Document of

The World Bank

FOR OFICIAL USE ONLY

Report No. 14722

PROJECT COMPLETION REPORT

INDIA

NINTH TELECOMMUNICATIONS PROJECT(LOAN 2813-IN)

JIUNE 30, 1995

Infrastructure Operations Division

Country Department IISouth Asia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance of

their official duties. Its contents may not otherwise be disclosed without World Bankl authorization.

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PROJECT COMPLETION REPORT

INDIA

NINTH TELECOMMUNICATIONS PROJECT(LOAN 2813-IN)

FISCAL YEAR (FY)April 1 to March 31

Currency Equivalents

$1.00 = Indian Rupee 13.0 (at appraisal)$1.00 = Indian Rupee 31.4 (in 1993)

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

DEL - Direct exchange (telephone) linesDOE - Department of ElectronicsDOT - Department of TelecommunicationsGDP - Gross Domestic ProductGOI - Government of IndiaHCL - Hindustan Cables Ltd.HTL - Hindustan Teleprinters Ltd.ICB - International Competitive BiddingITI - Indian Telephone Industries, Ltd.LIB - Limited International BiddingMOC - Ministry of CommunicationsMTNL - Mahanagar Telephone Nigam Limited (Bombay/Delhi

Telephone Corporation)OECF - Overseas Export Credit Fund of JapanPABX - Private Automatic Branch ExchangePCM - Pulse Code ModulationPCO - Public Call OfficePSE - Public Sector EnterpriseR&D - Research and DevelopmentSTD - Subscriber Trunk DialingTAX - Trunk Automatic ExchangeVSN - Videsh Sanchar Nigam (corporation created April 1, 1986 to

operate overseas service; formerly Overseas CommunicationsService)

FOR OFFICIAL USE ONLY

THE WORLD BANKWashington, D.C. 20433

U.S.A.

Office of Director-GeneralOperations Evaluation

June 30, 1995

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on IndiaNinth Telecommunications Proiect (Loan 2813-IN)

Attached is the Project Completion Report (PCR) on the India: Ninth Telecommunicationsproject (Loan 2813-IN, approved in FY87) prepared by the South Asia Regional Office and theIndustry and Energy Department, with Part II prepared by the Borrower.

The project aimed at supporting: (i) the modernization and network expansion of fourmetropolitan areas (Bombay, Delhi, Calcutta and Madras) and the interconnecting networks; and (ii)limited institution-building measures in the Department of Telecommunications (DoT) and in thegovernment-owned Delhi/Bombay telecommunication corporation (MTNL). The project achievedits physical objectives, albeit with an eighteen-month delay caused in large part by procurementbottlenecks; indeed, the government's decision to procure locally some major project componentsled to the cancellation of more than half of the US$345 million Bank loan and its substitution bylocal funds. Key institution-building components (including training, improvements in planning andbudgeting systems) were also completed under alternative funding arrangements.

Although productivity and quality of service targets were essentially achieved, the sectorremained unable to meet a growing demand, pointing to both the benefits and the limits of thetraditional public utility model (even under a corporatized framework as in MTNL's case), and theneed to consider alternative (particularly private) funding sources for future sector development.

The project outcome is rated as marginally satisfactory, its institutional development asmodest and its sustainability as likely. The PCR is thorough and informative and no audit isplanned.

Attachment

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

FOR OFFICIAL USE ONLY

PROJECT COMPLETION REPORT

INDIA

NINTH TELECOMMUNICATIONS PROJECT(LOAN 2813.IN)

Table of Contents

PREFACE ................................ i

EVALUATION SUMMARY ...... ........... .................... ii

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE ............ 1

1. Project Identity .......................... 1

2. Background .......................... 1

3. Project Objectives and Description ........................... 1

4. Proiect Design and Organization ........................... 3

5. Project Implementation .......................... 3

6. Project Results ........................... 6

7. Project Sustainability ........................... 8

8. Bank Performance .......................... 9

9. Borrower/Implementer's Performance ........................... 9

10. Project Relationship ........................................ 9

11. Consulting Services ........................................ 9

12. Project Documentation and Data ................................ 9

PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE .... ...... 10

PART III - STATISTICAL INFORMATION ........................... 11

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

i

PROJECT COMPLETION REPORT

INDIA

NINTH TELECOMMUNICATIONS PROJECT(LOAN 2813-IN)

PREFACE

This is the Project Completion Report (PCR) for the Ninth Telecommunications Project in Indiafor which a loan of US$345.0 million was approved on May 14, 1987. The amount of the loan wasrevised in stages and ultimately reduced to $163.17 million. The loan was closed on December 31, 1993.The last disbursement was made on March 18, 1994 and the undisbursed balance of $4.833 million wascanceled.

The PCR was jointly prepared by the Infrastructure Operations Division Department 11 of SouthAsia Region and Telecommunications and Informatics Division of the Industry and Energy Departmentof Finance and Private Sector Development. Preparation of the PCR was based inter alia on the Presidentand Staff Appraisal Reports, the Loan Agreement, supervision reports and correspondence between theBank and the Borrower and internal Bank memoranda.

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PROJECT COMPLETION REPOR lINDIA

NINTH TELECOMMUNICATIONS PROJECT(LOAN 2813-IN)

EVALUATION SUMMARY

1. Objectives:

The project was designed to address a number of broad institutional issues includingimprovements in the delegation of authority, planning and budgeting, and procurement in the Departmentof Telecommunications (DoT) while at the same time supporting the modernization and networkexpansion of the four metropolitan telecommunication areas of Bombay, Delhi, Calcutta and Madras andthe interconnecting networks. The basic objectives of the project were to:

(a) help meet the demand for telecommunication services in the four metro districts by adding715,0Q0 subscribers.

(b) improve the quality of local and long distance telephone service and billing.

(c) improve the efficiency and profitability of the network especially in high traffic densityareas.

(d) meet training requirements in the new optical fiber and digital technologies; and

(e) support institutional improvement efforts of DoT and its corporation, Mahanager TelephoneNigam Limited (MTNL) which provided telecommunications services in Delhi and Bombay.

The project was an integral part of DoT's Seventh Plan for expansion of telecommunicationsservices throughout India. The Bank funded components included imported cables and transmissionequipment. Counterpart funding from DoT was used to procure locally produced telephone sets and someswitching equipment; the remainder of the switching equipment came from Japan using OECF funds.

2. Implementation Experience

The procurement of underground cables and local and long distance transmission facilitiessuffered delays of up to one and one-half years behind the original schedule. These delays were mainlydue to the lengthy procedures which were not conducive to quick decision making. The need for DoTto obtain approval from the Department of Electronics as well as other inter-governmental clearancesbefore award of contract contributed significantly to the delays. The decision to maximize indigenousprocurement as a result of the policy of the new Telecom Commission (est. 1989), resulted in cancellationof parts of the loan in various stages of procurement, eliminating the domestic satellite earth stationequipment, the Automatic Message accounting system and ultimately the packet switching equipment.

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This resulted in the cancellation of $177 million in the original loan amount of $345 million. Theimplementation of some of these components was delayed by this cancellation, and some had not beencompleted by project closing. It is expected however, that all components will be completed within twoyears as DoT/MTNL has arranged financing in each case.

On the institutional side, the training and manpower development program was implemented withlittle use of loan funds mainly with the assistance of UNDP/ITU. DoT itself introduced arrangementsfor increasing delegation of authority to its field units, and managed the development of its own systemfor streamlining it planning and budget process.

3. Results

The project achieved its major objectives although its financing from the Bank loan wassubstantially reduced. The financial and economic rate of return on the project is estimated in excess of23%. The number of additional subscribers connected between 1987 and 1992 was 675,000 in the fourmetro districts, close to the target of 715,000. During the same period, DoT exceeded its target forconnection of nationwide lines. Despite this good result, the total expressed unsatisfied demand fortelephone service nationwide increased by 100% to 2.3 million lines, indicating the need to furtheraccelerate supply to meet demand. The quality of service overall improved between 1987 to 1992 withrespect to all the relevant performance indicators although it remains not very acceptable by internationalstandards. Complaints decreased from about 37 to 25 per month for 100 subscribers; failure of local callsdecreased from 37 to 25% and long distance calls from 49 to 28%. Bill collection rates remained verygood but newspaper reports suggest that a serious problem remains with respect to the accuracy ofDoT/MTNL's bills. The revenue per direct exchange lines has shown considerable increase from aboutIRs 3893 (US $130) in 1987 to IRs 5431 (US$180) in 1992. The productivity as measured by thenumber of staff improved from 100 to 64 per 1000 lines between 1987 and 1992. Progress was alsoachieved in institutional improvements in the delegation of authority to the DoT's regions and with theirplanning and budgeting processes. With regards to procurement, DoT did not meet the Bank's minimumstandards on timeliness and, as a result of this and a change in funding of some project items at loanclosing, some of the key project components were still in the process of being completed---e.g. packetswitching, modernization of earth stations, and network management.

4. Sustainabilitv

The sustainability of the project is assured. DoT/MTNL have a stable technical and commercialbase and are expected to perform well financially as in the past given their monopoly status. Even if DoTis subjected to competition, there position of pre-eminence is likely to remain and the project wouldtherefore be sustained. Under a competitive scenario, DoT/MTNL are likely to continue as the mainoperator for a long time because of their huge operational base, the overwhelming demand for services,and the Governmnent's stated position that it would protect the jobs of existing DoT staff. Tariffs undera competitive environment are likely to remain at or around the existing level and network usage levelsare likely to increase thereby improving the returns on the project investments.

5. Findings and Lessons

The project was successful in that most of the objectives were met. However, there were twomajor problems during implementation of the loan: the long procurement delays and the cancellation of

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a large portion of the loan which delayed project implementation. The procurement delays and thecancellations suggest that DoT could have given much greater and much more appropriate priority to theproject and to servicing the needs of its customers. Also, while institutional improvements were made,these too were delayed. It is difficult to assess the effect of the loan on institutional development issues.As planned, DoT increased the delegation of responsibility to field units and developed an important newplanning and budgeting system; but neither of these jobs were completed using loan funds as intended.Also, DoT took a long time to begin implementing these arrangements which had been agreed duringproject appraisal.

The first lesson to be drawn is that where past experience suggests the likelihood ofimplementation delays on procurement and consultancies, then contracting arrangements need to be muchfurther advanced in the project cycle than they were in this case. At the time of this project, advancingprocurement to the stage of the Bank's no objection to contract awards as a condition of Boardpresentation, was quite innovative. However, it was not good enough and long delays continued untilthe awards were actually made. To reduce the remaining delay, it may be necessary to have the supplyand consultant contracts signed prior to Board presentation; such contracts to become effective on theBank's approval and effectiveness of the loan. Arrangements of this nature should be relatively easilyaccommodated in the case where the Bank has an ongoing presence in the sector from previousinvestment projects.

The second lesson is that institutional development of large monopoly organizations is inherentlyvery difficult. A monopoly position removes or limits any externalities which would otherwise inducechange. Once the Bank's loan is awarded, there is little incentive for the monopoly organization to carryout institutional development actions which it is not committed to. This is made more difficult if precisemechanisms for carrying out those actions are not agreed to prior to Board approval (as in this case).There are at least three approaches which could be taken to overcome this problem: (a) advance the hiringof consultants by finalizing the terms of reference and selecting the consultants prior to Boardpresentation. Alternatively, (b) address the sector structure issues. The modern approach fortelecommunications is to privatize and or introduce competition into the sector. Even if competition isnot feasible, breaking up large monopolies can bring significant improvements through benchmarkcompetition and increased executive accountability for performance. Or (c), if experience shows thatmajor structural reforms are needed but the government is not prepared to take appropriate actions, asa last resort the Bank should consider withdrawing its support for investment lending in the sector, orlimit lending with a much greater focus on institutional development.

In the case of this loan, the government had begun sector reform by corporatizing part of theDOT structure through the creation of the MTNL (for providing services in Delhi and Bombay), and theVSNL for providing international services. During the project the Bank concluded that further projectlending to DoT would not bring about the major institutional improvements needed. It therefore decidedthat no further loans to the sector should be given without major structural change first beingimplemented'.

Subsequent to the project, the Bank has provided support to the Governnent of India on overall sector reform through a JapaneseGrant for telecommunications technical assistance. Under the project, Indian consultants have developed guidelines for creation ofa regulator and conditions of entry for private operators. On May 13, 1994 the government of India announced a National TelecomPolicy 1994 which breaks the monopoly of the DoT by permitting private operators to assist DoT in providing value added and basicservice.

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PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity

Name Ninth Telecommunications ProjectLoan Number 2813-INRVP Unit : South AsiaCountry IndiaSector : Infrastructure

2. Background

The Department of Telecommunications (DoT) within the Ministry of Communications (MOC)provides public telecommunications services in India and with neighboring countries. In an importantinstitutional reform, DoT was separated from the Department of Posts in January 1985. The MahanagarTelephone Nigam Limited (MTNL) under MOC, a public corporation established April 1, 1986, operatesthe Bombay and Delhi networks. The Videsh Sanchar Nigam (VSN--overseas communications service)was also established April 1, 1986 as a public corporation under MOC to operate telecommunicationsservices with the rest of the world. At that time, telecommunications equipment was mostly manufacturedlocally by three public sector enterprises (PSEs): (a) Indian Telephone Industries Ltd. (ITI) under MOC;(b) Hindustan Teleprinters Ltd. (HTL), under MOC; and (c) Hindustan Cables Ltd. (HCL), under theMinistry of Industry. A vast array of private and joint venture public/private companies are nowinvolved in the local manufacture of virtually all telecommunications equipment including exchanges,transmission systems and subscriber equipment and cables.

Prior to this project, the Bank Group had made eight loans and credits (totalling $800 million)for telecommunications since 1962. These provided most of the foreign exchange for India'stelecommunications development. During this period, the number of working telephone lines increasedfrom 373,000 in 1962 to more than 5.8 million by 1992, the trunk network was expanded andmodernized, and an automatic telex network of about 48,600 subscribers established. The Bank Groupalso assisted DoT to modernize its organization and management structure, including establishing anEconomics Cell for analyzing pricing, demand, and investment issues in the sector. The mainimplementing agency has been the Telecommunications Branch of the Posts and Telegraph Department(now DoT); however, in the Seventh and Eighth Projects (Loan 1592-IN and Credit 1112-IN), the Bankalso financed investment in ITI, HCL and HTL. Project performance audits have been conducted on thefirst six projects. These audits have found the projects to be generally successful in terms of expansionand financial performance. The Seventh and Eighth projects, which were closed in December 1984 andDecember 1985 respectively, had a largely similar impact. However, like their predecessors, bothprojects suffered lengthy procurement delays and had little institutional development impact.

3. Project Objectives and Description

3.1 Project Objectives

The basic project objectives were to:

(a) help meet the demand for telecommunications services in the four metro districts, byconnecting an additional 715,000 subscribers;

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(b) improve the quality of telephone service and billing in the metro districts, through theintroduction of modem technology, network rehabilitation, and replacement ofsubstandard equipment;

(c) provide good quality subscriber trunk dialing (STD) service between the metrodistricts, and to other major cities;

(d) improve the efficiency and profitability of the network, especially in areas with hightraffic density;

(e) meet the training requirements in the new digital and optical fiber technologies; and

(f) support DoT/MTNL's institutional improvement efforts.

The project also had a general objective to increase the effectiveness of domestic procurementthrough the expanded use of competitive bidding for domestic procurement and the introduction ofcommercial contracts for sole source procurement between DoT and government manufacturers.

3.2 Proiect Description

The project included all the investments in the four metro cities during the Seventh Plan,plus the new long distance links between them, a long distance network management system, atraining component and consultancy services. The main project components were:

Part A. Installation of local and long distance transmission facilities (including optical fiber anddigital microwave systems), within and between the four metropolitan networks ofBombay, Calcutta, Delhi and Madras, together with local and long distance telephoneand telex switching facilities and buildings, to increase the telephone exchange capacityin the four metropolitan areas by about 1,000,000 local lines and 50,000 long distancetrunks, and the telex exchange capacity by about 14,000 local lines. Most of thetransmission and equipment and some of the cables to be imported were to be financedfrom the proposed Bank loan. With the exception of 195,000 lines to be importedfrom Japan, the telephone switching equipment was to be manufactured in India.

Part B. (i) Modernization and expansion of domestic satellite earth station networks;

(ii) Establishment of a packet switched data network between the four metropolitancities and other major cities and industrial areas;

(iii) Establishment of a long distance network management system, includingappropriate facilities to improve traffic flows by locating and bypassing oreliminating bottlenecks; and

(iv) Introduction of automatic message accounting facilities in the four metropolitannetworks, to permit detailed billing of STD calls.

Part C. Support, to the UNDP funded training program for upgrading five regionaltelecommunications training centers and manpower development, including 99 staff-months of ITU experts, 125 fellowships, and training and laboratory equipment.

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Part D. Provision of consultants' services for institutional improvements in DoT and for designof B (iii) above.

4. Proiect Design and Organization

The project was designed to help implement that part of the Seventh Plan (1985-90) whichfocused on high priority telecommunications investments in the key metropolitan networks of Bombay,Delhi, Calcutta and Madras and the long distance backbone transmission routes between them. Therational was to support the use of modern digital and optical fibre technologies which required foreignexchange resources for the direct import of equipment not manufactured in India. The project was alsodesigned to support the components generating the network's greatest profits, thus easing the sector'soverall constraints in the medium and long term and also providing relief to the areas with the longestwaiting time for new connections. The project size was contained within DoT's capacity to grow andto match the availability of local counterpart funds. The other part of the project was designed to bringinstitutional improvements to increase operations efficiency, reduce staffing ratios, streamline projectsanctioning procedures, and retrain staff displaced by new technology. However, this part of the projectwas not adequately developed and there were no terms of reference prepared and agreed with the DoTon what to address and how to proceed. The investment part of the project was organized to overcomethe long procurement delays experienced by earlier projects by requiring Bank clearance of contractaward on at least 40 % by value of procurement items. Overall the project design was very good and tookinto account previous lending experience.

5. Proiect Implementation

5.1 Loan Effectiveness and Proiect Start-Up:

The loan was approved on June 29, 1987 with a target effectiveness date of September 28,1987. The loan became effective on that date when the Subsidiary Loan Agreement was executedby GOI and MTNL, which was a condition of effectiveness.

5.2 Implementation Experience:

The project was originally scheduled to be completed by December 31, 1991. However,the loan closing date was extended from December 31, 1992 to December 31, 1993 to allow timefor project completion. Part A components for basic infrastructure had been procured and about95 % installed by March 1992. Targets for connection of telephone lines in Delhi, Bombay andMadras were met by March 1991, whereas targets for Calcutta were not met until March 1993.Overall, the main part of the project was about 1 'h years late, although some items remaineduncompleted at loan closing. These were the Part B items of packet switching, networkmanagement, modernization of earth stations, and automatic message accounting (see Table 2,Section 6). The main reason for the project delay was the time taken to complete procurement.The implementation schedule provided for procurement action on the major components for themetropolitan networks and long distance systems to be completed by the first quarter of 1987.However, DoT was only able to complete procurement action by mid-1988.

The project underwent a major change in 1989 with the creation of the new TelecomCommission. The Commission established a policy of maximizing indigenous procurement andas a result decided not to proceed with the use of Bank funds to buy the remaining Part B items.The Commission instead sought Bank agreement to use the funds to buy components for local

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The Commission instead sought Bank agreement to use the funds to buy components for localmanufacturers. When the Bank was unable to accede to this request, GOI agreed to cancel $135million of the loan reducing it to $193 million (See Table 6C, Part III). Once the procurementaction was completed, equipment implementation was completed quickly and without majorproblems.

S.3 Procurement:

Special action was taken in an attempt to prevent a repeat of the poor procurementperformance in the seventh and eighth projects. The main requirement was for DoT to issue bidinvitations and present evaluation reports to the Bank for eight major items before Boardpresentation in May 1987. These items had a value of about 56% of the loan amount. Exceptfor an item of relatively small value, this requirement was met. However, inordinate delays beganthereafter. By early 1988, about a year after the Bank's clearance, DoT had placed orders foronly three out of the eight items amounting to a value of about $66.5 million, or about 20% ofthe loan amount. On average, DoT took about 10 to 13 months from Bank clearance of the bidevaluation to placement of purchase orders. A large part of the delay was due to lengthy inter-Government clearances. Delays also occurred in the clearance of the DoT's evaluation reportsby the Bank. These were mainly due to numerous clarifications required by the Bank on thecontent of the evaluation reports.

The Bank supervision missions repeatedly discussed the procurement delays and soughtremedies. The serious nature of the problem resulted in a DoT delegation visiting the Bank inOctober 1988. A bidding irregularity involving changes in bid prices on cables, which wasdiscovered by DoT, exacerbated the problem. The funds associated with this incident wereeventually cancelled on the basis of misprocurement. In March, 1989, the Bank again expressedits concern regarding the protracted and apparent unnecessary delays with procurement. Themain concerns at that time were the extensive delays in contracting for underground cable; andthe lack of a bid evaluation for the packet switching a year after bid opening. The Bank soughtfrom DoT an undertaking to carry out an urgent and comprehensive review of its procurementprocedures. Following that review, DoT did take some actions to streamline its procurementdecisions, although the new procedures had little effect on speeding up procurement of theremaining items.

The effect of the Telecom Commission's decision to cancel most of the remainingprocurement is shown in Table 6C at Part III of the report. Although it was decided by theTelecom Commission not to proceed with procurement of the Packet Switching Data Systems butto design and produce an indigenous system, the decision was later reversed. The Bank agreedto the issue of a new bid document in early 1992, but its issue was so delayed that procurementand installation of the item could not be completed within the two year extension of the loanclosing date. The Bank informed DoT it could not fund the item because of the delay and DoTagreed to procure this equipment using its own funds. At project close, India remained one ofthe few countries without a comprehensive packet switch network which is so critical for businessservices. Procurement of the final items of test equipment for optical fibre and transmissionsystems were finally completed by December 1993.

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5.4 Proiect Costs:

The project's estimated cost at appraisal was $2,050 million with a foreign cost of $418million. Table 5A in Part IlI gives an estimate of the cost of the project on completion assumingthe remaining items will be completed as planned. The estimated actual cost of the project was$1,655 million with a direct foreign cost of $224 million. There was saving of about 20% ontotal project cost with a saving in local cost of about 13% and direct foreign cost of about 47%.The lower costs were attributed to a general fall in telecommunications prices during the projectperiod. Contingency allowances were not used. The savings in direct foreign cost was due tothe substantial reduction in foreign procurement and funding which resulted in cancellation ofabout $135 million (see para 5.3).

5.5 Disbursements:DISBURSEMENTS

The disbursement performance on Planned vs. Actual ($ mil)Loan 2813-IN is shown in Figure I and 1given in Part III, Table 3A. Disburse- 100ments against commitments were made 80 -. X--

until March 18, 1994 when the outstand- _ 60 . . -ing balance of $4.83 million was can- .celed. After a slow start in 1987/88, dis- 40 - -- - -i

bursements picked up in 1988/89 and 20were comparable to appraisal projectionstrend. The limited disbursements FY91 o FY88 FY89 FY ) FY90 FY92 FY93 FY94through FY94 reflect the loan *PlannedlActualcancellations and additional delays in the ________________|

procurement packet switching data Figure 1: Disbursement Loansystem.

5.6 Loan Allocation:Cancellation History

The original and final allocations Date Amount Reasonand actual disbursements of the Loan2813-IN are shown in Part m, Table 3B. May 1989 $18m MisprocurementThe original allocation was revised each Dec. 1989 S134m Policy to buy only localtime loan cancellations were made except goods.for the $16.5 million canceled in Jan. 1992 $8.5m Savings canceled.December 1992. The cancellation Dec. 1992 $16.5m DoT unable to fmnalizehistory is summarized in Table 1. The packet switch bidloan amount was reduced overall by $177 documents or awardmillion to $168 million. At loan closing cable contract by loanan unused $4.833 million was canceledleaving a final loan arnount of $163.17 Memillion. Table 1: Cancellations

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6. Project Results

6.1 Proiect Objectives

Despite the cancellation of $177 million, to a large extent the project objectives were met.Table 1 summarizes the project objectives, how they were to be met, and the actual results. Themajor work of providing telephone service and improving the long distance network was complet-ed successfully. Although the lines provided for the four major cities were just below the targets

Implementation Results

Objectives Planned Implementation Means Results

Sector Obiectives

1. Increase the a) Expand competition in domestic a) There is now competitive supply in India ofeffectiveness of procurement, cables, exchanges, customer equipment and somedomestic procurement transmission equipment.

b) introduce commercial contracts for b) Commercial contracts were introduced in 1988.single source purchases

Specific Proiect Obiectives

I . Help meet demand a) Increase local exchange capacity in a) Essentially completed as planned. Althoughfor telecommunicat- the four major cities by about 1 growth in telephone lines in the four major citiesions services in the million lines (about 750,000 was 6% below target, overall plan targets werefour Metro Districts subscribers); and telex capacity by exceeded. Telex capacity was increased by only

about 14,000 lines. 8000 lines partly because of reduced demand dueto use of fax.

b) Establish a national packet switch b) Not done; DoT provided some limited switchednetwork. data services but did not provide the planned

national packet switched network.

2. Improve the quality a) Reduce the subscriber fault rate, a) Mostly done; the national subscriber fault rateof telephone service improve call completion rates. (faults/100 stations/Mth) was reduced from 30 inand billing. 1986 to 17 in 1993 and good improvements were

achieved in the four major cities. Callcompletion rates for national long distance andlocal calls improved markedly.

b) Install automatic message account- b) Partially done; MTNL equipped some exchangesing (AMA) facilities in older with AMA facilities. DoT opted instead toexchanges progressively replace obsolete exchanges with

modem digital systems.

3. Provide good quality a) Upgrade and provide new modern a) Completed as planned with significantnational direct long distance transmission improvement in qualitydialling service. networks.

b) Provide small earth stations for b) Completed as planned, funded locally.remote access to the nationalnetwork

4. Improve the a) Modernize the satellite earth a) Only part completed during the project period;efficiency and stations. OECF is now funding.profitability of the b) Establish a long distance network b) Not completed, but DoT has contracted out partnetwork. management system. of this work to be funded by AIDAB.

c) Reduce the number of staff per c) Staff efficiency improved from 100 to 64 staff1000 working lines. per 1000 lines

5. Meet the new a) Support DoT's UNDP funded a) Apart from a few items (transmission trainingtechnology training training program to provide and optic fiber test equipment) DoT separatelyrequirements. training on modem technology. bought equipment for this item.

6. Support a) Streamline DoT's planning and a) Done; computerized annual planning andDoT/MTNL's instit- budgeting processes. budgeting system developed by DoT with someutional improvement software contractor support. Loan funds notefforts. used.

b) Increase delegation of authority b) Done; Regions set up as formal profit centersthroughout DoT. with increased perfbrmance and delegation

responsibilities. Loan funds not used.

Table 2. A Summary of Proiect Implementation Results

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for the period. DoT did meet its major national objectives for the seventh plan period of whichthe project formed a part. As expected however, national expressed unsatisfied demand grewduring the project period from 1.1 million to 2.3 million lines. Estimates at 1994 place the actualunsatisfied demand for telephone service somewhere between 20 and 40 million lines in 1994.Quality of telephone calls improved substantial during the project as a result of using morereliable digital exchanges and the digital transmission systems provided under the project.

There was mixed success with the other physical network components (Part B items). Smallearth stations were provided using DoT's own funding, and there was a conflict in funding overthe upgrading of earth stations which was eventually resolved by having the item funded byOECF. Considerable supervision effort was spent with DoT on preparing terms of reference forthe network management system; these had not been prepared during appraisal. Although theTOR were eventually finalized, DoT then chose to use Australian consultants funding by AIDAB.The network management work was not completed by loan closing. Finally, the AutomaticMessage Accounting systems, which were to provide improved customer billing, were onlypartially provided--DoT chose instead a policy of replacement of obsolete exchanges. Thehistory of packet switching was described in the procurement section above. Table 6B of PartIII gives the actual performance of key indicators against targets set at the beginning of theproject.

6.2 Physical Results:

The major physical components of the project have been completed and commissioned. Themost important long distance links of 140 MB/s microwave digital systems between Bombay/Madras/Calcutta/Sambalpur and DhulialNagpur and the new optical fiber systems 140 MB/s werecompleted between Delhi/Bombay and Delhi/Agra. In addition, the local systems in the metroarea were strengthened by the installation of optical fiber and 1722 PCM systems. A descriptionof the physical results of the project is given in Table 6A of Part III.

6.3 Technical Assistance:

The project proposed hiring consultants to help with institutional development and planningand budgeting and network management. DoT hired local consultants for some planning andbudgeting, but are now hiring network mnanagement consultants using bilateral funds. The trainingdevelopment program included assistance from UNDP/ITU. The contracts for the digitalmicrowave and optical fiber systems provided for technical assistance in training.

6.4 Financial Performance:

The consolidated DoT/MTNL financial performance significantly exceeded projections (SeeTable 6D of Section HI). As an example, for 1989/90, operating revenues were 33% aboveappraisal projections (IRs35.3 billion compared to IRs26.5 billion), whereas operating expenseswere only 11% above projections (IRs 19.0 billion compared with IRs17. 1 billion). Net incomeafter tax was IRs 13.3 billion, more than 100% greater than projected. DoT/ MTNL met all ofits financial covenants. The main reason for the good financial performance was a significantincrease in tariffs which raised the revenue per line from about $130 in 1987 to $180 equivalent

8

in 1992. As an example', between 1986 and 1990, installation fees increased by 166%, bi-monthly rents increased between 30% and 60%, and manual call charges were significantlyincreased.

6.5 Economic Analysis

The SAR calculated the internal rate of return on the entire DoT/MTNL investment programduring FY86-90. This was done because the Bank financed project was an integral componentof the Seventh plan and any separation would have been arbitrary and difficult to determine. Asimilar approach was taken in calculating the actual rate of return. The benefit period was thesame, although some investment carry over was estimated for FY 1991 to account for the delayof the project.

The financial IRR was calculated to be 23%, well above the 15% estimate in the SAR (seeTable 6E of Section III). The increase is commensurate with the higher rate of return on assetsthan expected which in turn reflects higher tariffs and lower investment costs than originallyprojected. The calculated value is likely to be conservative as there is no allowance for futureincreases in tariffs or calls per line which could be expected. The economic rate of return(estimated at 20% in the SAR) would be expected to be higher than the 23% FIRR after takinginto account consumer surplus and other unquantifiable benefits that come with improved accessto telecommunication facilities.

6.6 Institutional Impact

DoT has achieved satisfactory results in the project's institutional action plan except in theprocurement area. From 1985 to 1992 the staffing ratio was reduced from 100 staff to about 64staff per 1000 lines. The overall maintenance of equipment improved as demonstrated by thedecrease in faults from an average of about 33 to about 20 per 100 subscribers/month. Theeffects of greater "delegation of authority" and the new strategic "Planning and Budgeting"system, which were part of the project, are difficult to quantify, but will have a positive effectin preparing DOT for corporatization. The quality of billing is difficult to measure, butnewspaper reports suggest that many billing errors continue to occur.

7. Project Sustainability

The sustainability of the operations and benefits of the project are expected to be excellent. Theproject is a part of DoT and MTNL's expansion program and forms a core component of their raisond'etre. DoT/MTNL have a stable technical and commercial base and are expected to perform wellfinancially as in the past given their monopoly status. Even if DoT is subjected to competition, theirposition of pre-eminence is likely to remain and the project would therefore be sustained. Under acompetitive scenario, DoT/MTNL are likely to continue as the main operator for a long time because oftheir huge operational base, the overwhelming demand for services, and the Government's stated positionthat it would protect the jobs of existing DoT staff. Tariffs under a competitive environment are likelyto remain at or around the existing level and usage levels are likely to increase thereby improving thereturns on the project investments.

I The India tariff structure is complex, therefore sample rate increases only can be given.

9

8. Bank Performance

The Bank, in implementation of the project, devoted considerable effort to get the procurementprocess on track with limited success. After being successful in getting the bid preparation for the majoritems, the Bank assisted in the resolution of the issues that came up in the evaluation and in the eventualplacing of contracts. The Bank had little option but to accept the Borrower's stand to go for indigenousprocurement and accept cancellation of a large piece of the loan. In the case of the packet switchingnetwork, when the Borrower reversed its decision to develop and buy indigenously, the Bank agreed tofund ICB procurement of the item. However, after further delays in issuing the bid, DoT agreed to fundthe item from its own resources. The Bank also maintained a continuous dialogue with the Borrower andits agencies on the restructuring of the sector and carried out a sector study and workshops to discuss theprincipal issues and options for the development of the sector. The Bank's supervision was adequate andits overall performance in this project was satisfactory.

9. Borrower/Implementer's Performance

Except for the procurement delays, and component cancellations, the Borrower's performancehas also been satisfactory. The DoT was helpful and constructive in the preparation of the biddocuments, showed a commitment to installing and commissioning equipment quickly, and displayed aninterest in discussing with the Bank institutional development, finance, and sector reform issues.However, DoT was unable to accelerate its own procurement processes or influence governrnent to speedup intra-governmental clearances. On the institutional side, the Borrower showed a commitment forimprovement and supported measures for improved delegation of authority and planning and budgeting.However, DoT was reluctant to hire experts to help introduce improvements quickly. The performanceof MTNL which was created as a pilot for the introduction of more commercially oriented managementproved quite successful (Attachment 3).

10. Proiect Relationship

The project relationship between the Bank and Borrower and its agencies the DoT, MTNL hasbeen quite good. The cooperation extended to Bank missions and the response to concerns expressed bythe Bank in correspondence and personal meetings relating to the project and in general, have been verysatisfactory to both parties.

11. Consulting Services

DoT performed most of the work in improving delegation of authority and developing itsimproved planning and budgeting systems without the use of consultants. DoT was reluctant to use Bankfunds to hire international consultants and funded local consultants where necessary.

12. Proiect Documentation and Data

The Loan Agreement in the case of Loan 2813-IN was quite adequate for monitoring andachieving project objectives in the key investment organizational and funancial areas. The appraisal reportof the project provided a useful framework for both Bank and DoT/MTNL for review of projectimplementation. DoT submitted quarterly progress reports on progress of the reports and special reportswhen required.

10

PART 11 - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

1. World Bank loan for the IXth Telecommunications Project 2813-IND for an amount of 345million US Dollars was sanctioned in September 1987. In November 1989 the loan amount was reviewedand reduced to 184.5 million US$. A further reduction of 16.5 million US$ was made in 1992 onPSPDN and cables. Loan closing date is 31-12-1993. The main components under the loan are:

(a) 140 Mbit digital microwave system between Bombay-Madras-Calcutta-Sambalpur andDhulia-Nagpur.

(b) 140 MBIT OFC system between Delhi-Madras, Trichur-Trivandrum and Delhi-Agra.

(c) 140 Mbit OFC system and 34 MBIT 13 GHZ microwave systems for junction networkingat Madras, Bombay Delhi and Calcutta.

2. In addition to the above, more than 1700 PCM systems, some digital co-axial systems and cablesand measuring instruments also formed part of the loan.

3. Bombay-Madras, 140 Mbit digital microwave and Trichur-Trivandrum 140 Mbit OFC werecommissioned in March 1990. Most of the other systems were commissioned during the periodDecember 1990 to March 1992. It is to be noted that along with commissioning of these systems thesestations were provided with ElOB digital exchanges and/or TAXs. During the project period, the numberof DELs in Bombay, Delhi, Calcutta and Madras increased by 12.34% from 16.53 lakhs to 18.59 lakhs.Furthermore, as a result of the proper provision of local and long distance facilities the call success rateof both local and STD in Metro Districts as well as on all India basis have shown substantial improvementand the per direct exchange line revenue has increased in all the centers covered by the above system.These systems were very much an integral part of the overall development plans of the VIlth Five YearPlan of DoT.

4. A part of the loan was canceled due to: (i) policy changes in relation to procurement duringthe period; (ii) indigenous manufacture; (iii) reduction in prices of certain items; and (iv) someprocurement problems. Despite the best efforts of DoT, some problems were encountered in the speedyprocurement. The installation and commissioning of the procured equipment, however, was completedvery quickly.

11

PART III - STATISTICAL INFORMATION

1. Related Bank Loans/Credits

Loan/CreditAmount in

Year of US$ million

Loan/Credit Title Purpose Approval or SDR Statusmillion

1. Credit - Ist Telecom. To finance part of P&T 1963 $42 millionProject investment program.

2. Credit - 2nd To finance part of P&T's 1965 $33 millionTelecom. Project investment program

3. Credit - 3rd To finance P&T's 1969-72 1969 $27.5Telecom Project investment program million

4. Credit - 4th To finance P&T's 1969-74 1971 $78 milionTelecom. Project investment program.

5. Credit - 5th To finance the P&T's 1974- 1973 $80 millionTelecom. Project 76 investment program.

6. Credit - 6th To finance 1976-78 P&T's 1977 $80 millionTelecom. Project investment program

7. Loan 1592-in 7th To finance P&T's 1978-81 1978 $120 million Project wasTelecom. Project investment program and completed in

governments telecom 1984 about threemanufacturing units. years behind

schedule

8. Credit 1112-IN 8th To finance P&T's 1981-83 1981 SDR 252-4 Project wasTelecom. Project invest. program; to finance million completed in

modernization of the gov't. 1985 about twoowned Telecom years behindmanufacturing units. schedule.

12

2. Proiect Timetable

Date Planned Date Actual

Identification and 4/85 4/85preparation

Appraisal Mission 2/86 11/85

Loan Negotiation 12/86 12/86

Board Approval 5/14/87 5/14/87

Loan Signature 6/29/87 6/29/87

Loan Effectiveness 9/28/87 9/28/87

Loan Closing 12131/92 12131/93

Project Completion 12/31/91 6/30/93

3A Loan Disbursements

Accumulated Disbursements(in US $ millions)

EBRD FY and Semester Ending Actual Appraisal Est.

FY 87 December 31, 1986 0June 30, 1987 0 0

FY 88 December 31, 1987 0 32.0June 30, 1988 0 69.0

FY 89 December 31, 1988 16.69 117.0June 30, 1989 94.80 169.0

FY 90 December 31, 1989 149.28 220.0June 30, 1990 150.65 262.0

FY 91 December 31, 1990 157.38 296.0June 30, 1991 157.59 321.0

FY 92 December 31, 1991 157.59 337.0June 30, 1992 159.17 345.0

FY 93 December 31, 1992 159.17June 30, 1993 159.17

FY 94 December 31, 1993 159.17June 30, 1994 163.17

Very little disbursement since December 31, 1989.

See Table 1, Part 1, and Table 3B Part III for details of cancellations.

13

3B Loan Allocation

(in U.S. $ thousands)

Category Original Allocation Final Allocation

1) Cables, and local long distancetransmission equipment 239,000 162,673

2) Satellite earth stations; computer anddata network management equipment 407

78,0003) Training Equipment

5,000 1444) Consultants Services

2,000 65) Non-allocated

21,000 - 63*TOTAL

345,000 163,167

Cancelled as of May 16, 1989 $18,000,000Cancelled as of December 5, 1989 $134,000,000Cancelled as of January 20, 1992 $8,500,000Cancelled as of December 1992 $16.500.000Cancelled unused funds March 18, 1994 $4,833,000Total Cancelled $163,167,000

' Difference due to cross exchange rates on special account.

4. Completion Dates

Components Appraisal ActualLocal Networks July 1991 March 1992

Long DistanceA. Microwave July 1990 September 1992

Trunks

B. Optical Fiber July 1991 March 1992Systems

Satellite Services December 1991 Part completedOctober 1992

Data Network December 1991 Not completed

Network Management December 1991 Not completedSystem

Message Accounting December 1991 Part completedSystem December 1992

14

5. Proiect Costs and Financing

SA. Proiect Costs(in US $ million)

Appraisal Estimate Completion Estimate

Local Foreign Total Local Foreign Total

A. LocalSwitching 509 50 559 700 37 737

Cable Networks 339 70 409 420 54 474Telex 91 91 50 - 50

Local Trans-mission 66 80 146 71 61 132

Long Distance 99 99 26 - 26

SwitchingTransmission 86 90 176 53 43 96

Sub Total 1,190 290 1,480 1320 195 1515

B. SatelliteServices 29 23 52 73 - 73

Data Network 16 15 31 - 12 12

Network Manage-ment System 5 10 15 5 10 15

Automatic Mes-sage Acctg. 10 30 40 5 - 5

Sub Total 60 78 138 83 22 105

C. Training 58 8 66 28 7 35

D. Consultants 1 2 3 _

TOTAL BASE COST 1308 378 1686 1431 224 1655

Physical Contingency 65 19 84

Price Contingency 259 21 280 - -

Total Cost 1,632a 418 2,050 1431 224 1655

al Includes $411 million in indirect foreign costs.

15

5B. Proiect Financina(in US $ million)

Appraisal Actual

IBRD 345.0 163.2OECF 60.0 60.0UNDP 2.5 1.0GOI/DoT/MTNL 1,642.5 1,327.0

2,050.0 1,551.2

6. Proiect Results

6A Overview

Appraisal Estimate Actual ActualApril 1990 April 1990 April 1992

1. Exchange Capacity (,000) 5,407 5,266 7,1072. Direct Exchange Lines (,000) 4,506 4,593 6,1873. Tunk Automatic Switching

Capacity 196,820 140,870 195,7504. Telex Connections 56,620 44,500 48,600

± + + V+ + N + r + .++ I + I I 4

o~~~~~~~~~~~~~' '0 0 : ' 00

>~~~~ * > a o - ;00; ft;; c ; ; 00;$fx ..

E o T¢ i; T; 0% 0 ' S; - a: . 00 0 00

fi~~' 0% (m ' 0 0% 0% N f 0% i S ; ' ;r 0% 00 f 0 %ffi

xD ~~e - '- ei 0 s s 000 00 00g o00 $0000 0 N ¢0 0 0 ; I&: o 2 : i0; i-: . 0 : ii ;. :; -- t- 3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. .... ...

Q%~~~~~~~~~~flbO - N .F -~~~~~~~~~~~~~~~~~~~~~~~~~~~..... .

'00 tn 0 - % 0% C 00 O'0

- 0 c '0 g og :C E3

so ~ 1. -i 8 *; - -:0 -" -8 t § 8:0t8 g 8

CV el ~~~~~~~~~~~~~~~4cl".

| 00 E |O u C ON

g~~~~~~~~C

- ~ ~ ~~~~~t 410

r4 3 g0i g

0.4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

:5.5.5 a ::::: ... .

"O ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~ -.. -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -~~~~~~~~~..... .

00~~~~~~~~~~~~~~

00 ..........4 ~ ~*~ CY, ......... ..~~ *a~~~~~~~~~~~~~. .... ....

4 3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.....

0 It~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... ... ....>z

17

6C. Summary of Equipment Purchases and Costs(in US$ million)

Apprsl OrdersItems Ests. Placed Comment

1. Underground Cables 70.0 54.0 See Note 1.

2. 13 Ghz 34 Mb/s microwave 24.0 17.9

3. Optic Fiber systems 52.0 30.2

4. PCM systems 31.5 12.7

5. 6GHz 140 Mb/s microwave 26.0 23.1

6. Transmultiplexers 6.0 0 Incl. in other contracts

7. FDM & HGTE equipment 15.5 8.8

8. Digital coaxial systems 11.0 9.7

9. 60 MHz coaxial systems 2.0 1.9

10. Dehydrators 1.0 0.0 Cancelled, indigenous procurement

11. Testing Instruments 0 4.6

Loan Categorv 1 :(Sub total) 239.0 162.9

12. Digital Earth Stations 13.3 0.0 Canceled, indigenous procurement

13. Small Earth Stations 9.7 0.0 Canceled, indigenous procurement

14. Packet Switch Data Network 15.0 0.0 Canceled, see Notes 1 and 2.

15. Network. Management. System 10.0 0.0 Canceled, to be AIDAB financed

16. Auto. Message Accounting 30.0 0.0 Canceled, indigenous procurement

Loan Category 2:(Sub total) 78.0 0.0

Loan Cateyory 3:17. Training & Training Equip. 5.0 0.3

Loan Categorv 4:18. Consulting Services 2.0 0.01

Loan Categorv 5:19. Contingencies 21.0 0.0

345.0 163.2

RESIDUAL LOAN AMOUNT - 4.8

LOAN AMOUNT 345.0 168.0 See Notes 1&3.

Notes:I. An additional $16.5M was canceled from the loan in December, 1992. ($4.5M being for undergrund cables and $12.OM for Packet Switching

equipment.)2. Packet switching could not be procured in time for funding fmm the loan. DOT propose to buy thmugh open Rupee tender.3. Total cancellations $177.0 mil. (S18.0M, $134.OM. $8.5M, $16.5M).

18

6D. DOTIMTNL Financial Performance'(IRs billion)

Year Ending March 31 1987 1988 1989 1990 1992Ff ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~. ....... : . . . ....

b:..Ist. Actual ELt. Actual EAt. Actual .. t.. Actual Ad,aai

Operating Revenue I15.3 16.4 19.0 21.1 223 31.0: 26.5 35.3

Operating Expenditure 10.8 12.6 12.4 14.8 14.4 I11.8 17.1 19.0 25A9

Net Income = Tax ... .......Project 3.3 2.8. 4.8 3.5 5.4 12.1. 6.3 13.3 '188

Operating Ratio(%)b 70 76 65 70 65 54 64 53 .. 0... ......... ..

Return on Assets (.). .. ..(revalued) 9 i; 8- 11 12 112 20 13 18 18

Net Internal Cash as % of .. ... . ... .. .....Investment Program 52 5si 49 n/a 78 68 71 91

'Excludes corporate income tax liability of MTNLb Ratio of Operating Expenditures to Operating Revenues.

IRRJXS INDIA - D.O.T. & M.T.N.L.O14A 4 CALCUILAIA Of ToiE flANCIAI RATE Of RERURN

_ = === == = = = == = __ = - = s

(rmdUons of IRs)

yea ended 31 Marc 196- 1966 1987 1988 1969 1990 1991 1992

Invesiment 8.505 9.767 13.453 20.476 25.519 13.485 0

Revenue wlh Proect 13.939 18.274 22.389 32.173 36.512 43.433 52604Roue w6hout Pteojct 13060 15.247 18.004 23.498 24.712 27.638 26.607

InciementolReventie 859 3.027 4.385 8675 11.800 15.795 25.997

Costwlthproject 7.860 10.002 11.572 12.815 14.015 15.616 17.871Cod PwUhout Pecl 7.860 9.749 11.021 11.712 12,357 1.359 14.870

incrementi Cost 0 253 551 1.043 1.658 2.257 3.0010

Incrementd Rev-Codt 859 2.774 3.834 7.632 10.142 13.538 22.996

Net Benefd Strean (7.646) (6.993) (9.619) (12,844) (15.377) 53 22.996 22.996 22.996 22.996 22.996 22.996

Inflation Deflactor 1.00 I 06 1.12 1 19 1 26 1.34 3 42 1 3) 1 59 1 69 1 79 I YO

(7.646) (6.597) (8.561) (10.784) (12.180) 40 16211 16.211 16.211 16211 16.211 16.211

fpiprd0sc 21 ygwa(oCP 23.30%

===ssaas=.as= = maaflU… …… f==s= ========= ===S=== === ======== =es========X

3 2 3 4 5 6 7 8 9 10 I 1 12

1.993 1.994 1.995 1.996 1.997

20

7. Loan Covenants

SOURCE OF SUMMARY/ Entity DUE COMP-

(DcOVenAt/ DESCRIPMION TYPE Respons- LL4NCE REMARKSSection-) OF COVENANT ible DATE STATUS...

LA 3.04 (a) & Appointnentof consultants TEC DoT 9130/87 No Deleted from Bank rFnancingSched. 2. for design of NetworkPart D (i) Management System

(ii) Delegation of Authority ADM DoT 9/30/87 OK DoT has undertaken their ownstudy and implementedrecommendations

'(iii) Investment Planning and ADM DoT 9/30/87 OK DoT has taken actions toBudgeting itmprove Planning and Budgeting

LA 3.04 (c) Take appropriate actions in TEC/ DoT - OKaccord with agreed timetables ADMto implementrecommendations of studies.

LA 5.03 (i) The Borrowershall,ensure SEC DoT - OKthat DoT and MTNL will takeactions to expand competitionin their respective domestic.Prouerement.

LA 5.03 (ii) Purchase of single-source OTH DoT 4/1/87 OKitems from public sectormanufacturers undercommercial arrangements

LA 4.01 (b) Fumishto the. Bank within 9 AUD DoT/ t2/93 OK(ii) monthsofth :end of the fiscal: MTL

year (March 31) a certified.copy of audited accounts ofMTNL and DoT

LA 4.02 (d) Furnish to the Bank within 4 AUD DoT 7/93 OKmonths of the end of the fiscalyear a certified copy of auditof Special Account

LA 4.02 (a) DoTad MTNL lto realize DVT: OK..an anal rate-of reaom ont MTNLconsolidd basisoftnotless'than 11%*on-nverage net: . .....value of fxedlassets(revaled) in :operain.-

* ** *** **

PA - Project Agreement FIN - Financial OK - CompliedPlease explain reasons

LA - Loan Agreement - Audit NYD - Not yet due if not in compliance.SLA - Subsidiary Loan Agreement M&O - Maintenance and OperationNO - Not in complianceAM - Agreed Minutes ENV - EnvironmentalSLT - Side Letters TEC - TechnicalAM - Aide-memoire SEC - Sector/PolicyMTG- Meeting ADM -Administ./OrganizationalPR - Progress Report OTH - Others

21

8. Missions

SpecializationStage of Month/ No. of Represented Perf. Type of

Project Cycle Year Persons SW a Rating Problems

Identification 5/85 5 3 Econ- 1 Eng-2and Preparation 11/85 2 1 FinA-2

Appraisal 2/86 4 3 Econ-l Eng-lEcon- 1 Eng- 1

Preboard 1/87' FinA-I T.S.-IMission Eng- I

SUPERVISION

Supervision -12 7/87 2 3 Eng-1 FinA-1 3Supervision - 2 2/88 2 Eng-1 FinA-l 3 ProcurementSupervision - 3 12/88 2 Eng-1 FinA-1 3 DelaysSupervision - 4 9/89 2 2 Eng-l FinA-1 2Supervision - 5 11/90 1 T.S.-1Supervision - 6 8/91 2 Eng-I 2Supervision - 7 3/92 1 Eng-l FinA-1 2Supervision - 8 9/92 2 2 Eng- 1 2Supervision - 9 11/92 1 1 Econ-l Eng-l 2Supervision - 4/93 1 2 Eng-1 210 4/93 1 1 Eng-l 2Supervision - 01/94 1 1 Eng-1 21 1Supervision -12

'This was a special mission to discuss procurement issues prior to Boardpresentation.

2 This was a combined mission for review of completion of the seventh and eighthprojects.

Abbreviations: Eng - Engineer; FinA - Financial Analyst; Econ - Economist;T.S. - Telecomnmunications Specialist

22

Mahanagar Telephone Nigam Ltd. (MTNL)

MTNL was formed on April 1, 1986 to take over from DoT the management, control and operationfor the telecommunications networks of Delhi and Bombay. During its seven years of operations by 1992-93,MTNL has achieved very substantial results. Both the system capacity and the Direct Exchange lines have morethan doubled so that by 1992-93 the capacity was 1.77 million and DELS 1.59 million lines averaging a growthof about 11.5% during the seven year period. The quality of service has also improved. A large number ofSTD and local pay phones as well as Telecom centers have been opened for accessibility to the public.Substantial improvements have also been made in the incidence of faults, call completion rates and manual trunkoperations. MTNL has also introduced special meetings called "ADALATS" to provide a forum for customersgrievances and redressal.

The financial performance of MTNL has been very good. For investment it was able to floatcustomer bonds and since 1991-92 has also disinvested part of its equity with the result that 20% of its equitycapital stands disinvested. MTNL has also made significant financial contribution to DoT.

MTNL has prepared plans for expansion and improvement in the quality of service in the next fouryears for doubling the capacity and providing high quality enhanced services.

IMAGING

Report No: 14722Type: PCR