Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 10743

PROJECT COMPLETION REPORT

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

JUNE 16, 1992

Industry and Energy Operations DivisionCountry Department IIMiddle East and North Africa Regional Office

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.

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CURRENCY AND EOUIVALENT UNITS

Curtency Unit = Rial Omani (RO)

RO 1 = US$2.895 (1985)

US$2.895 (1986)

= }US$2.6247 (1987

= JUS$2.7174 (1988)

=- US$2.72 (1990)

ABBREVIATIONS

MP'IT = Ministry of Posts, Telegraphs and Telephones

GTO = General Telecommunications Organization

SOO Sultanate of Oman

RO = Rials Omani

TELEX = Switched Teleprinter Service

FISCAL YEAR

January I - December 31

FOR OFFCIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.S.A.

ice of DirectwoG.eneeal)Peatknn Evaluatbn

June 16, 1992

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on OMANFirst Telecommunications Proiect (Loan 2513-OM)

Attached, for information, is a copy of a report entitled "P-ojectCompletion Report on OMAN - First Telecommunications Project (Loan 2513-OM)"prepared by the Middle East and North Africa Regional Office. No audit of thisproject has been made by the Operations Evaluation Department at this time.

Attachment

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.

FOR OFFICIAL USE ONLY

PR'- ECT COMPLETION REPORT

OMAN

SECOND TELECOMNUNICATIONS PROJECT(LOAN 2513-OM)

TABLE OF CONTENTS

ZAgn

Preface ......... ....................................* * iEvaluation Summary ..... ...... ... ........ ii

Part I

1. PROJECT IDENTITY .... . ....... . .. ... 1

2. BACKGROUND .......................................... 1

3. PROJECT OBJECTIVES AND DESCRrPTION ............. ..... 2

Project Objectives . ... ............ **.*. 2Project Description . ..... ....... . 3

4. PROJECT DESIGN AND ORGANIZATION . . . 3

5. PROJECT IMPLEMENTATION ............ ........ . 4

Loan Effectiveness and Project Stirt-up ........**..... 4Implementation Schedule ....... ...................... 5Project Costs ....... ........... ...... . 5Disbursements .... . ..... ..... 5

6. PROJECT RESULTS ....... ........ . .... . 6

Overall Project Results ............ . 6Results of Bank-Financed Components ................ 6Operating Performance .............. .. 8Institutional Performance . . 9Manpower and Training . ........ . ... ..... 9Accounts and Audit ... 9

7. PROJECT SUSTAINABILITY ...................... . 10

8. BANK PERFORMANCE ............. ... .............. . 10

9. BORROWER PERFORMANCE. ..... .... ..... . 10

10. COMPLIANCE WITH COVENANTS ........................... 11

11. PROJECT RELATIONSHIP ................ 11

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.

TABLE OF CONTENTS (Cont.)

Page

12.. CONSULTING SERVICES .. ....... ..... * * * * 11

13. PROJECT IMPLEMENTATION AND DATA ..................... 11

14. CONCLUSIONS AND RECOMMENDATIONS . . ................... 11

Part II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE .... 1

Part III STATISTICAL INFORMATION (Annexes).. *......... 31

Annex 1 - Related Bank Loans . . 32

Annex 2 - Project Timetable. 33

Annex 3 - Project Costs and Financing.......... 34

A. Project Costs.... . ..... 34B. Project Financing .... 35

Annex 4 - Loan Disbursements. 36

Annex 5 - Project Implementation........... 37

A. Installed Plant Under Bank Financing 37B. Buried Service Wire Project . 38

Annex 6 - Project Results.............. 39

A. Performance Indicators . ...... 39B. Studiestudies...... 40

Annex 7 - Financial Statem en te 41

Annex 8 - Financial and Economic Rates of Return 44

Annex 9 - Missions.................... 45

Annex 10 - Compliance with Covenante 46

PROJECT COMPLETION REPORT

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

PREFACE

1 . This report covers the Second Telecommunications Project in Oman, suppcrted byLoan 2513-OM. The Loan for US$23 million to the General Telecommunications Organizationwas signed on September 20, 1985 became effective on June 12, 1986 and was closed on June 30,1991, the original closing date.

2. Parts I and III were prepared by Bank staff based on information available in theproject files and information supplied by the General Telecommunications Organization.

3. Part II was prepared by the Borrower (General TelecommunicationsOrganisation).

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PROJECT COMPLETION REPORT

OMAN

SECOND TELECOMMUNIZATIONS PROJECT(LOAN 2513-OM)

EVALUATION SUMMARY

BACKGOUND

1. Public Telecommunications services in Oman are provided by the GeneralTelecommunications Organization (GTO), a government owned commercial enterprise under theoverall direction of the Ministry of Posts, Telegraphs and Telephones.

2. The Bank has been associated with the telecommunications sector in Oman since 1977through three telecom operations. The first operation was a Technical Assistance loan granted tothe Government. Through this TA, consultants were employed for preparing the developmentprogram that formed the basis for the First Telecommunications Project. The FirstTelecommun!cations Project, Loan 1884-OM for US$22.0 million was approved on June 24, 1980and closed on March 25, 1985. The Second Telecommunications Project, Loan 2513-OM was afollow up project, approved on April 11, 1985 and closed on June 30, 1991.

PROJECT OBJECMYE AND PROJECT DESCRIPI ON

3. In the Third National Development Plan (1985-1990), The Sultanate of Oman set thefollowing goals for the telecommunications sector: i) the provision of an effectivetelecommunications service as a prerequisite of economic diversification; and ii) the continueddevelopment of GTO as an efficient telecommunications organization with effective technical andfinancial management. To achieve these objectives the project aimed at: (a) installing a total65,000 additional exchange lines and expanding the international, long distanceand external line plant networks to match the additional lines; and (b) carrying out studies andimplementing technical and financial training programs.

PROJECT IMPLEMENTATIQON

4. To ensure timely implementation of the project, bid invitation for Bank financedgoods was made a condition of Loan effectiveness. This lead to start up delays of about oneyear. The bids which, during negotiations in December 1984 were planned to be issued in April1985, were not issued until April 1986. The main reason for the delay was a change by theGovernment and GTO in the location of the physical components to be financed under the Bankloan. In September 1985, the new locations were agreed upon between the Bank and GTO afterwhich GTO proceeded to prepare the bid documents. Even with the initial start up delay of oneyear, the project was substantially completed by December 31, 1990, as had been originallyscheduled.

PROJECT COSIS

5. At appraisal in July 1984, the estimated total project cost was RO 78.5 million (US$227.8million equivalent). In 1985, the GTO completed preparation of its 3rd five-year (1986-1990)

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development program which was larger in scope than that appraised for Loan 2513-OM; the totalcost of the new program was RO 125.4 million. In 1987, due to depressed economic activity, theprogram was reduced to RO 104.3 and spread over a longer implementation period to 1993. Atcompletion i.e. December 31, 1990, total investment costs were RO 60.9 million i.e. US$169million equivalent.

PROJECT RESULTS

6. Even with the reduced investments GTO achieved most of the physical objectives set atappraisal. The project aimed at 129,900 lines of local exchange equipment. At the end of theproject, the achievement was 152,380 lines (17% above target). Subscriber connections wereplanned to reach 110,500 lines by end of 1990 but the achievement was 97,730 lines i.e. 11%.below appraisal estimate due to depressed economic activity. By the end of the project, thetelephone penetration was about 6.5% per 100 inhabitants compared to a target of 7.2. This wassatisfactory considering the adverse economic conditions. There was practically no registeredunmet demand at the end of the project.

7. GTO's financial performance was generally satisfactory throughout the project. Thefinancial objectives set at appraisal assumed a favorable economic growth consistent with theprevious years. The oil glut slowed down the economy substantially, but due to prudent financialmanagement, the adverse impact on the financial performance of GTO was minimal.

8. The internal rate of return for the 1985-1990 investments was 29% compared to anappraisal estimated of 16%. The Economic rate of return was 35% compared to 29% estimatedat appraisal.

9. GTO's financial management was weak in the area of collection. The performance onreceivables was unsatisfactory throughout the project, reaching a figure of 100 days at the end of1990 instead of the 60 days estimated at appraisal. The main debtor has been the Government,accounting for 56% of the total debt although constituting only 22% of billing. Receivables fromnon-government users were within the set target of two months of billing. GTO is nowdiscussing the receivables problem with the Government.

10. In the billing area, GTO made tremendous improvement from quarterly billing at thebeginning of the project to monthly billing at the end of the project when bills are issued within 8days of the month end.

ISiUTITUMNAL. PERFORMANCE

11. ibe management of GTO has been sound and the successful implementation of the projectbears witness to this. At appraisal, it was noted that although the present management wascapable of efficiently administering the present organization, the decision-making structure washighly centralized. The GTO has recently adopted a new organization structure. The structurehas been designed to meet GTO's present and future challenges of satisfying Oman's economicand social requirements for telecommunications services. The structure is less centralized and itis gratifying that most of the top positicnc (lst and 2nd level) have been filled by competentOmanis.

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MANPOWER AND TRAINING

12. The project set out to achieve two objectives in this area. Firstly, the staff ratio, i.e. thenumber of staff per 1,000 connected lines would be reduced from a figure of 70 in 1983 to 26 in1990 an efficiency improvement of 63%. Secondly, Omanization would be increased throughintensive training. The staff ratio achieved of 19 exceeded appraisal estimates by 27%.Omanization, now at 80% compared to 68% at the beginning of the project, proceeded verysatisfactorily.

PROJECT SUSTAINABILITY

13. The project was instrumental to the installation of an institutional system that will steerGTO through to the future. The Management Information Systems that have been introduced inGTO throigh the Computerization Program have put GTO on a level of financial managementoperations equal to those in the industrialized world. The establishment of a Corporate PlanningUnit has created a process which is constantly reviewing tariffs in accordance with the varyingcosts of providing service. The overall management of GTO ha5 been modernized and thanks tointensive training, most of the systems established can be manag'id by Omanis. Thus, althoughthere are still many expatriates assisting in the management of these systems, the backbone Omanistaff is capable of sustaining their operation. However, more training :.eeds to be done before theexpatriates can be completely replaced.

14. Un the physical part, modern equipment has been installed and utilization is satisfactoryconsidering the adverse economic conditions. Revenues to De realized from this equipment willenable GTO to reinvest in future expansion of the network. GTO is now completely selfsufficient financially generating sufficient revenues for its operational and developmentalrequirements.

CONCLUSIONS

15. There were no major problems encountered in this project. The objectives of the projectwere substantially fulfilled as outlined above. Bank's main contributions were two fold: (a)rendering assistance in the establishment of appropriate management systems which substantiallyenhanced the efficiency of GTO; and (b) through international competitive bidding, enabling GTOto obtain equipment at very competitive prices. The unit costs for the equipment procured underBank financing were more than 30% below equipment procured through direct contracting.

16. There are two main lessons to be learnt from this project: (a) with disciplinedmanagement, judicious use of consultants and execution of turnkey projects, projectimplementation can be achieved economically and on time; and (b) building of manpower capacityis a long and arduous process. For it to succeed it must be well planned and implemented over along time. Despite GTO's commendable intensive efforts to train Omanis it will still needexpatriates for a long time if it is to maintain its efficiency. The GTO has been very realistic asfar as this problem is concerned and has replaced expatriates where it was absolutely sure thatOmanis could perform the duties.

PROJECT COMPLETION REPORT

ONAN

SECOND TELECOMMUNICATIONS PROJECT(LO&N 2513-ON)

PART I

1. pROJECT IDENTITY

Title: Second Telecommunications ProjectLoan No: 2513-OMRVP Unit: EMENACountry: OmanSector: EM3IESubsector: Telecommunications

2. BACKGROUND

2.01 Public Telecommunications services in Oman are provided by the GeneralTelecommunications Organization (GTO), a govermment owned commercial enterprise under theoverall direction of the Ministry of Posts, Telegraphs and Telephones (MPIT). It was establishedon June 30, 1980 under Royal Decree 43/80. GTO is managed by a President who is the ChiefExecutive and a member of the Board of Directors. He is responsible for carrying owt thedirectives of the Board whose ex-officio chairman is the Minister of Posts, Telegraphs andTelephones.

2.02 The Bank has been associated with the telecommunications sector in Oman since1977 through three telecom operations (Annex 1I:

(a) The first operation was a Technical Assists; ..e (TA) Project, Loan 985-OM, grantedto the Government of Oman. Through this TA, consultants were employed forpreparing the development program that formed the basis for the FirstTelecommunications Project;

(b) The First Telecommunications Project, Loan 1884-OM for US$22.0 million wasapproved on June 24, 1980 and closed on March 25, 1985; and

(c) The Second Telecommunications Project, Loan 2513-OM was a follow up projectapproved on April 11, 1985 and closed on June 30, 1991.

3. PROJECT OBJECTIVES AND DESCRIPTION

3.01 Setor evelopment Obiectives

The early eighties witnessed a sharp increase in infrastructure investments fueled byrising oil revenues. The Sultanate of Oman (SOO) having realized the importance oftelecommunications as an essential infrastructure increased its 1981-85 investment from a plannedUS$160 million to US$287 million because of the rapid growth in the demand fortelecommunications services due to the rapidly expanding economy. In the Third Na- :onalDevelopment Plan (1985-1990), SOO set the following country sector goals:

i) the provision of an effective telecommunications service as a prerequisite ofeconomic diversification; and

ii) the continued development of GTO as an efficient telecommunicationsorganization with effective technical and financial management. Specifically,over the development period 1985-1990, the total telephone exchange capacitywas planned to grow at an average rate of 28% per annum to 129,900 lines toenable 95% of anticipated demand to be met by 1990; the percentage of totalpopulation with access to telephone service was to be increased to about 65%with the installation of exchanges and public call offices in additional ruraltownships and village communities; the connected lines per 100 populationwas to be increased from 1.7 (in 1983) to 7.2 in 1990; and GTO's efficiencywas to be increased through improvements in organization and managementand increased staff training.

3.02 Project Objectives

The project was designed to:

a) further strengthen GTO as an institution to enable it to manage most work in thesector by 1990 including support of:

i) GTO's efforts to increase the number of trained, qualified Omanis; and

ii) creating in-house capabi,..y for economic studies and demand forecasting, andhelping GTO to establish appropriate tariff structures in the light of theforeseen expansion of services.

b) through a balanced package of works, expand the local telephone faci.ities in existingtelephone switching centers, provide telephone service for the first time to about 37rural communities and expand domestic long distance and international telephonefacilities to carry the additional traffic genezated by local network expansions.

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3.03 preject Descriptlon

The main components of tde project were:

a) provision and installation of:

i) about 65,000 additional lines of local exchange equipment (36,000 in the.Capital area, 10,000 in Salalah and 19,000 in the rest of Oman) withassociated cable and subscriber plant to provide about 62,000 subscriberconnections and about 460 local/long d.stance public call offices;

if) a digital international exchange of about 600 lines;

iii) equipment for upgrading one existing coaxial cable and four microwavebackbone links and for providing two new microwave links and eight spurlinks;

iv) satellite communication equipment for upgrading the earth station at Salalah,expanding the Al Hajar earth station and establishing additional TV receiveonly stations in rural areas;

v) equipment for extension of the mobile telephone network;

vi) a computer for telephone billing and other data processing applications;

vii) training equipment; and

viii) other equipment (primarily, equipment for maritime communications,teleprinters and vehicles).

b) construction of exchange buildings and staff accommodation; and

c) carrying out of tariff studies, establishing of an economic studies unit,computerization of accounting and other functions, and development andLnplemen'..on of technical and financial training programs.

4. PROJECT DESIGN AND ORGANIZATION

4.01 The project was designed within the framework of the Government'sTelecommunications Development Program for the period 1985-90 which was under preparationduring appraisal. The project was prepared by GTO with the assistance of consultants. Appraisalof the Project by the Bank took place in July 1984. The experience gained in the implementationof the first project played a major role in designing the second project. The thrust of the secondproject was directed towards continued institutional improvement of GTO in planning, projectimplementation and strengthening its financial position in the light of GTO's desire to acceleratenetwork expansion. The Technical Assistance component of the project therefore includedcarrying out tariff studies, establishment of a corporate planning unit, computerization ofaccounting and other functions, aP4i uevelopment and implementation of technical and financial

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training programs. To underscore the importance of the T.A., the issuance of Letters ofInvitation for the consultants to carry out the studies was a condition of Board presentation.

4.02 The concept of the project was well understoou by GTO management as manifestedby its very effective and timely implementation of the project. The project was well prepared andtimely, serving as a critical bridging between dependency of GTO on external financing andcomplete self financing from internally generated funds.

4.03 At the appraisal time the cost of components to be financed by the Bank was set atUS$10.0 million but at negotiations, with the request of the Oman Delegation, the amount wasincreased to US$23.0 million to ensure a more significant impact of Bank participation in theproject.

5. PROJECT IMPLEMENTATION

5.01 Loan Efeivenes a-up. To ensure timely implementation of theproject, bid invitation for Bank financed goods was made a condition of Loan effectiveness. Thisresulted in start up delays; thus, although the loan was signed on September 20, 1985 andscheduled to be effective on December 20, 1985, the loan was not effective until June 12, 1986(Annex 2). The bids which, during negotiations in December 1984 were planned to be issued inApril 1985, were not issued until April 1986. The main reason for the delay was a change in thelocation of the physical components to be procured under the Bank financed loan.

5.02 During negotiations it was agreed that the Bank loan of US$23.0 million wouldfinance, besides consultancy and training, the switching and external cable network of the ruralcomponent of the development program. The rural component consisted of provision of modemtelephone facilities to about 37 rural areas scattered all over Oman. The rural component wasspecifically chosen for Bank financing because of its economic impact and since the facil.ties to beinstalled were new, this part of the program easily lent itself to procurement by internationalcompetitive bidding. However, after Board approval, SOO decided that services to 36 of theserural areas should be provided by the National day on November 18, 1986. To meet this date,GTO directly contracted the supply and installation of the switching and external cable network(from Main Distribution Frame to Distribution Point) to L.M. Ericssor of Sweden. TheSubscriber Service Leads (from Distribution Point to subscriber Premises) were not included inthe Ericsson contract. This part was included under Bank financing.

5.03 Following GTO's decision to contract the bulk of the rural portion to L.M. Ericsson.new project components had to be identified for financing under the Bank. These included:

a) Subscriber service leads for about 23,000 lines for the 36 rural areas contracted toL.M. Ericsson (para 5.02); and

b) transmission network, switching and local networks for six main towns in BatinahCoast namely:

- Quriyat: 1,400 lines- Suwaiq: 2,600 lines- Rustaq: 1,500 lines- Saham: 2,300 lines

- Barka: 3,368 lines- Khaburah: 2,496 lines

and six other small towns namely: Dhagmar, Mazara, Nakhal, Awabi, Huqain,Bidaya

c) Network expansion in Seeb, Masnah, Fanjah and Masirah by about 1,800 lines.

The new components were consistent with those originally contained in the Staff Appraisal Reportand GTO attached highest priority to the implementation of these components.

5.04 After agreement with the Bank on the project components in September 1985 GTOprepare i the bid documents which were issued in April 1986. Since then the project proceededwithout any hitches.

Implementation Schedule

5.05 Procurement action by GTO was carried out expeditiously. There were no majorprocurement issues experienced in this project due to the discipline of GTO management(Governance) to observe laid down Bank rules and regulations. Even with the initial start-updelay of about one year, the project was substantially completed by December 31, 1990 as hadbeen originally scheduled.

PEriec Costs

5.06 At appraisal, the estimated total project cost was RO 78.5 million (US$227.8 millionequivalent), with a foreign exchange component of US$154.8 million or 68 percent of totalproject cost. In 1985, the GTO completed preparation of the 3rd five-year (1986-1990)development program which was larger in scope than that appraised for Loan 2513-OM; the totalcost of the new program was RO 125.4 (US$363 million equivalent) i.e. 62% above appraisaltotal costs. Due to a down-turn in economic activity arising from the oil glut, GTO decided toreduce the investment program to RO 104.3 million (US$301.1 million equivalent) and extendedimplementation period by three years to 1993. At compL!ticn of the project i.e. December 31,1990, total investment costs were RO 60.9 million i.e. US$169 million equivalent. Amex 3 ofpart III details the estimated original and final actuals. The reduced investment was due to adown-turn in economic activity, and thus demand, arising from the oil glut. Equipment costs forthe Bank financed portion were very competitive due to International Competitive Bidding. It isestimated that the unit costs were more than 30% below costs of equipment procured throughother means. GTO used this low unit cost as a reference to negotiate prices for all otherequipment in the program. As a result, the overall cost of the investment program wassubstantially reduced.

Disbursements

5.07 Disbursements were lagging in the first two years because of implementation start updelays (para 5.01), but after that they picked up and the Loan was closed as originally scheduled,on June 30, 1991. The original and actual disbursements and allocation by categories are shownin Annex 4. The last disbursement was made on July 17, 1991.

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6. PROJECT RESULTS

A. Oaerall Results

6.01 GTO implemented the project according to the revised plan (para 5.06) and theresults were satisfactory.

a) The following installations were done:

i) 78,920 lines of local exchange equipment i.e. 21 % above planned target of65,000 lines;

ii) a 1,000 line international digital exchange (600 line planned);

iii) one coaxial cable and four microwave links upgraded, two new microwaveand eight spur links provided as planned;

iv) Salalah and Al Hajar earth stations upgraded as planned;

v) limited expansion of mobile telephone network to cover all major townscompared to Muscat and Salalah only at the beginning of the project;

vi) a computer for telephone billing and other data processing applications wasbought from the Ministry of Finance at a reasonable cost; and

vii) training equipment to upgrade the training school to a medium level trainingschool.

Items which were not implemented due to depressed economic conditions are: additional TVreceive only stations for rural areas, maritime communications and teleprinters.

b) Construction of exchange buildings and staff accommodation.

B. Bank-Financed Components

6.02 Subscriber Buried Service Wire. This component provided complementary plant forthe switching equipment contract with L.M. Ericsson of Sweden. A total of 35 rural locations(Armex 5) were covered and some 226 cabinets have beea installed. Customer response has beenso good that most of the original capacity of 26,000 lines has already been expanded under GTOfinancing.

6.03 Batinah Coast Expansion. This component provided a total of 16,448 lines ofswitching capacity in 12 towns served by 82 cabinets covering 101 communities. The list oftowns covered is attached as Annex 5. Subscriber response has also beeii so positive thatadditional capacity of about 14,000 lines has been installed and another expansion of 2,200 lineshas already been contracted.

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6.04 Network Expansion in Seeb. Masnah. Faniah and Masirah. The contract forextending the external cable networks in these areas was completed at the end of 1988 leading toan increase of 1,800 subscribers by the end of 1989.

Technical Assistance

6.05 Tariff and CorMorate Planning Studies. Consultants (Coopers and Lybrand of U.K.)were employed to carry out studies on tariffs and to advise on appropriate organizational changesthat are necessary in GfO to strengthen corporate planning. These studies were completed at theend of 1986 culminating in proposals for changes in tariff levels and structure and the creation ofa corporate planning unit. The first task of the unit was to review the tariff recommendationsmade by the consultants and since then the GTO has implemented a number of changes in tariffsincluding: reduction in telex tariffs; change of tariff levels and structure of local and long distancetelephone calls including the introduction of local call timing; and reduction of internationaltariffs. GTO has now got a system for regular review of tariffs. The last tariff review inOctober 1991 resulted in reduction of international rates.

6.06 ComDuterizatio. This component, which started with the formulation of a longterm strategy for computerizing practically all the activities of GTO, has gone a long way. Fivemajor systems have been implemented and are operating satisfactorily. These include: subscriberbilling; inter-administration accounting; network records; traffic analysis; payroll; and personnel.The introduction of these systems has greatly enhanced the efficiency of GTO. The mostremarkable achievement is the issuance of bills within 8 days of month end compared to quarterlybilling at the beginning of the project.

Operating Performance

6.07 GTO maintained satisfactory technical and financial performance throughout theproject. GTO met most of the operational performance targets and exceeded in some of them.This is commendable considering that the economy was in a depressed state for most of theproject period due to falling oil prices.

Technical Performance

6.08 The project achieved most of its operational objectives as indicated in theperformance indicators, Annex 6. Subscriber connections were planned to reach 110,500 lines byend of 1990 but the achievement was 97,730 lines i.e. 11% below estimated target due todepressed economic activity. By the end of the project, the telephone penetration was about 6.5per 100 inhabitants compared to a target of 7.2%. This was satisfactory considering the adverseeconomic conditions.

6.09 Telex demand declined throughout the project due to increased use of facsimile,which is a worldwide phenomenon. Thus the target of 2,600 lines was not achieved and insteadthere was a decline from 1,470 lines in 1985 to 1,070 at the end of the project (27% decline).Telex service is expected to continue declining at the rate of 13% in the next five years. GTOhas been urged to review the tariffs for these services to stimulate utilization.

Financial Performance

6.10 GTO's financial performance was generally satisfactory throughout the project(Annex 7). The financial objectives set at appraisal assumed a favorable economic growthconsistent with the previous years. *The oil glut slowed down the economy substantially but dueto prudent financial management, the adverse impact on the financial performance of GTO wasminimal. Annual revenue per DEL declined from RIAL OMANI (RO) 872 in 1985 to RO 465 in1989 and in 1990 it rose by 4% to RO 485. Appraisal estimates projected a decline from RO 872in 1985 to RO 643 in 1990. The rise in 1990 was an indication that the economy was picking unbut it was also a reflection of tariff adjustments and the marketing efforts of GTO. Cashoperating cost per DEL was kept low at RO 213 compared to an appraisal estimate of RO 290.Telex revenue per line dropped to RO 2,173 compared to RO 6,000 estimated at appraisal. Theprofitability of GTO was sound throughout the project enabling it to pay an annual dividend ofRO 10.7 million to its shareholder, the SOO in 1989 and 1990. The target rate of return onaverage net fixed assets of 19% could not be achieved at the end of the project but only 11 % wasachieved. The lower figure achieved was mainly due to less utilization of the network (66% fillagainst an appraisal estimate of about 85%) and a revised depreciation policy which allows for amuch higher factor for obsolescence than estimated at appraisal. GTO's financial structureremained sound throughout the project although the current ratio of 1.7 at the end of 1990 wasmuch lower than the estimated figure of 4. The major reason for the variance is the financing ofwork in progress from GTO's internal cash generation. Debt service coverage was kept incontrol with a coverage of 16 compared to 3 because of the funds which were intended to beborrowed from the SOO (RO 22.4) were given as equity.

6.11 GTO's financial management was weak in the area of collection. The performanceon receivables was unsatisfactory throughout the project reaching a figure of 100 days at the endof 1990 instead of the 60 days estimated at appraisal. The main debtor has been the SOO,accounting for 56% of the total debt although constituting only 22% of billing. Receivables fromnon-government users were within the set target of two months of billing. GTO is nowdiscussing the receivables problem with the Government.

6.12 In the billing area, GTO made tremendous improvement from quarterly billing at thebeginning of the project to monthly billing at the end of the project when bills are issued within 8days of the month end.

Financial and Economic Rate of Return

6.13 The internal rate of return for the 1985-1990 reduced investment was 29% comparedto an appraisal estimate of 16%. The economic rate of return was 35% compared to 29%estimated at appraisal.

Institutional Performance

6.14 The management of GTO has been sound and the successful implementation of theproject bears witness to this. At appraisal, it was noted that although the present managementwas capable of efficiently administering the present organization, the decision-making structure

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was highly centralized. The GTO has recently adopted a new organization structure. Thestructure has been designed to meet GTO's present and future challenges of satisfying Oman'seconomic and social requirements for telecommunications services. The structure is lesscentralized and it is gratifying that most of the top positions (1st and 2nd level) have been filledby competent Omanis.

Manpower and Training

6.15 The project set out to achieve two objectives in this area. Firstly, the staff ratio, i.e.the number of staff per 1,000 DELs would be reduced from a figure of 70 in 1983 to 26 in 1990an efficiency improvement of 63%. Secondly, Omanization would be increased through intensivetraining. The staff ratio achieved of 19 exceeded appraisal estimates by 27%. Omanization, nowat 80% compared to 68% at the beginning of the project, proceeded very satisfactorily. Untilrecently, Omanization was concentrated on the lower levels but GTO has now turned its attentionto the middle levels where Omanization is still less than 50%. GTO has placed Omanis in keymiddle level management positions and the expatriates have been asked to take the back seats.There is a need for GTO to prepare a comprehensive manpower plan to map out exacdy how andwhen 100% Omanization is going to be realized at the middle level. Training is key to thesuccess of the whole plan and the need to develop individual tailored training for each of thesemanagers was emphasized during supervision missions.

Accounts and Audit

6.16 GTO accounts and audit were completed on time as covenanted in the LoanAgreement that is 4 months to complete draft accounts and 6 months to complete the audit. Theaudits were normally completed by end of April of the year following. The main reason for thisexcellent performance was good management and the computerization of accounts that was doneas part of this project.

7. PROJECT SUSTAINABILITY

7.01 The project was instrumental to the installation of an institutional system that willsteer GTO through to the future. The Information Management Systems that have beenintroduced in GTO through the Computerization Program has put GTO on a level of financialmanagement operations equal to that in the industrialized world. The establishment of aCorporate Planning Unit has created a process which is constantly reviewing tariffs in accordancewith the varying costs of providing service. The overall management of GTO has beenmodernized and thanks to intensive training, most of the systems established can be managed byOmanis. Thus, although there are still many expatriates assisting in the management of thesesystems, the backbone Omani staff is capable of sustaining their operation. However, moretraining needs to be done before the expatriates can be completely replaced.

7.02 On the physical part, modern equipment has been installed and utilization issatisfactory considering the adverse economic conditions. Revenues to be realized from thisequipment will enable GTO to reinvest in future expansion of the network. GTO is now

- 10-

completely self sufficient financially generating sufficient revenues for its operational anddevelopmental requirements.

8. BANK PERFORMANCE

8.01 The overall Bank performance in this project has been good. The Bank identifiedbasic institutional weaknesses in the GTO in the areas of corporate planning, tariffs, andcomputerization. The Bank assisted GTO to prepare the terms of reference for the consultantsand assisted in the review and implementation of their recommendations. As a result, a CorporatePlanning Unit was established and computerization was implemented in a number of activities inthe GTO (paras 6.04 and 6.05).

8.02 The Bank dealt with the processing of bid documents expeditiously. Some minordelays were experienced at the beginning in the clearance of bidding documents but this wasquickly resolved after a team of GTO engineers visited Washington.

8.03 The Bank supervised the project once a year and a total of 7 missions were madeduring the project (Annex 9 . The missions were adequate and very beneficial to both parties.GTO prepared thoroughly for these missions and basically all issues were cleared during thesupervision missions.

9. BORROWER PERFORMANCE

9.01 Borrower performance was excellent. The Borrower understood theobjectives of the project very clearly and employed all required resources to make it a success.Anv shortcornings in meeting set objectives were normally outside the competence of GTO. Forinstance, the problem of meeting the rate of return was mainly due to adverse economicconditions and the accumulation of receivables could only be handled by the Government. Thegreatest strength of GTO is management discipline which is exemplary. GTO management wasfully aware of what to expect from the consultants and this paid high dividends.

10. COMPLIANCE WITH COVENANTS

10.01 The Borrower complied with covenants except those related to rate of return andAccounts receivable (Annex 10). Accounts receivable were 100 days (para 6.09) at the end of1990 compared to a covenanted target of 60 days. The S00 was the main debtor and discussionsare still going on regarding offsetting this debt against dividend payment. The rate of return onfixed assets was 11% compared to a projected figure of 19 %. This could not be achieved becauseof the depressed economy, which led to less utilization of the network, and much higher assetdepreciation figures adopted by GTO. GTO is trying to improve utilization through marketing,including reduction of tariffs.

11. PROJECI RELATIONSHIP

11.01 The relationship between the Bank and the Borrower was maintained at an excellentlevel. The main reason for this good relationship was the mutual understanding of their common

- 11 -

objectives to develop telecommunications in Oman. The Bank and GTO worked as a team duringproject preparation and appraisal and all the project components (physical and T.A.) were decidedjointly which made GTO fully committed to them, especially the T.A. The role of the Bank as apartner in development has been demonstrated by GTO's intention to maintain contacts with theBank in this sector even after the Project has been closed. Oman has now graduated from Banklending but GTO has indicated that it may finance Bank missions on reimbursable basis in futureto maintain the exchange of ideas that has prevailed in the last decade, when the Bank first gotinvolved in the sector.

12. CONSULTING SERVICES

12.01 Consultants played a very important role in this project. The consultants wereretained to undertake three studies: establishment of a Corporate Planning Unit within GTO;tariffs, and computerization. The consultants successfully carried out those studies and assistedGTO in the implementation of their recommendations. A Corporate Planning Unit is nowestablished, tariffs are regularly reviewed by this Unit and many management systems have beencomputerized. These achievements would have taken GTO a long time to achieve on its own.

12.02 The physical implementation of the project went on very smoothly mainly becausethe contracts were awarded as supply and erection contracts thus reducing the coordination workon the part of GTO. The contractors generally performed satisfactorily.

13. PROJECT DOCUMENTATION AND DATA

13.01 The Staff Appraisal Report and the Legal Agreements provided a good frameworkfor the Bank and the Borrower during project implementation. The targets set were generallyrealistic and variances could be explained. The supervision mission have been well documentedand the data for this PCR was essentially obtained from the Supervision Reports.

14. CONCLUSIONS AND RECOMMENDATIONS

14.01 There were no major problems encountered in this project. The objectives of theproject were substantially fulfilled as outlined above. Bank's main contributions were two fold:(a) renrdering assistance in the establishment of appropriate management systems whichsubstantially enhanced the efficiency of GTO; and (b) through international competitive bidding,enabling GTO to obtain equipment at very reasonable prices. The unit costs for the equipmentprocured under Bank financing were more than 30% below equipment procured through directcontracting. GTO used the low unit costs as reference to negotiate prices for all other equipmentunder the program.

14.02 There are two main lessons to be learnt from this project: (a) with disciplinedmanagement, judicious use of consultants and execution of turnkey projects, projectimplementation can be achieved economically and on time; and (b) building of manpower capacityis a long and arduous process. For it to succeed, it must be well planned and implemented over along time. Despite GTO's commendable intensive efforts to train Omanis, it will still needexpatriates for a long time if it is to maintain its efficiency. The GTO has been very realistic asfar this problem is concerned and has replaced expatriates where it was absolutely sure thatOmanis could perform the duties.

- 12 -

14.03 Oman's telecommunications sector is a success story for the Bank. There is a lotthat can be learned from the GTO's performance by other Borrowers of the Bank. Through twoprojects the Bank has assisted GTO to reach a level of performance commensurate to thatattainable in the industrialized countries.

- 13 -

PROJECT COMPLETION REPORT

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

PART II PROJECT REVIEW FROM BORROWER'S REVIEW PERSPECTIVE

- 14 -

t?1t 1oA 4k

~~~~~~~~~~~~4~ J JtSLj sh1 i-

Our Rof. r:TO/8/ /92

Dow: 29th April 1992 :

Mr. Rogati KayaniSenior Telecommunications EngineerAfrica RegionWorld BankTelecommunications Divisi ,n1818 H StreetWashington DC 20433United States of America

Dear Rogati,

Please find enclosed a draft copy of the Project Completion Report.

Before proceeding on leave I left a copy with His Excellency Presidentfor his approval.

Please let me know If you have any suggested chonges or additions.I will confirm H.E. President's approval on my return from leave.

best regards,

Yours faithfully,

shworthir tor General of Finance

6Y7W..S7 .-5soo GTOF CEON - ,J 41 Jl4 J,.. A.5t .5 j

: . /.Zgmut.96 J. .: #J,v V - ~ J~J CaL,o1 V A

- 15 -

CONTENTS

1. THIRD FIVE YEAR PLAN

2. ACHIEVEMENTS DURING THE THIRD FIVE YEAR PLAN

3. FINANCIAL PERFORMANCE

4. DEBT COLLECTION

5. INTER-ADMINISTRATION

6. ESTABLISHMENT OF CORPORATE PLANNING DEPARTMENTAND REVISION OF TARIFFS

7. COMPUTERISATION

B. PROJECTS FINANCED BY WORLD BANK

9. RELATIONSHIP WITH WORLD BANK

- 16 -

1. THIRD FIVE YEAR PLAN

The Third Five Year Plan covered the period 1986-1990 and was initiallly set at RO.125.4million. This five year development plan was based upon the telecomnvrnication MasterPlan which was finalised in April 1986.

The sharp fall in oil prices in 1986 seriously slowed the economy and led to the delay inimplementation of some telecommunication projects. The result was that at the end of 1990a number of the planned projects were still in progress.

It was decided that those projects that had not commenced would be deffered to the FourthFive Year Plan from 1991-1995 and hence the Third Five Year Plan was reduced toRO.104.3 million. The Fourth Five Year Plan amounts to RO.93.3 million.

(RO.million)

Original Revised 86 87 88 89 90 91 92 93

125.4 104.3 4.156 17.395 8.763 14.082 16.561 14.410 20.307 9.824

THIRD FIVE YEAR PLAN EXPENDITURE BY REGION

MUSCAT

BATINAH

DHOFAR

MUSSANDAM

0.6% SHRQULAH

DHAHIRAH DAKHELLAH

- 17 -

2. ACHIEVEM_ENTS DURING THID FIVE YEAR PLAN

At the commencement of the third five year plan GTO had an exchange capacity of 73,436and 36,654 fixed telephone subscribers.

By the end of the plan in 1990 capacity had increased by 96% to reach 143,580 with 97,735working subscribers. As at the end of 1991 capacity was 159,600 of which 113415 wereworking, an exchange capacity of 71%.

GTO introduced a mobile telephone system in November 1985 with an exchange capacity of4500 lines. By the end of 1990 working subscribers had reached 2591 with a furthersubstantial increase in 1991 to 3542.

_XCHANGE CAPACITY AND WORKING LINES_

160K -I

140K-

120K-

100K-

80K * WORKING60K - l CAPACITY

40K-

20K *

81 82 83 84 85 86 87 88 89 90 91

During the period of the plan GTO conducted trials with card operated payphones. Theprefered payphones were introduced in 1988 with 178 working by the end of 1990, and 930by the end of 1991. A further 2000 are due for delivery in 1992.

Revenue from card sales continues to outstripe forcasts and is still increasing. GTOsexperience is that cardphones meet a market demand allowing people who previously did nothave easy access to a telephone to now make calls. Cardphones are relatively easy tomaintain and provide good cashflow with no credit risk for a minimal commision to cardagents. GTO would recomend that other clients of the bank consider installing cardphones asa priority to new and existing networks.

- 18 -

As part of the fourth five year plan GTO 5K MOBILE TELEPHONESintroduced a radio paging network inDecember 1991 which was well recieved and 4Knmet initial heav-' demand. The paging 3 WORlO

service will co, cr the majority of the country 3K lllJUNOby the end of 1992. 2K OCl ACIlY

IK

86 87 88 89 90 91

3. FINANCIAL PERFORMANCE,

GTO has been profitable since its inception in 1980 with an increasing profit trend upto 1986.Lower economic activity following the oil price collapse of 1986 led to a reduction of profitsin 1987. However, strict management control of operating costs and manning levels ensuredthat GTO still generated a respectable level of profit despite adverse economnic conditions.Since the decline in 1987 profits have resumed their upward climb reaching nearly RO 20million in 1991.

OPERATING PROFIT20K

15K-

10K-

SK-

SI 82 83 84 85 86 87 88 89 90 91

(3TO suffered a considerable loss on exchange in 1985,19076 and 1987 due to the devaluationof the Omani Rial following the oil price fall of 1986 and the general weakening of the USDollar to which the Sultanates currency is linked.

- 19 -

During 1987 GTOs outstanding loans to the governmer,t were converted to equity bringingtotal shareholders funds to RO 50 million. At the same time GTO agreed to commencedivedend payments which by the end of 1991 have totalled RO 52.7 million.

Hence in the relatively short period of only CUMULATIVE DIVIDENDSeleven years GTO has built an extremly modem 60Ktelecommunications network covering the vast SOK

majority of the country at what is effectively 40K

zero cost to the government. At the same time 30K -GTO has been able to implement a programe of 20K -continuing tariff reductions, meet loan 10K*repayments and finance a substantial capital L _expenditure investment programe,all from 85 86 87 88 89 90 91

internally generated funds.

20K -NET PROFIT

15K-

10K-

5K-

81 82 83 84 85 86 87 88 89 90 91

Revenue per line has fallen sharply

REVENUE PER LINE since the beginning of the third fiveREVENUE PER LINE year plan, from RO.872 in 1985 to

800 - RO.501 in 1991. This reduction reflects800 the increasing rural coverage of the600. _ _network. However, the revenue per line600 - - now seems to have levelled off at500- approximately RO.500 probably due to400. increasing economic activity.300*200100

85 86 87 88 89 90 91

- 20 -

PERFQRNM I@CATORS

(RO.OOOs) 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Operaing profit 3,132 5,489 8.179 12,000 14,637 16,112 11,122 1-,624 12,967 14,710 19,592

Net Profit 3,560 6,672 9,077 12,432 10,790 9,064 5,007 13,818 13,650 13,461 19,908

Dividend - - - - - - 4,005 11,054 10,920 10,769 15,926

Retur on ave. 27.18 49.23 48.56 31.47 20.40 7.75 3.73 9.89 9.84 9.66 14.24assets (%)

Returnoncap. 10.75 16.52 18.25 19.85 15.09 8.82 4.82 12.97 12.49 12.02 17.17employed (0/%)

Curfent Ratio 4.20 5.51 4.41 1.89 1.36 1.02 1.80 1.99 2.16 1.58 2.94(excl. divs)

NetDebtordays 103 101 100 95 120 113 106 90 85 85 69

Debt Service -12.8 -7.0 -12.7 -343.2 13.6 7.8 9.7 13.6 18.9 2.4.7 47.3coverage (X)

Ernigs per 129 241 328 447 388 181 100 276 273 269 398share (Bains)

Employees 77 70 70 72 52 36 31 24 22 20 18per 1000 lines

The World Bank target of a return on average assets of 19% by 1991 would now seem to be alittle unrealistic. Such a high return was possible when relatively high levels of traffic wheregenerated by a much smaller network. The considerable increase in fixed assets over theperiod obviously make such a target now difficult to achieve. However, if revenue continuesto increase in line with recent trends then a return on assets approaching 19% may be possiblein the near future.

- 21 -

4. pEBTICQLLECTION

In 1987 GTO appointed a collection agent for its private bills. GTO still produces the billsand therefore retains essential control of the billing system but with the agent responsible fordelivery of bills and subsequent collection. The agent pays GTO the full billing amount lesscommission after the month end irrespective of the amount collected and assumesresponsibility for all bad debts.

The arrangement has been highly beneficial to GTO resulting in assured and improvedcashflow. The commission payment is less than the bad debt percentage that GTOhistorically suffered when responsible for its own private bill collection.

GTO is still responsible for the collection of bills due from Government subscribers.However, despite strenuous efforts and an improvement by some Govemnment Ministries andagencies, the amount due from Government has continued to increase.

Discussions are continuing with the Ministry of Finance and Economy and GTO is hopefulthat the matter can be resolved especially considering the substantial dividend that OTO isnow paying.

S. IER-ADMIN ISTRAIIO

It is GTO's policy to attempt to balance payments to and from other telecommunicationadministrations and hence be in a neutral payment position.

To date outpayments have been between on average 10-15% above inpayments despite a vastincrease in international traffic from Oman. GTO has been able to achieve this by continuallynegotiating accounting rate reductions with other administrations resulting in substantial costsavings.

INTERADMINISTRATION PAYMENT RATIO9K8K-7K-

6K-5K [jAY]

2KIK-

81 82 83 84 85 86 87 88 89 90 91

- 22 -

6. ESTABLISHMENT OF CORPORATE PLANNING DEPARTMENT ANDEVSION OF TARIFFS

The work and subsequent report by the consultants Coopers and Lybrand laid the foundationfor the tariff structure adopted by GTO. It was crucial to the success of our tariff revisionsthat the structure was agreed prior to effecting any changes.

Tariffs send strong messages to our customers and greatly affect the demand level for ourvarious services. If incorrectly planned tariff revisions can have an adverse impact not onlyon profitability and cashflow but also may cause customer dissatisfaction when increaseddemand cannot be serviced or lead to unnecessary increases in capital expenditure.

As a consequence of our planned approach GTO has been able to successfully implementtariff revisions to all services resulting in increased traffic volumes and revenue but withoutthe need for unplanned expenditure on capital equipment.

There have been reductions in telex call fees, a change in tariff levels and structure of localand long distance telephone calls including the introduction of local call timing, reductions inleased circuit and modem rentals and the introduction of off-peak national and internationaltelephone call rates. This was subsequently followed by significant reductions ininternational telephone call tariffs themselves.

GTO is now fortunate to have in place an established Corporate Planning Department andtariff structure which will allow an ongoing regular review of tariffs.

Besides tariffs, the Corporate Planning Department has been instrumental in GTO's policy ofliberalising terminal equipment. To date this has included telephone instruments, facsimile,and private switchboards.

INTERNATIONAL TELEPHONE CALL MINUTES35K-

30K -

25K -

20K-

ISK-

10K-

5K-

81 82 83 84 85 86 87 88 89 90 91

- 23 -

7. COMPUIERISATIOl

At the commencement of the Third Five Year Plan in 1985 GTO's financial andadministrative systems were entirely manual with customer billing being processed on ourbehalf by the computer department of the Ministry of Finance.

Following the appointment of Consultants P.E. Computer Services in 1985 a long termstrategy for the computerisation of GTO activities was completed.

GTO purchased the computer from the Ministry of Finance in 1986 and assumedresponsibility for bill processing. Monthly billing was introduced and the billing date broughtback to within eight days of the month end resulting in substantial cashflow benefils. Despitea four-fold increase in numbers of subscribers the billing date has never been missed.

Four other major systems have also been computerised, inter-administration accounting,network records, traffic analysis, and payroll and personnel. The financial accounting andbudgetary control systems have also been computerised using a departmental computernetwork. Corporate Planning Department has also made extensive use of financial modellingsoftware.

Contracts have recently been signed for the purchase of a Hewlett Packard Mainframecomputer to replace the aging IBM, plus approximately 150 personal computers fordepartmental networks. GTO is in the process of identifying a Customer Service Systemwhich will run under the Unix operating system and with Oracle database.

8. PROJECTS FINANCED BY WORLD BANK

(i) Provision of telecommunication facilities in the Northern Coastal Region - BatinahCoast.

(ii) Installation of Btuied Service Wires to complete the portion not executed under theRural contract.

The aim of the projects were to install 16,450 exchange lines in the Batinah Coast(Appendix I) and provide 35 villages in the Rural Areas with Buried Service Wire andSubscriber Service Leads (Appendix II). The projects were completed as scheduled.

The Batinah Coast project proved extremely successful, that in 1989 the average exchangeloading stood at 69% having 11.329 working subscribers generating RO.360/- per line.Subsequently GTO has undertaken a project for Phase II of Batinah Coast covering a widergeographical area and installing fwuther exchange capacity of 16.470 including the expansionof some Phase I exchanges.

Favouable rates obtained during negotiations meant that the total loan was not required tomeet the cost of these two projects. Therefore, GTO suggested and the Bank agreed that thesurplus funds be used to finance the material portion of outside plant works in a further 4 sites(Appendix III).

- 24 -

9. RELATIONSHIP WITH WORLD BANK

The projects financed by the World Bank were successfully implemented as planned. Theestablishment of the Corporate Planning Unit, tariff revisions, and computerisation have allproved to be extremely beneficial to the administration of GTO.

GTO would like to thank the World Bank for its most valued advice and assistance during theperiod of the project and hopes that the experience it has gained from our success at GTO willbe useful in its relations with other clients of the Bank.

- 25 -

Appendix I

Page 1

COMPONENTS OF PROJECT FINANCED BY WORLD BANK LOAN NO.2513-04

1. BATINAH COAST PROJECT

1.1 Contractor - M/s Siemens AG., West Germany.

1.2 Submission of bid documents to Bank : 26 December 1985

1.3 No objection by Bank : 7 April 1986

1.4 Bid invitation : 22 April 1986

1.5 Bid opening : 15 July 1986

1.6 Submission of evaluation report to Bank: 28 October 1986

1.7 No objection by Bank : 4 December 1986

1.8 Date of Contract : 6 January 1987

1.9 Contract Period : 15 Months - 5th April 1988

1.10 Contract Completed : 5th April 1988 withextension ofAl Bidaya Transmissionlink to 19th July 1988and Outside Plant to10th March 1989.

1.11 Contract Price : Materials funded byWorld Bank DM 30,611,000Installation RO 4,534,000

1.12 As Built Costs : Materials - DM 32,054,000

Installation-RO 5,129,000

- 26 -

Appendix I

Page 2

1.13 Planned Project

Thirteen (13) sites with a total capacity of 16,680 lines was

contracted of which six (6) were Main Switching Units and seven (7)

Remote Switching units. One site (Al Hawasina) was deleted during

implementation. 99 Cabinets were planned under External Plant with a

direct feed cabling to serve Hawasina. The total number of

communities to be served was 86.

1.14 Implemented Project

The total installed capacity of Switching lines was 16,448 served by

82 cabinets covering 101 communities. The Outside Plant extended to

cover 3 additional communities namely, Hail Al Ghaf, Misfah, Abayah

and more important cabinet areas resulting in some 30 cabinets

being deferred. However, thirteen (13) of these cabinets were

installed. Subscriber connection was much greater than anticipated

and therefore additional subscriber connections have been included in

Phase II of the Batinah Coast Project.

BATINAH COAST WORKING SUBSCRIBERS

MSU/RSU Capacity Old lines 31.12.89 31.12.90 31.12.91

Quriyat 1,400 - 1,144 1,183 1,189

Dhagmar 400 - 212 213 195

Mazara 104 - 100 100 83

Barka 3,368 191 1,558 1,703 1,710

Nakhal 884 - 693 901 898

Rustaq 1,500 195 1,298 1,443 1,430

Suwaiq 2,600 234 1,368 1,421 1,400

Awabi 260 - 221 244 252

Huqain 252 - 192 192 186

Khaburah 2,496 200 1,870 1,944 1,696

Saham 2,300 196 1,815 2,011 1,886

Bidaya 884 - 858 1,008 990

TOTAL 16,448 1,016 11,329 12,363 11,831

- 27 -

Appendix II

Page

3. RURAL TELECOM EXPANSION - BURIED SERVICE WIRE PROJECT

3.1 Contractor M/s Telecommunications Consultants(India) Limited, (TCIL)

3.2 Bid invitation 1 October 1985

3.3 Bid opening 23 November 1985

3.4 Submission of evaluationreport to Bank 8 January 1986

3.5 No objection by Bank 21 February 1986

3.6 Date of Contract 8th May, 1986

3.7 Contract Period 12 Months - 7th May 1987

3.8 Contract Completed 22nd October 1987 - implementation periodextended due to additional work.

3.9 Contract Amount Materials(Funded by World Bank) - US $ 2,533,936

Installation andother costs - RO 1,046,690

Variation - RO 202,985

RO 1,249,695

3.10 Planned Project

Buried Service wires, Subscriber Service leads and Subscriberconnections were to be installed in 35 Rural sites - the main contractof which was implemented by L.M. Ericsson of Sweden.

3.11 Implemented Project

The BSW Project was completed approximately 51/2 months after thescheduled completion date due to additional work being awarded. Atotal number of 35 sites and some 226 cabinet areas were covered withBSW. The uncompleted portion was awarded to a local company, M/s OmanCycle Industries Company (O.C.I.C.) at a total cost of RO 691,500.

- 28 -

Appendix III

Page 1SUPPLEMENTARY CONTRACT TO BATINAH COAST PROJECT

2. SEEB, MASNAH, FANJA, MASIRAH PROJECTS - OUTSIDE PLANT

2.1 Contractor Siemens AG., West Germany

2.2 Date of Contract 18th October 1987

2.4 Contract Period 12 months - 17.10.1988

2.5 Contract Amount as Materials funded by World Bank

installed - DM 3,496,000

Labour - RO 1,117,000

2.6 Planned Project

Seeb and Fanja were installed with Ericsson ARF Exchanges which wererelocated from Qurum and Buraimi respectively. These areas were notcovered by adequate Outside Plant. As a new Digital Exchange was ear-marked for Masnah as a separate contract, the Outside Plant wasinstalled in anticipation of its early commissioning. The Exchange wasfinally included in the Batinah Coast Phase II contract with Siemensand installation is in progress.

2.7 Implemented Projects

At the completion of the projects approximately 700 subscriberswere connected in the Musnah exchange.

Seeb brought in about 1500 subscribers and Fanja and Masnah200 subscribers each.

Subscriber working as at:

31.12.1989 31.12.1990 31.12.1991

Seeb 2,303 2,518 2,593Masnah 60 1,607 1,721Fanja 438 474 526Masirah 352 349 331

- 29 -

THIRD FIVE YEAR PLAN PROJECTS Appendix tV

Page I

Budget BudgqID Description of Pro1ect RO'OO

8601 RURAL PROJECT (SUPPLBEHNTARY) LMEProvision ot outelde plant in 35 villages 8,076

8602 RURAL PROJECT BURIED WIREProvision of Buried service wirc end subscriber leads in 3S villages 2,232

8603 PHASt - EXTENSION OF OF IBRI ROADExtension of Public Mobile Aueomatic telephone servifee to Ibri area 1,450

8604 MDC KItAABA EXCHANGENew 1000 line EWSD exchange at Khaseb

8603 CAPITAL AREA-OUTSIDE PLANT WORK

8606 CONSULTANCY SERVICESProv!slon for value added services

8607 FUJRNITURM AND FITTINGS 1IPurchase of office accoodation furniture In the current plan

8608 MOTOR VEHICLES 1.Purchase of motor vehicles in the current plan

8609 PAYPBONES AND BOOTHSProcuremnt of 1250 card payphone and 1525 peyphone booths and associated units 1,255

8610 COMPUTER HARDWARE & SOFTIAREImplemntation of LLIS system and procurement of computers for individual 1,000departmen use.

8611 TRANSPORTABLE EARTR STATIONProcurewnt of Mobile Earth Station 500

8612 SATELLITE COMMUNICATIONExpansion of Al Aserat Earth Station, New Alternate Route Std. 'Al EarthStation and Radoms for 11 M Antenna 5,

8613 EXPANSION OP RECORD SERVICESProcuremat of voice frequenty telegraph equipment, tim diversion mltiplexand associated equlpment. 280

8614 SUBSCRIBER TERMINAL EQUIPMENTProcuremnt otf telephone instruments for new the projects that wereilemented under the current plan. 1,111

8615 BATINA COAST PROJECT PHASE IInstallation of 13 new EWSD exchanges with a total of 16448 exchange lines. 16,144

8616 SEBe. PANJA. HASNAR. MASIRAB EXPANSION & SHATI AL OURUMinstallation Of outside plant network 1,939

8617 GENERAL NETWORK EXTENSION IN MUSCAT AREA AND SALALAHExtension of outside plant networR in Madinat Al Nadha Social Houstig,Baushar Soeial Housing and Janub Al Rhuwair Developmat 2,801

8618 RURAL PROJECTS - NETWORK EXPANSIONInstallation of burled service wire In the Interiors 2,036

8719 EXPANSION OF TAQA. HIR8AT. RAYSUT 6 SUDH AL SAADAB 2 AL AADAN 3 4,164Installation of 2 new exchanges and expansion of 4 exchanges witha total capacity of 2568 exchange lines.

8720 CIVIL WORKSConstruetion of shelter for Mobile Earth Station and new technical building. 1,520

- 30 -

THIRD FIVE YEAR PLAN PROJECTS AODendig IV

g ge 2

Budget DaserDton of Prolect Roudg t

8721 TRANOW.SSION OF LINKS-FIBRE OPTIC CABLEInstalletion of an Alternate route and 1,708Pujireh-heat.at Malshe 140 H/Bft F.O.C. (Completed)

8722 RELOCATION OF ART CONTAINERS - FANJA 20

8823 8ATINAN COAST PROJECT PHASZ tl HASNAN & EXPANSION OF AHtLA 22,542Installation of 8 nov EVSD exchanges Ln the outlying areasand expansion of 3 exchanges with a total capacity of 16470 exchangelines.

8924 RURAL EXPANSION 1989Expansion of 26 AXE existing exchanges with 17100 exchze lin e 4.352

9025 PROVISION OF DIGITAL EXCHANGE DAKHILIAH REGION -PHASE I AND FIBRE OPTIC CABLE TO hURl 9,546Expansion of 8 exchanges by 25276 lines

9026 UXPANSION OF EWSD EXCHANGES IN MUSCAT DATINAM & JANOBIAH REGIONS 6,371EXPANSION OF EXISTING EXCHANGESExpanaioa of 14 existing exchanges by 23956 lines

9027/9030 EXPANSION OF EXISTING AXE EXCHANGES IN RURAL AREAS 6,482AND PROVISION OF NEW EXCHANGESEXPANSION OF EXIStINC EXCHANGESExpansion of 7 exchangea with 1792 lines.

9028 PUBLIC PAGING SYSTEMShifced to fourth five year plan

9029 DATA PACXZT SWITCHINGShifted to fourth five year plan

TOTAL 104,300

- 31 -

PROJECT COMPLETION REPORT

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

PART III STATISTICAL INFORMATION (Annexes)

PRO,JCT COKPLETION REPORT

SECOND TELECOHMIICATIONS PROECT(LOAN 2513-Ot)

RELATED BANK LOASinuinXmmmm.in.....

YEAR LOANOF AKOUNTLOAN TITLE PURPOSE APPROVAL US$MILLION STATUS COKMENTS

a) Techfical Assistance Preparing Investment 1977 0.075 Completed Basis for the FirstLoan 985-ON Program Telecom Project

b) First Telecommunications Expansion of Telecom- 1980 22.0 Completed Very Successful wProject municatLons services 06/30/86Loan 1884-ON

PROJECT COMPLETION REPORT Annex 2

OMAN

SECOND TELECOHWUNICATIONS PROJECT(LOAN 2513-OH)

PROJECT TIMETABLE

Item Date Planned Date Revised Date Actual

Identification Oct. 17-25, 1983 - Oct. 17-25, 1985Preparation March 19-26, 1984 - March 19-26, 1984Appraisal Mission July 10-31, 1984 - July 10-31, 1984Loan Negotiations Dec. 17-21, 1984 - Dec. 17-21, 1984Board Approval April 11, 1985 April 9, 1985 April 11, 1985Loan Signature - - Sept. 20, 1985 1/Loan Effectiveness Dec. 20, 1985 March 31, 1986 2/ June 12, 1986Loan Closing June 30, 1991 June 30, 1986 June 30, 1991Loan Completion Dec. 31, 1991 - Dec. 31, 1991

1/ Delay in signature due to queries by GTO on interest rates calculationsin the Loan Agreement document.

2/ Loan Effectiveness delayed due to late issuance of bid documents.

PR0J8CT COHPLETIOI REPORT

OHAD Annex 3

Page 1 of 2SECOND TELECOHKU?ICATIONS PROJECT

(LOAN 2513-ON)

PROJECT COSTS AND FINANCING___________________________

A. PROJECT COSTS (US5MILLION)______________________________

----------APPRAISAL ESTIMATE----------- ---- REVISED ESTIMATE---- ---------ACTUAL----ITEM LOCAL COSTS FOREIGN COST TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL

Switching Equipment 3.1 14.6 17.7 31.6 21.1 52.7 18.4 11.6 30.7

External Subscriber Plan 19.2 26.1 45.3 76.1 50.8 126.9 44.5 32.4 74.2

Transmission Syst 5.0 33.0 38.0 35.2 23.4 58.6 20.5 13.7 34.2Moblle System 8.4 19.1 27.5 4.2 - 4.2 4.2 - 4.2Buildings 12.8 11.1 23.9 30.2 - 30.2 17.6 - 17.6

Consultancy Services 4.0 4 6 8.6 11.6 - 11.6 5.0 - 5.0and Training

Miscellaneous 10.1 19.2 29.3 5.0 - 5.0 3.1 - 3.1(Gentex ComputerCoin BDoXes, Vehicles, etc.)

Total Base Cost 62.6 127.7 190.3

Physical Contingencies 3.0 2.5 5.5

Price contingencies 7.4 24.6 32.0

Total Project Costs 73.0 154.8 227.8 193.9 95.3 289.2 113.3 57.7 169.0.s= ,=um sm u ss

- 35 -

PROJECT COMPLETION REPORT Annex 3

Pago of 2 of

SECOND TELECOIONUICTIONS PROJECT(LOAN 2513-0M

S. PROJECT FINANCING (USSMZLLION)

PLANNEDSOURCE (LOAN AGREEMENT) REVISED FINAL COMMENTS___ __ __ __ __ __ __ __ ___ __ __ __ __ __ __ __----__ _____ ____ _____ _____ ____

SDAD 23.0 23.0 23.03xo nditur-categories

Government Loan 47.9 47.9 62.2 Equity

OTO Self Generated 156.9 230.2 83.8

227.8 301.1 169.0TOTAL uuu*uu .. .... min...

OHMN Annex 4

SECOND TELECOUIIIICATIONS PROJECT(LOAN 2513-OM)

LOAN DISBURSEMENTS (US$MILLION)

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS

Semester Ending Appraisal Estimate Actual % of Estimate

FY 86December 31, 1985 4.0 0.0 0.0June 30, 1986 6.1 0.0 0.0

FT 87December 31, 1986 8.9 4.0 44.9June 30, 1987 12.3 9.1 74.0

FY 88December 31, 1987 15.7 15.7 100.0June 30, 1988 17.0 18.5 108.8

FY 89December 31, 1988 18.0 18.5 102.8June 30, 1989 19.0 19.1 100.5

FT 90December 31, 1989 20.5 20.7 101.0June 30, 1990 21.5 22.7 105.6

Fr 91December 31, 1990 22.5 22.7 108.9June 30, 1991 23 22.7 98.7

Final disbursement was July 17, 1991 i.e. 17 days beyond the closing date.

- 37 -

Annex 5

PROJECT COMPLETION REPORT P 1 of 2

SECOND TELECOMMUNICATIONS PROJECT(LOAM 2513-0OM)

A. INSTALLED PLANT UNDER BANK FINANCING----------- _-__-------------------------

BATINAH COAST PROJECT

WORKING SUBS.NAME OF -------------EXCHANGE TYPE CAPACITY 1990

Quriyat MSU 1,400 1,183

Dhagmar R8U 400 213

Mazara RBU 104 100

Barka HsU 3,368 1,703

Nakhal RSU 884 901

Rustaq MSU 1,500 1,443

Suwaiq MSU 2,600 1,421

Awabi R8U 260 244

Huqain RSU 252 192

Khaburah MsU 2,496 1,944

Saham MSU 2,300 2,011

Bidaya RSU 884 1,008

Al Hawasina - -

16,448 12,363TOTAL

- 38 -Anrex 5

PROJECT COMPLETION REPORT ......Page 2 of 2

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

B. BURIED SERVICE UIRE PROJECT...........................

WORKING SUBS.NME OF CURRENT EQWIPMENT ----------------------EXCHANGE TYPE CAPACITY 1990 Apr. 1991................. ..................................... e........ ..................

DAiHLIYA AREA............

Nizwa AXE (L/P) 3,840 2,220 2,255Nizwa 2 RSU 640Manah RSU 896 402 416Al Ghafat RSW 256 216 218Adam RSU 1,024 498 497Firq RSU 384 284 302At Hamra RSU 1,280 623 642Sahla RSU 896 792 822Saiq RSU 384 108 111Birkat At Maows RSU 512 276 287

. ....... ............ .........

Sub-Totat 10,112 5,419 5S550333333 .n. 3333.

DAHIRA AREA...........

Ibri AXE 2,048 1,674 1728Dritz RSU 640 334 340Iraqi RSU 1,024 608 615Ohank RSU 896 503 503Yanqul RSU 896 406 502Tanaam RSS 384 103 91Buratmf AXE 2.048 1.994 1.976Mahdah RSU 384 154 135

........ ........ . ... ........ ....... ....

Sub-Totat 8.320 5,776 5,890

SHAROIYA AREA.............

Sur AXE 5,504 2.939 2,742At Kamil/At Waf RSU 896 660 6S1Bani 8u Alt RSU 1,152 747 648lenf bu Hassan RSU 1,280 652 713Al Ashkara RSU 256 237 228Ibra AXE 1,280 966 952Sanaw RSW 896 501 439Samed RSU 896 411 416Wadi Bni Khatid RSS 512 126 122Al Kabit RSU 640 399 372Al Nudhafbt RSU 640 421 440AL Mintrib RSU 896 667 671

........ ........ . ... ......------.........

Su.b-Total 14,848 8.n 6 8,444*c-sLrs s--w- *---so

SONAR AREA..........

Sohar AXE (L/P) 3,840 2,211 2.108Majis RSU 1,024 518 513Liwa RSU 1.024 601 615Shines RSU 896 670 612

........ ........ . ... ........ ....... ....

Sub-TotaL 6,784 4.000 3,848.53 3333 33

Ztonct. 011o ISPOItT

gco m mrocwnZs noUcT -- -~~Aiim SECOND TZLEKOMUKhIMCT FIWICT(LOAN 2513-Ql

PUNWVA3 tiScATIU............ ..... !!.'...

VW ~~~aloin tMI s1 ... ...... ...

iiiEAiil MIVAT ACRWL EITFTESIUtI WilM1M~~~~~~~~~~~............. ........ ............ ,,,,,,............. ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,_ ...................... .............................. ...................... .........................

!..!........!...*) t 3,OWO, 460.0 00.0 n3.o4"0 0,10.0 1,ao.o 129,900.0 129,0.0 131,658.0 12,9"0.0 152,310.0b) U mIw1IN1w Limes 21,497.0 39,0.0 ,6454.0 57,00.0 H,45.0 0,00.0 56,099.0 ss,000.0 7,360.0 97n,5.0 0,92.0 110,50.0 9,m.0el TtoS lhcrbwe M70.0 1,500.0 1,a4.0 o .0 1,474.0 2,000.0 1,422.0 2,260. 1,350.0 2,40.0 1,233.0 2,460.0 1,072.0

*) lwy0q.8"Iia= 31o n.o 15.o n1.o 8.o 11. 9.0 13.O .4 lS.O 10.6 t9.0 9.4b) !fiLtrice Cos_g 1100.0 4.0 14.0 4.0 8.0 4.0 10.0 2.0 13.0 3.0 16.0 . 25.0c) f9mrmsgt tle 2.9 1.0 1.4 1. 1.0 1.5 1.8 1.7 2.0 2.6 1.? 4.0 1.6d) mrw. flam ) 103.0 30.0 124.0 71.0 13.0 60.0 ID.0 60.0 15.0 60.0 71.0 60.0 100.0*) $S.M!!~U~J?33 f St W a9.0 32.0 * 4e0.0 85.0 169.0 217.0 30 *f) jf6t J 3vsm 730.0 7t4.0 P2.0 459.0 455.0 419.0 548.0 631.0 520.0 40.0 446.0 44.0 405.0 bO3 TcIIejw_te ex 5,63.0 6,000.0 5,1Z.0 6,00D.0 4,217.0 6,.00.0 3,015.0 6.000.0 2,441.0 6,00.0 2.13.0 6.000.0 2,19.003 tyli emu 31.0 355.0 * , 313.6 * 362.0 - 294.0 - 290.3 210.0 290.0 213.0

it1. Itll1titUl...................

tl l fn 170.0 50.0 52.0 40.0 35.0 35.0 31.0 30.0 24.0 20.0 22.0 20.0b) MI,,d,ttp 12^l WI2

c) JiLn 1231 l1us

d) #M Iof Ion3l 12/310 Z! 1m .9 AdA 123 2I 1mm

n w~~~~~afmene e.eTaulfft,

- 40 -

Annex 6

Page of 2 of 2POJECT COMPLETION EE'ORT

SZCOND TELECOIOMUNICATIONS PROJECT(LOAN 2513.OM)

S. STUDIES

poSE AS DEFINEDAT APPRAISAL STATUS IMPACT OF STUDY

riff Study - to develop Completed Principles and procedures establishedinciples and procedures and being used regularly to review tariffsoulde the formulation and-ezmentation of approerlateelm and structuro of1tffs

Establishment of an Economic Eztablished A Corporate PlannLng UnitStudies Unit was established and li operating

satLsfactorlly

mput:rization - Assess and Completed A number of flnancial operations-lment a suitable program computerized Lncluding billinge the Lmprovement of the and accounts - Bills now produced monthlynance divislon instead of auarterly before the project -

Accounts and Audit produe d promptlywLthin the first 4 months of thefollowlng year.

PROJECT COMPIETIO REPORT Amex 7

Page 1 of 3

SECOND TELCOICCATIONS PROJECT(LOAN 2513-Ot)

Income Statements......................

(RO'OOO)

1985 1986 198? 1988 1989 1990Year Ending DOceeber 31 SMR Actual - SR Actual SMR Actual SAt Actual SAR Actual SAR ActualRevame

Service revenue 32,263 36,73 At.012 40,624 53,518 39.516 63,188 44.055 73O212 47,616 83.359 53,883External adwinistrations revenue 4,092 3,512 4.f951 4,893 5,834 4,528 6.758 4,816 7,814 5,516 9,028 6,805External administration expenditure (5,115) (4,591) (6,189) (5,100) (7,292) (4.959) (8,448) (5.325) (9,768) (5,734) (11,285) (6,748)Total 31,240 35,694 41,774 40,417 52,060 39,085 61,498 43,546 71,258 47.398 81.102 53,940Expenditure

Salaries and eoployee benefits 9890 9346 11846 9293 13219 8615 14163 9401 14850 10401 15510 12363Operations, maintenance, coomissionand administration 4697 5442 6776 6079 8904 8849 10850 9089 12775 8564 14560 8858Depreciation 7,379 5,196 10,533 7,220 12,762 10,399 14,390 12,282 15,438 15,286 16,198 17,830Provision for daobtful debts 625 1,073 835 1,713 1,041 100 1,230 150 1,425 180 1.622 180Inflation factor 729 1,909 3,485 5,390 7,632 10,227Total 23,320 21,057 31,899 24,305 39,411 27,963 46,023 30,922 52,120 34,431 58,117 39,231

Operating profit 7,920 14,637 9,875 16,112 12,649 11,122 15,475 12,624 19,138 12,967 22,985 14,709Other inceme 57 231 28 346 0 212 86 685 514 1,118 1,313 1,180Interest wnd other dhargesan loans 2,842 1,758 3,731 2,977 4,033 2,222 3,780 1,832 3,154 1,498 2,532 1,318

Exchange (loss) gain (2,320) (4,417) (4,105) 2,341 1,063 (1,1'0)Profit for the financial year 5,135 10,790 6,172 9,064 8,616 5,007 11,781 13,818 16,496 13,650 21,766 13,461

PROJECT COMPLETION REPORT Amex 7

Page 2 of 3

SECOND TELECOMKINICATIONS PROJECT(LOAN 2513-OM)

Balace Sheets

(RO 000)

1985 196 1967 1988 1989 1990Year Ending December 31 Su Actual SAN Actual SAR Actual SMR Actual. SR Actual SAO ActualNet fixed assets (Cncludins

work in progress) 109.028 108.101 123.48 127,960 133,874 140.244 133.575 139,202 128,550 138.099 120392 140,586Current assets

Inventories 2,380 3.449 3,021 4,024 3.524 3.717 3.856 4.000 4.061 3,961 4,246 4,947Receivables and prepayments 8216 14985 9613 16719 10270 13831 12131 12747 14057 13539 15998 15364Cash at bank and in hand 1,432 1.933 752 2,221 837 2.488 2.184 9,868 12.901 14.819 32,886 12,954Total current assets 12.028 20,367 13,386 22,964 14,631 20.036 18,171 26.615 31.019 32.319 53,130 33.265Total assets 121056 128468 136874 150924 148505 160280 151746 165817 159569 170418 173522 173851Liabilities

Payables and accruals 24,115 28,480 15,974 15.316 17079 24.403Long-term loans repayablewithin one year 1,631 6,712 4,285 3.802 4,075 3383Dividend payable to Government

4.005 11,054 14,974 10.769Total current liabilities 6,847 25,746 8,584 35,192 9.984 24,264 10,952 30,172 11,714 36.128 13.332 38.555Long-term loans payable

after more than one year 54,278 31,196 62,188 35.142 63,809 32.236 54,304 29,101 44,867 25.017 35,434 23,331Capital 27,692 27,812 27,692 27.812 27,692 50,000 27,692 50,000 27,692 S0,000 27,692 50,000Retained profit and reserve 32,240 43,714 38.412 52,778 47,019 53.780 58.799 56,544 75.296 59,273 97.063 61,965Total equity 59.932 71,526 66.104 80,590 74,711 103,780 86,491 106,544 102.988 109.273 124.755 111,965Total tiabilities 121057 128468 136876 150924 148504 160280 151747 165817 159569 170418 173521 173851

PROJECT COMPlETION REPORT Annex 7

f1fAN Page 3 of 3

SECOND TULECOSHMUICATIONS PROJECT(LOAN 2513-OH)

Funds Flow Statements

(Ro 000)

1985 1986 1987 1988 1989 1990Year Ending December 31 SAR Actual SAR Actual SAR Actual SAR Actual SAt Actual SAR ActualSources of funds

Profit for the firnncial year 7920 10790 9875 9064 12649 5007 15474 13818 19137 1650 22986 13461Adjustents for Item not

imwolving the m.vement of funds

Depreciation 7,379 5,196 10.533 7,220 12,762 10,399 14,390 12,282 15,438 15,286 16,198 17,830Others 625 (84) 835 74 1,041 167 1,230 (38) 1,425 5 1,622 (74)Furds Generated from operations 15924 15902 21243 16358 26452 15S73 31094 26062 36000 28941 40806 31217Furds from other sources

Long-term loans received & capitalised 22,800 14,180 9,176 6.315 4,326 39,105 786 2,604 855 621 859 799Other proceeds 19 7 6,268 169 13 121Total Sources 38724 30101 30419 22680 30778 60946 31880 28835 36855 29575 41665 32137Application of funds

Additions to fixed assets 37,097 34,417 27,083 27,232 23,148 22.869 10,091 11,371 10,413 14,202 8,040 20,365Debt service 4,108 1,535 4,998 2,297 6,738 25,946 14.071 3,614 13,446 3,467 12,823 3802Dividends paid 4,005 7,000 14,974Exchange gain on long term loosm 2,125 965 (626)Total Applications 41205 35952 32081 29529 29886 48815 24162 21115 23859 25634 20863 38515

Increase in Working Capital (2.481) (5,851) (1,662) (6,849) 892 12,131 7,718 7,720 12,996 3,941 20,802 (6,378)

-44 -PROJECT COMPLETION REPORT AnnIx 8

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

RETUaN ON INVESTMENT

1. investments on which the rate of return in calculated are those new workscontained in the second telecommunications project 1985-90.

2. The benefit period extended from 1986 to 2005, when on average thoequipment provided under the project is expected to have substantiallycompleted its useful life.

3. Capital expenditure is as actually made over the period 1985-90 project.No residual asset values are taken into account as by the year 2005 their discountedreal value will be negligible. Incremental revenues are based on the expectedadditional telephone subscribers and the traffic increase they are expected to bringabout. No provision has been made for incremental telex revenues as no new correspond-ing investment is envisaged. Incremental operating costs excluding depreciationand in'erest are actual for the period 1985-90 and estimated for the period 1991-2005.All revenues and operating costs have been deflated by S Per annum, the expected rateof inflation to bring them to the 1986 level to be comparable with capital expenditure.

4. A summary of pro3ect cost and benefit streams at 1985 prices is given (inRo million) below as follows:

CAPITAL OPERATING NETYEAR EXPENDITURE COST REVENUES BENEFITS

1985 _1986 4,15S.0 (4,155.0)1987 17,396.0 - - (17,396.0)1988 8,762.0 1,162.0 5,569.0 (4,356.0)1989 14,0850 1,826.0 10,105.0 (5,806.0)1990 1l,559.0 2,364.0 14,398.0 (4,526 0)1991 4,635.0 18,818.0 (14,182.0)1992 5,487.0 23,197.0 (17,710 0)1993 6,490.0 27,438.0 (20,948.0)1994-2005 - 7,573.0 32,016.0 (24. 0)

S. The internal financial rate of return for the above net benefit streamis 29%. Considering consumer surplus, the economic rate of return with constantreal tariffs is expected to be higher than 35%. No shadow pricing is necessarybecause of the openness of the Oman e-onomy, and the fact that market prices reflectopportunity costs for most goods and services.

6. A sensitivity analysis was performed on the financial rate of return toreflect the possible changes in revenue and costs forecasted for the period beyond1990. The following results were obtained:

Rate of Return______________

a) 10% increase in operating costs 27b) 10% decreaso in revenues 26c) Combination of all factors 24

PROJECT COMPLETION REPORT A x 9

OMAN

SECOND TELECOMMUFICATIONS PROJECT(LOAN 2513-OM)

B. MISSIONS

STAGE OF PROJECT MONTH/ NUWBER OF DAYS IN SPECIALIZATION PERFORMANCE RATING TYPES OFCYCLE YEAR PERSONS FIELD REPRESENTED STATUS PROBLEIS. *....................... ..................... ............................................... ..... ......... ............... ........................ .........

Through Appraisal 10/83 1 7 Engineering3/84 2 7 Engineering * Finance

Appraisal through 7/84 2 21 _Board Approval

Board Approval 9/85 2 9through Effectiveness

Supervision 6/86 1 5 Engineering 1

2/87 2 10 Engineering + Finance 1

2/88 1 5 Engineering I Goverrment Receivables

Not Improving

2/89 2 5 Engineering + Finance 1 Receivables +

Low Rate of Return

1/90 1 5 Engineering 1

6/91 1 6 1

PROJECT COMP'ETION REPORT Annex 10Page 1 of 3

OMAN

SECOND TELECOMMUNICATIONS PROJECT(LOAN 2513-OM)

Compliance with Covenants

CovenantSection Brief Description of Covenants Compliance StatusLoan Agreement

3.02(a) Employ consultants to assist GTO in: (a) 12/31/85 Compliedcarrylng out tariff studies; (b)establishing an economic studies unit; (C)developing and introducing data processingmethods. The consultants shall be employedin accordance with Bank guidelines.

3.04(a) GTO to furnish to the Bank for review, the 12/31/86 Compliedfinding and recommendations of theconsultants on tariff studies. Afterexchange of views with the Bank,implement agreed reccmmerndations.

3.04(b) GTO to furnish to the Bank for review 12/31/86 Compliedaction plans for the establishment of theeconomic studies unit, the introduction ofdata procesaing methods and implementationof financial training program.

3.05(b) Maintain records adequate to reflect its Throughout Compliedoperation and financial conditions. the project5.02 Furnish to the Bank: (a) no later than Compliedfour months after the end of each fiscal

year its accounts and financial statementsfor such year in unaudited form; (b) notlater than six months after the end ofeach fiscal year certified copies of itsfinancial statements for such yaar asso audited.

5.04(^) OTO to earn an annual return of not less Not Compliedthan 19* of the average current net value The return for 1990of its fixed assets in operation for was 11%. The return wasfiscal year ending on December 31, 1990. lower to a large provisionmade for obsolescence andless network utilization.

5.05(a) GTO to ensure that subscriber accounts Not Compliedreceivable does not exceed its billings Achievement was 100 days.for the preceeding 60 days. Government Agencies arethe main defaulters.Government debt expected tobe offset against dividends.

Annex 10

PloECT COMUPLEON RPORT Page 2 of 3

SECOUD TIZCOICATIOUS PROJECT_ LOW 2s13-OKt

Compliance with Covenants

Deadline forSection Brief Description of Covenants Compliance StatusGuaranteeAgreement

…--------------------------------------------------------__------------------__-------------------------------------2.02(a) Shall assist in the financing of the Complied

foreign exchange cost of the Projectby making available to the Borrower fundsin amount equivalent to forty-sevenmillion nine hundred thousand dollars(US$47,900,000) on terms and conditionssatisfactory to the Bank; and

further specifically undertakes, wheneverthere is reasonable cause to believethat the funds available to the Borrowerwill be inadequate to meet the estimatedexpenditures required for the carryingout of the Project, to make arrangements,satisfactory to the Bank, promptly toprovide the Borrower or cause the Borrowerto be provided with such funds as areneeded to meet such expenditures.

3.01(b) The Guarantor shall specificallyundertake to:

{i) take ali action (including but not Compliedlimited to approval of adjustmentsof the Structure or level of theBorrowet's tariffs) to enable theBorrower to comply with its obligationsunder Section 5.04 of the Loan Agrsement;

(il) to review the findings and recommendations Compliedof the tariff studies included in Part F (1)of the Project, furnished to it by the Borrowerin accordance with Section 3.04 (a) of theLoan Agreement;

and after an exchange of views thereon with theBank and the Borrower, take all action to enablethe Borrower to comply with its obligation undersaid Section;

Page 3 of 3

PROJECT COMPLETION MORT

SECOND TELECOHUIUICATIONS PROJECT(LOAN 2513-OHI

Compliance with Covenants

Deadline forSection Brief Description of Covenants Compliance StatusGuaranteeAgreement

---------------------------------------------------------___------------------__-----------------------------------

(iiL) to take all action to ensure that all amounts 12/31/87 Not Compliedpayable to the Borrower by the Guarantor's Discussions are inpolitical subdivislons and ar,encies for progress to offset-. telecommunications services are paid within the debt against 160 day after the date on which the Borrower dividend payments. >issues the bill for such amounts. O