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Implementation Completion Report (ICR) Review - Telecom III

1. Project Data:   
ES Date Posted:
Project Name:
Telecom III
Project Costs(US $M)
 220.10  219.72
Loan/Credit (US $M)
 74.45  73.97
Sector, Major Sect.:
Telecommunications & Informatics,
Telecommunications & Informatics
Cofinancing (US $M)
 115.27  115.37
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
06/30/1999 12/31/2000
Prepared by: Reviewed by: Group Manager: Group:  
Simone Lawaetz
Fernando Manibog Alain A. Barbu OEDST

2. Project Objectives and Components:

a. Objectives
Original objectives:

(i) Policy and Regulatory Framework: to establish a market oriented policy and regulatory framework to introduce private sector participation in non-basic services in the near term and develop an action plan to secure private investment in basic services;
(ii) Institutional Development: to facilitate commercialization and corporatization of the Tanzania Post and Telecommunications Corporation (TCPC) and build its institutional capacity; and
(iii) Rehabilitation and Expansion: to eliminate existing bottlenecks in the availability of telecommunications services, particularly to business subscribers, so as to satisfy the most urgent demand and foster development of other sectors.
Revised objectives:
No formal revision of project objectives. However, during project implementation, rapid changes in the industry and a dramatic restructuring of the telecommunications sector took place (see Section 3 below). As a result, the project became more focused on the acceleration of the privatization of the Tanzania Telecommunications Company (TTCL) after the project's mid-term review.

b. Components
Original components:
(i) Policy and Regulatory Framework (USM$1.1): TA to the Ministry of Communications and Transport (MOCT) for development of a policy and regulatory framework that would, inter alia, identify options for private sector involvement and competition.
(ii) Institutional Development and Project Implementation (USM$5.4): TA to TPTC for institutional development and project implementation to carry out studies to restructure TPTC; strengthen TTCL's corporate organization including operations, financial planning and marketing activities; provide training to TTCL, Tanzania Postal Corporation (TPC) and Tanzania Communications Commission (TCC) staff and develop courses at the staff college; and retain an external firm for procurement and installation of new works. This component also financed a new financial management system for TTCL.
(iii) Rehabilitation and Expansion (USM$67.95): Investment lending to rehabilitate existing facilities; supply, install and commission new exchanges; expand long distance transmission links; expand the junction network in Dar-es-Salaam; supply small capacity radio link systems in rural areas; and provide telephone instrument vehicles and ancillary equipment.
Revised components:
No formal revision of the project components. However, savings derived from declining costs of telecommunications equipment were redirected to financing the advisory services necessary to support TTCL's privatization. This included consultancies for development of the National Telecommunications Policy, financial strengthening of TTCL, and the sale of TTCL to an international strategic investor.

c. Comments on Project Cost, Financing and Dates
The minor discrepancies between actual and appraisal estimates of total project costs and total loan amounts can be attributed to exchange rate fluctuations. In terms of SDR amounts, the loan of SDR 53.6 million was fully disbursed. The project was granted a 1 and 1/2 year extension until December 31, 2000 as a result of postponed effectiveness, restructuring of TPTC, and incorporation of TTCL's privatization activities. A portion of the contracts for the Wireless Local Loop for rural areas and the Service Order and Billings System are expected to be completed after project closure and will be financed by TTCL. As noted above, some project savings were redirected to financing TA in support of the privatization of TTCL.

3. Achievement of Relevant Objectives:

(i) Policy and Regulatory Framework: TA under the project assisted in the establishment of a new regulatory body, the Tanzania Communications Commission (TCC), and development of a new National Telecommunications Policy that promotes private sector development in a competitive environment.
(ii) Institutional Development: TA assisted in the splitting of TPTC into separate limited liability companies: the Tanzania Postal Corporation (TPC) and the Tanzania Telecommunications Company (TTCL). Significant TA was provided to strengthen TTCL's financial and operational performance and build capacity within TTCL and TPC. While the financial and operational performance of TPC has been striking in its improvement, the performance of TTCL remains weak (see Section 4 and 5). Nonetheless, the project assisted in the successful conclusion of a USM$120 deal to sell a 35% stake of TTCL to a consortium comprised of Detecon, Germany and Mobile Systems International Cellular (MSI) of the Netherlands who will take over management control. The proceeds from the sale will fund a capitalization program of TTCL.
(iii) Rehabilitation and Expansion: After delays until end of 1995 and with exception of a portion of the Wireless Local Loop contract, all of the planned investments were satisfactorily completed. As a result, exchange capacity has increased by about 67% from 128,000 in 1995 to 215,000 by end of July 2000 and exchange connections by 81% from 91,000 connected Direct Exchange Lines (DELs) in 1995 to 165,000 connected DELs by end of June 2000.

4. Significant Outcomes/Impacts:

(1) The policy and regulatory framework established under the project assisted in introducing significant private involvement in the sector. Several private operators are now providing basic, mobile, data, paging, internet, pay-phone and other value-added services. Five mobile operators are helping to meet high growth demand in the cellular market with the number of mobile subscribers now surpassing the number of fixed subscribers. This has assisted in the impressive increase in overall teledensity from 0.3 lines per 100 inhabitants in 1993 to 1.2 in March 2001.
(2) The USM$120 deal for the sale of 35% of all shares in TTCL to a European consortium includes a commitment by the buyer to increase the number of connected lines to 800,000 from the current 165,000 within four years. The private sector response to the opening of bids for this stake far exceeded Bank and stakeholder expectations in terms of dollar amounts and roll-out obligations.
(3) TPC has benefited greatly from consultancies financed under the project and, under a performance contract with GOT for 1997-1999, it has achieved speed, profitability, and security indicators above contract targets. To adapt to its changing market, it has introduced new products such as priority mail, email services, post cargo, post giro system, EMS courier services, and money fax extended to the district level.

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

(1) Despite training and TA targeted at specific regulatory issues, TCC's regulatory capacity remains extremely weak, suffering from political interference, lack of transparency, and loss of key staff.
(2) The financial and operational performance of TTCL remains weak with persistent delays in connecting new capacity, no improvement in collection rates, and failure to meet financial targets.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Institutional Dev.:
Highly LikelyLikelyThe continuing poor operational and financial performance of TTCL reduces from 'highly likely' to 'likely' that the project's physical benefits will be sustained.
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

(1) An inadequate regulatory framework does not prevent the commitment of resources by new operators to meet high fixed line and mobile subscriber growth but it can restrict rapid and sustainable development of the sector. In Tanzania, it has constrained the growth of mobile operations, slowed down entry of new Internet service providers, and forced some existing pay-phone operators out of the market.
(2) Flexibility in selecting privatization options can be key to success. In this project, a capitalization approach helped to raise investor interest, increase the amount paid for the equity stake, and support sector development through an investment plan.
(3) In an environment of rapid technological advances, market growth, and sector restructuring, the project can keep pace with these changes through flexibility in approving extensions of Credit closing, allocating unused funds to support relevant activities, an appropriate skill mix and experience of task managers, and strong efforts to establish a consensus and harmonious working relationships amongst all stakeholders, including other donors, Government, and Borrowers.

8. Audit Recommended?  Yes

          Why?  The project would be a good candidate for a cluster audit as it is the third in a series of Bank projects supporting the Telecoms Recovery Program. Moreover, future operations could benefit from lessons learned about the country factors and the Bank's role in the rapid restructuring and successful introduction of private sector participation in the sector.

9. Comments on Quality of ICR:

The ICR provides a strong and clear analysis of project achievements and Bank and Borrower performance in the context of rapid sector changes.

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