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CZECH REPUBLIC: Telecommunications Project (Loan 3644-CZ)

The Telecommunications Project in the Czech Republic, supported by Loan 3644-CZ for US$80.0 million equivalent, was approved in FY94. The loan was closed in FY96, two years earlier than scheduled, at which time US$69.7 million was canceled (at the Borrower’s request) and the disbursed amount prepaid. Cofinancing totaling US$119.0 million was provided by the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). The Implementation Completion Report (ICR) was prepared by the Europe and Central Asia Regional Office and the Industry and Energy Department (IEN). No contribution was received from the Borrower and cofinanciers.

The project's objectives were to: (i) support the modernization and expansion of the Czech telecommunications network; and (ii) foster improvements in the sector’s institutional and policy framework in order to improve operational efficiency and service quality and to assist in the transition to full commercial operation. To this end, the project comprised: (i) a time-slice (1993-1995) of SPT Telecom’s (Czech Republic’s former Post and Telecommunications Organization) investment plan aimed, inter alia, at connecting 310,000 new customers and replacing obsolete switching capacity; and (ii) a broad institutional development program encompassing technical assistance and studies in the area of corporate strategy and organizational development, investment planning, human resource management, accounting and financial control systems and project management.

All the project’s physical objectives were either met or exceeded (nearly one million new working lines were added between 1993 and 1996, and all operational and quality of service targets set at appraisal were exceeded by significant margins), largely as a result of the country’s decision to open up SPT Telecom’s capital and bring in a foreign strategic partner in 1995. Although the speed of privatization was faster than the Bank anticipated when it designed the project’s institutional component (which aimed primarily at relieving the institutional constraints of a public monopoly), some of the activities financed by the Bank were reportedly helpful to the Government in carrying out its accelerated privatization strategy. However, most of the Bank’s loan remained unused and was ultimately canceled at the request of SPT Telecom, which considered the Bank’s procurement requirements and financial covenants excessively constraining.

The Operations Evaluation Department (OED) rates project outcome as satisfactory, institutional development impact as modest, and sustainability as likely (as in the ICR). The Bank’s performance is rated as generally satisfactory (as in the ICR), although it appears that Bank guidelines were an impediment to the Bank’s ability to build on a promising policy dialogue in the sector.

Indeed, a key lesson from this project is that some of the Bank’s standard legal covenants are likely to prove too constraining to a newly privatized company with an ambitious program, an issue which should be addressed when the Bank is considering making a loan to a public enterprise slotted for privatization.

OED rates the ICR as generally satisfactory although it should have provided more detail on the destination of the funds actually disbursed from the Bank loan.

No audit is planned.

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