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Implementation Completion Report (ICR) Review - Telecommunications


  
1. Project Data:   
ES Date Posted:
05/21/2001   
PROJ ID:
P003633
Appraisal
Actual
Project Name:
Telecommunications
Project Costs(US $M)
 830.4  758.4
Country:
China
Loan/Credit (US $M)
 250.0  208.2
Sector, Major Sect.:
Telecommunications & Informatics,
Telecommunications & Informatics
Cofinancing (US $M)
 1.3  1.3
L/C Number:
L3687      
   
Board Approval (FY)
  94
Partners involved
BITS/SIDA (Sweden) 
Closing Date
06/30/1999 06/30/2000
         
Prepared by: Reviewed by: Group Manager: Group:  
Kevin Warr
Ridley Nelson Alain A. Barbu OEDST

2. Project Objectives and Components:

a. Objectives
The project's objectives, as stated in the SAR, were to:

  1. Help create conditions for increasing competition and private participation, including setting up an appropriate policy, legal, and regulatory framework; and
  2. Assist in financing selected investments to expand and modernize the infrastructure for both long distance and local telephone service in designated regions and provinces experiencing rapid market development.

b. Components
The project had a reform component, and an investment component.
The Reform Component supported:

  • consultant assistance in developing an appropriate accounting system, as well as a program to train about 25,000 P&T accountants in enterprise accounting;
  • telecommunications tariff review and preparation of an implementation plan for tariff adjustment; and
  • overseas training of MPT staff to enhance their expertise in legal and regulatory fields.
The Investment Component included:
  • provision of two segments of the long distance inter-provincial fiber optical network:
  • expansion of 920,000 lines of local telephone switching systems in three provinces: Heilongjiang, Jiangsu and Liaoning;
  • three inter-provincial fiber optical routes; and
  • three intra-provincial fiber optical routes.

c. Comments on Project Cost, Financing and Dates
Total project cost was US$758.4 million, which was 8.7 percent less than the appraisal figure of US$830.4 million. The Bank provided loans in the amount of US$208.2 million, which was US$41.8 million less than the appraisal figure. The remainder of the loan was canceled. The Swedish International Development Agency provided funding in the amount of US$1.3 million. The Ministry of Telecommunications, Ministry of Information Industry and China Telecom Corporation provided financing in the amount of US$548.9 million, compared to an appraisal figure of US$579.1 million. It is worth noting that the entirety of the Bank's loan went toward buildings, switching and transmission components. The Bank did not finance any technical assistance for this project. The project closed one year later than expected.


3. Achievement of Relevant Objectives:

Help create conditions for increasing competition and private participation, including setting up an appropriate policy, legal, and regulatory framework. This objective was partially achieved. The project did not contribute to setting up of an appropriate policy, legal and regulatory framework. However, the reform components, which made up 0.17 percent of the total project cost, and were financed by SIDA, were mostly achieved and contributed to the conditions for increasing competition and private participation . The reform components consisted of (a) TA for the development of an appropriate accounting system and training in accountancy standards; (b) a study on tariff adjustment; and (c) overseas training of Ministry of Post and Telecommunications staff. Under the project, (i) a report on how to move from the existing Chinese Accounting Standards toward International Accounting Standards was completed; (ii) a tariff study was undertaken that culminated in a Tariffs Seminar; and (iii) a case study of Jiangsu PTA was completed. The Tariffs Seminar recommendations were approved by the State Council and implemented by the Ministry of Information Industry in December 1998. The Borrower's comments note that through the tariff study and consultancy and training on accounting, "the financial management and accounting work level of these organizations was greatly improved." The ICR is, however, silent about the planned overseas training of MPTstaff and, though the Borrower noted training in accountacy standards and practices, the ICR does not provide any data on the training. There was no movement on the establishment of an appropriate policy, legal and regulatory framework under the project.

1. Assist in financing selected investments to expand and modernize the infrastructure for both long distance and local telephone service in designated regions and provinces experiencing rapid market development: This objective was achieved. For the switching component, the project funded a small portion of the digital switching exchange expansion in three provinces: Heilongjiang, Liaoning and Jiangsu. Specifically, the project funded the procurement of around 160,000 lines of digital switching equipment in Heilongjiang, 170,000 lines of digital switching equipment in Liaoning, and 590,000 lines of digital switching equipment in Jiangsu. For the transmission component, the Bank financed two out of 27 inter-provincial fiber optical cables in the first phase. In the second phase, the transmission component included three inter-provincial and three intra-provincial fiber optical cables. Of the six routes, the Bank financed US$18.3 million (28 percent) of the Sichuan Province plan to add more than 10 fiber optical cable links, including 21 sections totaling 5,178 km.


4. Significant Outcomes/Impacts:

The project contributed to sector reform through the eventual implementation of tariff reforms based on the project-funded tariff study. Overall, the reforms in the Chinese Telecom sector are significant:
  • Post operation was separated from Telecom operation;
  • Competition was introduced by the creation of LIANTONG and JITONG, and later by splitting the main operator into China Telecom Corporation (CTC) and China Mobile Corporation (CMC);
  • Value-added services, in particular paging, are provided by around a thousand privately-owned companies and by LIANTONG;
  • Private participation in the provision of basic services was greatly advanced with the transfer of additional provincial operations from CMC to its partially private subsidiary, China Mobile--Hong Kong (CM-HK);
  • The split on February 14, 1999 of the Ministry of Information Industry's operating entity into a fixed line operator (CTC), a cellular operator (CMC), and a satellite operator (CHINASAT); and
  • CTC (the largest operator) is positioning itself for re-entering competition in the mobile market and for floating IPOs to introduce private capital participation in its ownership.

5. Significant Shortcomings (include non-compliance with safeguard features):

None.
6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactoryModerately SatisfactoryWhile the physical components were achieved, there was no movement on achieving the objective of setting up of an appropriate policy, legal and regulatory framework. There is also no data on the staff training component, which makes evaluation of this component impossible.
Institutional Dev.:
SubstantialModestSee above.
Sustainability:
LikelyLikely
Bank Performance:
SatisfactorySatisfactory
Borrower Perf.:
Highly SatisfactorySatisfactoryWhile the overall reforms in China's Telecom sector are notable, there is no evidence that the Borrower's performance in this particular project was better than Satisfactory.
Quality of ICR:
Unsatisfactory

7. Lessons of Broad Applicablity:

Bank-supported sector reforms are more likely to succeed when (i) government commitment is high; (ii) there is sustained and consistent dialogue between the Bank, the Borrower, and the stakeholders; (iii) reforms are preceded by high quality economic and sector work; and (iv) the reform process is augmented by further economic and sector work reflecting changes in the sector. This has been the case with China's Telecom sector reform.
  • Sector reform geared toward private sector involvement can only go so far without a clear institutional and legal framework favorable to PSD. In this case, the GOC has recognized that the next step in the sector's reform process is the establishment of such a framework.

8. Audit Recommended?  No

          Why?  

9. Comments on Quality of ICR:

The quality of the ICR is unsatisfactory for the following reasons: (i) It did not provide a clear statement of objectives. The objectives listed in this Evaluation Summary came from the SAR; (ii) For the most part, the Lessons Learned could not properly be called lessons, but rather accomplishments of China's reform process; (iii) the ICR did not provide evidence on the level and quality of the training component; (iv) the ICR did not provide a detailed breakdown of the costs of the components; and (v) the ICR does not re-calculate the SAR's estimated economic and financial rates of return, which would have been useful, if not for the specific project (which is a small part of a much bigger program), then for the investment program as a whole.

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