to the Auditor-General for audit and copies were forwarded --17 - to the World Bank. Ever, before the Auditor-General had completed his audit of the 1981 and 1962 accounts, Messrs. kulatunga & Co., prepared provisional accounts for 1983 and 1984 and these too were sent to the World Bank. The Auditor-General's Report of 21st July 1986 mentions a number of adjustments which require to be made in the 1981 and 1982 accounts and similar adjustments will also need to be made in the provisional accounts prepared for 198:3 and 19B4. 5.07 M/s. KLulatL.nga and Company attended meetings on 25.05.87, 28.0:5.87 and 24.06.87 irn the Chief Accountant's Office in SLTD and completed adjustment of the 1981 and 1982 commercial accounts by 30.06.1987 and estimated that they would be in a position to prepare the Final Accounts for 1983 and 1984 by 30.11.1987. 5.08 Income Statements, Balance Sheets and Funds Flow Statements oh a commercial basis for the calendar years 1981 to 1984 ate presented .n Annex. 2 and comments on the Financial Statements are given in Annex.3.The Financial Performance of the Telecommunications Department was better than had been forecast, at the appraisal stage, and this was partly due to slightly higher Operating Revenue than forecast and partly due to lower Operating Expenses apparently resulting from the reductior, of man power and other resour-ces. 5.09 Summarised performance details are given in Table 5.1. The Actual Rate of Return was better than forecast, particularly for 1983 and 1984. The Operating Revenue per DEL was higher than forecast from 1983 onwards. Lastly, the Operating Ratio was better than forecast for the years 1981 and 1982 and significantly better for the years 1983 and 1984. 5.10 sash Flow remained satisfactory over the project period. Net Internal Cash Generation, as a precentage of construction requirements (which is also referred to as contribution to expansion) was better than forecast. In addition, the Actutal Debt Service Coverage was also more satisfactory than had been forecast at the appraisal stage. - 18 - TABLE - 5. 1 FINANCIAL PERFORMANCE SUMMARY 1981 1982 1983 1984 Uot&& 1. DELs Appraisal 62,50C) 71,400 83,400 90,400 As at 31st Actual 66,013 70,381 73,500 80,770 December of each year 2.FY Endig December 31 Operating revenue (Rs. Millions) Appraisal 538.6 664.3 822.9 995.1 Details Actual 536.6 645.5 833.4 1,117.2 from Income Statement 3. Operating Expenses (Rs. Millions) Appraisal 369.5 444.6 531.4 632.1 -do- Actual 329.1 393.6 430.3 525.2 4. Operating Ratio (%) App:-aisal 68.60 66.92 64.58 63.51 -do- Actuat 61.33 60.98 51.63 47.01 5. Rate of Return (%) Appraisal 18.4 16.9 18.2 19.3 -do- Actual - 17.9 23.7 27.6 6. Debt-Equity Ratio (%) Apparisal 64 59 52 43 Details Actual 4G 40 21 17 from Balance Sheets 7. Current Ratio (times) Appraisal 2.2 2.4 2.7 3.2 -do- Actual 1.1 1.3 C.5 0.8 8. Debt-Service Coverage (times) Apparisal 1.9 2.1 2.5 3.1 Details Actual - 9.5 9.2 7.1 from Fund Flow Statement 9. Operating Revenue/DEL Apparisal Rs. 8618 9304 9867 11008 Item 2 - Actual Rs. 8129 9171 11338 13831 Item 1 IO.Operating Expensas/DEL Apparisal 5912 6227 6372 6992 Item 3 - Actual 4985 5592 5854 6502 Item 1 - 19 - 5.11 The Staff Appraisl Report of 18th April 1980 gave details of SLTD's dome3tic telecommunications tariffs which came inito force on 1st March 1980. Subsequently, tariffs were altered in December- 198C0, Dec:ember 1983 and December 1985. A summary of the principal tariffs effective from 1st December 1983 and 1st December 1985 are given in Annex.5 and 5.A respectively. 5.12 Local calls through some old exchanges are charged for on an untimed basis but lo-al calls from newer exchanges are cthar-ged f .wr on a timed basis. All long distance calls are charged for on a timed basis. Long distance calls are priced higher during prime business hours than during nights and early morning. 5.13 Rental charges for business and commercial entities are higher than rentals for private and non commercial subscribers and for religious institutions. 5.14 Due to high traffic congestion and long waiting times, subscribers in areas with STD facilities often require operator assistance to connect their long distance calls. Such "operator connected STD calls" have a surcharge of Rs.1.00 per call, as compared with the rate for normal STD calls. Unlike STD calls, full three minute periods are charged tor even if cnly a fraction is used. 5.15 As regar-ds SLTD's international tariffs, the Staff Appraisal Report of 18th April 1980 mentioned (in 3.09) that Collection Rates were substantially below international Accouriting Rates and that this was the reason for the high outgoing international traffic as compared with incoming traffic. Since March 1960, Collection Rates have been increased -substantially and, at the present time there is an excess of inconming traffic over outgoing traffic on all major routes excbpt India. It is believed that the principal reason why incoming traffic from India is lower than outgoing traffic is because STD facilities in the direction India- Sri Lanka was not available from India until August this year. 5.16 The Accounting Rate shown for each country is shared, between Sri Lanka and the country concerned, usually on a 50/50 basis and this matter needs to be borne in mind when comparing Accounting Rates with Collection Rates. In order words, while a particular Collection Rate represents the amount collected for an outgoing call only 50% of the corresponding Accountinig Rate would be paid to the relevant foreign administration. - 20 - 5.17 Accounting Rates are fixed in agreement with other Administrations and the trend is towards lower Accounting Rates, because of the lowering of costs due to technological advances. There would be no advantage in Sri Lanka pressing for lower Accounting Rates because tt?re is an excess of incoming traffic over outgoing traffic. As regards Collection Rates, howevwr, these are kept under review and are amended from time to time. It is proposed to introduce reduced tariff off peak hours to harniess the available idling capacity. 5.18 Tele..;ommunication tariffs are designed to generate adequate funds to meet the goals of efficiency and equity. The tariff revisions in December 1980, December 1983 and December 1985 were made in conjunction with the Tariff Committee of SLTD. When the National Telecommunications Commission is established,Tariffs will be reviewed in consultation with the Commission. Accounts Receivable 5.19 SLTD's billing for the Greater- Colombo Area is done by the EDP Department which receives the input from the Billing Centres in the Colombo Metropolitan Areas. In addition, the billing for three outstation Billing Centres has rece-tly been transferred to the EDP Department and, once this work is running satisfactorily, consideration will be given to computerising the billing for other outstations. At present, billing for 25 outstations is done manually by the respective billing centres situated in the regional telecommunication areas. A uhification of the procedures has been achieved for billing in Colombo and in the outstations. 5.20 Rental is billed annually in advance and call charges are billed monthly. Once the difficulties experienced with the transfer to computer billing have been resolved, it is expected that computer bills will be despatched by the end of the month following the month to which they refer. It is expected that this will be achieved before the end of December,1987. Bills in respect of 25 outstations, billed manually are despatched within three weeks after the end of the month to which the bills relate, which is considered satisfactory. . 9 - 21 - 5.21 At present the procedures for enforcing payment of arrears are operating fully In the manually billed exchanges and partially in resp.ct of others due to the arrears in computer billing. However, it is hoped that these arrears will be brought up-to-date by the end of Dec,1987. If arrears exceed an upper limit stipulated by the Department, subscribers will be debarred from call originating facilities. If arrears go back beyond four months, a subscriber will be disconnected. Subscribers who make a guaranteed deposit are not disconnected until the total amount due exceeds their deposits. 5.22 The same general principles for enforcing payment of arrears apply to Government subscribers except for the Armed For-ces, Police and Hospitals. Negotiations are being carried out to improve the procedure of debt collection from Government Departments. 5.23 At the time of preparation oa the Staff Appraisal Report in April, 1990, accounts receivable had to be estimated. However, at the present time it is possible to know the exact amount of accounts receivable. 24 Where fre. service is provided (e.g. for Members of Parliament, for staff of the SLTD and the Postal Department) the value of such services is included in billings and in operating expenses. This free service is not extended for international calls. VI - INSTITUTIONAL PERFORMANCE h)ranisation and Man&-emont 1 One of the assurances obtained during credit negotitation for the Project was that the Government will create by Deceomber 31,1981 a separate Telecommunication Department instead of continuing to function under the aegis of the Department of Posts & Telecommunications. This measure had been a long-felt need for the adequate development of the telecommunications system and happily was achieved during the project peroid. On 15th Aug. 1980 the telecommunication entity broke away from the Postal administration and started to function as a separate Department although it continued to work under the umbrella of the Ministry of Posts and Telecommunications. - 22 - The planning unit envisaged in the appraisal was set up with a Deputy Director as its Head who also had the function of Electronic Date Proce-sing. This i-, perhap-,not a happy grouping which would need to be rectified at a later stage. During the project period several changes were necessitated at senior levels due to attrition and this also had its impact on the implementation of the project. Towards the last phases of implementation of the project the Government of Sri Lanka also made a tentative policy decision to privati-e the Telecommunication sector and adequate measur-s have been taken by the setting up of a "Shadow" Board which has made fair progress up to now. It is expected that the privatisation concept would be a reality by 1988. The organisational structure of the proposed compar-i is currently under consideration and would be based on the need to permit the proposed company to function as a viable commercial concern unfettered by governmental requlations. It is envisaged that a National Telecommunications Commission would alsc be establisheo concurrently in order to minimally regulate the activities of the company and provide the neess-ary balance between the requirements of the company, the Government, telecommunication subscribers and the general public. It is expected that the company once it is formed would be provided with a certain measure of World Bank credit on a Project for development of telecommuni- cations for which this Project Completion Report would serve as a basis. The current Organisation Chart of the Telecommunications Department is given in Annexe.7. The separation of the Telecommunication sector from the Postal department has made it possible to develop the telecommunications system in the country to an extent that it has not been possible before. It is now evident that a Telecommunications Department which can be operated independently could indeed be not only profitable but also provide the necessary infrastructure development for the growth of the economy. -4ff Recruitment and Training "2 The number of staff associated with telecommunication as at April, 1980 was 10,405 which worked out to an average of about 130 personnel per 1,000 telephones. The number of employees as at the end of 1986 had been brought down to 9,856 indicating that there has been a substantial reduction during the project period. The average number per 1,000 telephones on this basis is about 94. - 23 - 6.03 During the project period the exodus of senior personnel continued practically unabated and this naturally had it- impact on the availability of staff to man the senior posts in the newly formed Departmentl the international market for telecommunication engineers, perhaps, drew away people whose experience and training would have been immensely useful. This in turn had some adverse effects on the implementation of the project. 6.04 The period in question has happily seen a vast improvement achieved in the field of training of staff. The planning that had gone into this aspect has now manifested itself in the establishment of a substantial Central Telecommunic tion Training Centre about 8 miles North of Colombo e;clusively for training in internal plant practice. The earlier Training Centre, which had been establisned with UNDP/ITU assistance,is at Moratuwa, about 12 miles South of Colombo, and is providing training in external plant. The new Central Training Centre has residential accommodation up to about 150 trainees at any time and includes residential accommodation for some of the senior staff as well. A former senior telecommunication engineer eminently suitable for the task is in charge of the Training Programmes and is being remuneratLd by the UNDP/ITU. The new Trai'ing Centre is being equipped and hat also received turther assistance from the ITU by way of the servicms of a manpower planning expert. The Training Centre at Moratuwa continues to function mainly for training in external plant work while two other Regional Training Centros have also been established at Kandy and Salle for the same purpose. VII - PROJECT JUSTIFICATION _____________________ C^X The Physical Installation Targets projected were generally achieved albeit with some delay except for a small number of exchanges which remained to be commiseioned at the end of 1996. A substantial portion of the network has now been digitalized and in particular there has been a considerable improvement of telephone services in rural areas, particularly those which -24- have been included n the project. Had the funding expec:ted from the Treasury materialised the scope of the project would have had far reaching effects by way of a-cess to service as well as quality of service. The figures of revenue countrywise r-eflect a heavy increa-e it, the use of telecommunication services and there is no doubt that the project. has been more than partially responsible for this situation. An important contribution towards project achievement could also be expected from the new traininrg facilities available and the training programmes envisaged. Since the project covered mnriy rural areas which have long suffered from Jack of coniir,u.-ication for economic advancement, it is reasonable to conclude that, apart from increases in revenue, a substantial contribution has been made towards the econimic upliftment of these rural areas. 7.02 Project Spin-off Frior to the project period the only telecommunication materials manufactured in Sri Lanka were procelain insulators, overhead fixtures, concrete posts and concrete/cement ducts, the latter for use in the laying of underground cables. During the period PVC ducts for laying of cables were also introduced in the SLTD and the smaller sizes of FVC covered cable is also being manufactured in Sri Lanka. For some tima to come, it will probably be unlikely that the country can create a sufficiently large market for- the local manufacture of more sophisticated items in the telecommunications sector. Rate of Return 7.03 The Internal Rate of Return (IRR) for the 1981-1986 investment programme is estimated at 28.03% using the basis outlined in Annex.6. This rate represents the return for the project and compares favourably with the estimated IRR at the appraisal stage of 16.6%. The Economic Rate of Return (ERR) canriot be dccurately calculated due to insufficiency of data, but is estimated to be in excess of 40%. The ERR is substantially higher than the IRR because: (i) In calculating the IRR, rio increase in revenue has been considered after- 1986, in respect of the 1981 - 1986 investment programme, whereas the ERR would include the increase in revenue. - 25 - (ii) Some of the equipment installed under the project has spare capacity and can handle higher traffic with a small additianal investment. However, when calculating the IRR the increase in revenue due to the higher traffic has not been taken into account whereas when calculating the ERR this would be inrcluded. (iii) When calculating the IRR no estimate has been made of the indirect external benefits to other sectors (such as transport, agriculture, public service etc., from improved and expanded telecommunication services), whereas when calculating the ERR such benefits would be included. (iv) When calculating the IRR no attempt was made to estimate the consumer surplus (which is undoubtedly large given tne high unsatisfied demand for telecommunication services) whereas the consumer surplus would be included when calculating the ERR. 2* - arnnex I Page 1 of 12 (see section 1.03) aEI LANKA TELECQMMUNICATIONS DEPARTMENT (SLI FrrSTI TELgC0MMUNICATIONS PROJECT CREDIT 1020-CE Tele2hanr Growth -rsja1 Actual) A. LINES ----Apprai sal - -----Actual ---- Year ending Connected Connected December 31 Capacity LInes Capacity Lines 1980 72,300 56, 80C) 63,800 50, 050 1981 100), 100o 62,50:)) 91,140 53,300 1982 111,80IBo 71,40;;0 102, 3;00 61,900 1983 117,60') 863,400 106,640 73,500 1984 1 2 1, 60C) 9C) 0t400 1 09,2240 80,770 1985 -- - 131,919 87,686 1986 -- 136,607 91,965 1987 - *131,526 93,543 E. FHyS I CAL FPROGMAMh-L (i) Local Exchanraes No. of Lirnes Year of Telephone Area (Capacity) Installation Actual on Trertiary Secondary Appraisal 31 12 .86 Appr aisal Actual Anuradhapura Anur adhapur-a 1,1 C0)0 ) 1,056 1982 1986 Jaffna 2,200 916 1982 - Maar,nar 300 169 1983 Trincomalee 65() 115 1982 - Culombo Avissawella 11000 722 1982 1986 Ch il aw * 1, MO 05 1983 - Gampaha 300() 400 1983 Negombo 600 624 1983 1986 Galle Gal le 900)( 770 1982 1986 Ratnapura 1,000 518 1982 1985 Kandy Badulla 1,350 1,045 1963 1985 Bandar awela 11,50.)(.) 1,397 198- 1985 kI.eyalIe 1,6600) 1,520 1983 1985 AurLInegala 1,650 1,832 1983 1985 Matale 350 33 6 1982 1986 Nawalapitiya 200 86 1982 - Nuwara Eliya 1,500 1,478 1983. 19a5 Total 17,20(C) 13,591 * The reduction iri capacity was dlue to the damages caused to the plaot irn the Northern and Eastern areas. - 27 - Annex L Page 2 of 12 tii) Trunk Exchances No.of Terminations to be added Appraisal Actual Appraisal Annual Expansions 8 10 650 790 New 3 5 650 750 (iii) Lgna Distance System Channel Capa-tNo.of Channel,Year of Icity IInstalla- (a) Microwave I I Ition _________ ________-----: : -- - - - - -:-- - - - - IAppra-I lAppra-: Appr- lisal IActualltisal lActuallaisal Actuall 1. Bale - Ensallwatta 2400 1 960 1 540 120 1986 2. Co. B/Hm - a a I a Prinston Hill 12400 1 960 1 600 1 720 1 :1985 a 3. Co-Cw-Px-Ad t 2400 960 1580 1 360 1986 4. Kirimetiyakanda- i a a a a Ia Gunner's - Bc 1200 - 360 t - I - 5. Gunner's - Tc I 1200 1 960 120 90 i 1985 6. Kegalle - O t a a a Kirimetiyakanda 1200 1 240 120 120 1985 7. Namunukula - BW 1 1200 960 1 120 1 120 1 1985 (b) Replacement of Long Distance Open Wire Routes Route Pair-kms Distance to be Year of Name of Route (kms) Replaced Recovery Colombo-Kegalle 90 270 1983 Negombo-Chilaw 50 100 1983 Chilaw-Puttalam 50 100 1983 Nuwara Eliya-Bandarawela 60 60 1983 Miscellaneous junctions to RAXs 6,700 13,400 1983 - 28 - ANNE X1 Page 3 of 12 (c) UHF/VHF UHF/VHF Systems Channel Ends to be Year of Telephone Area Installed Installation Tertiary Secondary Appra- Actu- Appra- Act- I. 60 channel UHF Systems Route isal al isal ual 1. Anuradhapura Jaffna Jaffna- Nelliadi 72 - 1982 - 2. Anuradhapura Jaffna Jaffna- Sittankerni 72 90 1982 - 3. Anuradhapura Jaffna Jaffna- Tellippalai 72 150 1962 - 4. Colombo Chilaw Chilaw- Puttalam 72 - :983 - 5. Galle Ratnapura Ratnapura- Balangoda 48 60 1982 1985 6. Galle Ratnapura Ratnapura- Kahawatta 48 - 1982 - 7. Galle Ratnapura Ratnapura- Pelmadulla 48 60 1982 - 8. Galle Ratnapura Ratnapura- Rakwana 48 60 1982 - II. 36-channel UHF Systems ---------------------- 1. Anuradhapura Anuradhapura Anuradhapura- Kekirawa 48 120 1982 1986 2. Anuradhapura Mannar Mannar- Talaimannar 28 - 1983 - 3. Anuradhapura Jaffna Jaffna- Chavakachcheri 32 90 1982 - 4. Anuradhapura Jaffna Jaffna- Kilinochchi 48 90 1982 - 5. Colombo Gampaha Gampaha- Mirigama 48 - 1983 - 6. Colombo Negombo Negombo- Dunagaha 48 60 1983 1986 7 Balle G .lle Galle- Elpitiya 48 60 1983 1986 8. Galle Galle Galle- Baddegama 48 60 1983 1986 9. Kandy Badulla Badulla- Mahiyangana 48 120 1983 1985 1O.Kandy Badulla Badulla- Moneragala 48 60 1983 1985 - 29 - ANNg, I Telaphone Area Page 4 of 12 -------------- Channel Ends Tertiary Secondary to be Year of Route Installed Installation App. Act. App. Act. III. 24-Channel VHF System _____________.________ 1. Anuradhapura Anuradhapura Anuradhapura- Kahatagas- digiliya 6 30 1983 1986 2. Anuradhapura Anuradhapura Kekirawa- Galnewa 10} - 1983 - 3. Anuradhapura Anuradhapura Migawella- Thambuttegama 6 90 1983 1986 4. Anuradhapura Jaffna Jaffna-Pallai 16 30 1983 - 5. Anuradhapura Mannar Mannar-Madhu 12 - 1983 - 6. Anuradhapura Mannar Mannar- Vidataltiva 12 - 1983 - 7. Anuradhapura Mannar Murunkan- Chilavaturai 12 - 1983 - 8. Anuradhapura Trincomalee Trincomalee- Kantalai 24 60 1982 - 9. Anaradhapura Trincomalee Trincomalee- Kiniya 24 30 1982 - 10. Anuradhapura Trincomalee Trincomalee- Muthur 24 3C0 1982 - 11. Galle Galle Galle- Kosgoda 12 30 1983 12. Galle Gallo Galle-Udugama 12 30 1983 1986 13. Galle Ratncipura Ratnapura- Godakawela 12 - 1983 - 14. Galle Ratniapura Ratnapura- P-iriella 12 3C0 1983 1985 15. Galle Ratnapura Ratnapura- Nivitigala 12 30) 1983 - 16. Kandy Badulla Badulla-Bibile 12 30 1983 1985 17. kandy Badulla Badulla- Ettampitiya 6 3C' 1983 1985 18. Kandy Badulla Badulla- Kandaketiya 12 30C 1983 1985 19. Kandy Badulla Badulla- Lunugala 12 60 1983 1985 20. Kandy Badulla Badulla- Wellawaya 18 60 1983 1985 21. Kandy Bandarawela Bandarawela- Ampitikanda 28 3C) 1983 1985 22. KIandy Bandarawela Bandarawela- Ella 2B 30 1983 1985 23. Kandy Kegalle Kegalle- Aranayake 24 30C 1983 1985 24. Kandy Kegalle Kegalle- Rambbukkana 36 60 1983 1985 - 30 - ANNE X Page 5 of 12 Telephone Area Channel Ends -------------- to be Year of Tertiary Secondary Route Installed Installation App. Act. App. Act. 25. Kandy Kurunegala Kurunegala- Kuliyapitiya 16 90 1983 1985 26. Kandy Nawalapitiya Nawalapitiya- Dolosbage 24 - 1983 - 27. Kandy Nawalapitiya Nawalapitiya- Kotmale 24 - 1983 - 28. Kandy Nuwara Eiiya Nuwara Eliya- Maturata 24 30 1983 1985 29. Kandy Nuwara Eliya Nuwara Eliya Udapussellawa 24 30 1983 1985 IV. 12-Channel VHF Systems _________________________ 1. Anuradhapura Anuradhapura Anuradhapura- Galenbindunu- wewa 6 30 1983 1986 2. Anuradhapura Anuradtapura Kahatagas- digiliya- Horowpatana 6 60 1983 1986 3. Anuradhapura Anuradhapura Medawachchiya- Kebitigollewa 6 60 1983 1986 4. Anuradhapura Anuradhapura Tambuttegama- Eppawela 6 30 1983 1986 5. Anuradhapura Trincomalee Trincomalee- Gomerankadawelal2 - 1982 - 6. Anuradhapura Trincomalee Trincomalee- Killiveddi 12 30) 1982 - 7. Anurdhapura Trincomalee Trincomalee- K.uchchaveli 12 60 1982 - B. Anuradhapura Trincomalee Trincomalee- PLtlmoddai 12 3f) 1982 - 9. Colombo Chilaw Chilaw-Mundal 6 - 1983 - lO.Colombo Chilaw Puttalam- Kalpitiya 6 - 1983 - ll.Colombo Chilaw Puttala-Mampuri 6 - 1983 - 12.Colomba Negombo Negomibo- Badalgama 6 30 1983 1986 13.Colombo Negombo Negombo- Sandalankawa 6 60 1983 1966 14.Galle Galle Galle-Imaduwa 6 30 1983 1986 15.Galle Galle Galle- Talgaswela 6 30 1983 1986 16.Galle Ratnapura Ratnapura- Kalawana 6 30 1983 1985 17.Galle Ratnapura Ratnapura- iuruwita 6 - 1983 - 18.Galle Ratnapura Ratnapura- K'olonna 6 30 1983 1986 19.Kandy Badulla Badulla- Migahakiula 12 30 1983 1985 - 31 - * ~~NNEX I Page 6 of 12 Telaphone Area Channel Ends - -------------- to be Year of Tertiary Secondary Route Installed Installation App. Act. App. Act. 20.Kandy Badulla Badulla- Padiyatalawa 6 30 1983 1985 21.Kandy Badulla Buttala- Monaragala 6 60 1983 1985 22.Kandy Kegalle Kegalle- Salapitamada 12 60 1983 1985 23.Kandy Kegalle Kegalle- Kotiyakumbura 12 30 1983 1985 24.Kandy Kegalle Keqalle- Udugoda 12 30 1983 1985 25.Kandy Kururegala Kurunegala- Galgamuwa 8 30 1983 1985 26.Kandy Kurunegala Kurunegala- Hettipola 4 30 1983 198S 27.Kandy Kurunegala Kurunegala- Maho 12 90 1983 1985 2S.Kandy Kurunegala Kurunegala- Nikaweratiya 12 60 1983 1985 29.KanSy Matale Matale- Welgamuwa 6 30 1983 1986 30.Kandy Matale Naula-Elahera 6 30 1983 1986 31.Kandy Nuwara Eliya Halgranoya- Watumulla 6 60 1983 1985 V. multi-access VHF Systems of Different Sizes - 80 (approx.) 1984 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -__ - 32 - Page 7 of 12 (i v) EAgmage; C&1o£ite Qr ttl Pr5t t , '.SUi%. Si To kv:reg Name of Appr.wizal Actual on Actual on No. Tertiary SecoCindarA Exchange Capacity 31.12-84 31.12.86 1. Anuradhapura Anurdh1apur a Galneuwa 1 0o, -- 2. Kahatagas-- cJigiliya 200 44 98 3 . K:eiirawa 30ci 44 4 . MPedaiwCch-- chi ya Ats.} O O BE 144 5. Nochch i ya-- 9itfitd4 IOU * 96 6. Tarnbuttecama 2O'" 6 "8U 7-23 17 eHctianges to be closed - 96 ubt tot d I 1 1,00 21 88 1 ,06sb 24. Anutradhapura L, 41 na v aIva:ach' - cht-r i . )3 88 25. V 1 1 i nluhLi.h i 26. MN( I1 Ii adi jk)'14 4 27. Pal 1ai Ito) '4 4 I 28 . Si thlankerr i 'J4)0 - 29. Tel 1 ippal el 30. Ve* Iai lou 21 31-35 2-3 0"-NLL1WaFl9jYLi to be L1.tsed iSubtotal 22, )0C) 54. Anuradhapura Matinar aht.1 1 1) I 55. Mur ur, It: -.in I ' .I0 56. IaIa3 iri ar Ihar,qe, 57-69 13 ex chanqee?s toe: b c! 1 oseci - i I 181 : Subt (iti k4" IC' -33- 'Pace % QL U S1 T!Lbchgnn Area Name of Appraisal Actual on Actual on No. Tertiary Secondary Exchange Capacity 31.12.84 31.12.86 _ _ - - - - - - - - - _ _ _ _ _ _ _ _ _._ _ _ _ _ - - - - - - -_ _ _ _ _ _ _ _ _ _ 70. Anuradhapura Trincomalee Gomarah- kada,.ella sn - - 71. K&.ntalai 100 21 21 72. Kiliveddi 50 - 73 Kinniya 100 10 10 74. Kuchaveli 100 9 9 75. Mutur 100 20 20 76. Nilaweli 100 6 6 77. Thampalakaman 50 5 5 78. 1 exchange to be closed - 44 44 Subtotal 650 115 115 Total Anuradhapura Tertiary Areas 4,250 1,488 2,256 79. Colombo Avissawella Bulath- kuLnupitiya 200 44 44 80. Eheliyagoda 300 44 96 a1. Kitulgala 20)0 44 44 82. Kosgama 300 21 288 83--97 15 exchanges to be closed - 318 250 Subtotal 1,C0710 471 7;2 98. Chilaw Bingiriya 100 1Q 10 99. Mar-awi 1 a 300;C 88e 20(( I 00. Puttalam 6( )e_ 301) }> 101-112 12 exnchanges to be closed - 131 95 Subtotal 1, 000 429 6 C:!'.S 113. Gampaha Mirigama 200 44 200 114. Veliveriya 1 0 44 15ct 115-119 5 exchanges to be closed 91 5') 300 179 400(") 120. Negombo Dunagaha 200 44 192 121. K:ochchikade 2C'0 44 144 122. Lunuwila 200 50 286 123-130 8 exchanges to be closed - 130) - Subtotal 600 268 624 Total Colombo Tertiary Area: 2,900 2,885 5,755 - 34 - St Tffihgs Arg,; Name of Appr-aisal Actual on Actual on No. Tertiary Secondary Exchange capacity 31.12.84 31.12.86 131. Galle Galloe Baddegama 200 44 144 132. Elpitiya 200 se 192 133. Habaraduwa 200 21 192 134. Hikkaduwa 100) 44 150 1 35. Kosroda 10C 21 48 136 Nakiyadeniya 100 44 44 137-151 15 exchaniges to be closed - 153 Subtr3tAl 9(0 415 770 152. Ratnaput-a HIalangoda SIC) 8 192 153 . Godakcria" 1 00 44 44 154. Kahawait a 20)Q 44 44 155. fPel nadcJl ; 1C w 44 44 136. Rakwarla 44 44 157-o 1 tD *?w.1...119e< to be t1t?ed - 1/7 15v LiLtt.Al t (it tl.:) 441 iB Total Galle lertiary Areas: 1, ,'C" 1, ;2.33 16B8. Katiady Etdul I'd I-jib) I6. I .u044 e 169. ;:.dndak:et i 'a I 0C- 1 70* Ms; as III itr Y 7.'t4 4 (IlI :A' 171. M- CIr ACJ :t I 3't ' 172. V|cd 1 ya *t al i '1 173. Fassara 2) : 2Qu 174. W-zi 1 *i.'ax 20 ,"% 4u 175- 186 12' E-iic:artqes ttc_J be c1(jFjed 2 SUbL t' t t A 1 , 750 644 1 O-4i 187. Oandar- awe?1 a Atnmpi t i IVanda 1 4 4 44 188. Eir-cdar awel a . 3Qu) lb #4-) 169. I.- 1 1 l 21 21 190 Hliputale S0O- u38 192 191. W-l i inadi2a A 13;'2 266 192-196 3j er. :char)nweE. toj be closud 7 7 ' subtutal 1, 5s0O 73' 1,397 -35 - .4.iNX.t.l 1 re.qph!1r. AOrk# Name of Appraisal Actual on Actual on No. Tet ti dtr y SSecondarv Exctiangq calpac 't' v 1. 12.84 31.12 I . 86 1/7. K Et l le Ar-anayake 1.U 21 96 t )93. K:eqal loe 80(.) '399 800 Iv99. Mcwad )el I a 30.0 88 288 ,.' 0:4. , Rambukkatna '200 88 192 , o1, Warcd::aol a 2X)0 44 144 Q .2 211 .1 excthanqes to be clos1 d - 93 Subtotal 1, 60C 733; 1, 52QNl .s.*r-unecia a C; A I muw- 14m u 22 i 9 G i t i Lt 1 .01) 44 r96 1 4. Hettipol a 50 9 96 . ! CJ. , ~~~~~~~~~k.U1 i \'dpi ti y'a .2j% 8 Q'8 Mah bbI CK) T18L I ~~~ . t1~~ahc 10 t3t5:3 14 1 Nar ammala 1:a 44 t '.4 . I '. . Ni1 adal Lpcjta '.-; 0) 99 NiI weratiya 10:)) 21 144 . :'. Pcalgrhal c l sCIt )>' 3,r,,17 * **.:3. mRambridagalla 100 1o !8 4. Wariyapola 10( 21 1 7, 242 18 c Jxchanc.es to be closec1 - 388 Subtotal I, t.-53) 74S 1 ,8'. Matale GaIal weIla 5() 44 96 244. Naul a 1 00 2( 48 £,45. Rattot.a I )Q 44 '4^ 246. Wilgamuwa I ('0 96 247-259 13 exchanges to be clobL?d - 74 Subtotal 35( 1 a 2, 260. Nawalapitiya Dolosbage 10 21 21 261. Kotmale 10.0 44 262-264 3 excha,eges to be closet! - 23 Subtotal 2C.00 8H E)0 -36 - PANNEX, 1 Pae. 10 Qo I1 Si Tgleho Area Name of Appraisal Actual on Actual on No. Tertiary Secondary E:> rhanrje capacity .1i2.84 31.12.86 265. NtAwara Eliya Halgranoya 200 44 144 266. Maturata 1o0 44 96 267. NuwaraEliya 1,0oo BOO 1,046 268 . Ramboda 100 21 96 269. Uda- pussellawa 100 44 96 270-278 9 exchanges to be closed - t S0 Subtotal 1,500 1,103 1,478 Total Kandy Tertiary arease 8,150 2.750 4,344 Grand Total Sri Lanka 1 7.200 7,919 13,591 SRIl LANA ~lTELECOMMINCAT 10NS DEPAvRTM1E41 --------------------------------------- ~Annexc 2 Income Statements fs00 Page I of 3 toee also 5.09 to S.Alt Forecast IN. tL:a …-- - - -- - - - - - ---- -…-- - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Years ending December 31a 2 196±- 2 1902 2 1993 2 1984 1. 19811 19982 1903 1964q - ----- ----- -- -------------- ---------- -- ------------------------- - Operating Revenum I Rentals .1 26,500 2 29,400 2 33,400 1 37,300 1 29100 31,900 2 45,300 2 "'S500 Metered calls I 157,000 2 205,300 !266,700 2 320,100) I 164, 100 2 225,10 2LO 356,300 2 440,300 Manual trunk calls. . 1.. 12,000 2 12,000 2 12,000 2 12,000) 2 Foreign calls - - 131,300 2 164,100 2 205,200- 2 256,480 -1 133,300 162,300 2107,400 I- 347,-400 Total Telephone Revenue,-' - 327,6"Q- Li.41L,00. 317,500 I 626,300 I - 36, 500 2 419,300 2 93W9,50 'I 35.200 Telex 2. ~~~~~126,000 2 157,500 1 9p0 4,0 --I 193,000 2 165,300-- 2 172,700 12 30, Telegra*ph - 60,500 2 64,600 73,200 1 30,500 - 34,000 2 35,200 I 30,500 2 26,30 Iiiscellaneous 2 !24,500 2 - 29,400 1 530 42,300. I 13.100 2 25,700 I- 32,700 1 .26,0 TOTAL OPERATING REVeV. 536,600 2 464,300 0'92,900 I 995,200 A 534,600 2645,500 8333,400 211117,200 Operating Expense. I … --. 22 . 1 11 21 Salaries 2 115,200 2 129,1 2o "S 1450 2 1461,900 2 73,200 2 99300 2 106,300 I 116,406- Maintenance I 39,900 2 45,900 -2 52,700 2 60,700 I 56,700 4 1,500 142,600 2 44.40tf Operation and Administration I 132,100 2 145,100 2 206,400 2 256,000 2 73,600 2 66.200 2 95,60 2 140.304 Depreciation z Historic-Cot I. 42,100 2 73,000 2 93,400 2 107,700 2 56,700 2 61,400 I 101,300 I 130,90 Revaluation 2 20,200 2 24,000 2 34,400 I 43,800 2 59,900 I 65,000 I 61,500 1 92,700 Total Operating Expense- 2 369,500 2444,60 2 531,400 2 632,100 -, 329,100 2 393,600 1 430,300 2 W525200 Operatinv Income 2169,100 1 219,700 I'- 219,500 2 343.100 -- 207,500 2 251,900 I 403,100 I 592,~ Loes t Interea.t - 91,400 2 106,400 2 113,400 2 110,900 2 16,200 2 26,500 2 39.400 2 79,6 Exch.Losses & Wtrite Offs2 - I-22 10,900 2 (700) 2 492,200 2 2S,4 NET INCONIE - 77,700 I 113,300 2 L71,1t)0 1 252,200 Leo6,400 2 226,1.00 2 321,500 2 484, 00 Average Net- s Fixed Assets Historic Cost 751,500 1,072,600 1, 299,700 1,496,500 W939450 1.221,200 1,579 Revalued 920,100 1,300.300 1,599,200 1,879,400 + 1,403,500 1,699,600 2,4. Operating Ratio a Historic Cost ) 65 8Z3 60, 50 42 39 Revalued 69 A7 0564 6i J ,1 52 47 Rate of Return Historic Cost XI25.2 22.9 25..1 27.I39.7 43.4 Revalued CX 19.4 16.9 4 .2_.: 423.7 27.6 * arinot be calculated as a BalAnce S2'et was n.ot i -- -;- A1 . ,--;- - - TELEC;i--'-J- -- ' -'-- --- r- .ot 3 racr- Sho-eE k=. .., . Forecast Years ending December 31 : 1961 1992 1983 192 19t.. 162 ; 1983 : 1984 --- --- --- --------- ------------------- -- -------__-------_----_---__ _ _---- ---------_- - -_-_----- ---- ----- _------ - ----- - _ - - - _ Assets Fixed assets in operation Hiatoric Cost 1 1,242,000 : 1,559,100 : ;,s67,200 2,153,900 : 1,146,300 : 1,444,800 1,793,200 1 2,391,000 Revaluation adjustments 404,200 530,500 976,500 876,500 1 L,209,800 1,323,400 1.687,400 1,943,000 Less depreciation on a I Historic Cost 288.800 366,800 : 460,200 : 567,900 285,300 3 346,900 : 440.700 .1 -79.600. Revaluation adjustments 208,700 270,000 : 349,000 449,400 797,400 907,700 : 1,146,300 2 1,346,700 -- . : ::-- --------- --------- --------- Net fixed assets in operation 1,148,700 : 1,452,800 : 1,745,600 : 2,013.100 : 1,29Z,40(, 1:,5U.600 : 1,995,600 : 2,407,700 Wts-r in prograss 317,100 : 308,100 286,700 281.500 : 298.500 34R.400 : 597,800 590,300 : : : :------ : -- -- --- - -- ------ ------ ---- -- -- -- -- _- -- ----- - Tot l fixed Assets 1.465,800 : 1,760,900 1 2,032,300 2 2,294,600 : 1,591,900 1.862.000 :2.483,400 2,998,000 Stcres 72,600 : 79,900 I 07.800 : 96.600 : 230.000 : 195.1o0 : 146.500 : 87,700 * 119,500 : 149,400 1137.400 228.700 181.20t 1466.20( :' .7,0.700 498.200 : ~ ~ ~ ~ ~ ~ ~ ~ ----- :-:-: -:---- --- ----- -- -- -- - -- ---- - - - - - _--_ TOPTAL ASSETS 1,657.900 : 1,990,200 : 2,307,500 2,619.900 : 2,003.100 : 2.253.300 2.939.600 3,589,900 Liabilities Equitv t Accumulated Profits 2 305.BoO 419,100 t 597,200 2 49.400 408-e.c,0 2 834. 00 2 956,1C0 2 1,440.101 Revaluation reserve 260,100 351,650 : 464,100 596.400 472.300 : 540.b00 2 747,500) s95.400. : : : : - - : -- - - - - - ---- - ---- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total Equity 565.900 : 770,750 2 1,061,300 : 1,445.800 2 GO8.800 1.175,200 : 1.703.600 2.335,S00 Debt to Government long term 1,005.400 : 1,123,400 1.145,100 1.072.200 2 75b,900 767.900 453.500 : 477.700; current 2 6.600 2 96.100 2 101. ' *.) °- 365.4..' 2 14:: 2 b92,x0 2 770,700 : ……- :… : -------- --------- ------ TOTAL LIABILITIES 1,657,900 1,990.200 2.307.500 2 .61.900 t 2.003.100 2,253.300 22.839.600 : 3,583.900 :&: : -En -q - : -u it:y_ - - - - ) 64 _ .…2--------_ 2 --------- - ---_---- ----- - --- --- Dent/Debt & Enquity ( 64 59 52 4 46 4t. 21 17 Current ratio (Times) 2.2 2.7 -.2 1.1 1.26 0.52 0.76 Sh! : TEL ECOMMtwINI irf I!,,-IF$ '.'4JE 2 FLinds Flow State.e-t Rs y5of 3 Forecast AC t.u_ Years ending December 31 2 1981 : 1982 : 1983 i984 1981 1982 : 1993 1904 Sources Net income before inter-st 169,100 : 2:9,700 2 219,500 363,100 - : 252.600 : 360.900 563S,00 Depr-ciation I 82,300 1 104,500 2 127.900 151,500 : 146,600 193,300 2 223,600 Internal cash generation 1 251,400 324,200 2 419.300 1 514.600 :_ 399.200 1 544,200 4 --707,200 Borrowing : 224,700 : 168,300 : 77,800 : (15.700) 2 86.690 : (237,6101 1 69,550 TOTAL SOURCES : 476,100 492,500 497,100 :98,900 : 485.B90 I 3k&;590 : 856.750 Requirements 2 : Cacitol Constructionz 2 Pro.r)osed Project : 72,400 246,800 213,300 : 30I,00 : 29e.soo * S48.400 597.000 * (tetE- WonIs * 244,700 61,300 : 73,400 251.500 : 49.900 : 249.400 W (7,500) :~~ ::::-____ … _… _ _-_ ___ lotzl PrDgram 3 317,100 3:S08,100 1 286,700 ; 281,500 : : 348,400 5 597.800 : 590.300 bebt Services: Interest : 91,400 106,400 113.400 110,900 : 26,500 39.400 : 79.600 Amortization : 41,100 50,300 56,100 5 57.2(0 : 75,690 76.79C0 45,350 Total Debt Service 132,500 : 156,700 169.500 i 168.100 102-.190 2 116.190 : 124,950 Change in working capital 2 26,500 2 27,700 : 40,900 49.3S0 : 35.300 : (407,400) : 141.500 rOTAL REQUIREMENT I 476,100 492,500 2 497,100 498.900 :485,890 *506.590 t 956,750 Debt Service ratio (tises) 1.9 2.1 2.5 -.1 _.9 4.7 6.3 Contribution to expension 2/ 29 45 73 106 75 140 se 1) For 1961, the amortization and change in Working Capital cannot be provided because a Balance Sheet was not prepared as at 31.12.198(3. Accordingly, Fund Flow fioures are not glven for 1961. 2. Defined as the part of the investment program covered by internaJ cash oener-ation after debt service and increase in workinq capital. - 40 - Annex 3 P. 1 (see also 5.09 to 5.11) SRI LANKA TELECOMMUNICArTIONS DEPARTEIlENT NOTES ON FINANCIAL STATEMENTS Introductio,n 1. Forecasts were prepared for 1980 to 1984 inclusive but Commercial Accounts were prepared by Messrs Kulatunga & Co. for 1981 to 1984. Accordingly, it is possible to compare actual and forecast results for 1981 to 1984 only. The 1981 and 1982 accounts have been amended, where necessary, by Messrs Kulatunga t Co., in the light of the Auditor-General's Report of 21st July, 1986. The provisional accoLunts prepared for 1983 and 1984 have been used in Annex. 2 because Messrs Kulatunga & Co.,require time until 3t8st November 1987 to prepare the Final Accounts for the years dnd the Auditor --Gener-al 's Report will be available about four months after submission of these accounts for audit. 2. Messrs Kulatunga & Co.have prepared he Commercial Accounts for 1981 to 1984 inclusive in accordance w.th guidelines provided in February and March, 1984 by World Bank Staff. 3. Provisional Commercial Accounts for 1985 were prepared for internal purposes by SLTD staff and a copy of these accounts was forwarded to the World Bank in June, 1986. Commercial accounts for 1986 also are being prepared by SLTD staff and it is expected that a copy will be forwarded to the World Bank by 3oth November 1987. Income Statement 4. Total operating revenues for 1981, 1982 and 1983 were very close to the forecast operating revenues for these years and for 1984 the actual revenue was only 12% higher than the forecast. The fact that the forecast and actual figures are so close' indicate that a great deal of care was exercised when preparing the forecasts. It will be seen that actual revenue from telex and telagraph charges in 1983 and 1984 was somewhat lower than the corresponding forecast figures: this was mainly because of increased use of facsimile facilities the income for which has been included as telephone revenue. 5. The Forecast "Salaries" for 1981 to 1984 are appreciably higher than the Actuals and this is probably due to the fact that the Forecast figures include certain items(e.g. Overtime, Travel and Other Aliowances, Meals, Medical supplies etc) which have been treated as "Operation and Administration" expenditure in the actual figures. - 41 - ANNEXX Page. 2 6. Actual expenditure on "Maintenance" for the four years was only 4% higher than forecast which appears acceptable. 7. The Forecast of "Operation and Administration" expenses assumed that this expenditure would increase by 25% p.a. However,the actuals were much lower mairly due to severe Treasury constraints on actual expenditure in these four yea;s. The substantial increase in expenditure in 1984 was mainly due to the fact that the Turnover Tax payment was SL Rs. 41.2 million higher than in 1983. The 1984 payment included settlement of arrears of Turnover Tax for prior years. 8. The depreciation charges, because of revaluations, were higher than forecast because an index was used for Fixed Asset revaluations and the Sri Lanka rupee depreciated against the SDR to a greater extent than was forecast. 9. The Forecast Interest payments have been calculated at 10% on SLTD's average long term debt to the Government in each year, inclusive of loans obtained in foreign currency for SLTD. The actual interest figures however have been calculated at 12% p.a. on the Zoreign Currency Loans only in each year. In effect, the bases used are different and the interest figures are not therefore comparable. 10. The "Exchange Losses and write offs" are in fact mainly Exchange losses on Foreign Currency Loans, caused by the progressive depreciation of the SL Re. against the US $ and the Yen. 11. "Net Income" for each of the four years was well above the corresponding forecast figure and the actual net income for the four year period exceeded the forecast by 95%, which must be regarded as highly satisfactory. 12. "Operating Ratio", which is operating expenses expressed as a % of operating revenue, is more favourable than forecast for all years from t981 to 1984. 13. The "Rate of Return" which is operatirig income expressed as a % of Average Net Fixed Assets, is also more favourable than forecast for all years from 1981 to 1994. - 42 - FNE X ;I .Paaet.l Balance Sheet 14. The actual "Stores" figures for 1981 1982 and 1983 were substantially higher than forecast mainly because stores could not be charged to Capital and Revenue Expenditure because of budgetary constraints imposed by the Treasury. However, the value of stores on hand as at 31.12.1984 was below the corresponding forecast figure. 15. Forecast "receivables" for 1981 to 1983 represent between 21.65 and 2.75 months of billings for the years, whereas the actual receivable represent about 4 months billings in 1981, 3.6 months billings in 1982 and about 3 months billings in 1983. There was therefore a definite improvement in actual debt collection during the 1981 to 1983 period. The actual receivable at the end of 1984 however represented about 5.3 months billings and this was mainl,' due to delays in billings and collections following the ethnic problems in the 3rd quarter of 1983. It shout-d also be noted that the 1983 and 1984 receivable fiqires were estimates made at the time the provisional accounts were prepared. However, more accurate figures will be available when Messrs Kulatunga & Co., prepare the final accounts for 1983 and 1984 by the end of November, 1987. 16. The actual "accumulated profit' figures are higher than the forecasts, because the "Net Income" earned annually was higher than forecast. 17. The actual "revaluation reserve" figures are higher than the forecast for the reason mentioned in paragraph 8 above. 18. "Debt to Bovernment - Long Term" includes funds received from the Treasury (other than those mentioned in 19 below) and the SL Re equivalent of Foreign Currency Loans obtained by the Treasury on behalf of SLTD. These debts also are in fact part of Government Equity and a better appreciation of the variation in Government Equity from year to year can be obtained by considering "Debt to Government-Long Term" as Government Equity. "Debt to Government - Long Term" decreased in 1983 and 1984 because of the increased short-term Government funding in these years mentioned in paragraph 19 below. - 43 - Annem E eaat 4 19. "Debt to Government - Current" rose substantially in 1983 and 1984 because of substantial increases in Treasury advances for stores. The increase is due to the practices used in Government accounting: if severe budgetary restraints had not been imposed in 1983 and 1984 more stores items would have been charged to Capital and Revenue expenditure, and TSA Stores Advance Account (and consequently the "Debt to Government Current") would have been reduced. The reduction in "Debt to Government - Current" would of course have been offset by corresponding increases in "Debt to Government - Long Term", to reflect the increased long term investment in the business in the torm of fixed assets. Funds Flow Statement 20. The Funds Flow figures are obtained entirely from the Income Statements and Balance Sheets. As figures in the Income Statements and Balance Sheets have been specifically commented on in paragraphs 4 to 19 above, no additional comment is provided on the Funds Flow Statements. - 44 - ANNEX 4 Page 1 of 2' SRI LAW4iA TELECOMP1JN.TIONS DEPARTMEN' rS ' FIRST TELECOM14UNlIlINS PROJECT ______________________________ CREDIT 1080-C __________..__ Physical and Financi Perc re-nce Indicators ---------------------------------------------------__------------------- As of December 31.1984 As of December 1.1986 Aporaisal Target Actual Actual Local T-lephone System %umber of exchanges - 88 Equipped capacity 121,600 109,240 150,200 Direct exchange lines(DELs) 90,400 i 0,770 93.000 Number of Telephones 133,50O 104.000 130.000 Public Call Offices Utfilled Demand 27,900 17.850 (Subsequent tor revision of walter's Long Distance Network _____________________ Interurban autowatic exchanges 11 8 15 Total termination an interurban exchanges 1.300 - 1.530 Total available channels Internacional Services International automatic exchanges Total terminations on Not included International exchanges in project Total international telephone circuits Telex Service Telex exchange Equipped capacity -dc- Number of subscribers Unfilled demand International telew; circuits Staff Emplnvees 1 .50 9 5E- E Staff ratio I 'C' (oe-c oes'I1'i(ri telephc-nes' AiP- ac'e v eerLe p'r- bicrber .- Tr;Lf.^ 7 ,4; , , -45- ANNEX. S Page 1 of 2 (see 5.12 to 5.15) SRI LANKA TELECOPMMUNICATIONS DEPARTMENT (SLTD) Principal Telecommunications Tariffs (As from 1st December, 1985) 1. Local Cnrazs Connection Fees STD exchangsn Estimated Cost with minimum of SL Rs.7,500.00 Other exchanges: Estimated cost with minimum of SL Rs.2,750.00 (If a priority connection is required, additidnal fees are payable) Unit Call Charge: SL Rs.1.10 (SL Rs.2.10 fpr call office) ennual Rentali Business and Peofessional : SL Rs.1,000.00 Non Business and Non Professional z SL Rs. 400.00 Religious institutions a SL Rs. 225.00 2. Long Distance Charges (a) Manual exchanges, operator connected calls Distance Charae gr 3 Minute of Fraction Within the same group switching centre SL Rs.2.t:)0 Less than 64 KIlometres SL Rs.3.0)0 Between 64 and 177 Kilometres SL Rs.4.00 Over 177 Kilometres SL Rs.6.C00 Above charges are standard rates. Between 6 p.m. and 8 a.m.the charges are 50% of the standard rate. (b) Automatic echanges, "operator connected STD calls": From B A.M. to 6 P.M Distance First I minutes additional ; minutes -------- aor fraction or fraction Within the same group switching area SL Rs 3.00 SL Rs 2.00 Less than 32 K.M. SL Rs 5.00 SL Rs 4.00 Between 32 and 80 K.M. SL Rs 7.60 SL Rs 6.60 Between 80 and 112 " SL Rs 12.00 SL Rs 11.00 Between 112 and 193 " SL Rs 14.20 SL Rs 13.20 Over 193 SL Rs 20.80 SL Rs 19.80 - 46 - ANNE X 95 Page 2 of 2 Distance --------- From 6 _M. to 8 A.M. First *3 minutes 8dL.ional 3 minute5 or fraction or fraction Within the same group swit;chi ng area SL Rs 3.00 SL Rs 2.00 Less than 32 K.M. SL. Rs 3.00. SL Rs 2.00 Between 32 and 80 IK.M. SL. Rs 4.30 SL Rs 3.30 Between 80 and 112 " Sl Rs 6.50 SL Rs 5.50 Between 112 and 193 " SL Rs 7.60 SL Rs 6.60 Over 193 SI Rs 10.90 SL Rs 9.90 (c) Automatic exchanget, STD calls: Di;stance fluse Rate Qharpe for a ------3-"-- minute call Less than 32 K.M. 50 seconds SL Rs 4.00 Between 32 and 80 K.M1. 30 seconds SL Rs 6.60 Between 80 and 112 18 seconds SL Rs 11.00 Between 112 and 193 15 seconds SL Rs 13.20 Over 19.3 10 seconds SL Rs 19.80 Cheap rates exist (between 6 P.M.and 8 A.M) for all distances: 50.% discount on the standards rate. 3. International Ca.ls The Tariff introdurced with effect from 1st December 1983 was not altered. 4. Telex The Tariff introduced with effect from I st December 1983 was not altered. - 47 - ANNEX SF Page 1 of 3 SRI LANKA TELECOMMUNICATIONS DEPARTMENT (SLTD) Principal TelecoMmunications Tariffs (As from 1st December, 1983) 1. L,ocal Charoes Connection Eggs Per Line STD Exchanges: Estimated Cost with minimum of SL Rs 7,000.00 Other : Estimated Cost with minimum of SL Rs 2,000.00 Unit Call Charge: SL Rs 0.09 (SL Rs 1.40 from call office) Annuga Rntal. Business and Professional i SL Rs 900.00 Non Business and Non Professional i SL Rs 360.00 Religious Institutions : SL Rs 200.00 2. L_oqQ Distance Charggs (a) Manual exchanges, operator connected calls. Distance Clarae p_r 3 minutes or fraction -------- ik A.M. to 9 P.M. Within the same group switching center SL Rs 2.00 Less than 64 Kilometres SL Rs 3.00 Between 64 to 177 SL Rs 4.00 Over 177 SL RS 6.00 Above charges are standared rates. Between 9 p.m. and 6 a.m. the fees are 50% of the standared rate. (b) Automatic exchanges, "operator connected STD calls": From i A.M. to 9 P.M. Distance First 3 minutes Additional 3 minutgs -------- or fraction or fraction Within same group switching area SL Rs 2.65 SL Rs 1.65 Less than 32 Kilometres SL Rs 4.30 SL Rs 3.30 Between 32 and 80 K.M. SL Rs 6.40 SL Rs 5.40 Between 80 and 112 8 SL Rs 10.00 SL Rs 9.00 Between 112 and 193 SL Rs 11.80 SL Rs 10.80 Over 193 SL Rs 17.20 SL Rs 16.20 - 48 - ANNEX Z A From 9 P.-M to . A.M. Distance First 3 minutes Additional p minutes -------- qor fra.ztion o_r fraction Within the same group switching area SL Rs 2.65 SL Rs 1.65 Less than 32 Kilometres SL Rs 2.65 SL Rs 1.65 Between 32 and 80 K.M. SL Rs 3.70 SL Rs 2.70 Between 80 and 112 " SL Rs 5.50 SL Rs 4.50 Between 112 and 193 " SL Rs 6.40 SL Rs 5.40 Over 193 SL Rs 9.10 SL Rs 8.10 (c) Automatic exchanges, STD calls Charge for a Distance Pulse Rate 3-minute call Less than 32 Kilometres 50 seconds SL Rs 3.24 Between 32 and 80 " 30 seconds SL Rs 5.40 Between 80 and 112 " 18 seconds SL Rs 9.00 Between 112 and 193 15 seconds SL Rs 10.80 -Sver 193 10 seconds SL Rs 16.20 Cheap rates exist (between 9 P.M. and 6 A.M.) ;or ail distances: 507% discount on the sta_nddrd rate. 3. International Calls ________.____________ (a) Operator assisted Call Lharges for the 10 countries with which there is the greatest traffic) First 3 Minutes Each Additionai or Fraction minute Distance Collection Accounting Collection Accounting Rate Rate Rate Ratp S.L.Rs. b ._ .L.Rs. S.L.Rs. U.K. 186 210 62 70 India 120 105 40 35 Singapore 162 141 54 47 U.S.A. 222 219 74 73 Japan 162 258 54 86 F.R.G. 186 309 62 103 Hong Kong 162 141 54 47 Australia 162 210 54 70 U.A.E. 186 240 62 80 France 186 309 62 103 (a two minute personal call surcharge is applied for person to perso,n calls) -49 - Page 3 of 3 (b) International subscriber Dialled Call charges for the 10 countries with which there is the greatest traffics Pe__ Min,te Destination Collection Rate Accounting Rate S.L.Rs. S.L.Rs. U.K. 62 58 India 40 29 Singapore 54 39 U.S.A. 74 73 Japan 54 86 F.R.G. 62 103 Hong Kong 54 39 Australia 54 58 U.A.E. 62 80 France 62 103 Notes On all routes mentioned above, except India, there is more incoming traffic than outgoing traffic 4. Telex (a) Loop Rental s S.L.Rs. 15,000 per annum Equipment Rental : S.L.Rs. 36,000 per annum (b) Connection Chargest Colombo Area : S.L.Rs. 1,250 Other areas the estimated cost with no minimum or maximum. (c) Call charges for the It countries with which there is the greatest traffic: Distination Collection Rate Accounting Rate S.L.Rs. S.L.Rs. U.K. 48 58 Singapore 48 39 Japan 48 77 U.S.A. 54 B7 India 41 29 Hong Kong 48 39 F.R.G. 54 69 Pakistan 41 69 Taiwan 54 87 Australia 48 58 - 50 - ANNEX 6 (Please see 7.04) SRI LANKA TELECOMMUNICATIONS DEPARTMENT (SLTD) RtAe of Return on Investment Proqramme 1. SLTD's Investment Programme for 1981 to 1986 includes the project and ongoing and other works. The close relationship between the project, the ongoing and other works, makes any separation very arbitrary, as regards incremental costs and revenues. Accordingly, the rate of return calculation is based on the whole investment programme for the years 1961 to 1986. 2. The deflator used in the calculations is based on the composite index suggested by World Bank Staff and used to revalue assets when preparing the draft commercial accounts for 1986. As commercial accounts were first prepared for the calender year 1981, 1981 has been treated as the base year. 3. The benefit period extends to 2004, by which time it is envisaged that the equipment will have substantially completed its useful life. 4. The incremental costs and revenue for each year have been calciulated by reference to 1981. From 1986 onwards, it has been assumed that the incremental costs and revenues will rEmain constant in real terms - this same assumption was made when preparing the STaff Appraisal Report in 1980. Operating costs are exclusive of depreciation and interest - which was the basis used when preparing the staff appraisal report in April, 1980. 5. No residual value for the programmed investmens has been taken into account, because the 1981 discounted value of these would be insignificant. 6. A summary of the costs, revenue, and net benefits is given below: - Year Deflator Capita] Incremental Net Benefits Expenditure Operating Cost Revenue Rs. Rs. Rs. Rs. 1981 1.00 298.5 - - (298.5) 1982 0.94 327.5 34.3 102.4 (259.4) 1983 0.83 496.2 30.3 246.3 (260.2) 1984 0.77 454.5 70.1 447.1 ( 77.5) 1985 0.70 310.E8 64.5 552.0 176.7 1986 0.54 286.8 50.0 602.2 265.4 1987-2004 0.54 - 50.0 602.2 552.2 --- - - - - - - --- - - - - - - - - - - - - - - - - - - - ---.- - -_- --_ - - - - - - - - - - - - - - - - - - - - - - - - - 51 - ANNEX 6 Page. 2 The net benefit stream results in a rate of return of 8.03% as against 16.6% calculated when preparing the Staff Appraisal Report in 1980. 7. A sensitivity analysis performed gave the following result in place of the figure of 28.033% shown above. (a) 10% increase in capital expenditure 25.22%. (b) 10x. increase in operating costs 27.62% (c) 10% decrease in revenue 24.55%. (d) Combination of (a), (b, and(c) above 21.71% 8 The economic rate of returri is substantially higher than the rate of 28.03% shown above for the following reasons: (a) No attempt has been made to estimate the consumer surplus. It is known, however, that an unauthorised market for telephone exists islandwide and inside Colombo in particular. (b) No increase in revenues due to this project investment has been considered after 1986. When additional facilities are installed under subsequent projects, the investment during 1981 to 1986 will produce additional revenue. (c) Some of the equipment installed under the project has spare capacity and could handle higher traffic with low marginal investment. Despite this, the full capital cost of the project has been included when calculating the rate of 28.03% shown above. (d) When preparing the Staff Appraisal Report in 1980, the internal rate of return was shown as 16.6% and the economic rate of return as 33.1%. In view of the fact that subscribers and potential subscribers are willing to pay c.irrent tariffs and taking into account that tariffs have been increased twice since 1980 and are to be increased again shortly the economic rate of return would be in excess of 40%. ORGA lSA1 -ON CHAWT OF ThE TE_t :- AICA' ID0;'.i Dt Hon. Minister F r I Hr. Sunil S. Ab-yeundara I Secretery P & T Mr. A.R.M. Jayawardana I.~~~~~~~~~~~~~~~~~~~~~~~~~~~ P.hG. I Director T-l-cwm_uncationgI Mr. A.D. Daaunupola I Mr. M.B. Rodrigo I Dy. D.T./PL & EDP I Dy. D.T./IPM S FV Dy. D.T./R.S. T Dy. D.T./EFF F Dy. D.1./IS . "stro Mr. G.J.N.L. Soysa Mr. O.S. Perers h r. W.S.A. F-rers Mr 22 F r tL. Somas ri cr. .S. Kuearapathir _ ; C.E./EDh B- C.E. Poe.r & -C C.E./EPn , I C.E.IEPF Mn tro I- C.E.jTranseawsion H Mr. A. BLsamundaras fiMr. D.R. Wuerasooriya Vacant 2Vacanit I Mr. S. Oa.ramingt I ~~~~~~~~~~~~~~~~~~~~~~~~~~I - C.E./SW.PL.,Trf.Eng. C.E./RTM - C.E./EFn R Sl - C.E./EPP h 1- C.E / I/OTSa ' Mr. U.D. Munaeanqhe 2 Mr. D.A.C. Abeywardana Mr. M.M.A.L. Fon%ela Mr. M.s. Him.agoonaratne; Mr. S.S. Edariwesra '- C.E./EF.Pl. h-C.E. HD/Project S.T.E./EPM R 11 S.T.E.'Tra;r.fng 2- C.E.Zsub. Ca. & mum. 2Mr-. A. Dalasundaram Mr. G.S.P. Rodrigo 2 Mr. J.L. Jayaward.rana Mr. T.R. Alah~~ndr& Mr. U.S.N.. Baenayake - C.E.,Tran%.PL & SM C.E. SE W 11 ' T u & Iranr,sport C E./EPM Metro South Mr. S.. ' anaheraarachchi: Mr. Li D. Withanr Mr. M.S .. bvmvthHii. I M. IF ... Mandran 2-C.E. LW III :- S.T.E,Ef1" Mtro South fiMr. M.L.C.- Aiwis Mr. C.b.ft. PWrera -C.E./Es S.T.ElYrt. & Finance Mr. GS F Fernando 2 rs F.T .E. AbFemsncare :- ; ,r. t .2..... , *. .dasa -J . LVy.D .T. PFi & EDF' - Deputy Directcr Ielecom,/ fla rmnn, L 3cctr- c r: Lta t C.E./EDP - Chief Fngineer/Electronic Data Pracscsing. C.E./SW.PL.& Trf.Eng. - Chief Engineer-fSwitching --lanni ng -4 ar1 .c FnL .-- :, C.E./EP. PL. - Chief Engineer / External Flant Planning. C.E./Trans. PL. & SM. - Chief Engineer /Transmission Flanning t;: '-pectruLn. ,FnagQement . Dy.D.T./IPM & P - Deputy Director Telecom./Internal Plant Maintenance & Projects. C.E./Fower & AC - Chief Engineer/Power & Airconditioning. C.E./RTM - Chief Engineer/Radio Transmission Mlaintenance. C.E./HS Project - Chief Engineer Hambantota Project C.E./SW. II - Chief Engineer/ Switching II CE./SW. IlI - Chief Engineer/Switching III. C.E./ESS - Chief Engineer/Electronic Switching Systems. S.T.E./SW I - Suptg. Telecom. Engineer/ Switching I D. Dy.D.T./R.S. & T - Deputy Director Telecom./Regions Supplies & Transport. C.E./EPM R. I - Chief Engineer/External Plant Maintenance Regions I. a C.E./EPM R II - Chief Engineer/External Plant Maintenance Regions 1I. C.E.EPrM R III - Chief EngineerJ External Plant Maintenance Regions Ill. W S.T.E./S & T - Suptg. Telecom. Engineer/Supplies & Transport. 4. Dy.D.T./EPP & F - Deputy Director Telecom./External FPlant Froject &, Maintenance. C.E./EPP & Metro - Chief Engineer/External Flant Project & Metro C.E./EPP R - Chief Engineer External Plant Project/Regions S.T.E./Training - Suptg. Telecom. Engineer/Training 5. Dy.D.T./IS & Metro - Deputy Director TelecomJ./lnternational Services & .ietro. C.E./Transmission - Chief Engineer/Transmission L .E. 'SW/U19 -- Cr,ief EnQcneuerr Switchina/Overseas Telecom. '-ervices C.E./Sub. Ca. & Mux - Chief Engineer/Subscriber Cable,5. & Miux C.E./EPM Metro North - Chief Engineer/ Ex:ternal Plant Maintenance Metro Nor th S.T.E./EPM Metro South - Suptg. Telecon, Enaineer! External Plant Mairntenance Metro South S.T.EfTrf. & Finance - Suptg. Telecom. Engineer/ Traffic & Finance -54 - P I of 4 gdse :- 6 5 9 I 0 1 5 * e_ Sg4 s( @ ed g p.bGuSl : 5e. 9 8 0 1 4 _ 510 7elephone Gen. Off ice 9 8 0 1 3 dASG1 dMaufd Tebx No 22600 LAKTEL CE 3e *euo see a. en. *.w 1HTS, .Sbe@ - S3.b GobvUs * easO My No. J 1 Ouw,AGrnw. A'S,.p 9-. 7, 6m. Ofeof tMeChiMe T a Dowd of Si Leeh. &40 Seolermnaike Memorial lnUam.tlefe Your No. Conference Hall. P. 0. Sng 1576 Youuddhua Mewtha. Cokabo 7. Sri Laks COIQITMS FROM THE BORROJER 05 OCIQR 1988. Mr. Alexander Ntwicki Chief Policy-Based Lmxling, Errgy, Industry, Urban Sector and Public Utilities Division Cperations Evaluation Department The World Bank 1818 H Street N.W. Washington D C 20433 U.S.A. Dear Mt. Nbwicki I wish to inform you tiat your letter of 21st September 1988 on the subject of "First TblecmnmLmications Project (Credit 1020-CE), Pass-through Audit Iyport' has been received by me today, and I haVe noted its contents. As reqmsted, I will study this document and convey niy caments before the dead-line iudicated, nwiely, 31st OCtdoer 1988. Yours-sincerely VEICN L B MENDIS CHIRMN. /cdes. ATTATIO mdAdSCe 598015 0 C to 0 l S C u 6# 0,046up :.ab. I 56 9 8 0 1 4 1001s1a6 'Teephone Gen. Ofice ) 6 9 8 0 1 3 _mweu *ex dw * e_f Telex No 2260 LAKTEL CE e*Ou,.s esee* ua. so. em IUS Gam ANUA AM,L-A46 SAWA pUGa oq, i.e &as Qf,0fGAVlefWuSibV* My No. jTBSLWBt. IA. w.a&.Ous&L_d.,a. U. N.6 157 *u.A%gaIuf &A,#. 0-64uw 7. 0s*m. Offieseef e.ChaIvina.. eeemeg as& 4.0. Dowd of Sri Lana.. ae, a. Benderfmnike Memorial Iniemtltonai Your No. j TBSL,tH Confrmne Hall. P. 0. las 1516 Your No. shalaka Mewethe. Coluubo 7. Sri La*. 18th October, 1988. Xr Alexander Ilowicki, Chief Policy-3ased Lending, Energy, Industry, Urban Sector aund Public Utilities Division Operations Dvaluation Department, The 1Torld 9aak, 1818 11 Stree;~-, NJ.W. 'Tashington, 1D.C. 20433 U.S.A. Dear ;r :olfickip This is with reference to your letter of September 21, 1988 inviting my observations on t.2 Project Completion F.eport 1020 CE., I t:nz. you for giving me this opportunity and I am zlad to submit the followius observations :- I Shou.L add that this project commenced at a time wthen this Board was not in existence and was completed in 1987, many months after this Board was constituted. Whatevqr coi.ments I am making should therefore be viewed in this context. There is no question t}at the project has iade a major contribution to the development of Telecommtnication Services of this country. This is p_:.rticularly true in respect of the extension of tihene services to the rural areas particularLy for the major develop- mental schemes in the country and the change over to digital exchanges. Also a condition of the IDA credit t:..t the Telecommunication Services should be constituted as a separate Department has been a major structur- al change whicl has contributed to tl.e success of t.is project. The re- vision on prices alone has resulted in an increa e in revenue by U3 310 million according to the PCR. the project reveals t,at if the Telecommunication Services could be operated efficiently it could not only be highly profitable but also be an important earner of foreign exchange for this country. The decision to clange over to digital exchange hias 'oeen a clear demon- stration of the technical capabilities of the staff of the Department. Mis is all the more reason w.y urger.t measures should be taken to restructure the Telecommnications Sector. I an, glad to find that -our report refers to the proposed restructuring of the Telecommunications Department by the enactment of t'.e Telecommunicutions Act wkiclh will establish a Teleco.munications Comission and Pet up a C).iprvq to operate the Telecommunication Zervices. 71.is will amount to a radical chl:'nc of the exi::ting institutional and tec'nical framework wlich in our vie.; is the sine qua non for the rapid - /0 - 36 - ATTIAUMT PaCe 3 of 4 development of the Telecommunic-tion Services of this ooLntry. I am also glad to note that your project has drawn attention to the import- once of a commercialisod approach in the management and conduct of the Department as a means of rendering it a highly profitable enter- prise. Mis should help to orient the thinking of tho Department on these lines ard thereby facilitate the endeavours of this Board to bring about a radical change in the outlook of its personnel from a negative and static departmental approach to a dynamic and creative co:nmercial outlook. The importanoe of expediting this restructurine is borne out in the delay in the completion of t_is project. No doubt this delay could be attributed to the constraints and red tape within the government bureaucracy as well w the problems of obtaining looal funds from the Government at given times. These delays havu inevitably con- tri'buted to t'e cost over run wLich was also due to the depreci.tion of the rupee. Yet if the -'tork had been expedited this over run would have been reduced considerably. To that extent delays in completion are attributable to the limitations a.nd constraints in t:.e departmental structure. This is clear proof th_t an autonomous entity whic'. is free of bureaucratic control slueh as is envisaged by this Board could obviate such delays not only by providing for the necessary funds but also by implementation of its plans on a more ratiomal basis. Our attention haI been dra-n to the requirement t:.at by 31st .rch 1981 the Department should have finalized a complete inventory of assets for c'assification and valuation of assets. It does not appe&r that such an inventory -nd classification has been prepared up to now. It slould be mnentioned t!at since its inoeption the TESL has attached urgent importance to the necessity of a valuation of assets a d appointed an Azsets Committee which included the Director of Telecommunications :ad "in,ancial Consult- ant. The Committee sujoested the appointment of a Board consisting of 3 engineers and an accountant who were given the task of inventorising nad classification of assets by personal visits and personal inspection. MTe T3SL in fact even offered to provide the SLTD with f.unds required for t'he purpose of t:is Board of Survey. It is unfortunate th;t there has been some delays in the work of this Board and it is a matter of regret th.at up to now their work has not been completed. The 3oard is I.oping that t.is work coald be expedited anid completed -t the earliest o-portunity because it will be appreciated tlh t without such a complete inventory and classification of assets no proper valuation can be made -other than a purel- superficial one arrived at on a hypothetical basis. -e are also impressed Ly the IR of 29g iwhich has been .chieved which speaks well for the performance o. the project in physical and financial terms. however, as ire 3re unaware of the ossumptions on wLich this calculation wras made, no detailed comments can be given. The report refers to "a lybrid system c. accounting". It should be pointed tut however that at present tLere is no co..;-,ercial accounting system in operaticn. W.hat is bing done is a "post balance-sheet adjustment" which provides information on a commercial basis. It should be mentioned that as ,art of its work the TBSL is ergajed on revising tlhe accounting systems aind training of the accounting persownnel to enable a si.ooth transition to a comnercialised accounting system. 'IV con cusion is that t.e project has been of great value in a number of respects. It has achieved major improvemLents in the 1elecommunicAtion Services of the country and also effected siCniiicant -/3. - 57 - ATTACHMIf Page 4 of 4 1 t t.h.jV.l c': ..c- A ticulc;rl7 in the eztablichcncr.t of a separatc Department of Te`eco..'jntuicAtions. Tais ins'itutional ohange in ar view :las paved the w.,V L.fd opened tho doors to a ;.ore radical trans- formation in the future. The eperience of the projoct lac also high- lighted tLe ur.jent nced for tlhe radical rostructuring of the Department in the intere-ts of accelerating the development of teleoo=nr.inications in the country _.L' eacbling t cis rootor to pla; its due role in its economic advaicemerit. To t,.. .:t ectenit th,e expe_ience of the project endorses tLie policies waich h_ve been adopted by the government for a radical rectrzcturing of the depart..,ent zic th-e creation oz' a coramer- cially oriented sy;tem .:hich would er.'cle telecor.-runications to both provide a bet'er sexvice to the country -nd also realise its fullest potential a ax profitable cor.s'ercial enterprise. The preface to the report me.itioned states that it was prep:.red by the Sri Lx,kca Teleoom:;'qi;icatiozs Depaertment. I .ish to me.ition thlat ;r " D 3 l Aunawardena-, 3enior Coxlsul.-a.it o0 th e Tele- co.rmunicationz Toard of Sri Lai:ia -o is als) Project Co-ordinator was a co-author of this report. Yours sincerely, (Vernon L B I:endis) Chairman - 58 - 0.w ih 1 2 1 2 Is 1 ...4u s;wua o_ bli. 2S 2 5 9 s ath af k8w4 sm-c Id*Am. Bn4 AwA-i my,MINIST T } .Y OF POSTS MyNs.~~~~C J LMW ROAD '-"ft. .~~~~~~~els'6 II 21st October. 1988. fay~ ...........b. Mr. Alexaner Novidd Chief Policy-Bagod 1ax1ng, Emergy, Indutry, Urban Sector & Public Utilities Division cperatimns Evaluation DeparTmnt T*u World Bank 1818 H Street N.W. Washington D.C. 20433 U.S.A. Dear Mr. Noichi, Hea First Telecmmziicatios Project (Credit 1020-CE) Pass- Aiit h I refer to you letter of 21st SeptTbfer, 1988 on tka abwe subject. I an in receipt of the PCR an the above prject, I have ro particular cammnts to mWks on this repot. Yours s A.R.M. Jaywarn Setary Ministry of Posts & Telocammicaticns