Documnot of

The World Bank

FOR OMCIAL USE ONLY

Iqwt No. 9042-RW

STAFF APPRAISAL REPORT

REPUBLIC OF RWANDA

SECOND COMMUNICATIONS PROJECT

NOVEMBER 19, 1990

Africa Technical DepartmentSouth Central and Indian Ocean Department

This docuemt has a retrce distribution and may be wed by recipiets oily le the Wfonrman oftheir official duties. Its contents may not otherwise be disclosed without World Bank authoriation.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY AND EQ'JIVALENTS

Currency Unit - Rwandese Franc (RF)$1.0 - RF 74 up to November 1990, and$1.0 - RF 123.3 from November 10, 1990 onwards

FISCAL YEAR

Government - January 1 - December 1

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS

AfDB African Development BankCCCE Caisse Centrale de Cooperation Economique

(Lending Agency of the French Government)CCP Comptes Ch&ques Postaux (Postal Checking Accounts)DEL Direct Exchange Line or line connected to the exchangeDGP Direction Generale des Postes (Posts General

Directorate)DGT Direction Generale des Telecommunications

(Telecommunications General Directorate)EIB European Investment BankFAC Fonds d'Aide et de Cooperation (Aid Agency of

the French Government)GOR Government of RwandaINTELSAT International Consortium for Telecommunications

SatellitesISD International Subscriber DiallingITU International Telecommunications UnionKBO Kagera Basin OrganizationMINITRANSCO Ministry of Transport and CommunicationsONATRACOM Office National des Transports en Commun (Parastatal

of the Rwandese Government for public transportation)PE Sector Public Enterprises SectorPO Post OfficePOTS Plain Old Telephone Service, or basic telephone

serviceRP Regie des Postes (autonomous public postal entity)SEMT Societe d'Economie Mixte des Tklecommunications (Mixed

enterprise telecommunications company)STD Subscriber Trunk DialingUNDP United Nations Development ProgramUPU Universal Postal UnionVHF Very High Frequency: radio systems working in the

range of 30-300 MHz

FOR OFFICIAL USE ONLY

REPUBLIC OF RWANDA

SECOND COMMUNICATIONS PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

CREDIT AND PROJECT SUMMARY .i.. . . . . . . . . . . ... . -iii

I. INTRODUCTION .... . . . . . . . . . . . . . . ..... 1Economic Context .... . . . . . . . . . . . .... 1

II. THE COMMUNICATIONS SECTORS . . . . . . . . . . . . . . 2Access to Telecommunications . . . . . . . . . . . . . 3Use and Quality of Telecommurications Services . . . . 3Existing Telecommunications Facilities . . . . . . . . 4Demand for Telecommunications Services . . . . . . . . 4Access to Postal Services . . . . . . . . . . . . . . . 4Use and Quality of Postal Services . . . . . . . . . . 5Existing Postal Facilities . . . . . . . . . . . . . . 5Demand for Postal Services . . . . . . . . . . . . . . 6Sector Strategy and Goals . . . . . . . . . . . . . . . 6Sector Constraints.... 7IDA Strategy.... 8Project Focu3 .... 8

III. THE IMPLEMENTATION AGENCIES. 8Sector Commercialization. 8Organization and Management . . . . . . . . . . . . . . 10Planning and Operations Management . . . . . . . . . . 11Staff and Training .11Training Facilities .12Accounting and Financial Management . . . . . . . . . . 12Auditing .13

This report is based on the first findings of an appraisal mission composed of Messrs. O6raldButtex, Principal Tolecommunications Engineor (Task Manager), Jean Boutan, Sr. FinancialAnalyst, Yves de Talhouot and Bernard Hauri-, Consultants, which visited Rwanda in February1899, and on a post-appraisal w;ssion composed of Messrs. 06rald Buttax, Jean 9oe:lan andVictor Abadie, Consultant, which visited Rwanda in August 1990, following decisions made byGovernment and IDA regarding the Communications Sector Reform.

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

Page No.

IV. THE INVESTMENT PROGRAMS AND THE PROJECT . . . . . . . . 13

A. Description .... . . . . . . . . . . . . . . . . 13

Telecommunications Investment Program . . . . . . . 13

Postal Investment Program . . . . . . . . . . . . . 14

Project Description ... . . . . . . . . . . . . . 14

Institutional Reform Program . . . . . . . . . . 14

Telecommunications Component . . . . . . . . . . 15

Postal Component . . . . . . . . . . . . . . . . 15

B. Costs and Financing . .. .s. . . . . . . . . . . . 15

Program Costs . . . . . . . . . . . . . . . . . . . 15

Project Costs .... . . . . . . . . . . . . . . . 16

Contingencies . . . . . . . . . . . . . . . . . . . 17

Financing of Telecommunications andPostal Investment Programs . . . . . . . . . . . 17

Project Financing . . . . . . . . . . . . . . . . . 18

C. Procurewant and Implementation . . . . . . . . . . 19

Procurement .... . . . . . . . . . . . . . . . 19

Disbursement .... . . . . . . . . . . . . . . . . 20

Project Implementation . . . . . . . . . . . . . . . 21

Performance Monitoring . . . . . . . . . . . . . . . 22

V. FINANCIAL ANALYSIS .22Past Performance .22Present Position .23Projected Financial Performance . . . . . . . . . . . . 24

DGT/SEMT . . . . . . . . . . . . . . . . . . . . . . 24

DGP/RP . . . . . . . . . . . . . . . . . . . . . . . 26

Projected Financing Plan . . . . . . . . . . . . . . . 28

DGT/SEMT . . . . . . . . . . . . . . . . . . . . . . 28

DGP/RP . . . . . . . . . . . . . . . . . . . . . . . 29

Tariffs . . . . . . . . . . . . . . . . . . . . . . . . 29

DGP/RP .... . . . . . . . . . . . . . . . . . . . 29

DGT/SEMT . . . . . . . . . . . . . . . . . . . . . . 30

VI. ECONOMIC ANALYSIS .30Return on Investment . . . . . . . . . . . . . . . . . 30

Benefits .... . . . . . . . . . . . . . . . . . . . 31

Fiscal Impact .... . . . . . . . . . . . . . . . . . 31

Least Cost Solution .... . . . . . . . . . . . . . . 32

Risks .... . . . i . . . . 32

Environmental and Health Effects . . . . . . . . . . . 32

VII. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . 33

Condition of Negotiations . . . . . . . . . . . . . . . 33

Agreements Reached During Negotiations . . . . . . . . 33

Conditions of Credit Effectiveness . . . . . . . . . . 34

Conditions of Disbursement . . . . . . . . . . . . . . . 34

Recommendation .................... 34

Page No.

TEXT TABLES:

4.1 Project Cost Summary . . . . . . . . . . . . . . . . . . 164.2 Telecommunications Financing Plan . . . . . . . . . . . 174.3 Financing Plan - Postal Services . . . . . . . . . . . . 174.4 Project Financing Plan ... . . . . . . ...... . . 184.5 Procurement Arrangements . . . . . . . . . . . . . . . . 194.6 Disbursement of IDA Credit . . . . . . . . . . . . . . . 21

5.1 Key Indicators of DGT Past Financial Performance . . . . 225.2 DGT Balance Sheet . . . . . . . . . . . . . . . . . . . 235.3 DGP Balance Sheet . . .. . . . . . . . . . . . . . . . . 245.4 Key Indicators of DGT/SEMT

Projected Financial Performance . . . . . . . . . . . 255.5 Key Indicators of DGP Projected Financial Performance 265.6 Percentage Contribution to Revenues

by Category for Postal Services . . . . . . . . . . . 275.7 Weight by Category of Percentage Increases by Charges 275.8 Projected DGT/SEMT Financing Plan 1990-94 . . . . . . . 285.9 Projected DGP Financing Plan 1990-94 . . . . . . . . . . 29

ANNEXES:

1 Communications Sector Policy . . . . . . . . . . . . . . 352 Telecommunications Services: Basic Data . . . . . . . . 423 Postal Services: Comparative Indicators

of Postal Services in African Countries . . . . . . . 434 Postal Services: Basic Data . . . . . . . . . . . . . . 445 Terms of Reference .. 456 Organization Chart of MINITRANSCO . . . . . . . . . . . 607 Implementation Schedule .. 618 Telecommunications Services: Description of the

Telecommunications Component of the Project . . . . . 629 Postal Service: Description of the Physical

Components of the Postal Project . . . . . . . . . . . 6310 Telecommunications Investment Program . . . . . . . . . 6611 Postal Investment Program . . . . . . . . . . . . . . . 6712 Schedule of Disbursements . . . . . . . . . . . . . . . 6813 Performance Indicators .. 6914 Supervision Plan .. 7015 Assumptions Used in the Financial Projections

for Telecommunications .. 7116 Assumptions Used in the Financial Projections

for Postal Services .. 7617 Summary of Telecommunications Tariffs . . . . . . . . . 8118 Return on Investment ................ .. . 83

- i -

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Credit and Project Summary

=rrower: Republic of Rwanda.

!neficiaries: Ministry of Transport and Communications (MIWITRANSCO),and following their creation: Societe d'Economie Mixte desT4lecommunications (SEMT) and Regie des Postes (RP).

)A Credit: SDR 8.9 million ($12.8 million equivalent).

?rms: Standard IDA.

ilending Terms: The Government of Rwanda (GOR) will onlend the Creditproceeds to SEMT and RP, at a 7.72Z interest rate for aperiod of 15 years (including a 5-year grace period)for SEMT, and at a 4Z interest rate for a period of 20years (including a 5-year grace period) for Pl.

-o1ect3jectives: The objectives of the project are to promote efficient

communications in support of economic growth through aseries of actions designed to: (a) assist GOR in institu-tional reform aimed at creating autonomous commerciallyoriented operating entities for both the telecommunicationsand postal sectors, paving the way for private sectorparticipation; (b) support the implementation of a sensibleinvestment program in these sectors; (c) maintain qualityand improve efficiency of telecommunications services; and(d) ensure adequate coverage and service improvement ofthe postal sector. The project will also further publicenterprise sector reform by providing a concrete exampleof how to ensure the appropriate operating autonomy of twoof the largest public entities.

ro1ectascription: The project has two major components: institutional reform

and training, leading to autonomy in the postal sector andeventual privatization of telecommunications operations;and an investment program to improve the Posts and Telecom-munications services. The IDA Credit proceeds wouldsupport: (a) technical assistance to implement theinstitutional reform by, inter alia, setting up anappropriate legal framework and putting in place commercialmanagement capabilities for the sectors ($2.3 million); (b)training for posts and telecommunications staff,rehabilitation of the training center and scholarships($2.5 million); (c) complementary items of the telecom-munications investment program, to secure the lonig distancenetwork, create public telephones and improve maintenance($4.8 million); and (d) the postal sector investmentprog consisting of construction of a mail sorting

- ii -

center, and extension of retail and of rural deliveryservices ($3.2 million). GOR will onlend the IDA Creditto the executing agencies which will bear the foreignexchange risk.

Project Benefitsand Risks: Both investment programs supported by the project are

expected to yield substantial benefits and high economicrates of return. IDA involvement in assisting both sectorsto establish their long term investment program shouldhelp ensure efficient sector development and sectorprofitability. Improved sector management will result fromthe creation of autonomous communications entities. Theoverall business environment will be enhanced, specificallyboosting sectors dependent on information exchange such asbanks, export oriented companies and services. The riskof delays in putting in place the independent entities ismitigated by strong Government commitment expressed througha Statement of Sector Policy and by timely preparation fortheir creation.

Estimated Costs: a/

Local Foreign Total Local Forsisn Total X of Total

1. TELECOLJUNICATIONSInstitutional Reform 13 194 207 0.1 1.5 1.8 10Maintenance equipmnt - 110 110 - 0.9 0.9 6Public call stations 6 173 179 0.1 1.4 1.5 9Microwave links 18 162 200 0.2 1.6 1.6 9Vehicles - 42 42 - 0.3 0.8 2Training 206 205 - i'8 1.8 11

Sub-total W7 9 i -ii T 8 74 7Physical contingencieo 2 40 42 0.0 0.3 0.8 2Price contingencies 22 109 181 0.8 0.8 1.1 7

Sub-total 4 -149 173 O-B 1 1. 4 9TOTAL TELECOMMUNICATIONS 61 1055 l116 0.6 8.6 9.1 56

II. POSTAL SERVICESInstitutional Reform 95 96 - 0.8 0.8 5Postal sorting center 80 205 286 0.6 1.7 2.8 14Construction rehabilitationof post offices 88 79 115 0.8 0.8 1.1 6

Equipmnt - 126 125 - 1.0 1.0 6Vehicles - 22 22 - 0.2 0.2 1Training 18 50 68 0.1 0.4 0.5 6Ing6nioure conseil - 20 20 - 0.2 0.2 1

Sub-total 5,B2 696 728 1. 0 5.1 6.1 -iPhysical contingencies 18 44 57 0.8 0.8 0.6 4Prieo contingencles 68 a6 l18 0.6 0.4 0.9 5

Sub-total -W 10 -88 0 8 67 -iC --§

TOTAL POSTAL SERVICES 211 705 916 1.8 6.8 7.6 46TOTAL PROJECT COST , 272 1760 2082 2.4 14.8 16.7 100

!j Exchange rates ar welghted averagoe of rates befor, and after devaluation (November 10,1990).

- iii -

Financing Eources: !/

Local For-. n Totol Local For-tgn Total X of Total^--RF--- 1ion------ … - - Fiin--n…-

IDA 44 1626 1670 0.4 12.4 12.8 77FAC - 80 80 - 0.6 0.6 aDOT/SEMT 42 - 42 0.4 - 0.4 2DOP/RP 186 154 840 1.6 l.a 2.9 16

TOTAL 272 1760 2032 2.4 14.8 16.7 100

pj Exchongo rates are wolghted averages of rates beform and after devoluntton(November 10, 1990).

Estimated IDA Disbursements:IDA Fiscal Year

FY91 FY92 FY93 FY94 FY95----------$ Million Equivalent--------

Annual 0.5 2.8 5.5 3.0 1.0Cumulative 0.5 3.3 8.8 11.8 12.8

Economic Rate of Return: 25?

jLa: IBRD No. 22708

REPUBLIC OF RWANDA

SECOND COMMUNICATIONS PROJECT

STAFF APPRAISAL REPORT

I. INTRODUCTION

1.01 The Government of Rwanda (GOR) has requested IDA assistance for

the development of the country's postal and telecommunications sectors, in

support of an improved business environment. The main project objectives

are focussed on reforming the sector's regulatory and financial framework;

restructuring the operating agencies (i.e., the telecommunications and the

postal agencies) to function as commercial entities with administrative and

financial autonomy; improving their operating efficiency and profitability

to reduce costs and maximize resource generation; opening the telecommuni-

cations sector to private sector participation; upgrading their technical,

operational and managerial capabilities; as well as improving and expanding

telecommunications and postal services. It will be the second IDA lending

operation in the telecommunications sector in Rwanda, and the first in the

postal sector.

1.02 Studies and preparation for the reform of the communications

sector, as well as preparation for postal investment have been carried out

by consultants financed by the Study Fund (Credit 1217-RW). Preparation of

the legal framework for the reform is now completed and is being reviewed by

the concerned authorities. A preappraisal mission took place in November

1988 and the appraisal mission visited Rwanda in February 1989. However,

before proceeding further, an extensive dialoguc or. the overall sector

investment program and on a clear definition of the Government's role in the

sector was required. This was concluded during a post-appraisal mission in

August 1990, with an agreement on a Statement of Communications Sector

Policy, which limits the role of the Government to overall regulation and

provides for commercially operated entities and envisages private sector

participation (Annex 1).

Economic Context

1.03 Rwanda is a small, landlocked, and densely populated country

covering 26,000 square kilometers in Central Africa. Its economy is highly

dependent on coffee exports, which in 1988 accounted for 80 percent of the

total. In the 1970s, Rwanda experienced high rates of economic growth

(5 percent on average) in the context of broad financial stability and low

inflation. Prudent economic management enabled the country to achieve budget

surpluses, a relatively high level of external reserves, and a low debt

service ratio. Throughout this period, Government economic policy was

generally non-interventionist. Beginning in the early 1980s, the economy

started to show signs of financial stress, brought about by unfavorable

evolution of the terms of trade and increased public expenditure. The

combination of these two factors led to a significant deterioration in public

finances, while the external current account recorded large deficits.

1.04 Since 987, in addition to precipitous declines in world coffeeprices, Rwanda has been faced with unfavorable climatic conditions. RealGDP stagnated in 1987, and declined sharply in both 1988 and 1989. In thelatter year real GDP was still below the level recorded six years earlier,resulting in a decline in private consumption per capita of 5 percent perannum during 1983-89. Given persisting internal and external financialimbalances and an unfavorable medium term outlook, GOR is embarking on areform program aimed at reducing the existing d&Ptortions in the economy,setting the stage for sustained and equitable economic growth, andestablishing a business climate that would allow for greater participationof the private sector in economic activities. The Government took a majorstep in this direction on November 10, 1990 with a 40 percent devaluation ofthe Rwandese Franc (in foreign currency terms), and significant increases ininterest rates and petroleum prices. In parallel, GOR has already startedaddressing long-term structural issues such as the high population growthrate, human resource dev'lopment, agricultural land scarcity and environmentdeterioration.

1.05 In addressing the underlying structural problems of the economy,GOR is stressing improvements in public sector management. As part of thisreform package, GOR is receiving Bank assistance to reform the PublicEnterprise (PE) sector (Cr. 2113-RW) with the objective of reducing theburden on Government finances and administrative capacity and of developinga streamlined and efficient public sector that will give a new impetus to theprivate sector. The underlying GOR strategy is one of disengagement fromindustrial and commercial activities whenever possible. The projectdescribed in this report is expacted to make a significant contributiontowards the achievement of these objectives by focussing on the commercia-lization of the posts and telecommunications sectors, which is a necessarystep before introducing private partnership. As a result, the project willhelp relieve the burden that sector management places on GOR's administrativestructure and lay the foundations for private sector participation.

II. THE COMMUNICATIONS SECTORS

2.01 Regulation and policy making authority for public telecommuni-cations and postal services is vested in the Ministry of Transport andCommunications (MINITRANSCO). In addition to thk-z Government functions,MINITRANSCO also operates domestic and international telecommunicationsservices as well as postal services and some limited financial servicesthrough two of its administrative departments: the Directorate Generalof Telecommunications (DGT) and the Directorate General of Posts (DGP).MINITRANSCO has the monopoly of public telecommunications services:telephone, telex, telegraph, data transmission and transmission of televisionprograms. MIN!7RANSCO also has the monopoly for basic mail services butfaces some .ompetition in specific postal and in all financial services.Indeed private messengers deliver mail within the country (mainly in Kigaliwhich represents 70 percent of mail traffic) and private couriers (DHLexpress mail) provide international express mail. Likewise, the postal

- 3 -

financial services compete against a well developed banking sector withnumerous branches in provincial towns and rural areas. All equipment andmaterials required for telecommunications facilities are imported.

Access to Telecommunications

2.02 As of December 31, 1989, there were 13 automatic telephoneexchanges in Rwanda with an installed capacity of 12,968 telephone exchangelines and 9,213 connected subscriber lines or direct exchange lines (DEL's).The country's telephone density is 0.1i DEL's per 10) population, among thelowest in the world. This density is lower than in Uganda (0.18), Tanzaniaand Sudan (0.20), considerably lower than in Kenya (0.60) and about one-third the average for Sub-Saharan Africa (0.30). Moreover, the service ismostly concentrated in the capital city of Kigali and in 11 other provincialtowns, with 57 percent of DELs in Kigali. A few public telephones areinstalled in some post offices, but most of Rwanda's population have no, orlittle, access to t2lephone service. There is one 200-line telex exchangein Kigali with 145 connected telex subscribers. Telegrams are accepted andreceived in post offices, and transmitted using telex or telephone. Publictelex and facsimile is only available in the main post office at Kigali.

Use and Quality of Telecommunications Services

2.03 In Rwanda about 65 percent of the DEL's are connected to businessand government subscribers. Most of the former are in the communicationsintensive sectors of the economy, mainly wholesale, retail trade and industry(30 percent), and public enterprises (12 percent) while Governmentadministration accounts for 23 percent of the DELs. Thanks to tho recentmodernization of the telecommunications networks in Rwanda, the quality ofservice is not far below the one experienced in developed countries. Thefault rate per DEL per year, which dropped from 2.0 in 1980 to an average of0.4 at the end of 1989 is satisfactory and compares to rates between 0.25 and0.5 in developed countries. The percentage of faults cleared in 48 hours is32 percent in Kigali. It is still well below DGT's objective of 80 percent(attained in developed countries) but is well above the achievements of othertelecommunications entities across Sub-Saharan Africa.

2.04 On average, call completion rates are 50 percent in Kigali and 65percent in provinces for local telephone service and 60 percent for domesticsubscriber trunk dialling (STD) service. This is also comparable to thestandard average call completion rates, which in Europe are between 65percent and 70 percent for local and 55 percent and 65 percent for STDservice. The current good service quality is mainly due to the fact thatmost of the equipment is new. In order to sustain and even improve thepresent level of quality, DGT's maintenance capabilities will be strengthened(para. 3.09). Call completion rates for international subscriber dialling(ISD) with neighboring countries average 14 percent, which is poor; and withoverseas, between 26 percent and 29 percent, which is less than satisfactory.Improvement of the low service quality of ISD, particularly during peak hoursis being addressed under DGT's 1989-94 investment program (para. 4.02).

Existing Telecommunications Facilities

2.05 All telephone subscribers in Rwanda are connected to automaticexchanges, which provide access to STD and ISD. All 13 local te.-Aephoneexchanges, the national and internetional switching centers as well as thetelex exchange are of recent electronic digital technology. The whole longdistance transmission network consists of microwave links. With theexception of 2 microwave routes of analog technology, most of the microwavetransmission network installed under the first commur.:cations project(Cr. 1217-RW) is of digital technology. Rwanda is linked to the outsideworld through two INTELSAT satellite earth stations, and to the neighboringcountries of Burundi and Uganda through VHF radio links. The terrestriallinks over the borders are of insufficient capacity. Expansion oftransmission links with neighboring countries is a priority for a landlockedcountry such as Rwanda and is also being addressed under DGT's 1989-94investment program (para. 4.02).

Demand for Telecommunications Services

2.06 As of end of 1989, with about 9,200 DELs in operation, the waitinglist for telephone service amounted to about 3,000 registered applicants,indicating that only 75 percent of the expressed demand was satisfied. Intht Kigali zone, with about 5,300 DELs and 2,100 applicants, the satisfactionrate was 72 percent. These figures, however, underestimate the potentialdemand to the extent that reliable ,ervice in Rwanda is recent and itsavailability limited to the capital and major provincial towns, with largerural areas without service at all. Considering the extremely low telephonedensity (para.2.02), further demand is expected to emerge when the publicperception of availability of service increases. This assumption has beenconfirmed by the fact that, on average, telephone demand has grown by 35percent in two years since the commissioning of the new facilities under theprevious project toward the end of 1987. In the absence of reliablehistorical data on a longer period, but based or. this recent experience, a15 percent growth per year has been assumed as a basis for the 1989-94investment program. This assumption is in line with the growth experiencedin other countries of Sub-Saharan Africa at their early stage oftelecommunications development.

Access to Postal Services

2.07 As of December 31, 1989, there were only 26 post offices and 3stations in Rwanda. The country's postal density of one post office per218,000 inhabitants, is among the lowest in the world. Annex 3 shows somecomparisons with other Sub-Saharan countries, illustrated by Tanzania at oneper 31,000 or Benin at one per 68,000. Postal activity is concentrated inthe main post office of Kigali which accounts for 75 percent of nationalrevenues and which is used for retail services, as national sorting center(see para. 2.10) and as the headquarters for MINITRANSCO. Despite DGPefforts to develop rural postal agencies through licenses to communityrepresentatives (e.g., mayor, priest, teacher), some areas still havevirtually no access to postal services. Conmunities of 50,000 to 100,000people have their closest post office more than 30 miles away. Similarly,in Kigali where extensive new urban developments are spreading, new accesses

- 5 -

to postal services are required by customers: new postal stations for retailservices, specialized teller for financial services, door to door mailcollection and delivery for major customers. Today, mail is deliveredexclusively through post office (PO) boxes with only 5,800 boxes availablenationwide. As mail posting boxes are located just in the post offices,there are only 29 collecting points in Rwanda.

Use and Quality of Postal Services

2.08 About 5.7 million pieces of mail per year have been processedin Rwanda in recent years, including 2.2 million to or from internationaldestinations. The traffic matrix (Annex 4) shows the importance of Kigaliwhere five major customers account for 15 percent of postage revenues.On a nationwide basis the average mail traffic per inhabitant is of one itemper year which is low and about average for most Sub-Saharan countries.However, the annual traffic growth rate has been 5 percent over the lastdecade, and there is still potential for additional growth in business mail,international mail and new services, e.g., express mail, public fax service.

2.09 Postal checking accounts (CCP) are the only postal financialservice offered. There are only 3,500 CCP accounts nationwide, and theirlevel of activity is low with less than 1,300 operations per month.Following GOR's decision to pay civil servants' salaries through checkingaccounts, the number of postal checking accounts has recently increased.However, these new accounts show little, if any, average monthly positivebalance since most of the salaries are withdrawn the day they are credited.Further studies to assess the competitive position of the postal financialservices need to take place in order to determine what should be the strategyregarding these services (see para. 3.04).

2.10 DGP does not monitor mail delivery delays. Reasonable quality ofservice, such as same day delivery in Kigali and next day delivery in majorcities, is irregularly achieved due to several bottlenecks in the sortingcenter (lack of storage and low productivity) and weaknesses in managementof operations (Annex 4). Due to long lines, waiting time in Kigali's mainpost office can exceed 1 hour especially the day civil servants are paid andwithdraw their salary (Annex 4). Also, because of the shortage of PO boxes,people tend to share the existing ones which causes mail losses, wrongdeliveries and hence an overall poor quality of service.

Existing Postal Facilities

2.11 Most postal facilities are over 25 years of age. Some are incritical condition (CYANGUGU, RWAMAGANA) and are about to collapse, othersare temporarily housed by local administrations. The national sorting centerlocated in the main post office of Kigali processes all national andinternational incoming and outgoing mail in less than 300 square meters.With a storage capacity of less than 100 bags, the center receives an averageof 150 bags per day with peaks of 500 bags per day. The total sortingcapacity with the current productivity does not exceed 100 bags per day whichresults in frequent storage overflow. No handling and sorting equipment areavailable in the center, which explains to a certain extent the lowproductivity. Another critical issue is the lack of sorting space which

renders impossible the sorting segmentation corresponding to different typesof mail flows: e.g., express mail, priority mail, packages, etc. Thenetwork of inland transportation is fully sub-contracted to the national buscompany ONATRACOM with reasonable reliability. However coverage of territoryis insufficient to develop postal facilities according to customers needs(see para. 2.07). In addition, the fleet operating the door to door expressmail deliveries is small (two vehicles) and the traffic is already exceeding3,000 pieces of mail per month.

Demand for Postal Services

2.12 The waiting list for PO boxes amounts to about 3,000 applicants.Potential demand is probably higher since customers have been discouragedby the lack of new boxes. In addition, the important effort undertaken byGOR to develop literacy plus the increasing traffic of business mail isgenerating new demands specifically concerning: (a) public postal boxesoutside post offices (e.g., in ONATRACOM buses to minimize the cost ofcollection); and (b) the development of new forms of delivery (door to door)for large volume of mail or express services.

Sector Strategy and Goals

2.13 In accordance with national socio-economic objectives, GOR'sdeclared objectives for the communications sector are to:

(a) restructure the communications sector in defining and separatingthe policy and regulatory functions, which would remain those ofthe GOR, from the provision of services to the public and operationof the post and telecommunications facilities;

(b) restructure the operating agencies into commercially-orientedentities with appropriate financial and administrative autonomy,develo? their managerial capabilities and improve their financialand operating performance, with emphasis on human resourcesdevelopment and training; and

(c) expand coverage and enhance quality and reliability of postal andtelecommunications services to meet a growing demand, fosterdecentralization, encourage rural development and improve thecommunications with the rest of the world.

2.14 A number of actions have already been taken to meet these goals.At the end of 1987, GOR decided to create a "Societe d'Economie Mixte desTelecommunications" (SEMT) and a "Regie des Postes" (RP). A study of therequired institutional reforms was subsequently undertaken by consultants whosubmitted their reports to GOR by end of 1988. The reports cover four majorareas of the institutional reform: (i) the legal framework; (ii) managementand organization; (iii) finance; (iv) human resources. In each area, thepresent situation is reviewed, issues are highlighted, and recommendedchanges are outlined. With these reports GOR now has a comprehensive viewof the required institutional reform and of the various decisions it musttake in order to implement these reforms. Specific proposals for theimplementation of these reforms are being reviewed and the detailed

scheduling of the various stages of the reform is being developed. Throughthe operation described in this report, IDA is being associated to thatprocess to help GOR ensure that the reform is in line with its broaderdevelopment objectives and its PE reform strategy.

2.15 As a condition of negotiations of the proposed IDA Credit, GOR,at the level of an interministerial committee, discussed and approved theStatement of Communications Sector Policy given in Annex 1. First, theStatement recalls the major goals to be achieved through the reform, whichare to relieve GOR's administration from the burden of managing a sectorof commercial and industrial nature as well as to relieve the sector'soperations and development of GOR's budgetary constraints. The objectivesof granting such an administrative and financial autonomy are to improve andmaintain the level of communications services to the public; enhanceoperating efficiency and profitability; and create the necessary conditionsfor opening up the telecommunications sector to private sector participation.Second, the Statement reiterates GOR's decision to establish two separateautonomous entities: SEMT and RP, and separates the responsibilities ofsectoral policy-making and regulation, which remain GOR's domain, from thoseof service provision and management of sector resources, which will becomethe domain of the two operating entities. Third, the document establishesthe principles leading to the restructuring of the communications sector inRwanda; theses points are discussed in Chapter III of this report.

Sector Constraints

2.16 The recent rapid telecommunications network modernization(paras. 2.03 to 2.05) has not been paralleled by a comparable program forimproving sector policies and for upgrading DGT's organization, manpowerskills and management systems. DGT is constrained by GOR's administrativeand financial procedures and lacks the autonomy to function as an efficientcommercial entity (para. 3.01). Because of this lack of autonomy and theresulting budgetary constraints imposed across the board to all Governmentservices, DGT cannot hire, train and sufficiently motivate the staff requiredto operate the telecommunications network and finance all other operationalexpenditure requirements. Consequently, investment planning, project design,management, and even supervision, have been performed by outside consultantsmostly financed by bilateral grants. In the postal sector, the situation ismuch the same, aggravated by a lack of investment for the past 25 years.

2.17 Given the planned major expansion of Rwanda's postal and telecom-munications facilities, major sector reforms and considerable strengtheningof both DGT and DGP management capabilities are needed to enable sustainedand more efficient operations and development. Three main areas of concernstand out in accordance with GOR's objectives (para. 2.13): (a) thestructure of the sector, (b) DGT and DGP requirements for financial andadministrative autonomy and (c) DGT's and DGP's organizational structure andmanagement systems. These areas have been thoroughly analyzed with theGovernment during project preparation and will be addressed during projectimplementation in the framework of the Statement of Communications SectorPolicy (Annex 1).

-8-

IDA Strategy

2.18 Given Rwanda's overall prudent economic management and, untilrecently, satisfactory growth record, !')A has followed a strategy whichemphasized project lending in: (i) infrastructure to reduce the country'sisolation and to provide incentives for further intensification ofagriculture; (ii) promotion of small and medium size enterprises in manufac-turing and other sectors; and (iii) development of human resources. Recentlythe dialogue with GOR has focussed on an improved macroeconomic framework andincentives structure as well as on public enterprise reform, since efficientuse of resources by the PE sector is a key element for balancing publicfinances and promoting growth. The objective of PE reform is to reduce theburden on GOR budget and administration while developing a more efficient PEsector through restructuring some public enterprises or divestiture of otherswhich can be privatized.

2.19 IDA has been associated with MINITRANSCO since 1978 for thedevelopme.it of the telecommunications in Rwanda. In July 1980, IDA approveda $7.5 million Credit (1057-RW) to finance a Telecommunications Project.This project was satisfactorily completed by the end of 1987, a ProjectCompletion Report has been prepared, reviewed by t:e Operations EvaluationDepartment and distributed to the Executive Directors on October 11, 1990(Report No. 9012). While the first project achieved its physical objectivesand contributed to the modernization of the Rwandese telecommunicationsnetwork, the targets for institutional development were not reached, in spiteof IDA insistence. However, during the last two years of project implemen-tation, GOR recognized the merits of IDA's prodding on the institutional andfinancial aspects and the decision was taken in 1987 to prepare and proceedwith the sector reform.

Project Focus

2.20 The proposed project is expected to make a significant contributiontowards the continuation and the successful implementation of the abovestrategy. IDA's involvement is regarded as essential by GOR in helping focusattention on the important elements of the sector reform and in coordinatingdonor assistance. The project aims at maximizing the contribution of thecommunications sector to the country's economic development strategy.Specifically, the sector's operating efficiency and profitability will beimproved and mobilization of domestic resources will be enhanced. The projectis also aimed at maintaining the present good quality of telecommunicationsservices through an improved and better equipped maintenance and customerservice organization and to expand the postal processing capacity as well asthe national coverage of the postal distribution network.

III. THE IMPLEMENTING AGENCIES

Sector Commercialization

3.01 The current operating entities in the communications sector arepart of the administration and as such they are constrained by publicadministrative and financial regulations and procedures. In addition, the

- 9 -

spread of various responsibilities throughout the Government (Ministry ofPlanning for capital expenditures, Ministry of Finances for operatingexpenditures, Ministry of Civil Service for personnel matters, Ministry ofPublic Works for buildings, etc.) hinders coherent sector development and isdetrimental to efficiency. The Government recognizes the urgency for reformsto optimize the sector's overall policy and institutional framework. Theobjectives are to increase the efficiency and productivity of both telecommu-nications and postal services, and enhance the sector's contribution to theeconomy as a whole. Establishment of commercially-operated entities is GOR'sstrategy (para. 2.13) leading to an eventual private partnership with thetelecommunications operating company. In a first stage, this impliesrestructuring DGT into a fully autonomous, initially Government-owned companyoperating under private law: the "Societe d'Economie Mixte des Telecommuni-cations" (SEMT). DGP will be restructured into a financially autonomous`Regie des Postes" (RP), with a separate legal status and limitedadministrative autonomy.

3.02 The first step towards separating the regulating and operatingfunctions of the communications sector will require adjustment in GOR policymaking mechanisms. Firstly, a regulatory body needs to be created withinGOR. Given the scarcity of technical resources, its duties initially willbe mainly administrative, SEMT assuming under contract the technicalregulating duties such as frequency spectrum management. Secondly, GOR'srights as the sector regulating power must be clearly separated from itsrights as the owner of the operating entities. Thirdly, GOR must acknowledgeits obligations as one of the major users of telecommunications services.The same applies for postal services of which GOR is the largest user and forwhich legislation was recently enacted to suppress GOR's right to free useof postal services (para. 5.06). Public utilities budget must be realisticto enable GOR's departments to pay for their telecommunications consumptionfully and on time. The respective duties of both GOR and each of theoperating entities will be defined within the framework of a performancecontract to be established between GOR and each operating entity for a periodof three years. Each contract will specify sector development objectives,service quality objectives, financial objectives, tariffs objectives andGOR's obligations as a user of services. Each contract will also establishthe delicate balance between the social objectives of the public service andthe profitability requirements. Further details regarding these contractsare given in the Statement of Communications Sector Policy (para. 2.15 andAnnex 1).

3.03 The prospect of introducing private partnership within the proposedtelecommunications entity raises some issues to be resolved before privatiza-tion effectively takes place. The consultants hired under the project (TOR:Annex 5) will prepare recommendations to be reviewed by GOR in associationwith IDA regarding: (a) GOR's regulatory role of the sector; (b) the extentto which a monopoly will be retained, particularly for new services; (c) theextent to which some functions presently performed within the sector will besubcontracted to private entrepreneurr (subscriber installations, printingof telephone directories, etc.); (d) the way sector resources will betransferred from the company to the GOR (corporate taxes, custom duties,sales taxes, etc.) and it was be agreed, at negotiations, that a plan ofaction for GOR would be prepared by consultants, before June 30, 1992, as a

- 10 -

result of a resource mobilization study (para. 4.04); and (e) tariff policyand mechanisms for tariff reviews and level of competence of the company inestablishing tariffs for services other than basic services (POTS).

3.04 Financial services and mail services are DGP's two lines ofactivity. The changing environment and the evolution of customers' needshave significantly decreased the role of DGP's financial services.Commercial banks have extensively developed their networks and DGP, becauseof its cumbersome administrative procedures and lack of a diversifiedfinancial product line (it only offers checking accounts) has badly sufferedfrom this competition. The postal financial services have been a major moneylosing activity for DGP. Consultants working under the project willrecommend new service objectives for RP and clarify its profit makingobligations. As part of this process, the role and the future of postalfinancial services in GOR's social and financial policies will be reviewedand specified. DGP's mail services should also be operated on a commercialbasis. The issue here is also deregulation. The consultants hired underthe project will recommend to what extent RP will retain the current postalmonopoly over all categories of mail with licenses granted to privatecouriers in exchange of a royalty payment, and will define which postalactivity will be further deregulated.

Organization and Management

3.05 MINITRANSCO's organization chart is given in Annex 6. The existingstructure reflects an administrative organization with no authority over itsfinancial resources, no integrated planning, no human resource strategy, andno marketing function. The two new sector operating entities will have tointegrate all those functions. Given the sector's development stage and thesmall size of the country, those functions will be concentrated at SEMT's andRP's headquarters in Kigali. The implementation of those functions willfollow three basic steps: (1) recruiting competent managers for each newfunction; (2) implementation of an adequate framework to carry out thefunction (e.g., accounting plan, technical and financial indicators,personnel statute, etc.); (3) training and technical assistance to run andto integrate each new function within the organization.

3.06 Concurrently, GOR will take action to grant to the two newoperating eaitities the appropriate legal, administrative and financialautonomy. As defined in the Statement of Communications Sector Policy(para. 2.15 and Annex 1), a telecommunications company governed by privatelaw will be created, in a first phase fully owned by GOR. In a second phase,private partnership will be invited. As such, the new company will beorganized under a Board of Directors where shareholders and main users wouldbe represented and which would have full authority over the management of thecompany. Initially, GOR as the only shareholder will nominate the Boardmembers. Supervision of daily operations would be delegated to a ChiefExecutive Officer who would report directly to the Board. The legal frame-work required by this structure has been studied and drafted by theconsultants during the preparation of the project. For the postal sector,RP will have an independent structure with its own legal framework, fullfinancial autonomy, but some limited administrative autonomy. It will beheaded by a Directorate General directly responsible to the Board of

- 11 -

Directors representing the interests of the State and of the users. However,given the usually low profitability of the Postal sector, there is noprospect of privatization, and the State being the exclusive owner, GOR willappoint all Board members.

3.07 The appropriate legal framework for the creation of SEMT and theRP is being reviewed by the relevant authorities of the GOR, to be approvedby the Cabinet by March 1991 and presented to Parliament by December 1991.Both entities would be created by June 30, 1992 at the latest. Theimplementation schedule for the sector reform is given at Annex 7.

Planning and Operations Management

3.08 In the past, most sector development projects have been initiatedthrough a combination of donors' interest, grant availability and sectorneeds. Hence a coordinated approach to sector development and investmentplanning is lacking. The increased autonomy of SEMT and RP will require themto strengthen their in-house planning capabilities so as to define sectordevelopment plans that are consistent with development objectives and sectorresources. In this respect, the Development Credit Agreement specifies thatIDA shall review the sectors' development strategy and all investment plans(paras. 5.14 and 5.16).

3.09 In the past four years the telecommunications network has beenentirely rebuilt with state-of-the-art equipment. In order to maintain theresulting high quality services, SEMT will have to dedicate some of itsresources to customer service and equipment maintenance. Such needs havenot been properly satisfied in the past due to budgetary constraintsaffecting the whole GOR administration. If such a situation persists, itwould lead to the progressive deterioration of the recently commissionedmodern facilities. To avoid such an occurrence, the project supports a majoroverhaul of the maintenance organization with the build up of a capable in-house maintenance staff, improved inventory management and the introductionof a customer service department to increase sensitivity and responsivenessto customers (para. 4.04).

Staff and Training

3.10 As of December 31, 1989 DGT had 488 employees and DGP 350, allof whom are public servants. For the telecommunications sector, this isequivalent to about 48 staff per 1000 DELs. Since personnel from otherMinistries who are working on the sector have not been taken into account,this ratio is underestimated. With such a ratio, over 50, DGT has a lowstaff productivity. DGT has an oversized staff in the lower categories, butlack of managers, mainly in middle management, and skilled personnel such asengineers, technicians and accountants. As a result, although oversized,personnel accounts only for approximately 15 percent of total operatingexpenditures, which is low. Since staff is underpaid, DGT has difficultiesin retaining skilled personnel (e.g., accountants, attracted by the privatesector) and thus expensive training resources are being wasted for thesector. The new telecommunications company should provide an environmentin which salaries would be competitive with the private sector and thesubsequent increase in operating costs compensated by better productivity and

- 12 -

more efficient operations. The telecommunications training prograw, the needfor additional training facilities as well as the volume of student weeksrequired to upgrade the level of various skill levels has been the subjectof a consultant study financed by FAC during the project preparation.Implementation of this major training component is included in the project(para. 4.04).

3.11 Annex 3 shows comparative staffing figures for some African Posts.DGP's staff productivity is one of the highest in Sub-Saharan Africa. It ismainly due to the small size of Rwanda's postal network, heavily concentratedin Kigali, with little delivery activity. Administrative functions occupy22 percent of total staff which is high and due to heavy bureaucraticprocedures. Postal management is seriously understaffed with only fourpositions authorized by GOR. The creation of RP should correct theseshortcomings by enabling independent and adequate recruiting andsignificantly reducing the relative importance of purely administrativefunctions, compared to operation and management functions.

Training Facilities

3.12 MINITRANSCO has created a small national training center for bothposts and telecommunications for the basic training needs of entry levelstaff. Higher level staff are sent for training in specialized schools,mostly in other African countries and France. The current curriculum hasprovided adequate basic technical training but does not include anymanagement courses. Consultants have prepared a more appropriatetelecommunications training program (para. 3.10) that should produce betterresults at all staff levels. In parallel, DGP has prepared a rehabilitationcomponent for the national training center. The financing of this componenthas been included in the proposed project (para. 4.04).

Accounting and Financial Management

3.13 Both DGT and DGP operate on a zero-base cash budget, as otherGovernment agencies. Operating and investment expenditures are authorizedannually through the Government's budget law. Funds generated from postaland telecommunications services are collected directly by the Ministry ofFinance and expenditures are paid directly by the relevant Ministry (Planningfor capital investments, Public Service for payroll, etc.). As a consequencecommercial accounts cannot be prepared regularly. They are published aftera lengthy reconstruction process involving many Ministries, taking over ayear and resulting in inaccurate and non certifiable accounts.

3.14 Because a proper finance department is a requisite for theinstitutional reform process of both entities, such a department has recentlybeen created in both DGT and DGP. The persons in charge of these departmentswill be working with consultants to implement adequate finance functions:treasury, accounting, budget. DGP has never published commercial accounts.DGT, although required to do so under the first IDA telecommunicationsproject, has had great difficulties in producing accounts with less than ayear of delay. Accounting and budgeting functions will be strengthened underthe project to be able to produce timely and adequate financial reports, for

- 13 -

the management of both SEMT and RP. Relevant financial indicators will have

to be published and monitored on a timely basis in order to make possible an

adequate follow-up (para. 4.18).

Auditing

3.15 DGT and DGP have no internal control mechanisms to monitor key

aspects of their operations. As part of the institutional reform plan, an

internal audit function will be implemented. In addition to controlling the

accuracy and reliability of all data being monitored by management, this unit

will be essential in improving the various reporting and management systems

of the organization. DGT employed external auditors under the first IDA

project, but their role has been merely to attempt to establish commercial

accounts on the basis of fragmented financial information. Such accounts

were never certified. As autonomous entities, SEMT and RP will have to make

audited financial statement available to their Board of Directors and IDA

within six months after the end of each fiscal year. It was agreed during

negotiations that the above auditing requirements will be stipulated in

SEMT's and RP's Subsidiary Loan Agreements.

IV. THE INVESTMENT PROGRAMS AND THE PROJECT

A. Description

4.01 MINITRANSCO's communications investment programs consist of the

1990-94 Telecommunications Investment Program and the 1990 - 1992 PostalInvestment Program.

Telecommunications Investment Program

4.02 MINITRANSCO's 1990-94 Telecommunications Investment Program is the

continuation of the modernization and expansion of the telecommunications

infrastructure of Rwanda undertaken under the First Telecommunications

Project with a parallel special emphasis on sector reform (para. 2.19).

The 2rogram, which has been reviewed and agreed to by IDA, consists of:

(a) expansion of the switching capacity in the existing telephone

exchanges and creation of new telephone exchanges in eight

provincial towns, increasing the installed capacity by about

8,000 lines (from 12,800 to 20,800) to meet the expected demand

(para. 2.06);

(b) extension of the existing local cable networks, construction of

eight new networks, and installation of a subscribers plant,

including the provision of terminal equipment to connect new

subscribers;

(c) expansion of the long distance transmission network to increase

the channel capacity on existing microwave links, and create spur

routes to link the new telephone exchanges to the national network;

- 14 -

(d) installation of 10 rural multi-access radio systems (in seven sub-prefectures) including subscribers terminal radio equipment withsolar power to increase service penetration into remote areas(para. 2.02);

(e) improvement of the international telecommunici services(para. 2.05) with the neighboring countries of BuL t , Tanzaniaand Uganda itl extending the long distance microwave network acrossthe borders (KBO/AfDB project) and installation of a secondINTELSAT satellite earth station; and

(f) the telecommunications component of the proposed project(para. 4.04).

Postal Investment Program

4.03 MINITRANSCO's 1990-1992 Postal Investment Program consists of thepostal component of the proposed project (para. 4.04).

Project Description

4.04 The project proposed for IDA financing, consists of: (a) theinstitutional reform program, which is fully described in Section III;(b) key elements of the telecommunications sector investment program; and(c) the postal investment program. The main components of the project are:

I. Institutional Reform Program

Consultants' services for which terms of reference have been agreedwith the Government (Annex 5), are as follows:

(a) in the telecommunications sector:

(i) up to 24 man-months for financial management;

(ii) up to 13 man-months for commercial management, to includegeneral organization, planning, and subscriber management;

(iii) up to 8 man-months for human resource management;

(iv) up to 6 man-months for a management information system;

(v) up to 4 man-months for security management;

(b) in the postal sector:

(i) up to 16 man-months for financial management;

(ii) up to 13 man-months for commercial management, to includedevelopment strategy, general organization, logistics;

(iii) up to 6 man-months for human resource management;

- 15 -

(c) in both sectors: up to 10 man-months for a resource mobilizationstudy, to include taxes, dividends, and tariffs.

II. Telecommunications Component (Annex 8)

(a) provision for measuring equipment, micro-computers, tools formaintenance and workshops, telecommunications equipment for networkup-grading, spares and vehicles for operations and maintenance;

(b) provision for at least 300 public telephones and associatedequipment;

(c) supply and installation of digital microwave links with associatedmultiplex equipment between Kirambo, Karongi, Gisenyi and Mugogoto secure the long distance digital transmission networkimplemented under the first project;

(d) implementation of a comprehensive training program for the staffof SEMT, including 35 man-months of training experts,rehabilitation of the training center, training aid, laboratoryequipment, and 30 scholarships abroad.

III. Postal Component (Annex 9)

(a) Construction of a 3,000 m2 postal sorting center of modulaL designat Kigali to replace the overcrowded and obsolete facilities andsufficient to cope with the traffic expected by the year 2000;

(b) rehabilitation of the main post offices which generate significantrevenues and have outdated facilities of over 40 years of age;

(c) creation of eight new Post Offices (including window equipment--

scales, safes, boxes) in Cyangugu, Rwamagana, Byumba, Munini,Ngororero, Kiyumbu, Busoro and Bugarama, towns showing realbusiness potential;

(d) specialized vehicles for use in postal delivery and distribution,and for other postal operations;

(e) training program for RP, including 12 man-months of trainingexpert, 30 scholarships, rehabilitation of the training center andtraining aids;

(f) Engineering consultants for supervision of the construction of thesorting center.

B. Costs and Financing

Program Costs

4.05 The total costs of the telecommunications program are estimated

at $60.0 million, including a foreign exchange component of $51.1 million.Besides the telecommunications component of the project proposed foi IDA

- 16 -

financing, the other program components are financed by EIB and AfDB,Belgium, France, Japan and Switzerland (para. 4.09). Annual expendituresunder the 1989-94 Telecommunications Investment Program are given inAnnex 10. On average, annual investment expenditures for telecommunicationsrepresent about 0.25 percent of GDP, comparable to the ratio of 0.3 percentexperienced on average in sub-Saharan Afrlca.

4.06 The total costs of the postal investment program are estimated at$7.6 million, including a foreign exchange component of $5.8 million. Thisprogram, which is a part of the proposed project, would be financed by IDAand the new "Regie des Postes." Details and annual expenditures under thepostal investment program/project postal component are given in Annex 11.

Project Costs

4.07 The total cost of the project is estimated at $16.7 million, witha foreign exchange component of $14.3 million. Project base costs reflectMINITRANSCO's experience with contracts under the first IDA project and inother countries in the region adjusted to December 1989 prices. Projectcosts are summarized in Table 4.1.

Table 4.1: Project Cost Summary($ million)

Local Foreign Total X of Total

1. TELECOMMUNICATIONSInstitutional Reform 0.1 1.6 1.8 10Maintenance equipment - 0.9 0.9 6Public call stations 0.1 1.4 1.5 9Microwave links 0.1 1.5 1.6 9Vehicles - 0.3 0.3 2Training - 1.8 1.8 11

Sub-total 7.43 77 7746Physical contingencies 0.0 0.3 0.3 2Price contingencies 0.3 0.8 1.1 7

Sub-total 0.3 1.1 1.4 9TOTAL TELECOMMUNICATIONS 0.6 8.6 9.1 65

II. POSTAL SERVICESInstitutional Reform - 0.8 0.8 SPostal sorting center 0.6 1.7 2.3 14Construction rehabilitationof post offices 0.3 0.8 1.1 6

Equipment - 1.0 1.0 6Vehicles - 0.2 0.2 1Training 0.1 0.4 0.6 3Ing6nieurs conseil - 0.2 0.2 1

Sub-total 1.0 5.1 6.1 36Physical contingencies 0.3 0.3 0.6 4Price contingencies 0.6 0.4 0.9 6

Sub-total 0.8 0.7 1. 59

TOTAL POSTAL SERVICES 1.8 6.8 7.6 45TOTAL PROJECT COST 2.4 14.3 16.7 100

- 17 -

Contingencies

4.08 Physical contingencies are 5 percent for consultancy services andequipment and vehicles and 10 percent for building construction. Because ofthe 40 percent devaluation of the Rwandese franc in November 1990 (para.1.04), price contingencies for local costs are the estimated inflation ratesfor the coming years: 14 percent in 1990, 28 percent in 1991, 12 percent in1992, 5 percent in 1993, 4 percent in 1994 and onwards. Foreign costs areestimated to increase by 4 percent per annum during the projectimplementation period.

Financing of Telecommunications and Postal Investment Programs

4.09 The telecommunications Investment Program Financing Plan is givenin Table 4.2.

Table 4.2: Telecommunications Financing Plan 1989-94($ million)

Local Foreign Total X of Total

IDA 0.2 7.9 8.1 14CCCE/FAC - 12.6 12.6 21EIB - 10.0 10.0 17AfDB - 2.2 2.2 4Belgium - 2.7 2.7 4Japan - 8.5 8.6 14Switzerland 0.6 2.7 3.2 6DOT/SEMT 8.2 4.5 12.7 21

TOTAL 8. 61.1 6080 .00

The proposed IDA Credit would only finance 14 percent of this Program. Allcofinancing arrangements have been secured, except for $5.8 million from theCCCE/FAC, which is expected to be part of subsequent commitments. Nocofinancing has been arranged for the postal investment program whose capitalexpenditures would be exclusively financed by IDA and DGP/RP from internallygenerated resources and a small Government subsidy (para. 4.11). Details ofthe financing for the postal services component are given in Table 4.3.

Table 4.3: Financing Plan - Postal Services 1990-94($ million)

Local Foreign Total X of Total

IDA 0.2 4.6 4.7 82DGP/RP 1.6 1.3 2.9 38

TOTAL 1.8 6.8 7.6 100

- 18 -

Proiect Financing

4.11 The proposed IDA Credit ($12.8 million) would financ 100 percentof the foreign costs ($10.9 million) of material, consultant services(less $0.6 million financed by FAC) and scholarships, 90 percent of localexpenditures for consultants' services and training and for postal equipment($0.4 millia.i) and 50 percent of the total expenditure of buildingconstruction for the postal sorting center ($1.5 million). DGT/SEMT wouldprovide funds for 69 percent of the local costs ($0.4 million) and DGP/RP for100 percent of total expenditure for the construction and rehabilitation ofpost offices and 50 percent of total expenditure of the postal sorting center($2.9 million), from internally generated sources or from Governmentsubsidies ($0.8 million).

Table 4.4: Project Financing Plan($ million)

Local Foreign Total X of Total

t. TELECOMMUNICATIONSIDA 0.2 7.9 8.1 49FAC - 0.6 0.6 4DGT/SEMT 0.4 - 0.4 2

TOTAL 0.6 8.6 9.1 55

II. POSTAL SERVICESIDA 0.2 4.6 4.7 28DGP/RP 1.6 1.3 2.9 17

TOTAL 1.8 T. : 46

TOTAL PROJECT 2.4 14.8 16.7 100(TOTAL IDA: TWO SECTORS) 0.4 12.4 12.8 77

4.12 It was agreed at negotiations that upon the establishment of bothSEMT and RP, GOR would enter into a Subsidiary Loan Agreement with each ofthe two new entities on terms and conditions which will have been approvedby IDA including, in particular: (a) the reimbursement by SEMT to GOR over15 years including a 5-year grace period at a 7.72 percent interest rate;(b) the possibility of a faster reimbursement of such loan by SEMT, based onavailability of funds; (c) the reimbursement by RP to GOR over 20 yearsincluding a 5-year grace period at a 4 percent interest rate--of all amountspaid or to be paid by the Government to IDA on account of the Credit,including the portion used prior to the establishment of each entityincluding the Project Preparation Facility (para. 4.17). The signing of theSubsidiary Loan Agreements would be a condition of disbursement for the bulkof the equipment to be us.ed by the new entities (para. 4.16).

- 19 -

C. Procurement and Implementation

Procurement

4.13 Procurement arrangements are simarized in Table 4.5.

Table 4.5: Procurement Arrangements a/(in $ million) -

PROJECT COMPONENT ICB LIS c/ LCB d/ OTHER */ TOTAL

1. Training A consultancy equipment 0.1 (0.1) 0.1 (0.1)

2. Telecom equipment procured prior 0.1 (0.1) 0.1 (0.1)to creation of the entitioe

8. Public telephones installed 0.2 (0.2) 0.2 (0.2)prior to creation of the entities

4. Telecom equipment procured after 3.6 (3.5) 0.9 (0.5) 4.4 (4.0)the creation of the entities

S. Postal equipment procured prior 0.1 (0.1) 0.1 (0.1)to creation of the entities

6. Postal equipment procured after 1.0 (1.0) 0.1 (0.1) 1.1 (1.1)the creation of the entities

7. Postal buildings 2.7 (1.6) 1.8 (0) 4.3 (1.8)

8. Vehicles 0.6 (0.6) 0.6 (0.6)

9. Consultants and training 6.8 (6.0) 6.8 (5.0)

TOTAL 8.0 (6.9) 0.4 (0.4) 1.6 (0) 6.7 (5.5) 16.7(12.8)% ~~~~~~~48 (54) 2 (3) 10 (0) 40 (43) 100 (100)

a/ Costs include proportionate contingency, excluding work force and force account.1/ IDA financing in parentheses.c/ Limited International B dding.a/ Local Competitive Bidding._/ Other includes Bank's Guidelines for the use of consultants, and proprietary items.

4.14 The procurement procedures are consistent with IDA guidelines.International Competitive Bidding will be used for the procurement of thepostal sorting center (building and postal equipment), microwave links, coin-boxes and vehicles for postal and telecommunications operations. Ten biddingpackages estimated to cost $100,000 or more each and totalling $6.9 million,including contingencies, would be subject to IDA's prior review of procure-ment documentation. Procurement decisions involving amounts lower than$100,000 would be subject to ex-post review by IDA supervision missions.Because of the small size of the lots, whose costs would not exceed $40,000per lot, Limited International Bidding will be used for the procurement ofmiscellaneous equipment for the post offices, tools for workshops andmaintenance, measuring and test equipment, training aids, and microcomputers.Total expenditures under LIB would not exceed $400,000 equivalent. The LIBshort list will be subject to approval by IDA in accordance with theGuidelines. Proprietary items for spares, telecommunications equipment for

- 20 -

the workshops and the training center, estimated to cost about $500,000, willbe directly purchased from the original suppliers. Local Competitive Biddingwill be used for the procurement of civil works for the construction of thenew post offices and the rehabilitation of provincial post offices. Theconsultancy firms for the implementation of the postal and the telecommuni-cations reform, and the consultancy firms for mobilization of resources andtariff studies, as well as the engineering consultants for the mail sortingcenter will be selected in accordance with the Bank's Guidelines for the useof consultants.

Disbursement

4.15 Except for payments against contracts of less than $50,000equivalent, which will be disbursed against statements of expenditures, theproceeds of the IDA Credit of $12.8 million will be disbursed against fullstandard documentation for the civil works for the postal sorting center,supply and installations of postal and telecommunications equipment, vehiclesand consultants. To facilitate rapid disbursements, a Special Account ofapproximately $1.0 million will be established in US dollars in the CentralBank of Rwanda and maintained under terms and conditions acceptable to IDA.The $1.0 million special account represents about two months of estimateddisbursements during the peak disbursement period of 1993. The SpecialAccount would be used for disbursement against all expenditures.Applications for replenishment will be submitted on a monthly basis promptlyafter reconciliation of the monthly bank statement.

4.16 Disbursement of Category 4 in Table 4.6 will be subject to thecreation of SEMT and the signing of the Subsidiary Loan Agreement betweenSEMT and GOR. Disbursement of Categories 6 and 7 will be subject to thecreation of RP and the signing of the Subsidiary Loan Agreement between RPand the GOR. The disbursement schedule for the project given in Annex 12.It is estimated that, because the consultants for the institutional reformwould start working before project effectiveness and because the equipmentwould be fast disbursed, the total disbursement period would be shorter thanthe standard disbursement profile for IDA telecommunications projects.Disbursements for this Credit are thus expected to be completed by June 30,1995.

- 21 -

Table 4.6: Disbursement of IDA Credit(in $ millions)

Postal TelecomCategory Component Component Percentage Financed

1. Training A consultancy equipmont 0.1 100X of foreign expenditure

2. Telecom equipment procured prior 0.1 100% of foreign expendituresto creation of the ontities

3. Public telephones installed prior 0.2 100X of foreign expendituresto creation of the entities

4. Telecom equipment procured after 3.1 100% of foreign expendituresthe creation of SEMT

S. Postal equipment procured prior 0.1 100% of foreign expenditures Ato creation of RP 90% of local expenditures

6. Postal equipment procured after 0.9 100X of foreign expenditures Athe creation of RP 90% of local expenditures

7. Postal buildings 1.3 S0X of total expenditures

8. Vehicles 0.2 0.3 100X of foreign expenditures

9. Consultants and training 0.8 1.7 100% of foreign expenditures A90% of local expenditures

10. Refunding of project 0.9 0.6preparation *dvance

Subtotal 4.2 6.1

11. Unallocated 2.5

TOTAL DISBURSEMENT 12.8

Project Implementation

4.17 The institutional reform component of the project will beimplemented by both DGT/SEMT and DGP/RP assisted by consultants under thesupervision of MINITRANSCO. Terms of reference of the consultants for theinstitutional reform and for the tariffs and resource mobilization studiesare given in Annex 5. The implementation schedule of the institutionalreform is given in Annex 7. Because it is essential that the institutionalreform has progressed as much as possible before SEMT and RP are created,the Association accepted the request from the Government for a $1.5 millionProject Preparation Facility to finance consultancy work. Furthermore, toensure a timely beginning of the execution of the project and smoothoperation of the entities of post and telecommunications as soon as they arecreated, the hiring of consultants for the institutional reform is acondition of effectiveness of the Credit. The telecommunications equipmentcomponent of the project will be implemented by SEMT with the assistance ofcontractors for the supply and installation of microwave links and coin-boxes and in the framework of the National Maintenance Plan prepared byITU/UNDP. The construction and installation of the mail sorting center andthe rehabilitation of provincial post offices will be carried out bycontractors under the supervision of RP and its consultants.

- 22 -

Performance Monitoring

4.18 The overall performance of DGT/SEMT and DGP/RP during projectimplementation will be monitored against performance indicators (Annex 13)

for telecommunications and for postal services. Monitoring of theseindicators will assist both entities in upgrading their management and will

allow timely corrective actions to be taken. Targets for 1992 were set and

agreed during negotiations at desirable and feasible levels; the targets for1993, 1994 and 1995 are indicative and will be reviewed and established

jointly by IDA and DGT/SEMT and DGP/RP by September 30 of the preceding year.

It was also agreed at negotiations that the Government would confirm, in aletter to the Association, the agreed performance indicators as a conditionof effectiveness. It was further agreed at negotiations that a mid-termreview of the execution of the project would take place jointly with the

Association no earlier than June 30, 1992 and no later than September 30,

1992. To carry out the monitoring of the execution of the project, asupervision plan has been prepared (Annex 14), showing the dates of thesupervision missions, the composition of the mission teams, the number ofman-weeks and the main tasks of the missions.

V. FINANCIAL ANALYSIS

Past Performance

5.01 No reliable data were available for DGP prior to 1987, but DGTproduced financial statements during implementation of IDA's Telecom-

munications Project (Credit 1057-RW). The principal indicators of DGT'sperformance are summarized in Table 5.1.

Table 5.1: Key Indicators of DGT Past Financial Performance (RF million)

1987 1988 1989

Operating revenues 879 1072 1282Operating expenses 674 748 843Not operating result 306 324 439Not Income 236 250 351

Net fixed assets 2687 2981 3282Receivables 149 365 484Long term debt 1960 2004 2566Net working capital 69 281 391

Internal cash generation 600 766 965Construction expenditure */ 865 788 846Debt equity ratio 60e 64X 53X

Rote of return on netfixed assets (X) b/ 12X 14X

DEL (no) mid-year 7438 8691Telephone rev./DEL (RF '000) 111.6 122.6Private collection rate (X) 8ox 84X 88s

a/ Project disbursementsb/ On book values

- 23 -

5.02 During the implementation of the first project (1981-87), DGT'sfinancial management was poor. Major shortcomings are as follows: (a)commercial accounts were reduced to a modicum of income statements (paras.3.13, 3.15); (b) there was no register of fixed assets, and therefore: (c)there was neither asset revaluation nor reliable rate of return calculation;(d) accounts receivable were not managed; (e) though auditors producedreports, there was no actual audit (para. 3.15), as auditors had primarilyto perform as bookkeepers; and (f) no action was taken following a tariffstructure study.

5.03 Following three years of no growth, revenues and income sharplyincreased from RF 556 million in 1986 to RF 879 million in 1987. Thisreflects the commissioning of subscriber trunk dialling and internationaltrunk dialling facilities, at the beginning of 1987, which removed a majorbottleneck for the access from Kigali to the provinces and to internationaltelecommunications. Accounting information continues to be unreliable: theamounts of fixed assets may diminish at the time of construction, the ratesof return are calculated on book values, receivables which are equivalentto five months of total sales do not include Government receivables whichrepresent over half that amount. In the past, particularly because of GOR'sbudget constraints, DGP has maintained operating costs at a minimum,particularly by keeping labor costs constant, which allowed the sector toachieve some profitability.

Present Position

5.04 With a view to establishing separate accounts, consultants, hiredunder the IDA financed Study Fund, prepared income statements and balancesheets for DGT and DGP at the end of 1987, but there has been no updatingsince. Financial information for the years 1988 and 1989 is not supportedby a reliable commercial accounting system; it has been extrapolated fromthe 1987 data. The 1987 financial statements constitute the only reliableaccounting information for the two entities. DGT's 1989 balance sheet isshown in Table 5.2. As DGT is still a Government department, equity has beendefined in 1987 as the difference between assets (cash being taken as zero)and liabilities. The resulting estimated amount in 1989 of RF 2.2 billionis based on book values and does not comprise all assets, as they are not yetproperly registered. The establishment of SEMT (para. 3.01) would requirea thorough valuation of its net worth. A 1987 consultant estimate showedthat its revalued net worth would have been about RF 2.3 billion, comparedto a RF 1.3 billion current estimate. This would provide DGT/SEMT with acomfortable working capital and a sound debt/equity ratio.

Table 5.2: DGT Balance Sheet(RF million)

(As of December 31, 1989)

ASSETS LIABILITIESNet fixed assets 3282 Equity 2231Telecommunications receivables 484 Long-term debt 2666Cash and banks 361 Current Liabilities 134Other assets 824

TOTAL 4921 TOTAL 4921

- 24 -

5.05 When billing and collection were computerized in 1987, accountsreceivable were reduced. About half of the unpaid bills since February 1987,being unrecoverable, were written off. The rate of return calculated on theestimated value of assets in 1989 would be well above 10 percent. It thusappears that the situation of DGT is healthy.

5.06 DGP's 1989 balance sheet Is shown in Table 5.3; it should beinterpreted with caution, however, as the available accounting informationis unreliable. DGP has neither long nor medium term indebtedness, reflectingthe total lack of investment in the sector for the past twenty years. In1987, profit averaged about 23 percent of revenues. This is exceptional inthe African postal sector and it is estimated to have increased further since1988 when the GOR decided to compel its agencies and parastatal organizationsto pay postage for official mail, representing 10 to 20 percent of total mailtraffic. There are practically no receivables, because postal services arepaid in cash except for rental of postal boxes. DGP also provides financialservices: postal checking accounts and money orders which are money losersand for which it competes with banks (para 3.04). As in the case of DGT,equity has been defined as the difference between assets, cash excluded, andliabilities. The result must be confirmed by a thorough valuation of DGP'snet worth which would be a condition of the establishment of the Regie thatwould replace DGP (para. 3.01).

Table 5.3: DGP Balance Sheet(RF million)

(As of December 31, 1989)

ASSETS LIABILITIES

Net fixed assets 70 Equity 186Government and foreign debtors 349 Long-term debt -Cash and banks 79 Postal deposits 304Other current assets 9 Other current liabilities 17

TOTAL 607 TOTAL 507

Proiected Financial Performance

DGT/SEMT

5.07 Statements of projected financial performance from 1989 through1999 and related assumptions are given in Annex 15. The principal indicatorsare summarized in Table 5.4.

- 25 -

Table 5.4: Key Indicators of DGT/SEMT Projected Financial Performance(RF million)

1989 1990 1991 1996 1999

Operating rovenues 1282 1643 2465 3612 4223Opereting expenses 843 1071 1600 2467 3327Net operating result 439 672 968 1046 898Net Income 351 453 - 338 267Net fixed assets 3262 4479 6055 9046 8116Receivables 484 411 409 686 704Long-term debt 2668 3023 3488 3808 771Not working capital,excl. cash 391 311 304 436 488Cash and banks 361 922 716 - -Intornal cash generation 766 991 1643 2276 2618Construction expenditure 788 848 1270 800 780Debt service 186 338 672 1366 1356Rate of return (X) 14.1X 14.8X 18.1% 11.6X 10.8%Long-term d./(debt +equity)(%) 63% 48% 43X 36X 8XDebt service cover. (times) 4 2.9 2.3 1.7 1.9Net internal cash generation 0.7 0.8 0.7 1.6 1.8

(less d.s)/investment (times)DEL (no) mid year 8691 10041 11686 17760 26376Telephone rev. /DEL

(RF '000) 123 143 192 186 iLlArrears (months) 4.6 3.0 2.0 2.0 2.0

5.08 DGT/SEMT's financial performance would remain satisfactory throughthe whole period 1990-95. The following assumptions have been made for thatperiod:

(a) traffic per DEL would decrease as more residential customers areconnected to the network at the rate of about 1,500 new DEL peryear; the reduction is estimated at 5 percent each year, from 1992on; however, because of the 1990 devaluation and resulting localinflation (paras. 1.04 and 4.08), telephone revenue per line wouldincrease from RF 143,000 in 1990 to RF 185,000 in 1995 and reachRF 151,000 at the end of the period, in 1999;

(b) the collection rate is expected to improve, as the computerizedsystem is becoming more reliable: arrears should go down to twomonths of receivables in 1991;

(c) taxes would take 50 percent of operating income before interest anda levy would be devised to reduce cash in the balance sheet inexcess of two months of revenues, within the limit of availableincome; and

(d) accelerated reimbursement of onlent funds has been provided forfrom 1994 onwards.

Based on these assumptions, the results are expected to be:

(a) the operating result or profit margin would increase slowly toRF 572 million in 1990, to RF 956 million in 1995 and decreasefor the rest of the period to reach RF 896 million in 1999; thedebt/equity ratio would go as low as 42 percent at the end of

- 26 -

project implementation in 1994 and down to 22 percent in 1997, and8 percent in 1999, when SEHT finances a much larger part of newconstruction; and

(b) the rate of return (on estimated revalued net fixed assets) wouldbe maintained at over 102 until 1999 by appropriate tariffincreases (para 5.19). st tariff increase resulted from theintroduction of pulse metering for local communications on May 1,1990: RF 10 for the first three minutes and an additional RF 10for each slice of 2 minutes (equivalent to an 8 percent annualincrease in 1990 over 1989).

5.09 The above financial projections are reasonably realistic, asagreement was reached during negotiations on the following:

(a) DGT/SEHT would make an effort to increase the collection rate ofits Government, parastatals and private subscribers, and, beginningon January 1, 1993, the arrears of each individual consumer shouldnot be allowed to exceed three months of consumption of services;and

(b) the rate of return on revalued assets would not be less than 10percent.

DGP/RP

5.10 Statements of projected financial performance from 1988 through1999 and related assumptions are given in Annex 16. The principal indicatorsare summarized in Table 5.5.

Table 5.5: Key Indicators of DGP/RP Projected Financial Performance(RF million)

1989 1990 1991 1996 1999

Operating rovenuos 147 164 218 820 399Operating expense 107 126 167 284 848Net operating result 41 28 61 85 61Not Income 41 28 26 18 26Net fixed assets 70 77 144 1046 1201Equity 186 228 862 686 989Long-term debt - - 116 676 442Net working capital,excl. cash 87 86 84 26 9Cash and banks 79 81 111 51 110Construction expenditure - 80 196 80 80Debt service - - - - 88Operating ratio (X) 72X 82X 76X 89X 87XLong-term debt/(debt + equity)(X) - - 26X 46X 81XDebt service covorage (time.) - - - - 4.1

5.11 DGP's financial performance would remain satisfactory through 1995:

(a) the debt/equity ratio will increase then peak at 50 percent in 1993and go down to 46 percent in 1995 and 31 percent in 1999;

- 27 -

(b) tariff increases would be necessary to maintain the operating ratiobelow 90 percent (para. 5.17), as new construction expenditure doesnot generate revenues, but is required to maintain service, allowtraffic to develop and to improve quality of service; the currentratio would then reach 1.1 in 1995 and would gradually drop toreach 1.0 in 1999;

(c) the percentage of contribution to revenue by category will changeover the period to reflect the dynamism of new services, as perTable 5.6;

(d) as shown in Table 5.7, charges will increase as the result of therestructuring of the DGP into RP in 1992 and slowly level off;depreciation will increase dramatically due to the effect ofacquiring new assets during the whole project and will have animpact long after the project is completed; and

(e) dividends have been calculated to take 50 percent of operatingincome before interest.

Table 6.8: Percentage Contribution to Revenues by Category for Postal Services

1989 X 1990 X 1995 X 1999 X

Postage-national 37.7 26.6 38.1 24.8 80.1 26.0 100.1 26.1Postage-international 69.3 40.2 81.1 39.8 141.6 44.3 191.2 47.8Terminal dues 26.0 17.0 26.0 16.2 35.0 10.9 38.2 9.1Express mail 10.0 6.7 13.0 8.4 30.4 9.6 36.9 9.0Public fax 1.6 1.0 2.0 1.3 4.0 1.3 4.7 1.2Mandates 1.1 0.7 1.1 0.7 2.7 0.8 2.9 0.7Checking accounts 0.3 0.2 0.3 0.2 0.6 0.2 0.8 0.1Postal boxes, rental 7.4 6.0 8.0 6.2 18.9 6.3 17.8 4.6Taxes on packaging 3.4 2.3 3.7 2.4 4.9 1.5 4.9 1.2Misc., including phil 1.9 1.3 2.1 1.4 3.9 1.2 S.1 1.3

U17Ii -- i&x% 164.2 -100% 320.1 100% 399.4 100%

Notes: - express mail service, introduced in 1988 with revenues equal to almost 4% of totalrevenues, would increase fivefold by 1999 and account for 9% of revenues.

- public fax, starting in 1988, would be over 1% of revenues in 1999.- the part of terminal dues in total revenues (difference between revenues of incoming

and outgoing mail) would be reduced over the projection period, *s incoming andoutgoing mail would be better balanced.

- postal boxes rental would double between 1987 and 1999 and would then account for4% of total revenues.

Table 6.7: Weight by Category of Percentage Increases by Charges

1989 X 1990 X 1996 X 1999 X

Supplies/services 17.1 18.1 22.4 17.7 62.8 18.6 89.5 20.0Mail transport 11.0 10.3 15.0 11.9 26.8 9.1 33.9 9.7Stamp purchases 7.8 7.1 8.3 8.6 13.6 4.8 16.9 4.8Personnel - direct 52.6 49.2 57.8 46.7 88.9 31.2 92.1 26.4Personnel - admin. 17.0 16.9 19.6 16.6 30.7 10.8 30.6 8.8Depreciation 1.5 1.4 3.3 2.6 72.8 25.6 108.2 30.6

108.7 100% 12S.4 100X 284.6 100% 348.1 100%

- 28 -

Proilected Financing Plan

DGT/SEMT

5.12 The aggregate financing plan over the period 1990-94 is given inTable 5.8.

Table 5.8: ProJected DGT/SEMT Financing Plan 1990-94(RF million)

SOURCES APPLICATIONSInternal cash generation 8512 Investment program /a 6806Lese: debt service - 3689 Taxes and levies 2891Net internal cash generation 4823 Variation in working capital 38Foreign borrowings 4626 Variations in cash 214

TOTAL 9448 TOTAL 9448

/a Includes one year of future programs.

5.13 DGT/SEMT's investment program for the five years 1990-94 wouldinclude the proposed program (RF 5.85 billion), out of which IDA wouldfinance RF 994 million and provision for future construction expenditure ofRF 450 million. Net internal cash generation would account for 76 percentof the total investment program, but taxes and levies would reduce by RF 2.89billion the amount of funds available. However, as the current ratio (itwould be around 5 to 6 from 1992 through 1994, Annex 14) indicates, SEMTwould still have cash available over and above financing the local componentsof the project: it could finance, in local equivalent currency, a larger partof the investment needs. Foreign loans or grants are only necessary to makeup for the shortage of foreign currency in the country. In order to reducethe cash still in excess in the balance sheet, the Government should requireSEMT to reimburse, in the early years following the commissioning of thefinanced assets, part of the funds onlent from foreign loans or grants. Thiswas agreed at negotiations for IDA funds (para. 4.12). It is estimated inthe financial projections (Annex 14) that SEMT, from 1994 to 1999, couldreimburse about RF 700 million to the Government as accelerated amortizationand finance the investment budget and future construction expenditures inequivalent local currency. The internal cash generation to debt serviceratio would be fairly high during the 1990-94 period (above 2), but taxes andlevies would succeed in pumping out much of the generated cash.

5.14 It was agreed at negotiations that SEMT's commitment to reviewannually with IDA its three-year revolving construction program and not toundertake new construction expenditure in excess of $1.0 million equivalentin the sector during implementation of the project, without the prior consentof IDA, would be incorporated in the subsidiary loan agreement (para. 4.12).

- 29 -

DGP/RP

5.15 The aggregate financing plan over the period 1990-94 is given inTable 5.9.

Table 6.9: Projected DGP Financing Plan 1990-94(RF million)

SOURCES APPLICATIONSInternal cash generation 389 Investment Program /a 1067Less: debt service - Dividends 88

Not internal cash generation 369 Variation in Working Capital - 9Foreign borrowings 676 Variation in Cash - 41Government subsidies _10

TOTAL 1096 TOTAL 1095

/I Includes one year of future programs.

5.16 DGP/RP's investment program for 1990-94 would include the proposedproject (RF 916 million) and provision for future expenditures (RF 140million). IDA would finance 50 percent of the sorting center building, whichwould be entirely in foreign currency, 100 percent of equipment (sortingcenter, postal windows and vehicles) and 100 percent of consultant setvices(para. 4.11). Net internal cash generation would cover 35 percent of theinvestment program, which is satisfactory. DGP/RP would finance its futureconstruction expenditures, in equivalent local currency. It was agreed atnegotiations that DGP/RP's commitment to review annually with IDA its three-year revolving construction program and not to undertake new constructionexpenditure in excess of $0.5 million equivalent without the prior consentof IDA, would be incorporated in the subsidiary 3oan agreement (para. 4.12).

Tariffs

DGP/RP

5.17 International postage tariffs would increase, in 1991, to the fullextent of the devaluation (para. 1.04). Postal tariffs would have to beraised further to correct the effects of local inflation (para. 4.08): atthe beginning of 1992, national postage as well as other services would beraised by 50 percent, to reflect processing costs (Annex 16) and also becausepresent profitability is due to high terminal dues, that could be lowered atthe next UPU congress. Further increases for national and internationalpostage would be necessary in 1993, by 33 percent and 17 percentrespectively, to keep the operating ratio below 90 percent, and again in1996, by 20 percent for both, to correct the effects of inflation and takeadvantage of the potential consumer surplus in international mail.

5.18 The consultants who made a diagnosis of the postal servicesconcluded that the tariff structure does not reflect their costs. Assubsequent tariff increases would be required, it would be necessary tosupport them by a tariff structure study. Agreement was obtained atnegotiations that the operating ratio of RP would never be more than 90

- 30 -

percent and that a study on postal services tariffs should be available andreviewed by IDA by June 30, 1992, and the new tariff structure implementedone year later.

DGT/SEMT

5.19 Following the 1990 increase (para. 5.08), the level of tariffs wassufficient to enable DGT to have a satisfactory rate of return on revaluedassets. Furthermore, the increase, resulting from the November 10, 1990devaluation (para. 1.04) and applied to international traffic (estimated at65 percent of total traffic, mitigated by an estimated 10 percent reductionin volume), would cause DGT's rate of return to be about 18 percent in 1991.To compensate for the local inflation (para. 4.08) resulting from thedevaluation, tariffs should be further increased by 10 percent in 1994.DGT's tariff structure has remained basically unchanged since 1975, exceptfor the introduction of pulse metering on local commnunications, in 1990(para. 5.08). Perception rates of international tariffs ;ere adjusted in1982 and 1987, in line with new international agreements on accounting rates(tariffs for telecommunications services are shown in Annex 17). A tariffstudy was undertaken by consultants in 1982 as part of the previous IDAfinanced project (Credit 1057-RW) and submitted to the Government in 1983,including comments by the Bank, but no action on tariffs resulted. In June1989, an ITU/UNDP expert attempted to review the telecommunications tariffs,but due to lack of cost accounting and other reliable accounting information,the study limited itself to recommend generally accepted tariff principlesthat should be applied in a forthcoming study.

5.20 The present breakdown of telephone revenues shows a great unbalanceamong the three types of services, local, national and international, forwhich the percentages of revenues were, before the 1990 increase, about 25percent, 10 percent and 65 percent. Interurban calls may be still penalizedas distance does not justify discrepancies. The effect of local pulsemetering on traffic congestion during peak hours will have to be assessed.To address these issues, a study of tariffs would be conducted under theproject in order to propose a tariff structure that would be conducive to themost economic utilization of the facilities. The study would also includethe review of the effects of the lowering of international tariffs on thefinancial soundness of SEMT, as such lowering is expected as the result ofcompetition among the major world operators. Agreement was reached atnegotiations that such study should be available and reviewed by IDA byJune 30, 1992, and the new tariff structure implemented one year later.

VI. ECONOMIC ANALYSIS

Return on Investment

6.01 The internal financial rate of return on SEMT's 1989-94construction expenditure is 12 percent (Annex 18). However, the financialrate of return does not fully reflect the economic benefits of the project:the value to the consumer of the telephone service is in excess of the actualtariff; and the economic cost of the project is lower than the actual cost

- 31 -

when employment of unskilled labor for cable laying and civil works is pricedat its opportunity cost. Thus, the estimated economic rate of return is 25percent (Annex 18). This is a conservative figure since substantial externalbenefits accrue to the economy which are difficult to quantify (paras 6.03to 6.04). Sensitivity analysis shows that if costs are increased by 10percent, and revenues decreased by 10 percent, simultaneously, the economicrate of return decreases to 20 percent. If revenues are delayed by twoyears, the economic rate of return decreases to 17 percent.

6.02 Unlike the capital intensive telecommunications operations, postaloperations are highly labor intensive. Postal infrastructure is limited tooffice space and small buildings, while other physical assets, althoughnecessary, are expected to contribute to a relatively small extent to boththe total cost and the value of the services provided to the economy. Forthis reason, the internal financial rate of return on DGP/RP's 1990-93capital expenditures and the economic rate of return on postal investmenthave not been calculated.

Benefits

6.03 In the context of the proposed operation, the Government has beenable to put together a four-year investment program emphasizing least-costsolutions for high priority investments, bringing Rwanda closer to the Sub-Saharan average for telephone and postal density, while ensuring efficientsector development and profitability. The physical investments financed bythe proposed Credit represent a relatively modest part of the overall invest-ment program but, under conservative assumptions, the Government programagreed with the Bank has an economic rate of return of 25 percent. Beyondreturns on investment, there will be benefits from improved sector managementresulting from the creation of autonomous entities supported by the projectwhich cannot be quantified. These include improving and maintaining at highlevels the quality of service, increasing staff productivity and upgradingbilling and collection performance.

6.04 Promotion of private sector initiative in industry and trade isa major objective of Rwanda's development strategy. Improved telecommunica-tions services will benefit export oriented ventures and will facilitatethe supply response from the productive sectors. Increased availability oftelecommunications services will also promote activity in the service andexport-oriented sectors. The public sector will also benefit from theintroduction of efficient management into a sector that represents approxi-mately 6 percent of total public enterprise employment. The project, throughimproved communications, will also enhance coordination within the adminis-tration, and between public departments and their private counterparts.

Fiscal Impact

6.05 Up to the end of 1988, there had been no formal process of resourcetransfer from DGT and DGP to the Government as they were part of thcGovernment structure. The Government has taken the decision to subject allcommercially-oriented parastatals to private tax law in order to emphasizetheir financial and institutional autonomy. SEMT and RP are expected to makea formal contribution to the Government budget through taxes and dividends.

- 32 -

In addition, SEMT would repay part of the debt previously incurred by GORfor DGT that would have been onlent to SEMT by GOR, to keep its cash holdingwithin the limit of the transferable income to retained earnings (para.5.13). The total of taxes and levies paid to GOR would be RF 1.9 billion forthe duration of the project.

Least Cost Solution

6.06 Through cost-effective technical choices, the project representsthe least cost solution for providing the service levels planned.Canalization of local telephone cable has been preferred over buried cableor overhead cable for high volume sections of the network since the highercapital cost would be more than offset by the discounted lower operating andmaintenance costs, and by fewer future outages. The choice of digitalswitching and transmission technology over analog for new systems isjustified by a lower discounted cost per new DEL. Multi-access systems forrural subscribers offer considerable economies over alternative solutions andmake expansion of access to the system feasible in many areas.

Risks

6.07 There are two principal risks of the project. First, there isthe risk that delays in putting in place the agreed independent entities maypostpone the introduction of efficient management in the sector and couldlead to the reduction of project benefits. This risk has been minimized by:(i) a long dialogue with key ministries on the value of establishingindependent entities, culminating with the adoption of the Statement ofCommunications Sector Policy by the Rwandese authorities; and (ii) startingthe preparation for establishing the new companies well in advance of projectimplementation and by financing a management consulting firm that will helpset up efficient commercial and financial structures, introduce systems andprocedures, and train staff. Second, poor coordination and supervision ofproject implementation could lead to delays and cost overruns. This riskwill be reduced through close donor coordination ensuring maximum coherenceof different subprojects, and by retaining consulting firms that will assistin project implementation and supervision.

Environmental and Health Effects

6.08 The proposed project is expected to have no adverse environmentalor health effects. On the contrary, more efficient use of communicationswould substitute for personal transportation and correspondingly reduceenvironmental pollution and promote energy conservation. In addition,improved communications services would facilitate dispersion of healthservices and emergency care. The GCR owns the land for the erection of thepostal sorting center, and is presently using it for other purposes;consequently no population displacement will result from this construction.

- 33 -

VII. AGREEMENTS REACHED AND RECOMMENDATION

Condition of Negotiations

7.01 GOR's approval of a Statement of Communications Sector Policy,acceptable to the Association was a condition of negotiations (para. 2.15).This document (Annex 1) has been formally approved by the interministerialcommittee in charge of supervising the P & T reform.

Agreements Reached During Negotiations

7.02 During negotiations, the following agreements were reached:

(a) a plan of action to be reviewed by IDA to help GOR decide on howto mobilize resources from the communications sector (taxes,duties, dividends), including a comprehensive tariff study, wouldbe prepared by consultants before June 30, 1992 (paras. 3.03, 5.18,5.20), and the tariff changes implemented by June 30, 1993;

(b) at the creation of both SEMT and RP, GOR will enter into aSubsidiary Loan Agreement with each of the two new entities onterms and conditions approved by IDA (para. 4.12); the SubsidiaryLoan Agreements would include (i) the requirement for SEMT and RP,from the date of their creation, to produce financial statementsaudited by independent auditors acceptable to IDA, within sixmonths of the end of each fiscal year (para. 3.15); (ii) SEHT'sobligation to earn an annual return on average net fixed assets ofnot less than 10 percent (para. 5.09); (iii) SEMT's commitments toreview its three-year revolving construction program fortelecommunications with IDA on an annual basis, and not toundertake new construction expenditures in excess of $1.0 millionequivalent in the telecommunications sector during the projectperiod without the prior consent of IDA (para. 5.14); (iv) RP'scommitments to review its three-year revolving construction programfor posts with IDA on an annual basis, and not to undertake newconstruction expenditures in excess of $0.5 million equivalent inthe postal sector during the project period without the priorconsent of IDA (para 5.16); and (v) RP's obligation to have anoperating ratio of not more than 90 percent (para. 5.18);

(c) indicators of performance would be established for the life of theproject and five years thereafter and would be jointly reviewedeach year by IDA, DGT/SEMT and DGP/RP (para. 4.18);

(d) a mid-term review of the execution of the project would be carriedout jointly by the Government and the Association no earlier thanJune 30, 1992 and no later than September 30, 1992 (para. 4.18);

(e) SENT would not permit arrears of more than three months fortelecommunications services, on the part of any subscriber, privateor public (para. 5.09); and

- 34 -

(f) when SEMT's balance sheet shows excess cash, SEMT would be requiredto reimburse IDA onlent credit to the Government at a quicker pacethan the 15-year amortization period would require (paras. 4.12 and5.13).

Conditions of Credit Effectiveness

7.03 (a) the hiring of consultants for the institutional reform of both postand telecommunications activities (para. 4.17); and

(b) delivery of a letter from the Government to the Associationcontaining performance indicators to be reached from 1992 to 1995by SEMT and RP (para. 4.18).

Conditions of Disbursement

7.04 The conditions of disbursement of the telecommunications equipmentcomponent would be the establishment of the "Societ d'economie mixte destelecommunications" (SEMT) and the signing of the Subsidiary Loan Agreementbetween GOR and SEMT. The conditions of disbursement of the postal equipmentand the construction of the sorting center would be the establishment of the"Regie des Postes" (RP) and the signing of the Subsidiary Loan Agreementbetween GOR and RP (para. 4.16).

Recommendation

7.05 With the above conditions and assurances, the proposed project issuitable for an IDA Credit of $12.8 million on standard terms.

- 35 - ANNEX 1Page 1 of 7

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Communications Sector Policy

I. Role of the Communications Sector in Developingand Diversifying Economic Activity

1. Rapid and reliable communications and the extension of maildistribution and public telecommunications into rural areas and urban centerswill tend to encourage the economic and social integration of localcommunities, at the same time improving security, the dissemination ofinformation and the administrative activity of the public authorities.

2. Given the constraints resulting from Rwanda's landlocked situationand its distance from the sea-lanes, one of the major roles of a communica-tions sector able to take advantage of modern-day technology will be tofurther the opening-up of the country to the outside world, facilitating theintegration of its economy into regional and international markets.

3. At the national level, the role of the communications sectorwill be to facilitate the decentralization and diversification of economicactivity throughout the country; the promotion of new export-orientedactivities, in particular in the agricultural sector; the development ofthe services sector, and banking in particular; and the establishment, viaprivate initiative, of small and medium-sized undertakings which will createjobs.

II. Sectoral Strategy

4. So that the communications sector may play its part in the nation'ssocio-economic development under the best possible conditions, the Governmentof Rwanda has resolved to reform the bodies constituting the posts andtelecommunications sectL:. This decision forms part of the wider undertakingof reorganization and stimulation of the economy, a major component of whichis the reform of the Rwandese state-owned enterprises.

5. The goal of this reform will be in particular:

(a) to remove State budgetary constraints from the financing of theactivities of the sector, making them develop and operate on thebasis of their own resources;

(b) to improve and maintain the quality of communications services;

(c) to enhance the sector's capacity to bring in fiscal resources, andas a result improve its net contribution to the national budget;

(d) to assist in harnessing savings by the extension and improvementof the postal checking accounts and money order services; and

- 36 - ANNEX 1Page 2 of 7

(e) to ease the current burden of managing the sector on the State'sadministrative structure.

6. In the telecommunications area, the Rwandese Government has decidedto set up a semi-private telecommunications company (SocietA d'Economie Mixtedes Telecommunications). The participation of private partners in itsmanagement, and the role they may play in the injection of capital into it,are defined later (paras. 17, 18 and 21). In the case of telecommunicationsin particular, a further reason for allowing private participation is theneed for a flexible commercial response to the demand for many and varied newservices, appearing on the world market as a result of the development ofadvanced computer technologies.

7. In the postal area, the Government has decided to create a PublicCorporation (Regie des Postes) with a separate legal status. It will be madesufficiently autonomous, administratively and financially, to be able to actcompletely as a commercial undertaking, alongside its role as a provider ofa public service. The financial transactions carried out by the Post Officefor the postal checking accounts service will also be stimulated with the aimof better harnessing of national savings. Furthermore, new services such asinternational express mail and fax transmission will be developed in orderto give a better response to the needs of customers becoming more and moredemanding.

III. Sectoral Reform of the Postal and Telecommunications Services

8. The restructuring of the communications sector makes it necessaryto define and separate the responsibilities of sectoral policy-making andregulation, which remain functions of the State, from those related to theprovision of services to the public and the management and operation of theresources of the postal and telecommunications services, which are to beassigned to independent operating bodies.

9. The sectoral responsibilities which remain exclusively the provinceof the Rwandese Government are:

(a) to define and oversee the implementation of sectoral policy;

(b) to regulate the sector and ascertain that the regulations areapplied;

(c) to define the tariff policy and approve the rates for basicservices established under this policy;

(d) to define the indicators of service quality and the financialreturn expected from the operating bodies, and to monitor theimplementation of their operations (Performance Contract);

- 37 - ANNEX 1Page 3 of 7

(e) to allocate the frequencies within the radio spectrum, andadminister the spectrum; 1/

(f) to grant licenses to operate telecommunications links, privatenetworks or value-added services operated by private persons; I/

(g) to grant licenses for the subscriber installations, networks andequipment to qualified private contractors, to approve subscriberequipment and terminals and to authorize such equipment for saleand connection to the network by private licensees; 2/

(h) to interact with other relevant Government departments on allquestions dealing with national security and any other concernsof the State in the communications area;

(i) to represent the State within regional and international postsand telecommunications bodies dealing with questions of generalsectoral policy, and to conclude treaties, agreements, conventionsand international regulations in this area.

IV. Development, Provision and Operation of CommunicationsServices in Rwanda

10. The Rwandese Government has decided to set up a semi-privateTelecommunications Company and a Public Postal Corporation to undertake thedevelopment, operation and management of the services currently administeredby the Ministry of Transport and Communications (MINITRANSCO). These twoorganizations, to be run on a commercial basis, will enjoy administrativeand financial autonomy as defined in their own legal articles. Whereas thePublic Postal Corporation will be entirely owned by the State, the capitalof the semi-private Telecommunications Company will be progressively openedup to participation by other investors, in accordance with procedures and upto participatory percentages to be laid down when the Company is actuallyestablished. The Public Postal Corporation and the TelecommunicationsCompany will be placed under the supervision of MINITRANSCO, which will takeon the sectoral responsibilities listed in para. 9 above on behalf of theGovernment.

1/ The technical management and the supervision of the radio frequenciesand/or the administration and supervision of the licenses may possiblybe subcontracted to the telecommunications operating body.

2/ Progressively, in line with the capabilities of the Rwandese privatesector and customer demand.

- 38 - ANNEX 1Page 4 of 7

11. The Public Postal Corporation and the Telecommunications Companywill be responsible for the development and maintenance of the postal andpublic telecommunications infrastructures; and for the creation, developmentand provision of postal and public telecommunications services within Rwandaand internationally, subject to legal provisions in force and in line withthe operational and nancial objectives which will be laid down in eachPerformance Contract concluded with the State (para. 13).

12. In order to be able to successfully fulfill their role as aprovider of a public service, the Public Postal Corporation and theTelecommunications Company will:

(a) be set up within a legal framework providing the administrativeand financial autonomy needed for them to carry out theiroperations, and maintain their relationships with customers andsuppliers on a commercial basis;

(b) have an organizational structure and internal procedures(financial, accounting, staffing) closely aligned with theirobjectives of public services managed on a commercial basis;

(c) be presided over by a Board of Directors chosen for theircompetence, the composition of which will reflect not only theinterests of the users but also those of the partners in theundertaking in the case of the Telecommunications Company, or thoseof the sole shareholder, the State, in the case of the PublicPostal Corporation. The distribution of responsibilities andthe areas of jurisdiction as between the Board and the seniormanagement will be clearly defined;

(d) have their own Personnel Regulations and wage and salarystructure--based on those for other Parastatals in the case of thePublic Postal Corporation and governed by the Labor Code applicableto Rwandese private companies in the case of the TelecommunicationsCompany--allowing them to follow a personnel and human resourcedevelopment policy compatible with their function and theirobjectives.

13. The respective rights and obligations of the State on the one hand,and of the Public Postal Corporation and the Telecommunications Company onthe other, will be defined for a period of three years by a PerformanceContract agreed on between the State and each of the entities.

14. Each Performance Contract will lay down in particular:

(a) the goals set by the State with regard to the provision of publicservices, production, quality of service and economic and financialprofitability;

(b) the resources placed at the disposal of the Public PostalCorporation and the Telecommunications Company by the Governmentin order that they may meet those goals; and

- 39 - ANNEX 1Page 5 of 7

(c) the rules governing the relationship between the Public PostalCorporation or the Telecommunications company and the State.

15. Under their Performance Plan, the Public Postal Corporation andthe Telecommunications Company will have powers and responsibilities assignedto them by the State. They will be required in particular:

(a) to manage and operate the communications services under theircontrol in a completely professional manner, in accordance withmethods and procedures in force in the sector and in observanceof the principles of economy and efficiency;

(b) to stay abreast of trends in demand, to plan the introduction ofnew services or the extension of existing ones; to design, prepareand implement extensions or upgrades to the infrastructures on thebasis of the most advantageous technical and economic approach;

Cc) to manage their personnel autonomously, including hiring anddismissals, in accordance with the law and the regulations in forcefor the different types of undertaking (Public Corporation or Semi-private company); to make proposals for changes in pay levels andpay-scales, and to provide introductory and ongoing staff training;

*d) to manage their own financial resources and cash flow autonomouslyand in accordance with the systems and procedures applicable tocommercial companies in Rwanda; to take out loans (and, in the caseof the Telecommunications Company, to issue stocks or bonds);

*e) to prepare annual and multi-annual investment plans and operatingaccounts;

Cf) to define and propose revisions to the level and structure oftariffs for basic services, and to define and initiate rat s fornew services and changes in rates for the services not under thecontrol of the State;

.g) to conclude contracts for equipment and services in accordancewith procedures applicable in Rwanda to public corporations andsemi-private companies;

(h) to bring actions or go to court, if necessary, in the event ofdisagreements with third parties;

(i) to suspend or cancel service to users who do not meet theirobligations; and

(j) to take part in regional and international conferences, committeesand working groups dealing with technical, administrative andoperational matters in the field of posts and telecommunications.

- 40 - ANNEX 1Page 6 of 7

16. In addition to the public service obligations laid down in thetwo Performance Contracts, the financial contributions of the Public PostalCorporation and the Telecommunications Company to the Treasury will also bedefined, in the form of payment of dividends, tax on income, customs duties,interest and principal of earlier loans onlent by the State, etc. For itspart, the State will undertake to pay the amounts due for postal andtelecommunications services provided to the Government itself and toGovernment agencies financed out of the national budget.

V. Association with the Private Sector in the Telecommunications Area

17. Association with the private sector (or privatization) in thetelecommunications area may be envisaged, either by the sale of share capitalto private foreign and/or domestic investors, or by the participation of apartner in management, operation and the corporation's capital.

18. In deciding to establish a semi-private telecommunications company,the Rwandese Government is envisaging the sale of a part of the share capitalof the new Company. The details of such investor participation, and thepercentage of shares to remain the property of the State, will be definedwhen the Company itself is established, in the light of offers received frompotential investors. It is however assumed that the TelecommunicationsCompany will be first established and equipped with sufficient resources toenable it to operate, before portions of the share capital are made availableto third parties, whether public or private.

VI. Terms and Conditions for the Transfer of Assets

19. One step that must be taken before the Public Postal Corporationand the Telecommunications Company can be set up is to ascertain the portionof the capital corresponding to the value of the assets currently belongingto the State and under the aegis of MINITRANSCO. This will be determined bydrawing up an initial balance sheet, which will involve evaluation of theassets and liabilities of both the Public Postal Corporation and Telecom-munications Company. The asset side consists of the physical and financialfixed assets and the current assets, which will have to be recorded andevaluated in their entirety. The liabilities consist of long, medium andshort-term debts. The medium and long-term debts are the ones which relateto the fixed assets and correspond to loans and credits granted to the State.They will have to be transferred to the Public Postal Corporation and theTelecommunications Company under an onlending agreement with the State, orsome other arrangement will have to be made.

- 41 - ANNEX 1Page 7 of 7

20. A correct assessment of the Public Postal Corporation and of theTelecommunications Company will include determining their net value. Suchdetermination will be based on:

(a) a detailed evaluation by an external auditor of all the fixedassets which will be used by the Public Postal Corporation on theone hand, and by the Telecommunications Company on the other, attheir acquisition value: land, buildings, technical installations,stocks, financial securities, and operating capital, along with anestimate of bad client debts;

(b) the present value of the medium and long-term debts, which isnecessary since the terms and conditions of the loans granted inthe past to the State are not all the same, some of them havingbeen granted, indeed, under liberal conditions.

21. In order to set up the Public Postal Corporation, which will stayexclusively owned by the State of Rwanda, it will be necessary only todetermine the net value as described above. In the case of the Telecom-munications Company, on the other hand, it will also be necessary to estimatethe value of the Company on the basis of its forecast financial return, drawnup by taking into account reliable and coordinated past financial statements,profit and loss accounts, funds flow statements, balance sheets for the twomost recent complete financial years and reasonable financial projections forthe three to five years ahead. This value will be compared to the net valuedetermined as described in para. 20 above, and on the basis of discussionsand negotiations with the potential private partner or partners, a finallegal value will be established by mutual agreement, and will be used to setthe Company's share price.

VII. Human Resources

22. The staff of MINITRANSCO and of its Directorates-General for Postsand Telecommunications will be assigned to the Public Postal Corporation, theTelecommunications Company and the departments of the supervisory Ministrywhich is to take on the sectoral responsibilities as defined in para. 9above, on the basis of each staff member's level of training, competence andexperience.

VIII. Reciprocal Services

23. Arrangements will be made among the Public Postal Corporation,the Telecommunications Company, the supervisory Ministry and other publicdepartments, to cover compensation for reciprocal services rendered, and theuse of the Public Postal Corporation's resources by the TelecommunicationsCompany and vice versa. These arrangements will apply in particular in areaswhere trLe low level of communications traffic does not justify themalkL,nance of separate installations and the provision of staff from boththe postal and the telecommunications sectors.

- 42 - ANNEX 2

REPUBLIC OF RWANDA

SECOND COMMUNICATIONS PROJECT

Telecommunications Services: Basic Data(December 31)

1989

Telephone density 0.112Number of telephone exchanges 13Installed switching capacity 12,968Number of DELs 9,213Exchange Fill 712Recorded waiting list 3,000Z of satisfied expressed demand 752

Number of telex exchanges 1Installed switching capacity 200Number of DELs 145Exchange Fill 72ZTelecommmnications Staff 488Staff per 1000 DELs 48

- 43 - ANNEX 3

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Postal Service: Comparative Indicatorsof Postal Services In African Countries

(Base 1987)

Benin Niger Togo Mali Rwanda Tanzania

Basic Indicators

Population (in m.) 4.2 6.6 3.1 8 6.3 23

Post offices 62 45 35 99 29 740

P.O. boxes 14,000 + n.a. 16,000' 5,500 5,300 96,000home delivery

Global staff 1,090 680 470 740 370 2100(Post plus commonservices OPT)

Estimated traffic 6.3 3.9 6.4 4.7 5.8 20(in Mln) (Millionsof pieces of mailposted in thecountry)

Ratios

Population/Post office 68,000 147,000 89,000 81,000 218,000 31,000

Staff/Post office 18 15 13 7 13 2.3

Items posted/Inhabitants 1.5 0.6 2 0.6 0.9 1.9

Traffic/Staff 5,800 5,800 13,500 6,300 15,700 9,525

Revenues/Charges 0.7 0.65 1.06 0.77 1.16 0.6

Note: Caution should be used with those comparators since they may notalways cover precisely the same activity (e.g., relative importanceof financial services within the Postal Sector).

- 44 - ANNEX 4

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Postal Service: Basic Data

Matrix of Mail Traffic Flows

To: Kigali Rost of tho Subtotal Foreign TotalPosted in: Country (RW) Countrios

Kigali 28 3 S1 13 44Rost of the country _3 17 60 18 68Subtotal (RW) 81 20 81 - -

Foroign countries 14 5 19 - -

Total mailed (RW) 76 26 100 - -

Total procesood (RW) - - - 181

Demand of Post Office Boxes

Number of Number of Potential ApplicantsLettor Boxes Boxos Expr-ossd with the Construction

Post Offices Installod Rented Doemnd of New Postal Offices

Kigali 2,288 2,227 8 per working day 2,000Butaro 710 420 1 por working day 200Oitsrams 126 125 2 por working weok 100Other main post officos 1.879 1.228 10 2.200Subtotal in main cities 5,000 4,000 8,000 4,600Other sub-post offices 800 600 200 500

TOTAL 6,800 4,600 8,200 6,000

Postal Checking Accounts

Number of Accounts Average Balance/AccountProcessing Conters 1984 1988 1988 (July 1988, in RF)

Kigali 579 570 1,125 176,284Gitarma 69 60 5a8 29,317NyabTnindu 155 8U 165 10,491Butaro 272 139 272 8,210Gikongoro a6 87 06 691,647Cyangugu 180 86 180 9,829Kibuyo 102 47 102 19,081Gisonyl 150 90 150 6,826Ruitengeri 242 89 242 6,009Byamba 440 60 440 4,718Kibungo 158 0 158 42,440Rwamgana 46 0 46 2,6U

TOTAL 1,207 1,113 3,489

Not: 18S RF 76

-45- ANNEX 5Page 1 of 15

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

TERMS OF REFERENCE

A. TERMS OF REFERENCE FOR THE INSTITUTIONAL REFORMOF THE TELECOMMUNICATIONS SECTOR

I. INTRODUCTION

Currently (1990), the Rwandese telecommunications sector is governedby a government agency lacking the necessary separate resources for undertakingthe development process that is now proving essential. The result is a lack oflegal, financial and management autonomy.

In order to solve this problem, the government has decided toestablish a *Soci6td mixte des t4l4communications' to manage and operate theentire telecommunications sector.

By taking such an important and radical decision, Rwanda intends toprovide the telecommunications sector with the necessary resources for performingits functions to the full by undertaking a form of development governed bycriteria that closely combine commercial objectives with the need to serve thepublic.

This decision is part of a wider plan to achieve economic adjustmentand recovery, an important component of which is the reform of governmententerprises. The following are the purposes of this reform:

(a) to endow the telecommunications sector with management autonomy;

(b) to lighten the burden that managing the sectoi currently imposes onthe government's administrative structure;

(c) to improve and maintain service quality;

(d) to free the financing of activities in the sector from thegovernment's budgetary constraints and enable it to develop andoperate with its own resources;

(e) to increase the sector's potential and mobilize tax resources, thusincreasing its net contribution to the government budget.

The first and second phases of this reform (the consultant in thesecases being SOFREPOST) concluded in 1987 and 1990 respectively. They served todefine the major options for change in the organization of telecommunicationsin Rwanda, and led to the product'on of draft legislation and a draftTelecommunications Code. The latter are being examined by ministerial committeesand will be submitted to Parliament, where a vote will be taken on theestablishment of the 'Soci4t4 mixte."

- 46 - ANNEX 5Page 2 of 15

For the sector to be restructured, the roles of the government andthe 'Societe mixte' must be clearly defined. Thus, the government will retainits policy-making and regulatory functions, while the OSoci4t4 mixtel will beresponsible for operating and managing telecommunications.

Assistance from experts and consultants is necessary for thepreparation and establishment of this enterprise.

II. ThE PURPOSE OF THE CONSULTANTS' ACTIVITIES

The purpose of the consultants' activities will be to establish andimprove organizational structures, introduce and break in new enterprise-typemanagement systems, and train personnel.

The overall objective will be divided into the following four sub-objectives. These must be pursued simultaneously because of their numerousinterconnections:

(1) Establishment of the 'Societ6 des t4lecomuunications':

- proposals for distribution of capital stock;

- identification of stockholders;

- control system;

- program contract (between the government and the *Socidtdnationale des t6ldcommunications');

- agreements with similar agencies.

(2) Establishment of management bodies, in line with the enterprise'sobjectives:

- establishing a *development management, unit, to be responsiblefor planning and monitoring developmen; projects; it is to beprovided with the techniques, instruments and personnelnecessary for fulfilling its ro'e;

- organizing and establishing a commercial service for ensuringthat the 'Socidtd' achieves the profitability essential toits operation as a publLi utility;

- establishing a human resource management service;

- extending the information service.

(3) The planning and establishment of an enterpri3e-type financialmanagement system:

- 47 - ANNEX 5Page 3 of 15

defining budgetary guidelines: establishment of the service;roles and functions of parties involved; budget breakdown andcycle;

preparing budgets;

planning and facilitating the establishment of a new accountingdnd financial management system appropriate to the new formof telecommunications organization;

matching the objectives of the accounting system to therequirements of the Rwandese accounting system, external andinternal budgetary controls, and the tax regulations governingtelecormunications;

for the purposes of asset accounting, providing reliable andcomplete inventory mechanisms, and procedures for registeringfixed assets (applicable to services and equipment);

cooperating in defining information channels relating to themanagement of inventory, fixed assets and personnel;

making all aspects of the accounting system operational throughefficient procedures and properly trained staff.

(6) Security measures applicable to all activities. Procedures forestablishing a plan covering the following aspects of security mustbe defined and proposed:

- network security (technical and organizational, together witha crisis plan);

computer security;

establishment of a special security service (to guard againstunauthorized entry, fires and explosions).

EI. DESCRIPTION OF TASKS

The consultants' activities will be divided into the following eightpecific tasks:

(1) establishment of the 'Societ4 des telecommunications, and evaluationof its organization;

(2) management of 4evelopment;

(3) commercial management;

(4) human resource management;

- 48 - ANNEX 5Page 4 of 15

(5) information systea;

(6) budget;

(7) accounting;

(8) security.

In each of the above tasks, the consultants will be responsible foron-the-job personnel training and the transfer of know-how.

The consultants will prepare detailed task-by-task plans of thetraining to be acquired in Rwanda and elsewhere.

3.1 Establishment of the "Socift6 des T6l1communications" and itsOrganization

The government will be assisted in mobilizing and distributing theresources constituting the share capital of the *Socidtd mixte.w In addition,the consultants will assist the government in preparing the internal regulationsfor enabling the nSoci6td mixte' to operate optimally and efficiently.

The consultants will evaluate the form of organization and statusconferred by the government, and will adapt them into the forms appropriate fora mixed enterprise.

This task is quite clearly a continuation of Phases 1 and 2 ofSOPREPOST's activities in 1987 and 1989.

The work will be divided into the follo ig stages, each with aspecific objective:

- study and evaluation of the present situation (taking into accountthe existing studies);

- definition of the objectives of the new organization;

- proposals for a new form of organization;

- strategy and conditions governing the establishment of the neworganization, the resources necessary, and preconditions for success;

- assistance in the establishment of the organization.

Given the definitions that have already been established, theconsultants will focus on the establishment of the 'Socidtd.' This stage willbe implemented mainly by the telecommunications staff themselves, the role ofthe consultants being primarily to provide support and organize and guide workingsessions. All decisions must be taken by DGT (the Directorate General ofTelecommunications).

- 49 - ANNEX 5Page 5 of 15

3.1.1 It will be made clear that financial control in the "Soci6tdl is tobe exercised at two levels; i.e., by an internal auditor directly responsibleto the Director General, and by an external auditor of recognized internationalstanding. Financial organization will be further developed, and the informationconcerning human resources will define the nature of a private-sectortelecommunications enterprise in the Rwandese setting (possibly includingprovision for collective agreements).

The program contract will define the contractual duties of the"Socidt6m in terms of objectives; i.e., with indicators of performance, volumeand quality of services, operating income, financial results, profitability,etc. It will be necessary to establish a link between the profitabilityobjective and tariff policy, and specify the government's duties toward the"Societe," including the obligation to pay for communications services in atimely manner; otherwise the "Sociftd' could be obliged to reduce the number oflines available to government agencies, or demand appropriate compensation forthe services provided.

In a special document, the consultants will define the personnelregulations to be recommended for the "Societ6' (e.g., based on either a contractsystem or a system of collective agreements complying with the Rwandese LaborCode). The document will also recommend transitional arrangements for governmentemployees, to be applied to their transition from their current status as civilservants to that of employees of the "Socidtd."

The consultants will prepare a set of internal regulations for the"SociOte" dealing with both the relationship between it and users, and withmanagement procedures. They will also prepare special regulations to governprocurement procedures.

3.1.2 The Establishment of an Opening Balance

A prerequisite for establishing the *Socidtd" is to calculate thevalue of the fixed assets currently belonging to the State and for which theministry is responsible. The only way to do this is to prepare an openingbalance for the 'Sociftd.I At a second phase, an independent auditor will givelegal validation to this calculation of the net worth of the 'Soci6td.'

In order to prepare the opening balance, the assets and liabilitiesof the "Societ4' must be assessed. The assets consist of physical and financialfixed assets and circulating capital, and these must be completely inventoried.Liabilities consist of medium-term and short-term debt. Medium-term debt is thatrelating to fixed assets financed by the State. It would be appropriate toassign them to the 'Societe4 by means of a transfer agreement, or provide forsome similar arrangement.

The net worth of the 'Societe' will be the difference between theassets and liabilities thus assessed. However, the State's debts to the'Societe" (resulting from arrears of payment for services) must be incorporatedinto the assets. It is also essential to include the working capital necessaryfor operating the new "Socidtd.6

-50 - ANNEX 5Page 6 of 15

The consultants will prepare an estimated income statement for theyear 1990, and projected income statements for the period from 1991 to 1995.

3.2 Management of Development

The management of development will focus on the transfer of know-how. The consultants will bring together all existing projects and restructureand develop them.

The consultants will prepare procedures for future projects in linewith the work already performed.

The various tasks can be summarized as follows:

- deciding methods for establishing long and medium-term plans, toinclude:

- projections of demand and the geographical distribution ofdemand;

- mediur-term structure (1993);

- preparation of a master plan indicating the structure targetedover the long term (20 years);

- guidelines for the largest urban areas;

- presenting these plans in the form of three-year programs;

- proposing a system for coordinating the various technical aspects(buildings, switching, local networks and transmission), to ensureoptimum profitability on investment;

- establishing records for project monitoring;

- defining clearly the various aspects of a project (operations,technical issues, markets, financing, lending by donors, fixedassets, etc.);

- organizing the technical and financial aspects of project monitoring.

3.3 Comercial ManaRement

This task will consist of ensuring that the new "Soci4te' willoperate in a truly commercial manner, so that telecommunications can be developedin the best interests of the enterprise and the market.

In addition, it will be necessary to establish a comtercialinformation system to enable decision makers to take prompt action at all timesin pursuit of the main objectives, and to establish a tariff system in keepingwith the new commercial policy. To this end, the following items must be takeninto consideration:

- 51 - ANNEX 5Page 7 of 15

the maintenance of an up-to-date and detailed register of subscriberscontaining all the necessary technical and commercial data concerningeach subscriber;

the dissemination of information to customers concerning conditionsgoverning the use of telecommunications services, and the range ofservices available;

the need to contact potential customers individually, once theinitial high demand has begun to be absorbed;

programs of cut-offs once the planned recovery has been achieved,administering these prudently and providing all necessaryinformation;

special monitoring of the ministries, since recovery rates are lowestfor these customers, and there is little scope for cutting offservice;

analyzing demand on the basis of precise surveys, with a view tofuture investment;

improving and maintaining service quality (i.e., with respect tothe technical services);

legal disputes with customers owing large amounts of arrears;

procedures and measures relating to warnings, limitation of serviceand even termination of service in the case of large-scale users suchas government agencies and government enterprises.

The following measures will also be necessary:

a study in cooperation with other agencies (the Rwandese Chamber ofCommerce and Industry, the Ministry of Planning, the Ministry ofFinance, the Ministry of Commerce, etc.) in order to produce reliabledemand projections and also, at a more qualitative level, survey theopinions of existing customers;

medium-term action programs in the following areas: publicrelations, management of documentation, billing, new products andservices, technical and commercial activities, information systems,etc.

All procedures will be formalized and issued in the form of staffuides.

.4 Human Resource Management

The autonomy of the uSoci4te6 will be reflected in the followings

- 52 - ANNEX 5Page 8 of 15

- the establishment of personnel regulations defining a wage and salarypolicy in line with development objectives;

- hiring and career development policies and procedures to ensure thatthe staff is qualified and motivated;

- an accounts monitoring system for staff activities, enabling theoverall performance of the organization to be optimized and coststo be calculated;

- straightforward, timely and reliable personnel management;

- a training policy.

Activities already undertaken with regard to telecommunicationspersonnel management (i.e. computerized personnel records) will be taken intoaccount. The human resource task will include the following items in particular:

- definition and establishment of procedures for external hiring andinternal staff transfers;

- ^management of wage and salary payments, automatically registered bythe computerized system.

3.5 The Management Information System

The information system must provide the enterprise's decision makerswith the tools for fuliilling their role.

It consists mainly of the preparation of performance charts enablingthe enterprise's position to be determined through the calculation of a numberof quantified management indicators.

In order to establish this system, the indicators will first bedefined jointly with the staff of DGT, after which reliable and values will becalculated and validated.

On the basis of the DGT performance chart and the billing andrecovery balances drawn up each month, the consultants will decide what newindicators will be necessary, and will formalize procedures for validating them.

Finally, the scope for shortening the time necessary for obtaining,transmitting and validating such values will be studied, in order to ensure thatsuch times are compatible with those necessary for analyzing the figures andpreparing any action it may be necessary to take.

3.6 The Budget

It will be necessary to establish procedures to provide for acomplete budgeting cycle, including the necessary degree of discussion ofobjectives and resources.

- 53 - ANNEX 5Page 9 of 15

Because of scheduling, the establishment of these procedures willbegin while the "Soci4tew still has its current status (FY91), and will concludewhen its new legal status has already been established. Consequently, it willbe necessary to plan to make these tasks compatible with the preparation of theannual budgets after the change of status.

Budget preparation will be divided into the following stages:

- consolidation of available data;

- study of the data thus gathered, and preparation of the preliminarydraft budget, to include the capital and current budgets, revenue,and projected operating accounts;

- discussion of draft budget, in close consultation withrepresentatives of DGT and the various ministries concerned (i.e.,Finance, Planning, Public Works and Energy, Foreign Affairs, etc.);

- preparation of the final budget documents (both form and content)for FY92, once these discussions are concluded;

- monitoring of budget execution; the monitoring documents for thevarious budgets must be subsequently drawn up in close cooperationwith the officials of the agency concerned and the accounting staff(monitoring of commitments and payments, management report,procurement, supplies, orders, etc.).

3.7 Accounting

3.7.1 General and Cost Accounting

Establishment of a complete and efficient accounting system musttake account of the following two basic considerations:

- the field of telecommunications has certain very special features,and these must be taken into account;

- the transition of the telecommunications agency in Rwanda to thestatus of an enterprise must be based on the recommendation oforganizational principles and management rules that are simple, butthat will show their short-term effectiveness.

For this task to be successful, implementation of the accountingsystem must consist of the following three components. It will sometimes bepossible to implement these simultaneously:

(a) The analysis of needs and the validation of the accounting systemwill include the following:

- analysis of the budgetary context;

- 54 - ANNEX 5Page 10 of 15

- analysis of the contribution of the accounts to the auditingsystem;

- study of the Rwandese accounting system;

- integration of the auditing system into the accounting system;

- definition of modules for auxiliary accounts processes;

- definition of the overall accounting system.

(b) The consultant must also define how a system of cost accounting canbe established in order to determine the costs of support services,the management of the vehicle pool and workshops, networkconstruction and maintenance services, buildings maintenance, storagefacility operation, equipment inventories, etc., and the costs ofcustomer services (these being necessary for determining tariffs).

(c) The establishment of the accounting system can be subdivided intothe following items:

- validation of information flows;

- organization of accounting services;

- formalization of procedures.

(d) Analysis of the results of experiments, and generalization of theseresults. It will be necessary for the consultants to:

- analyze the results of the experiments;

- carry out full-scale processing.

3.7.2 Asset Accounting

Asset accounting will consist of the management of inventories andrecords of physical fixed assets, applying a depreciation policy and a breakdownspecifically adapted to the needs of telecommunications activities.

If necessary, the material will be computerized in cooperation withDGT.

The establishment and input of the logs of inventories and fixedassets will be performed by the local team, supervised by the consultants.

Establishment of the system of asset accounting will consist of aphase in which the system is tested for reliability and procedures forregistering fixed assets are integrated.

As regards inventory management, it will be necessary to undertakethe following activities simultaneously:

- 55 - ANNEX 5Page 11 of 15

preparation of statements of equipment flows;

alphabetical classification of levels of consumption, movements,etc.;

personnel training;

organization (both physical and from the viewpoint of accounts) ofstorage facilities.

The accounting of physical fixed assets will depend on themaintenance of the register of fixed assets. This register will inventory suchassets, classified by item or by set of items, as appropriate, starting fromthe time that they are first brought into operation, and following themthroughout their useful life, recording the dates of each event; i.e., currentfixed assets, entry into service, annual depreciation, withdrawals. Theconsultants must plan a system to provide for continuous revaluation, takingaccount of currency devaluation and also obsolescence, and will determine thedepreciation rates appropriate for each type of fixed asset.

3.8 Security

This phase, in which existing arrangements are analyzed, mustsupplement the 1988 study, and is to cover the whole territory.

The consultants will be required to:

- define security regulations, the organization of exercises and thevarious documents for monitoring the application of securitymeasures;

= prepare a crisis plan covering major risks and ways of counteringthem;

- prepare a schedule for adopting security measures, together with abudget for their implementation.

Because of the strategic nature of the telecommunications sector,the iwandese authorities alone will be responsible for implementation of thesecurity plan.

- 56 - ANNEX 5Page 12 of 15

B. TERMS OF REFERENCE FOR THE STUDY OFTHE STRUCTURE AND TARIFF LEVELS OF THE

"SOCIETE D'ECONOMIE MIXTE DE TELECOMMUNICATIONS" (SEMT)

AND THE OREGIE DES POSTES"

1. The purpose of the study is to determine the principles of a rationaltelecommunications tariff structure in Rwanda and to start applying that

structure to subscribers in mid-1993.

2. The guide to this structure is marginal cost tariff, subject to theconstraint that revenues must be sufficient to assure the financial viabilityof the telecommunications company. The marginal cost, i.e., the marginal savingto the economy if the marginal demand (telephone connection or additional type

of communications facility) is not met, has two facets:

(a) cost of the service to the telecommunications company, when networkcapacity is sufficient to meet demand;

(b) cost to the user of not having the service, when network capacityis insufficient.

The study should be based on cost accounting and estimated demand,and completed by a financial analysis determining which revenues will be usedto assure the company's financial viability.

Cost accounting

3. The object of this task is to calculate the marginal cost of the

principal telecommunications services offered, whether in Kigali, in a majorregional center or in a rural area, in respect of:

(a) a telephone connection

(b) a local call

(c) an interurban call

(d) an international call

(e) a telex message or other service.

These costs will be estimated in 1990 francs.

4. The information comes from:

(a) the company's accounts

(b) the technical operating records

- 57 - ANNEX 5Page 13 of 15

(c) samples to determine the marginal cost of certain services

(d) possibly data from the company's other sources.

Demand study

5. The purpose of this task is to determine the demand for each of thetelecommunications company's services as well as its price elasticity. It willbe necessary to identify existing demand, its profile being described by lineutilization curves during the day and during the days of the week, and potentialdemand. Potential demand analysis is essential from two points of views (a)to estimate the cost to present or potential users of not having the service,in the event the demand is not fully met; and (b) to identify the least price-elastic services, so that they can support that portion of the margin that coversoverhead and thus assaies the company's financial viability.

6. An estimate of potential demand requires an exhaustive examinationof data concerning applications for a connection, rates charged for calls, thenumber of uncompleted calls, etc. It also requires a sampling of existing andpotential users to estimate the demand for the different services and the pricethat consumers would be willing to pay for them (or the losses or additionalcosts they would incur if the services were not available).

Social or development-related considerations

7. Social considerations require that the demand analysis give attentionto the possibility of charging specia'. rates for the telephone services used,for example, by rural or poor customers, or for the use of public telephones.Those rates would be lower than the charg- resulting from the marginal cost andfinancial viability calculations. Such cross-suosidization is an effective meansof making those services accessible to consumer categories that would otherwisebe deprived of them.

Financial analysis

8. The tariffs calculated for the different services (some based oncosts, others on demand) will be multiplied by the estimated volume of futureservices to evaluate total revenues in 1992 and the next following five years.These will be compared to cost projections, to determine the company's futurefinancial situation.

9. The same procedure will need to be repeated several times in orderto arrive at a tariff structure compatible with the company's financialviabiii4.

- 58 - ANNEX 5Page 14 of 15

Final results

10. The results of the study will be presented in the form of a set of

tariffs for the different servicest

(a) connections and miscellaneous services can be evaluated at costor with a social reduction;

(b) the price of subscription to the telephone or telex service shouldcover the bulk of the fixed costs;

(c) telephone calls, both local and interurban, will be taxed by lengthof call, which is directly linked to the use of telephone exchangeequipment and transmission costs;

(d) differences in taxation according to distance tend to become blurred,since the cost of additional equipment becomes relativelyinsignificant;

*e) tariffs for international telephone calls are as established by

international agreement.

The study will also propose a method for future adjustments for

inflation.

Personnel

11. The study will require six man-months of work from a team including

an economist, a financial analyst and an engineer, each with experience in

telecommunications, plus sampling personnel.

- 59- ANNEX 5Page 15 of 15

C. TERMS OF REFERENCE FOR THE STUDY OFMOBILIZATION OF RESOURCES OF THE "SOCIETE

D'ECONOMIE MIXTE DES TELECOMMUNICATIONS' (SEMT)

1. The consultants will prepare an analysis of the company's presentand projected working capital, highlighting the funds generated by operations,which the company will need to retain to finance its investment program.External financing will have to be obtained on commercial terms, at lowest theterms applied to onlending of the IDA credit.

2. The consultants will determine the best tariff policy to enable thecompany to generate the necessary funds. If present tariffs are inadequate, theywill propose a suitable increase, compatible with government policy. If tariffsare adequate, the consultants will propose ways of mobilizing additionalresources.

3. The consultants will discuss the various methods of mobilizingadditional cash resources: fiscal policy (customs duty, income tax, valueadded), earmarking of dividends, advance repayment of loans:

(a) customs duty: this is not a method to be recommended, since thesuppliers of the necessary telecommunications equipment almost nevercompete with local manufacturers:

(b) income tax: this is calculated by applying a rate to income, afteramortization and before interest on the long-term debt;

(c) value added tax: this will mobilize resources as long as itsapplication does not affect tariffs paid by the consumers;

(d) earmarking of dividends: this is limited to a relatively smallpercentage of the capital of the entities;

(e) advance repayment of onlent loans; since the loans are negotiatedaccording to the Government's shortage of foreign exchange, thecompany's self-financing rate may be too low; it can therefore makeextra local-currency repayments to the Government on the onlentloans after commissioning of facilities.

The consultants will propose a plan to mobilize the company'sresources, taking account of its tariff policy and present and projectedfinancial situation, and, if necessary, suggest amendments to Rwandeselegislation.

4. Four man-months will be required for the consultants' mission.

- 60 -

ANNEX 6

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Organization Chart of MINITRANSCO

Ej du JkO du I01 MIMITEM TPANSPOATS UI COMUUNICATION

SECFITASR GENENAL

CRIMWWAPPROVIS.IION Y CONTENTWI

LiIi 1 ET EVALUATION5~CS CENT wui.f' r'MiuATt

IOTrP l Aa O UTNO

LSFL PFINAS GE WNECTAE | i MAINTENANIICE

FWWAOETP ION INATION4 TlON 4 TI OIT PORMS I t FU4ANCES

R PFOGRAMMES CHEOUKSPOTMU S ET NFCRMAON 4 ,

,11W0CCOM ET CONTROLE ET¢ON P STWToN ITt 4TTINN

U OONTROLE U awnE EtET

RESEAUX DECAlS

- 61 -

REPUBLIC OF RWANDA ANNEX 7SECOND COMKUNICATIONS PROJECT

_1 1

o t

04

W r D -I

I.-

Ul_ o. LU -- :' Ci_ ~ J. L

- 62 -

ANNEX 8

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Telecommunications Services: DescriPtion of theTelecommunications Components of the Project

1. The telecommunications components proposed for IDA financing arepart of DGT's 1989-1994 investment program. They have to be considered ascomplementary investments to support maintenance and operations of thenetwork as well as to increase the reliability of the long distance domesticnetwork and provide for public telephones.

2. The maintenance package has been extracted from the NationalMaintenance Program established by ITU experts (UNDP financing). It includesmeasuring equipment such as wheatston bridges, multimeters, PCM testequipment, tools for cable networks, transmission and power equipment forrepairs, radio telephones, walkie-talkies and microcomputers. In addition,the maintenance package provides for spares for standby power and p.c.b.'sfor electronic digital switching equipment, and also for lots of equipmentfor the transmission, power and air-conditioning workshops.

3. The public telephones component includes 170 coin boxes, 32 card-phones for international calls and associated equipment and cards, andtelephone booths. Specialized training will be provided by the supplier,but public telephones will be installed by DGT/SEMT's own technicians.

4. At the present time, the overall Rwandese long-distancetransmission network is a star whose center is the relay station of Mt. Jari(close to Kigali), and the overall traffic from the capital city of Kigaliand the rest of the country (and neighboring countries) is exclusively routedthrough this station. To secure the digital network, in case of failure ofthe strategic Mt. Jari station (lightning, etc.) 2 GHz, 34 mbit/sec (1+1configuration) microwave routes will be established between Kirambo andGisenyi via Kalongi to link Cyangugu to Gisenyi, and between Gisenyi andRuhengeri via Mugogo (see map). The project includes the supply oftransmission radio equipment, solar power in some relay stations, antennas,towers, digital multiplex equipment, including installation training andmaintenance.

5. It goes without saying that no effective maintenance of the networkcan be performed without vehicles and at present DGT still operates with somevehicles which are worn out and close to collapse. In the framework of theNational Maintenance Program prepared by ITU, the project includes six lightfour-wheel vehicles, eleven heavy four-wheel vehicles, one truck, two lighttrucks, five vans and ten motorbikes.

6. Implementation of the telecommunications training program,established by consultants financed through a grant from FAC, requires therehabilitation of MINITRANSCO's training center and the supply of trainingaids, equipment for the transmission lab, material for practical training(installation, jointing, etc.), microcomputers, etc.

7. Procurement of proprietary items for spares, transmission equipmentfor the workshop and training lab, estimated to amount to about US$450,000,will be directly purchased from the original suppliers.

- 63 -

ANNEX 9Page 1 of 3

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Postal Service: Description of thePhysical Components of the Postal Project

General

1. The proposed postal project is the 1990-1994 Rwandese Postal Serviceinvestment program. Since DGP had no resources to invest in postalfacilities for the last 25 years, the postal network is in very poorcondition (buildings need heavy repairs or total reconstruction) and doesnot match the new population distribution. Overall postal profitability ishighly related to network growth since operating facilities are the majorsource of costs. Accordingly, all investments in operating facilities havebeen planned carefully according to specific criteria:

(a) population density of the area;

(b) level of investment commensurate to potential revenues on a profitcenter like basis; and

(c) level of investments tailored to present needs with a margin toaccommodate regular growth and a modular conception for futureextensions.

Existing Facilities at the Beginning of the Project

2. Despite its small size, 29 retailing outlets, the Rwandese Postalnetwork occupies illegally 102 of its facilities, usually in administrativebuildings. Approximately 351 of post offices are recorded as unhealthy orhazardous (e.g., old constructions not maintained). The rest of the network(e.g., Kigali, main cities) does not offer enough windows which results ina longer waiting lines for the customers. Communities of 100,000 personshave virtually no access to postal facilities: the closest post office isoften 30 to 50 miles away with no public transportation. The main sortingcenter, located in the major post office of Kigali, is very small (less than1,000 square feet), overcrowded and unhealthy. Lack of space for storage andprocessing mail and parcels results in long delivery delays, mail losses,etc. (see Table). Ko specific handling and cleaning equipment is availablewhich explains the important figures of sick leave days for staff operatingin this facility: e.g., back problems caused by heavy and repetitive manualhandlings, silicosis caused by accumulated dust in postal bags.

- 64 -

ANNEX 9Page 2 of 3

STORAGE AND PROCESSING CAPACITYOF PRESENT SORtING CENTERS

---- S wees per month---- --------4th wk-------- Maximumper day

M T W R F S S M T W R F S S

NuMLr of incoincboas of " il *nd-otehr lt s:

1 Fro ONATRACOM 26 26 26 26 26 2 - 26 26 26 26 26 26 -(national courier)26/d

2. Fro AIRPORT 38 6 636 4 U36 - 8 63 6 6 36 U -(internationalcouriors) 3O/d

3. Froo UGANDA: - - - - 200 - - - - - - 200 - -200/week

4. Fro. Tanzani: - - - - - - - - - - - 400 - -400/month

Total 62 62 262 262 62 - 62 62 62 62 62 - - 662

Stora. capacity 100

Insuffile*nt torae - - - - 162 124 124 86 46 10 - 562 624 524 500(,x. begs/day)

Proceesina capacity 100

Insufficint roeeessin 0 to 100

(bigi/dy)

Source: MINITRANSCO/DGP

3. However, the Postal Service in Rwanda shows profitable operations.As such, it could finance most of its investments, even foreign imports sincethe Post is a net earner of foreign currencies. (Indeed, terminal dues havea positive balance which accounts for 202 of revenues).

Expansion Under the Proposed Project

4. DGP's construction expenditures program for 1990-94 would includethe proposed project (RF 262 million) and provision for future investments(RE 20 million). The proposed project will increase by 50Z the number ofretail facilities in areas where obvious needs are shown by customers:

(a) five major cities where post offices are in very bad condition butgenerate important revenues (RI 0.5 to 3 million) and have to bereconstructed (Cyangugu, Nyabisindu, Kibungo, Rwamagana, Byumba);

- 65 -ANNEX 9

Page 3 of 3

(b) seven important market places of dense population (60,000 to 80,000inhabitants), over 25 miles away from the nearest post office andshowing a potential "postal consumption' per inhabitant above thenational average (Busoro, Ngorero, Munini, Ngenda, Busengo, Bugarama,Ruhashya);

(c) in the capital city where the population has increased ten fold andrequires new accesses to postal services: four new stations andthree additional windows will be available following projectcompletion;

(d) in addition, with an objective to improve the quality of service andreduce waiting lines at windows, five important post offices (Kigali,Butare, Gisenyi, Ruhengeri, Gitarama) plus the main post office ofKigali will be rehabilitated. All these post offices will beoutfitted with appropriate basic window equipment to allow fast andreliable operations, e.g., P.O. boxes for customers, safes forvaluable deposits, scales for weighing mail and eventuallymicrocomputers for accounting or commercial purposes.

The new postal network will then offer over 100 retail windows to theRwandese population and projections show that this enhanced network canaccommodate a growth rate of posted traffic averaging 3Z per annum.

5. Also the project will significantly improve the overall qualityof service in mail processing and as a result mail delivery delays will beshortened (see Annex 3). The construction of a new sorting center of 3,000square feet with sufficient storage areas for present and future mail trafficwill allow same day delivery in Kigali and next day delivery in other maincities. Handling equipment will dramatically improve the productivity ofmail processing (from 100 to over 150 bags per day). The new mail sortingand conveying system will address the services requested by customers:

(a) door-to-door collection and delivery for large customers generatingimportant revenues;

(b) Express mail services door-to-door with possible pick-up on calls;

(c) same day mail processing of all incoming mail which will mean, interalia, improvement of delivery delays for one to two days on manyroutes (see new targets in delivery delays, Annex 3).

a 22

W .. .. .. .. . .. .. .. .. . .. .. .. .. . .. . .. .. . .. .. .. .. . .. .. .. .. . .. .. .. .. . .. .. ..-- - - -- - - - - - -- -

rz~ z:

-A

0 80.~~~~~~~~~~~~~~~.0~ -1 : ~~~~-' -, o. - . 3

U 3 -------

(a W - I ~~~~~~~~~~~~I A !I I -uI- W --- - -- ,

'- ""I '-5 .o..,,-

0I03'4 I PW v --4 - n=- Z -W , W .0 9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~30- S.D ~ 00

o Ii 2!: ~~~~~~~~~~~~~~~~~~~~~~~~~~ ~aI Z I I ..........................................-.. o ........

z --------------, 0 ~ . ------- ------- ------- ------- ------- .. . ..... .... .. 4C4

I 0,1 ~~~~~~~ I I " i-i~~~~~Zi

W -*-0 n!~~~~~~~1~.01' 4 -

t, in -. 3,

3.. - I - C.C C

o .E 1 2 _ ' g g I I ~~~~~~ -~~ t.. . .. . . -m-- -- -- ----- -- ----------- - - -------- ----- -- -- --- -- - --- ---

133. kv. U . 43. ... 3.aI. 3'n.~~~~ - 0 .~~~~=0We - C~i =, S.-

2~~~ 5 It ~ ~ eu aAnm~ ~ ~ uW rs am a' U U

~~ *:..j~~~0 :~~~~~O C

^ 6~~~~~~~~~~~~~~~"ilMI. °W ^ 1v !:-t^-* ine- VoO g l" -a| ............

z o~~~~~~~I CM e 29fi; 0 o e .iit8e{j °>|o]fn

v o _w"_ _ wo 5 O e";tooo_ 8 "" o "Ws Cl i0 040° CD

_..............,_____________ _...... _ _____ * .....-. _._.!.. _-.. .A az * "0 rtSt"brz R I " ' ~~~~~~ ', n°2N-; o I t; z j MN0 X _ ° soO ,~~~~-

S1 e > O em_Nr l t 1|_2;e4 s* it Fs ¢ | t 5_3ef7};2 . o ___ *¢ .~~~~~~~~~~0, l S r sF e ! j-000°66 zn 42 S ! *J ! ! o o o .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I-

N ol¢ <¢ | 5to°s~ i 0 °0 ~~ ,-Xoo-- ;1 0a }- f; § o| "i <~i *i § e5ooo _ | ;1§ < 1 1°"°°-°--e1"1 o"°°~ens^!-i<cmI o°>l -ooo

>lio~~~~~~~~~~~~~~~~~C 40 cm _z> 45ii;S°°on-X t i}">" .- o!z t @ l-l o;ooo o... ................................... ...................... ........

|~~~~~~~~~~~~~~~~~~~~~~~~- _c;5o .. .. .. ..... .. _....._.5.'._._....

j0 O"S-§a Z MM '" 4 2 |R>!E !

- 68 -ANNEX 12

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Schedule of Disbursements(US$ million)

IDA Cumulative Bank's ProfilesFY/Semester Disbursements through All Sectors Telecom.Ending in Semester Semester b/ in Africa Worldwide

FY91June 30, 1991 0.5 a/ 0.5 0.1 0.1

FY92Dec. 31, 1991 1.0 1.5 0.6 0.3June 30, 1992 1.8 3.3 1.5 0.9

FY93Dec. 31, 1992 2.2 5.5 2.3 1.8June 30, 1993 3.3 8.8 3.4 2.8

FY94Dec. 31, 1993 1.8 10.6 4.5 4.0June 30, 1994 1.2 11.8 5.6 5.3

FY95Dec. 31, 1994 0.7 12.5 6.8 6.6June 30. 1995 0.3 12.8 8.3 8.3

FY96Dec. 31, 1995 9.0 9.0June 30, 1996 9.9 10.0

FY97Dec. 31, 1996 10.6 10.7June 30, 1997 11.3 11.3

FY98Dec. 31, 1997 12.0 12.0June 30, 1998 12.3 12.3

FY99Dec. 31, 1998 12.7 12.7June 30, 1999 12.8 12.8

a/ Includes disbursements under PPFb/ Disbursemeat profile in accordance with physical implementation schedule.

- 69 - ANNEX 13

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Performance Indicators

A set of indicators which would assist in the monitoring of theRegie's and SEHT's performances during the project period has beenestablished. Both new entities will be asked to report on the actual as wellas on the projected achievement related to the performance indicators.

I. Postal Services

(RF '000) 1992 1993 1994 1995

Postage sales, domestic 58.3 78.6 79.3 80.1Postage sales, international 111.0 133.4 137.4 141.6Express mail service 23.6 26.0 28.4 30.4Public facsimiles 3.2 3.6 3.9 4.0Operating ratio 90.OZ 90.0Z 90.0Z 90.0O

II. Telecommunications Services

1992 1993 1994 1995

Total mid-year DELs 13,250 14,750 16,250 17,750Mid-year Telecom. staffper 1000 DELs 40 38 35 35

Service Quality:* Completion rates: local 55Z 602 65Z 70Z

STD 602 652 65Z 652ISD 302 402 452 50Z

* Z of faults cleared in 48 hrs. 502 602 702 80Z* fault rate per DEL 0.5 0.5 0.5 0.5Telephone operating revenue/DEL 195 196 195 185Total operating expenditure/DEL 130 135 141 139Private and Government arrears 3 mos. 3 mos. 3 mos. 3 mos.Rate of return on netrevaluated assets 142 102 102 1OZ

- 70 -ANNEX 14

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Supervision PlanStaff

Dates Activity Skill Input

5-1991 Peview of implementation of institutional Telecom Eng. 5.0and training programs by consultant Fin. Analystand recruitment of key personnel Postal Cons.

9-1991 Same, preparation of tender documents Same 5.0of the project and progress reporting

1-1992 Same and review of bidding process Same 5.0

7-1992 Mid-term review of progress made in Same 7.0creation of new entities for post andtelecommunication and setting up theirorganization in recruitment, placementand performance of key staff, and inprocurement of equipment

1-1993 Supervision of project implementation, Same 5.0institutional component, andcompliance with covenants

7-1993 Supervision of project implementation Same 5.0institutional component, andcompliance with covenants

1-1994 Supervision of project implementation Same 5.0institutional component, andcompliance with covenants

7-1994 Supervision of project implementation Same 5.0institutional component, andcompliance with covenants

1-1995 Supervision of project implementation Same 5.0institutional component, andcompliance with covenants

7-1995 Supervision of project implementation Same 5.0institutional component, andcompliance with covenants

1-1996 Supervision of project implementation Same 5.0institutional component, andcompliance with covenants

6-1996 Final supervision and preparation Same 5.0of PCR

- 71 - ANNEX 15Page 1 of 5

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Assumptions Used in theFinancial Projections for Telecommunications

New DELs. The number of DELs would increase by 182 in 1990 and 152in 1991, the rate falling off thereafter; there would be 1,500 new DELs eachyear from 1992 to 1995 and 2,250 from 1996 to 1999, following constructionunder a future project.

Revenue. Telephone revenue rose by 40Z and 282 in 1988 and 1989,respectively, 22Z and 132 from an increase in the number of lines, and 15Zand 132 from growth in average line traffic. Through 1999, increases intelephone revenue will result from additional lines and changes in averagetratfic per line. These changes are estimated to be 52 for 1990, OX for 1991and -52 subsequently, reflecting the entry into the network of smallconsumers.

Following an 182 reduction in telex receipts on billings in 1988and 92 in 1989, projections (billings and booths) show a decline of 5Z in1991 and 32 from 1992 to 1999. Telegraph revenue would fall by 52 from 1992to 1999.

Growth in revenue from telephone booths is based on the addition of20 new booths in 1992 to the existing 28 P&T booths and 20 street booths,plus the constructior. of 50 booths in 1991 and 250 booths in 1992.

Internal use of telephone services fell considerably in 1988 and1989, owing to the separation of DGT accounts from those of other MINITRANSCOdepartments, including DGP. As internal consumption can be controlled atDGT, its level should remain moderate over the next 10 years.

Installation fees would increase by 102 annually in real terms.

Charges. The personnel expenditures increased in 1989 by about 72following the recruitment of new personnel; it is expected to rise in realterms by 102 in 1990 and 1991, in anticipation of the establishment of thecompany, then at 22. The establishment of the company should make itpossible to cut personnel, but, for the sake of prudence, personnelexpenditure projections were not reduced on that score.

The negative balance for international communications is expectedto increase at the same rate as billing. The increase in 'other services"would reflect moderate growth in internal consumption by DGT.

Annual depreciation of fixed assets is 7.252.

- 72 - ANNEX 15Page 2 of 5

Following progress in telephc.ae billing and receivables, bad debtsare expected to fall to 8Z in 1991, and 62 thereafter. It was agreed atnegotiations that establishment of the company will help keep arrears at lessthan three months of billings. Monitoring of payments by private consumershelped reduce arrears to a highly satisfactory level by the end of 1989, ofmore than one month of consumption for the two categories of residential andprofessional customers. However, arrears stand at 7 months for parastatalenterprises and 20 months for the State. With DGT's efforts to reduce thedebt of the State and parastatals, arrears can be expected to average twomonths as of 1991.

The tax rate is 50Z on the earnings of DGT or of the future company.In order to reduce the cash surplus, a payment will be made from the cashreserves of the entity which, in the specific case of the projection, wouldreduce the amount to be carried forward on the balance sheet to zero.

Tariffs. New tariffs as of May 1, 1990 introduced time-based ratesfor local consumption. The impact was estimated at 8Z for a full year.Devaluation (para. 1.04) will be responsible for increases of internatioanltariffs of 66.71, partly in 1990, fully in 1991. To counter the effects oflocal inflation, increases of 10 are expected in 1994, which will maintainthe rate of return on the revalued net fixed assets at over 1OZ. The rateincreases would nevertheless be far below inflation (56Z compared to 1172over the period - para. 4.08).

Investments and borrowings. The financing of the investment programformulated by DGT was discussed by DGT and the donors. However, as the loanconditions for external financing are too soft for a profit-making commercialactivity, the financial projections assume the loans are onlent on commercialconditions (7.72Z rate of interest and reimbursement in 15 years, including5 years' grace), with the exchange risk being borne by the borrower.

Moreover, since borrowings finance at least all of the foreignexchange component of investments (nearly 901 of the total), the self-financing capacity of DGT may not be fully used, given the projected resultsof operation. A mechanism for accelerated reimbursement to the Government(equivalent to immediate repayment of a portion of the loan by the company)of foreign exchange loans was agreed for the IDA Credit (para. 4.12) and aprovision for repayment of about RF 700 million from 1994 to 1999 is made inthe financial projections.

Because of the 1990 devaluation, interest and reimbursements onforeign loans contracted before 1990 will be greater and the projectionincludes an estimated inflation correction to increase the debt service, by401 in 1991 and 1992, 25Z in 1993 and 1994, 15? in 1995 and 1996, 1OZ in 1997and 1998, and 5Z in 1999.

- 73 - ANNEX 15Page 3 of 5

D I R E C T I 011 6 E N E R A L E D E S T E L E C 01 NN U N I C A T I 01 NS D U R 1 A ND A8 A S I C D A T A

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

General data

Inflation rates 4.21 5.01 5.01 14.01 28.01 12.01 5.01 4.01 4.02 4.0Z 4.0? 4.01 4.0Z1.14 1.46 1.63 1.72 1.78 1.86 1.93 2.01 2.09 2.17

Physical data

TelephoneNb of subscribers: and yr 5200lb of lines: end year 6705 8170 9212 10870 12500 14000 15S00 17000 18500 20750 23Q00 25250 27500Nb of liness nid year 7438 8691 10041 11685 13250 14750 16250 17750 19625 21875 24125 26375

Tarifs

TeleohoneInternational IRwF/uin):343 Delg,Fr,keth; 400 oth.Eur; +66. 7n In ern ~~~~~~410 AmericaIntercity MvF/min) 40 40 40 40 40 40 40 iO2 --------------------------------------Local iRwF) illinited:10 1.5.99: 101 3in--------------…-----------------1

1O/tr2ni ----- …------------------…--

I NC 0 NE S T A T E 1 E N T S(RF million)

;-- pro ections-- ---- ---1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1W7 1998 I9

Revenues

Telephone, invoiced 570.4 805.5 1038.7 1398.2 2204.5 2529.2 2674.8 3079.4 3195.4 3356.3 3554.1 3723.6 3867.4Telex, invoiced 176.4 145.0 131.5 124.9 119.7 115.1 111.7 106.3 105.1 101.9 98.9 95.9 93.0Tele raph & misc. 55.0 46.2 41.6 37.4 35.6 33.9 32.1 30.5 29.0 27.5 26.1 24.8 23.6

Telephon- 22.5 24.8 26.7 '3.8 37.5 52.4 73.4 92.5 97.1 102.0 107.1 112.5 118.1Telex 16.7 15.0 14.3 13.6 12.9 12.5 12.1 11.8 11.4 11.1 10.7 10.4 10.1

DST self consumotion 30.5 25.0 15.0 17.1 21.9 24.5 25.7 26.8 27.8 29.0 30.1 31.3 32.6Connexion fees 1 oth. 7.5 10.0 13.9 17.4 24.5 30.2 34.9 40.0 45.7 52.3 59.9 68.4 78.3

Total 879.0 1071.5 1281.7 1642.4 2455.5 2797.8 2964.7 3389.2 3511.6 3680.1 3986.8 4067.0 4223.0

Charges

Supplies 47.4 52.1 57.4 7J.0 95.8 114.8 M2.0 143.6 159.8 177.8 197.8 220.1 245.0International communicat. 86.1 121.6 156.8 205.8 332.1 357.7 378.. 435.6 452.0 474.7 502.7 526.7 547.0Other services 49.3 53.7 49.0 59.8 81.9 98.2 110.3 122.7 136.6 152.0 169.1 188.2 209.4Personnel 104.7 106.9 114.3 143.3 201.8 230.5 246.9 261.9 277.8 294.7 312.6 331.6 351.8Depreciation 162.7 276.0 326.9 419.2 587.6 759.3 952.3 1126.6 1231.7 1340.2 1460.3 1589.0 1722.8Bad debts 112.6 125.6 126.7 162.5 I.7 164i.4 176.3 201.7 209.0 219.1 231.4 242.1 25i.4General Secretariat 11.6 11.8 12.1 10.0 6.0 0.0

Total 574.4 747.6 843.0 1070.6 149.9 1726.9 1993.1 2292.1 2466.8 2658.4 2874.0 3097.7 3327.4Income

Operations 304.6 323.9 438.7 571.8 955.7 1070.9 971.6 1097.1 1044.7 1021.7 1012.9 969.2 895.6less: taxes 392.8 415.9 323.7 362.1 334.9 333.0 335.3 319.8 290.6

levy 392.8 415.8 323.7 264.5 93.2 0.0 54.6 238.1 290.6inter. o/loans 70.1 74.1 87.5 119.0 170.0 239.3 324.2 373.0 375.1 355.6 342.2 329.5 314.4

Income to ret. earn. 234.5 249.7 351.2 452.9 0.0 0.0 0.0 97.6 241.6 333.0 280.7 81.7 0.0

Rate of return 11.7? 14.11 14.81 10.12 16.61 12.31 12.12 11.52 11.41 11.5Z 11.21 10.91Teleph. rev./I. (id yr)s kRlF 111.6 122.6 142.6 191.9 194.9 86f.3 195.2 185.5 176.2 167.4 159.0 151.1

-74- ANNEX 15Page 4 of 5

FUIIDS FLOY 9tAtEIIEIITS(Rf million)

17 1999 1999 1990 1991 IM 1993 1994 1995 199 1997 1998 19

Internal generated fundsOperating incom 323.9 433.7 571.9 955.7 1070.9 971.6 1097.1 1044.7 1021.7 1012.9 969.2 85Dpreciation 276.0 326.9 419.2 587.4 759.3 952.3 1126.t 1231.7 1340.2 1440.3 15B9.0 1722.8

Total cash flow 599.9 765.5 991.0 1543.3 1930.2 1923.9 2223.7 2276.5 2341.9 2473.2 2559.2 2419.4 8512.1

Loag tere borrowing 174.9 450.0 683.5 948.0 1495.0 2004.0 431.5 135.0 222.0 240.0 225.0 180.0 4562.0

1uosidies, FAC 17.0 24.0 33.0 6.0 U3.0

Total sources 774.8 1432.5 17t4.5 2515.3 3358.2 2933.9 2455.2 2411.5 2583.9 2713.2 2783.2 279a4

Applications

Debt serviceAmrtization 123.7 97.6 217.0 310.1 329.4 291.4 297.4 521.9 536.5 500.9 500.9 474.6Interest 74.1 97.5 119.0 170.0 239.3 324.2 373.0 375.1 355.6 342.2 329.5 314.4Inflation correction 192.1 227.1 244.2 264.1 359.9 356.9 337.2 332.1 315.6Sped up amortization 100.0 100.0 100.0 100.0 100.0 250.0

Total 197.9 185.1 334.0 472.2 794.9 9t4.9 1024.5 1355.9 1349.0 1220.2 1262.5 1354.4 36B9.3

C*mstruction expnd. SUII/90-9Csitchinen 34.0 193.0 277.0 282.0 129.0 ff.0Local netlorks 101.0 161.0 176.0 192.0 126.0 744.0Transmission 48.0 191.0 314.0 194.0 26.0 765.0Earth station 315.0 315.0 50.0 365.0Rural telephony 120.0 120.0 292.0 396.0 310.0 125.0 1233.0UIK conexions 50.0 63.0 67.0 17.0 147.0Various eqipt 53.0 296.0 74.0 425.0Eagin. & tmhn. ss. 16.5 171.0 221.0 112.0 48.0 552.0T.ele (previws) 165.4 165.4 35.9 35.9Invnstmnt budget 200.0 121.0 131.0 122.0 135.0 143.0 150.0 150.0 150.0 140.0 170.0 10.0 6481.0Future project 450.0 450.0 740.0 900.0 750.0 600.0 450.0

Total 365.4 797.9 947.9 1270.0 132.0 1301 54.0 400.0 890.0 940.0 920.0 790.0 6304.93819.0

Other disburumentsTaes 0.0 392.9 415.0 323.7 362.1 334.9 333.0 335.3 319.9 290.6Levy 0.0 392.9 415.9 323.7 244.5 93.2 0.0 54.6 239.1 290.6

Total 0.0 795.6 931.6 647.4 626.5 429.0 333.0 389.9 55B.0 581.2 2991.2

Increase in working capital 212.2 110.2 -80.5 -6.6 48.9 17.1 58.7 7.2 13.7 19.7 12.7 7.0 37.4

Total applications 7M.4 I03.2 1103.3 2721.2 3507.2 2927.5 2763.9 2391.1 2595.7 264B.9 2753.2 2722.9

Cash surplus 1.4 349.3 571.2 -205.9 -149.0 106.5 -IO.5 20.4 -1.9 44. 30.0 75.6 214.2

- 75 - ANNEX 15Page 5 of 5

B ALAN CE SHMEETS(R|F L illion)

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

:Assets

Gross fixed assetsLadJ & buildinos 263.5Complex instal it. 2948.3Technic. equipment 88.0Vehicles 136.8Intangibles 13.4

Total 3450.0 4164.2 4852.4 6710.9 949.7 11447.4 14823.1 16256.5 17722.8 19247.7 21037.6 22797.1 24729.0Depreciation f83.0 1203.2 1590.2 2232.0 3444.6 4617.2 5800.4 7159.1 8677.2 10364.4 12239.4 14317.9 16613.5

%Net fixed assets 2567.0 2961.0 3262.3 4479.9 6055.1 6630.1 9022.7 9097.5 9045.6 8883.3 8798.2 8479.2 8115.5'Marks in progress 546.2 383.1 702.7 448.5 920.5 1990.5 556.5 786.5 586.5 676.5 636.5 656.5 436.5

Other long t. assetsShares 70.8 70.8 70.8 70.8 70.8 70.8 70.8 70.9 70.9 70.8 70.8 70.9 70.8Loans to staff 9.9 8.9 8.9 8.9 8.9 8.9 9.9 8.9 9.9 9.9 8.9 8.9 8.9

Total 79.7 79.7 79.7 79.7 79.7 79.7 79.7 79.7 79.7 79.7 79.7 79.? 79.7

:Lurrent assetsInventory 8.1 13.0 14.3 17.5 24.0 28.7 32.3 35.9 39.9 44.4 49.5 55.0 61.2Receivables 148.9 365.0 483.6 410.6 409.3 466.3 494.1 564.9 585.3 613.3 647.8 677.E 703.8Foreign debtors 22.6 24.9 27.3 30.1 33.1 36.4 40.0 44.0 48.4 53.3 58.6 64.5 70.9GoverneentOther debtors

Total 179.6 402.9 525.3 459.2 466.3 531.4 566.4 644.8 673.6 711.1 755.9 797.3 936.0

Cash & banks 1.4 350.7 921.9 716.0 566.9 673.4 564.9 585.3 583.4 647.8 677.8 753.4Total assets 3372.5 3828.t 4920.6 6387.2 8237.6 9998.7 10898.7 11173.3 10970.7 10934.0 10918.1 10690.5 10221.2

Uabilities

EquityCaital & subsidies 1295.0 1295.0 1312.0 1312.0 1336.0 1369.0 1375.0 1375.0 1375.0 1375.0 1375.0 1375.0 1375.0R& ained earnings 16.2 265.9 617.1 1069.9 1069.9 1069.9 1069.9 1167.5 1409.1 1742.2 2022.9 2104.6 2104.6Revaluation reserve 141.6 301.3 935.2 2201.0 2973.3 3383.2 3760.6 4140.5 4518.3 4993.7 5263.6 5622.8

Total 1311.2 1702.5 2230.5 3217.1 4606.9 5412.3 5929.2 6303.1 o924.7 7635.5 8291.6 8743.2 9102.4

Long tern debtForeign lenders 1941.5 1994.7 2547.1 3013.6 3651.5 4818.0 5530.6 5674.7 52B7.8 4973.2 4712.4 446.6 4142.0Government (personnel) 8.9 89.9 9.9 9.9 8.9 9 8 9 8.9 9.9 e.9 8.9 9.9 8.9Inflation correction cue. -192.1 -419.1 -665.4 -929.5 -1288.3 -1645.2 -1982.4 -2314.5 -2630.1Sped up amortization -100.0 -200.0 -300.0 -400.0 -500.0 -750.0

1950.4 2003.6 2556.0 3022.5 3469.3 4407.9 4874.1 4654.1 3808.3 3037.0 2338.9 1630.9 770.7

Current li;bilitiesSuppliers 7.5Advances from custom. 1.3Foreign creditors 88.2others 13.9

Total 110.9 122.0 134.2 147.6 162.4 178.6 196.5 216.1 237.7 261.5 287.6 316.4 348.1

Total liabilities 3372.5 3828.1 4920.6 6397.2 9237.6 9998.7 10998.7 11173.3 10970.7 10934.0 10919.1 10690.5 10221.2

Total assets - liabilit. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Debt equity ratio 601 54% 53Z 485 431 45Z 461 421 35? 28Z 22% 161 9t

- 76 - ANNEX 16Page 1 of 5

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Assumptions Used in theFinancial Proiections for Postal Services

Traffic. Postage of letters and packages by domestic andinternational service is expected to increase annually by 1% and 3%,respectively.

The number of rented P.O. boxes would increase by 400 in 1989 and1990, 1,200 in 1991, 700 in 1992 and 100 in subsequent years.

The volume of money orders would increase by 2% annually and thatof postal checking account operations by 1% per year.

Tariffs. International postage tariffs would increase to the fullextent of the devaluation (66.7%) from November 10, 1990 on. Postage rateswould increase in 1992 by 50% for domestic mail, and all other services(rental boxes, money orders and postal checking accounts). Other increaseswould be 33% and 17% for domestic and international mail respectively in1993, and 20% for both in 1996, for domestic and international mail only,in order to maintain the operating ratio below 90%.

Other revenues. Revenue from express mail would quintuple from 1988to 1999, at an average annual rate of 16%. Receipts from public telefaxeswould increase eightfold from 1988 to 1999, averaging 20% per annum.

Charges. Supplies and services would increase by 15% annually inreal terms from 1990 to 1992, owing in particular to an expansion of theautomotive fleet, and 3% in subsequent years. Mail transport would doublefrom 1987 to 1992, following an increase in service, and increase by 3% perannum in real terms thereafter.

The personnel expenditures for operating staff would increase by10% in 1990 and 25% in 1991, at the time of the establishment of thecommercial entity, and by 5% in 1992, 3% in 1993 and 2% in subsequent years.The personnel expenditures for administrative staff would increase 15% in1990, following recruitments, 30% in 1991, at the time of establishment ofthe commercial entity, 5% in 1992, 3% in 1993 and 1% ir subsequent years.An increase in personnel expenditures that does not keep pace with inflationsuggests that a plan to pare personnel is needed, the first step bein3 notto replace those who retire.

The rate for fired asset depre:iatior would increase and stabilizeaL 6% as of 1991.

Dividends. A dividend, calculated as a 50 tax on profiLs, wouldbe applied as of 1991.

- 77 - ANNEX 16Page 2 of 5

Investments and borrowings. The financing of the investment programformulated by DGP was discussed between DGP and IDA. The projectionsincluded a loan onlent by the State at a 42 interest rate, with repayment in20 years including a five-year grace period, absorbed by the operatingresults of the postal service. Nevertheless, in order to mitigate the cashflow difficulties faced by the postal entity, a State subsidy of RF 150million per year would be needed in 1991 and 1Q92.

DIRECTIOIN 6EINERALE DE LA POSTE IU RIIAINDABASIC DATA

1967 1988 1989 1990 1991 Im 1993 1M 199V 1996 1997 1998 1999

Io ral

Inflation rats 5.0Z 5.02 14.02 28.02 12.0Z 5.02 4.02 4.02 4.0Z 4.0Z 4.02 .0Z

hantitin

Postat oslst satlomal 3.7 3.74 3.77 3.91 3.95 3.99 3.93 3.97 4.01 4.05 4.09 4.13 4.17Ul itss) I loternat 0.814 0.83 0.S5 0.97 0.90 0.93 0.95 0.99 1.01 1.04 1.07 1.10 1.14

Postal boxas, rntal (a 3790 4500 4oo 5300 6500 72C0 7300 7400 7S00 7600 7700 7800 7900Fin. csv. I may order 20600 20600 21012 21432 21861 22299 22744 23199 23663 24136 24619 25111 25614

(nb) I post sects 20200 40200 40602 41008 41418 41832 42251 42673 43100 43531 43966 44406 44850

Tariffs

POstAQu ulssinatioaal 10.00 10.00 10.00 10.00 10.00 15.00 20.00 20.00 20.00 24.00 24.00 24.00 24.00RFI I lnternat 70.00 70.00 70.00 70.00 120.00 120.00 140.00 140.00 140.00 168.00 168.00 168.00 168.00

Postal boxn, rmotal (Ru 1500 1500 1500 1500 1500 2250 2250 2250 2250 2250 2250 2250 2250Fin. swv.1 many order 50 50 50 50 75 112.5 112.5 112.5 112.5 112.5 112.5 112.5 112.5(RuFl I post accts 7 7 7 7 9 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5

- 78 - ANNEX 16Page 3 of 5

I1COME STATEMENTS(REF million)

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 1999

Revenues

Postage sales national 37.0 37.4 37.7 38.1 38.5 58.3 78.6 79.3 80.1 97.1 98.1 99.1 100.1internat 57.0 58.1 59.3 61.1 107.8 111.0 133.4 137.4 141.6 175.0 180.2 185.6 191.2

Terminal dues 27.9 25.0 25.0 25.0 31.0 33.7 34.3 34.6 35.0 35.3 35.6 35.9 36.2Express sail service 0.0 5.4 10.0 13.0 19.1 23.6 26.0 28.4 30.4 31.9 33.2 34.5 35.9Public fax 0.0 0.5 1.5 2.0 2.7 3.2 3.6 -- 3.9 4.0 4.2 1.4 4.5 4.7Fin. serv.: soney order 1.0 1.0 1.1 1.1 1.6 2.5 2.6 2.6 2.7 2.7 2.8 2.9 2.9(taxes) i post accts 0.1 0.3 0.3 0.3 0.4 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

Postal boxes rental 5.7 6.9 7.4 8.0 9.8 16.2 16.4 16.7 16.9 17.1 17.3 17.6 17.8Taxes lserv. on packag 3.3 3.3 3.4 3.7 4.5 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9iscellaneous, incl. ph 1.2 1.6 1.9 2.1 2.7 3.1 3.4 3.6 3.9 4.2 4.5 4.8 5.1Miscellaneous, mci. p.. ___ __ _ _ _ _ _ _ _ _ _

Total 133.1 139.3 147.4 154.2 219.2 257.2 30.7 312.1 320.0 373.0 381.5 390.3 399.4Charges

Supplies & services 16.3 17.1 17.1 22.4 33.0 42.5 46.0 49.3 52.9 56.6 60.6 64.9 69.5Mail transportation 9.9 10.3 11.0 15.0 18.0 20.8 22.5 24.1 25.8 27.6 29.6 31.7 33.9Stamp purchases 6.5 7.0 7.6 8.3 10.7 12.0 12.6 i3.1 13.6 14.1 14.7 15.3 15.9Personnel: direct 52.5 52.5 52.5 57.8 72.2 84.9 87.4 98.1 98.9 89.7 90.5 91.3 92.1

administrati 17.0 17.0 17.0 19.6 25.4 29.9 30.8 30.7 30.7 30.6 30.6 30.5 30.5Depreciation 1.2 1.4 1.5 3.3 7.6 31.0 58.1 65.6 72.8 80.3 88.1 96.2 106.2

Total 102.4 105.4 106.7 126.4 166.9 221.0 257.3 270.8 284.5 298.8 313.9 329.8 348.0

Income

Operations 30.7 34.0 40.8 27.8 51.3 36.2 46.5 41.3 35.5 74.1 67.6 60.5 51.4Income taxesDividends 25.7 18.1 23.2 20.6 17.8 37.1 33.8 30.2 25.7Interest on loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

To retained earnings 30.7 34.0 40.8 27.8 25.7 19.1 23.2 20.6 17.9 37.1 33.9 30.2 25.7

Rate of return 50.41 58.81 37.81 46.4Z 7.6T 5.31 4.41 3.6A 7.2X 6.41 5.61 4.5ZOpcrating ratio 76.91 75.61 72.41 82.01 76.5Z 85.91 84.7Z 86.82 88.91 80.11 82.31 84.51 97.11

79- ANNEX 16Page 4 of 5

F U N D S FLO 1 ST ATE NE N TSIRnF million)

1987 198 19 19 1990 1991 1992 1993 194 195 1996 1997 19 1999

Swrces

Operating incoe 34.0 40.8 27.8 51.3 36.2 46.5 41.3 3S.5 74.1 U7.6 60.5 51.4bpr ciation 1.4 1.5 3.3 7.6 31.0 58.1 65.6 72.8 90.3 18.1 96.2 106.2

Total cash flow 35.4 42.3 31.1 58.9 67. 104.I 106.8 106.3 154.4 155.6 156.7 157.5 3U8.6

Lug tem borrowing 0.0 116.0 272.0 181.0 0.0 0.0 0.0 0.0 0.0 0.0 576.0

it. subsidy 75 75 150.0

Total surcs 3.4 42.3 31.1 24N.9 414.1 29.6 106.8 106.3 154.4 155.6 156.7 157.5

Applicatious

Debt serviceAortization 0.0 0.0 0.0 0.0 0.0 0.0 19.2 39.4 30.4 38.4Intrest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total 0.0 0.0 0.0 0.0 0 . 0.0 0.0 19.2 38.4 39.4 39.4 0SUM/90-9

Construction expendituresSorting centre 34 233 116 383Offices 30 41 50 23 149Equipment 79 68 147Vhbiclts 11 14 25Eagle. 6 tch. ssis. 69 62 131Training 36 27 19 82Future proJect 60 90 SO 80 80 80 80

Total 30 196 465 286 9O 90 80 90 90 S0 1057917

Dividends 0.0 0.0 0.0 25.7 19.1 23.2 20.6 17.9 37.1 33.8 30.2 25.7 37.6

Increase in working capital -0.5 -0.6 -0.8 -1.- -2.0 -2.2 -2.5 -2.8 -3.1 -3.5 -4.0 -4.5 -9.3

Total applications -. 5 -0.6 29.2 219.9 481.1 307.0 99.1 95.0 133.1 148.7 144.7 139.6

Cash swplus 35.9 '.9 1.9 30.1 -66.9 -14.4 8.7 13.3 21.3 7.0 12.0 17.9 -40.7

- 80 - ANNEX 16Page 5 of 5

8ALANCE SHEETS(RvF aillion)

1997 1988 199 1990 1991 1992 1993 1994 1995 1996 1997 1998' 1999

zed assets23.9

Nos 24.1Mnt 19.3s 2.4

1 69.6 73.1 76.7 9.5 165.6 867.0 1071.3 1114.1 1311.7 2364.2 1571.7 1634.6 1904.0

.ion 3.1 4.7 6.4 10.6 21.2 54.7 115.6 185.7 265.9 356.9 459.2 573.8 702.9

assets 66.5 68.4 70.3 76.9 144.4 812.3 955.7 929.4 1045.7 1007.3 1112.5 1060.8 1201.1

progress 0.0 0.0 30.0 179.0 1.0 130.0 210.0 40.0 220.0 150.0 230.0 110.0

assetsWYsQt5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6

ables & var. db 6.0 6.3 6.6 6.9 7.3 7.7 9.0 8.4 8.9 9.3 9.8 18.3 10.9i debtors 44.3 44.7 45.2 45.6 45.3 44.9 44.5 44.1 43.8 43.4 43.0 42.7 42.3tent 291.9 297.7 303.7 309.8 316.0 322.3 328.7 335.3 342.0 3489. 355.8 362.9 370.2

344.8 351.4 358.1 365.0 371.1 377.4 383.9 390.5 397.2 404.1 411.2 419.5 425.9

mnts 35.9 78.9 80.7 110.8 43.9 29.5 38.2 51.5 72.9 79.7 91.8 109.7

aets 411.3 455.7 507.2 552.6 805.3 1234.6 1499.1 1567.0 1634.5 1704.2 1753.5 1801.1 1846.7

LOs 104.3 104.3 104.3 104.3 104.3 104.3 104.3 104.3 104.3 104.3 104.3 104.3 104.3d eanings 34.0 74.7 102.6 128.2 146.3 169.5 190.2 209.0 245.0 278.8 309.0 334.7-tion reserve 3.3 6.7 16.6 44.7 100.6 145.1 183.4 223.5 265.3 308.6 353.1 399.6wbsidy 75 150 150 150 150 150 150 150 150

1 104.3 141.6 195.8 223.4 352.2 501.2 569.0 627.9 65.8 764.6 841.7 916.5 998.6

i borrowing 0.0 0.0 0.0 116.0 388.0 576.0 576.0 576.0 556.8 518.4 4B0.0 441.6

liabilitiesmrs & var. cred 7.3 8.3 9.5 10.8 12.3 14.1 16.0 18.3 20.8 23.7 27.1 30.9 35.2

creditors 7.8 8.0 9.3 8.5 8.8 9.0 9.3 9.6 9.9 10.2 10.5 10.8 11.1deposits 291.9 297.7 303.7 309.8 316.0 322.3 328.7 335.3 342.0 348.9 355.8 362.9 370.2

1 301.0 314.1 321.5 329.1 337.1 345.4 354.1 363.2 372.7 382.8 393.4 404.6 416.5

abilities 411.3 455.7 507.2 552.6 905.3 1234.6 1499.1 1567.0 1634.5 1704.2 1753.5 1901.1 1894.7

--ts - liabilit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Lty ratio Ot 01 0 0 25t 441 501 4Ut 461 421 395 343 311

- 81 -

ANNEX 17Page 1 of 2

REPUBLIC OF RWANDASECOND COMMUNICATIONS PROJECT

Sunmmary of Telecommunications Tariffs

Rwanda FrancsSince 01/01/87

A. Telephone

Annual rental for a single telephonesWithin the exchange area 6,000Within a suburban telephone area 9,000Outside these areas 12,000

Installation costs:Standard charge 2,000For each meter of cable above 20 metersfrom cable head 200- minimum deposit (refundable, no interest) 3,000- transfer to a third party 2,000

Tariffs:For untimed local calls (minimum 30 per month) 10For interurban calls (one minute) - 3 min. minimum 40For calls to frontier (one min.) - 3 min. minimum 10For international calls:One minute basic rate to Belgium, France 445one minute basic rate to Kenya, etc. 245United States 1,070USSR 600Asia -- Near East 245

Far East 1,070

B. Telegrams

Internal tariff (7 words minimum) per word 10

To Africa -- Neighboring countries, e.g. Kenya, per word 45North Africa 160Other countries 230

To Europe -- Belgium, Germany 115France, Switzerland 160Other countries 175

- 82 -

ANNEX 17Page 2 of 2

Rwanda FrancsSince 01/01/87

B. Telegrams (Cont'd.)

To America -- North America and Mexico 245South America 300

To Asia -- Mediterranean, Jordan and Iran 20fOther countries 300

To Australasia 330

Letter telegrams (22 words minimum) are charged at 501.

C. Telex

Annual basic rental (not including the teleprinter) 14,400Annual teleprinter rental 72 000Annual maintenance contract 28,000First installation fee 2,000Deposit (refundable, no interest) 20.000

Minimum charge (3 minutes) per minute -- Belgium 585Burundi 270Kenya 430United States 885Local 30Interurban 90Zaire - direct 400

- other route 560

- 83 -

ANNEX 18Page 1 of 2

REPUBLIC OF RWANDASECOND COMHUNICATIONS PROJECT

Return on Telecomunications Investment

1. Construction expenditure on which rates of return are calculatedare those under the telecommunications program. The benefit period extendsfrom 1989 to 2010, when on average the equipment installed under the programis expected to have completed its usefulness with no residual value.

2. Capital costs are those of the 1989-94 construction expenditureprogram, exclusive of all price contingencies and transfer payments, such ascustom duties. They are valued at 1990 prices. Benefits attributed to theprogram are valued at actual tariffs and consist of the revenues from the newsubscribers connected under the project. Operating costs are thecorresponding incremental operating costs of providing services. Allrevenues and costs have been deflated to bring them to their comparable 1990price levels. From 1996, because the benefits from the telecomunicationsproject are expected to be extended for that year, (or 1993) on, operatingcosts and benefits relating to the project are assumed to remain constant.The financial rate of return would thus be 122.

3. The internal financial rate of return, however, does not fullyreflect the net economic benefit from the program. Assuming that in thefuture, given the supply constraint, subscribers would be prepared to pay inreal terms the same tariff as in 1990, a portion of the consumer surplus canbe estimated. Furthermore, the portion of civil works cost attributed to theemployment of unskilled labor has been excluded from the investment cost,assuming an oversupply of unskilled labor. In such a case, the economic rateof return would be 25? (compared to the financial 122).

4. The sensitivity analyses were made as follows: assuming asimultaneous reduction of 1OZ in revenues and increase of 102 in constructionand operating costs, the economic rate of return would decrease to 202; ifrevenues are delayed by two years, the economic rate of return would decreaseto 17z.

- 84 -

ANNEX 18Page 2 of 2

RATe OP R etrURN OP THE POJ EcT

|*e of raftgi Y C.rm,r" fl_ flo a a I t I v I t * a * S I 7 a i

pirnoleg r.r. MO i -_.0 @.0 -_.0 -e.s 1.a -M.* -_0 02.49"0 -_.0 om.0 -in.* _.S 0.0 . .e -ea.0 s.o 11.0

6.g* r.,. 99 M -0.-3 s9.$ a -e .. a us... .M.1 -t141.1 -n.Sm.VuIU -7r.0 .4 100.8 - .& M9 -@6.3 413.2 1 .S -U 6.8 -6.0

bis.,...0.9;int.5.11995 -2.7 489.. 740.2 17.9 7.1 -m.O M. es'.s -41.7 -.-".m.w 10ss eM.& W.A Mi.2 9.1 44.7 0.s a.m S.a sos.2

gs.. 01w 2 1ow 8.9 .a U.s 19.6 u17.9 96.S In. I 96.6 WU.5 54.917.45996 in.11 76.4 A. 188.2 1469.0 U1.7 &.1 10.4 6 2.2 Ms

Uist.w.a.A....... 5 99" .o 11 3.4 96. I 346.2 14O9".0 %9.7 .10.4 1M.0 M.ifU.swI 1m.4 1.4 6.9 18.2 14W.0 U9.7 41.1 s.4 Us&i.2 m.6

s9" M. 760.4 60.9 14.2 14".0 19.7 &9.1 10.4 141.2 m.s600 m.i 760.4 0. 18.2 149.0 19.7 56.1 1.4.4 148.2. $me600 m.i 760.4 16.9 18.2 14".0 118.7 LM.A 101.4 1I4.2 62.66006 m.e 1.4 6 0.9 U84.2 149.0 1U18.7 1.l, U16.4 184.2 m2.e24.6 11.4 M 6 .9 184.2 141.0 1289.7 59.1 10.4 18.2 6.:: m. .64 A. 23.2 149.0 118.7 1926.1 505.4 141.2 mJ2.e6006 .M 76.4 0.9 1348.2 149.0 U1 .? 5196.1 105.4 284.2 GM::000 on.* 1.4 0.9 1848.2 14t9.0 U25.r 9". 106.4 1848.2 .66007 A. 16.4 .9 848.2 149.0 1259.7 1.1 106.4 236.2 4.6601 .i 70.4 60.9 1848.2 149.0 129.-7 519.5 146.4 1546.2 m2.-

:0 Sme Ra.4 60.0 1846.2 149.0 U19.7 WW9. 11.4 4.2 n.o6010 m.e 76.4 60.9 146.2 149.0 19.7 519.1 50.4 1368.2 M.

P 30 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~CagitumbaRWANDA U G Cagitu

MINISTRY OF TRANSPORT AND COMMUNICATIONS U G A N D AEXISTING AND PROJECTED TELEPHONE FACILITIES TANZANIA

MINISTERE DES TRANSPORTS ET COMMUNICATIONSRESEAU TELEPHON/QUE EXISTANT ET EXTENSIONS C ya

Planned Digital Links unaLiaison Numerique en Projet RuhenGabiro

o Planned Digital Exchanges bare oCentraux Numeriques en Projet AV Byumba

Existing Digital Links Rubavu MukamiraLiaison Numerique Existante i

Existing Analog LinksLiaison Analogique Existante

* Existing Digital Exchanges J D.W.Centraux Numeriques Existants ari Rwankuba

\ ubengera IGALI Rwamagana* Radio Relay KibRubengera uga\

Relais Hertziens uyeGitarama Nyamirambo

International BoundariesFrontieres Internationales ongi Ruhango

Kanzenze Kibungo

l10 20 30 40 is KILOMErERS , GisovutS / ~~~~~~~~Nyabismu

ZAIRE 1JGANDA 'gWA4DA ) v KENYA Iyarushishi Gikongoro r Rubona 0 TANZANIA

RW DAKENYA yarushishiO _ yabitimbo .. r

CTl 'BURUNDI / u gaaaTumba BURUNDI C '- |dTANZANIA Akanyar

1,0 ' .t 29E\s BURUNDI 30