Document of The World Bank Report No: 19810 NI PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 11.6 MILLION (US$ 15.9 MILLION EQUIVALENT) TO THE REPUBLIC OF NICARAGUA FOR A TELECOMMUNICATIONS SECTOR REFORM PROJECT October 28, 1999 Finance, Private Sector and Infrastructure Unit Central America Department Latin America and the Caribbean Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective October 25, 1999) Currency Unit = US dollars NIO$1.0 = US$0.08 US$1.0 = NIO$12.15 GOVERNMENT'S FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy of the International Development Association ENITEL Empresa Nicaraguiense de Telecomunicaciones ("Nicaraguan Telecommunications Enterprise") ITU International Telecommunications Union LACI Loan Administration Change Initiative (of IDA) PMR Project Management Report PMU Project Management Unit PPF Project Preparation Facility RFP Request for Proposal SOE Statement of Expenditures TELCOR Instituto Nicaragiiense de Telecomunicaciones y Correos ("Nicaraguan Institute of Telecommunications and Posts") TOR Terms of Reference UCRESEP Unidad de Coordinaci6n del Programa de Reforma del Sector Publico ("Public Sector Reform Program Coordinating Unit") WTO World Trade Organization Vice President: David De Ferranti Country Director: Donna Dowsett-Coirolo Sector Director: Danny M. Leipziger Task Manager: Eloy Vidal - i - Republic of Nicaragua Telecommunications Sector Reform Project TABLE Olf CONTENTS Page No. A: Project Development Objective .................................................................2 1. Project Development Objective and Key Performance Indicators ......................................................2 B: Strategic Context .................................................................2 1. Sector-Related Country Assistance Strategy (CAS) Goal Supported by the Project ..........................2 2. Main Sector Issues and Government Strategy .................................................................3 3. Sector Issues to be Addressed by the Project and Strategic Choices ...................................................5 C: Project Description Summary .................................................................................7 1. Project Components .............................................. .................. 7 2. Key Policy and Institutional Reforms Supported by the Project .........................................................8 3. Benefits and Target Population ................................................................ 8 4. Institutional and Implementation Arrangements .................................................................8 D: Project Rationale .................................................................9 1. Project Alternatives Considered and Reasons for Rejection ...............................................................9 2. Major Related Projects Financed by IDA and/or other Development Agencies ................................. 10 3. Lessons Learned and Reflected in Proposed Project Design ............................................................... 10 4. Indications of Borrower Commitment and Ownership ................................................................ 10 5. Added Value of IDA Support in this Project ................................................................ 11 E: Summary Project Analyses ................................................................ 11 1. Economic ................................................................ 11 2. Financial ................................................................ 11 3. Technical ................................................................ 12 4. Institutional ................................................................ 12 5. Social ................................................................ 12 6. Environmental Assessment ................................................................ 12 7. Participatory Approach .......................... 13 F: Sustainability and Risks ............................................. 13 1. Sustainability ............................. 13 2. Critical Risks ............................. 13 3. Possible Controversial Aspects ............................. 14 G: Main Loan Conditions ............................. 14 H: Readiness for Implementation ............................. 15 I: Compliance with IBRD/LDA Policies ............................. 15 - ii - LIST OF ANNEXES Annex 1. Project Design Summary Annex 2. Detailed Project Description Annex 3. Estimated Project Costs Annex 4. Cost-Effectiveness Analysis Summary Annex 5. Financial Summary Annex 6. Procurement and Disbursement Arrangements Table A. 1 Project Costs by Procurement Arrangements Table A.2 Consultant Selection Arrangements Table B. Thresholds for Procurement Methods and Prior Review Table C. Allocation of Credit Proceeds Annex 7. Project Processing Budget and Schedule Annex 8. Documents in Project File Annex 9. Statement of Loans and Credits Annex 10. Country at a Glance MAP Project Appraisal Document I Nicaragua Telecommunications Sector Reform Project Republic of Nicaragua Telecommunications Sector Reform Project Project Appraisal Document Latin America and the Caribbean Regional Office Latin America and the Caribbean Department Date: October 28, 1999 Task Manager: Eloy Vidal Country Director: Donna Dowsett-Coirolo Sector Director: Danny Leipziger Project ID: 55853 Sector: Telecommunications Program Objective Category: Economic Management Lending Instrument: Specific Investment Credit Program of Targeted Intervention: [] Yes [X] No Project Financing Data [] Loan [X] Credit [ Guarantee [] Other [Specify] For Credits: Amount: SDR 11.6 million equivalent (US$ 15.9 million equivalent) Proposed terms: [X] Multicurrency [ Single currency (US$) Grace period (years): 10 [I] Standard Variable [ Fixed [ LIBOR-based Years to maturity: 40 Commitment fee: Standard 1 Service charge: Standard Financing plan (US$mln): Source Local Foreign Total IDA 15.9 15.9 Government 2.1 2.1 Total 2.1 15.9 18.0 Borrower: The Republic of Nicaragua Executing Agency: UCRESEP Estimated disbursements 2000 2001 2002 2003 2004 (IDA FY/US$mln) Annual 7.85 2.33 3.86 1.44 0.42 Cumulative 7.85 10.18 14.04 15.48 15.90 Project implementation period: 4 years Expected effectiveness date: March 15,2000 Expected closing date: June 30, 2004 1 A variable rate between 0 and 0.5% of the undisbursed credit balance set annually by the Executive Directors Project Appraisal Document 2 Nicaragua Telecommunications Sector Reform Project A. I'roject Development Objective 1. Jroject development objective and key performance indicators (please see Annex 1): The Project will help strengthen the policy and regulatory environment in the telecommunications sector and improve rural access to services by encouraging private investment in those areas. In particular, the Project will support the development of a modem regulatory framework including the drafting and implementation of legal, economic, and technical regulations related to tariff rebalancing, interconnection agreements, and technical plans. In addition, support will be provided to strengthen and improve the autonomy of the regulatory agency with responsibility for sector regulation, planning, and policy. The Project will support the design and operations of a rural telecommunications development fund to provide incentives for private operators to provide telecommunications services in rural areas. Technical and financial support will also be provided to the new regulator for the establishment and maintenance of a radio spectrum management system. The Project will fund Technical Assistance for the privatization of Empresa Nicaraguense de Telecommunicaciones (ENITEL), and also measures to correct the computer programs of the telephone and data networks to overcome the year 200CI problem. Key success indicators of this objective are: * Amendments to laws and regulations passed improving autonomy of regulator and promoting private investment * Regulator strengthened and performing well * Offer to the WTO Agreement on Basic Telecommunications submitted * Improved quality, quantity and variety of services * Spectrum monitoring system implemented and performing well * Rural penetration of telecommunications services increased * Successful implementation of Y2K remedial measures * 40% of shares of Empresa Nicaragiiense de Telecomunicaciones (ENITEL) offered for sale to a strategic investor B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (please see Annex 1): CAS document number: 17496 Date of latest CAS discussion: April 9, 1998 The CAS goals on which the project will have an impact are the following (as further explained in the next two sections): a) Modernization of the state The project will support the modernization of the state in general through the overall improvement in the efficiency of the telecommunications sector, which will allow businesses, government agencies and the public in gene.ral, to purchase both traditional and modern telecommunications services in better conditions of price, quality and timeliness. Access to affordable and advanced telecommunications services is increasingly becoming a key factor in enhancing the effectiveness and efficiency of the productive sector. In particular, the privatization of ENITEL and the institutional strengthening of TELCOR, will play a decisive role in delivering this result. The former will reduce the demands for scarce public funds, liberating resources for other important government objectives. The latter will Project Appraisal Document 3 Nicaragua Telecommunications Sector Reform Project create a modem regulatory entity capable of maintaining high standards of service provision in the sector and will benefit directly from the Project, becoming in itself, as a public entity, an example of public sector efficiency. b) Develop the rural sector Ready access to telecommunications services of sufficient quality in rural areas is increasingly quoted as one of the most important factors in overcoming isolation, enhancing economic activity and promoting social integration of these areas with the rest of the country and with the global community, in general. The Project will specifically target the provision of telecommunications services to the rural areas of Nicaragua, by promoting the provision of both private and public telephones and Internet services, among others. c) Consolidate growth through private sector development In the same measure as the public sector, the private sector will benefit from enhanced access to modem telecommunications services, promoting increased efficiency, better marketing and customer care, as well as a wider range of products and services that can be delivered. More directly, through the privatization of ENITEL and opening up the sector to private investment, the Project would support the creation of one of the largest private enterprises in Nicaragua, and will act as a spearhead toward the eventual introduction of private sector participation in other infrastructure sectors, with the generally observed benefits of enhanced efficiency and transparency in the provision of public services. 2. Main sector issues and Government strategy: a) Main Sector Issues * Low quality and level of access to services There are only 3 telephone lines per 100 population in Nicaragua, compared to 10 per hundred average for Latin America, and to 15 per 100 in neighboring Costa Rica. Access to telecommunications services is particularly scarce in poor rural areas, where teledensity is less than 1 percent, and many of the municipalities do not have telephone service. Quality of service is poor, with long waiting times to repair service, a large number of faults, and high percentage of billing errors. Cellular services are provided only by NICACEL, a private telecommunications services provider and a subsidiary of Bell South, in Managua, the center and pacific regions of the country. * ENITEL needs to improve its efficiency and effectiveness ENITEL, the national telecommunications operator and sole provider of fixed-line telephone services, is filly government-owned and has been very slow in introducing new lines and services (particularly for businesses and government users) and in improving service quality. In addition, ENITEL needs to improve its efficiency and lacks the financial resources to make needed investments in the sector. Among the challenges facing the company, that contribute to inefficiencies as a service provider, are its excess of staff, the low level of local tariffs, currently being rebalanced, and its overall difficult financial situation, in particular high levels of short term debt, which have a negative impact on its cash flow. Project Appraisal Document 4 Nicaragua Telecommunications Sector Reform Project * Regulatory framework and TELCOR are inadequate The current regulatory regime dates back to 1982, with the establishment of the Instituto Nicaraguense de Telecomunicaciones y Correos (TELCOR), initially as both operator and regulator, but since 1995 only regulator. The regulatory environment limits foreign investment in telecommunications companies to 49% of their equity. TELCOR's Director General is nominated by the Government and has ministerial rank. Its personnel are poorly trained and lack the necessary equipment and systems to carry out their functions, particularly in the area of frequency spectrum management and monitoring. Tariffs reflect substantial cross subsidies, with international long distance service tariffs set far above costs, subsidizing local service. b) Government Strategy * To improve the Regulatory Framework and to strengthen TELCOR In order to improve telecommunications services and compete in the global economy, the Government initiated a reform program designed to attract private investment to the sector. The first step was the passing of the General Telecommunications and Postal Services Law (Law 200 of August 18, 1995), separating policy setting and regulation (the role of TELCOR), from daily telecommunications operations (the role of ENITEL). The law also clarified the functions of TELCOR. TELCOR is responsible for granting concessions in all telecommunications markets, including broadcasting, telephony, fixed radio, mobile radio, aeronautic and maritime radio, and for granting licenses for the operation of radio frequencies for transmitters. In addition, TELCOR is responsible for solving interconnection and other operator disputes, enforcing a non-discriminatory policy towards consumers, and protecting their interests against abuse of dominant position by the operators. HIowever, the law limits foreign investment and TELCOR's autonomy. The Government wants to promote private sector participation in the sector through the improvement of the regulatory framework and the strengthening of the regulatory institution. e To attract private sector participation in the Sector and in ENITEL As part of the 1995 reform initiative, the Government also passed legislation (Law 210 of December 7, 1995) creating ENITEL and allowing for the privatization of 40% of its shares. The privatization, however, was unsuiccessful due to the rigidity of Law 210, which required excessive investment obligations and forced the operator to retain all employees. Moreover, the Government did not encourage ENITEL to truly organize itself as a company by preparing adequate accounting systems and financial procedures. The Government postponed the auction of ENITEL as investors lost interest in the wake of the presidential elections of 1996. Witlh the election of the new Government in 1997, the privatization was re-initiated with the passage of Law 293 of July 2, 1998, that modified Law 210. In October 1998, the Government invited investors to participate in the privatization of ENITEL through an international competitive bidding process. Although two operators pre- qualified in early December, they withdrew before the bidding was completed, inter-alia, because ofENITEL's high short term debt, and because its low local tariffs did not provide enough revenues to cover the debt service, pay a large payroll, and provide profits. Since then, the Government adopted an emergency plan to restore health in ENITEL's finances, consisting of three measures: (1) a sharp increase in local tariffs (coupled with a moderate decrease in international rates); (2) a reduction of ENITEL's staff through a voluntary separation program; and (3) a restructuring of ENITEL's debt. These measures prepared the ground for a renewed effort to privatize ENITEL. Project Appraisal Document 5 Nicaragua Telecommunications Sector Reform Project 3. Sector issues to be addressed by the project and strategic choices: a) Change Regulatory Framework to attract private sector investment and promote competition The Government analyzed the current regulatory framework and concluded that it needs to amend the Telecommunications Law to promote private investment participation in the sector, in particular to eliminate the current cap on foreign investment. Moreover, TELCOR is not independent from the executive branch; the President continues to have overarching authority. The Project aims at improving TELCOR's operational autonomy to consolidate it as a modern and professional regulatory entity. One option that the Government considered, was the creation of a multi-sectoral regulatory entity. However, this option will need amendment of the Laws and Regulations of several sectors, and dissolution of a recently created electricity commission. The Government decided to increase the operational autonomy of TELCOR, as opposed to creating a multi-sectoral entity, for reasons of simplicity and efficiency. Correcting price distortions in the tariff structure will be another critical regulatory area which the Project will address. Historically, international rates have been pegged to the US dollar, as international agreements to terminate calls in foreign countries dictated settlement charges in hard currency. Also, high rates reflected the high costs of installing and maintaining international facilities. Local rates were expressed in local currency, and as the currency devalued, the Government did not adjust them to compensate inflation, thereby reducing the rates in real terms. Nonetheless, for many years, the overall revenues of ENITEL were high because of the large volume of calls charged in US dollar terms. In the last few years, however, technological advances and the introduction of competition in the telecommunications sector in the US, Europe and Asia, have forced a reduction in international rates, as local rates in those countries increasingly reflected actual costs. This has put a tremendous pressure on operators to increase local rates, as revenues from international calls have plummeted. In a competitive environment, tariffs have to be closely aligned with costs, in order for them to be both sustainable and non-discriminatory. Tariff regulation is therefore an area in which TELCOR will need substantial assistance. b) TELCOR strengthening Once ENITEL is privatized and Nicaragua opens up its telecommunications sector, TELCOR's ability to effectively regulate the sector becomes critical. As more players enter the market, TELCOR will need to develop the ability to design and execute new licenses, as specified in the Telecommunications Law. First, new operators will need to interconnect to ENITEL, then to the other carriers, to send and receive traffic. The terms of interconnection, both technical and financial, will be the subject of negotiations between parties as well as of disputes, which will have to be eventually solved with TELCOR's mediation. In addition, TELCOR will have to develop mechanisms for consumer protection, as required by Law. TELCOR must develop a system to handle consumer complaints and working arrangements with operators to enforce concession and legal procedures. Even though TELCOR will be a decentralized autonomous entity based in Managua, it will have to develop offices throughout Nicaragua to keep contact with consumers. A corporate relations office will also be necessary to deal with major users like banks, insurance companies, industries, farmers, and exporters. Furthermore, TELCOR lacks the necessary equipment to effectively comply with one of its most important functions, the management and monitoring of the radio spectrum. This function is even more critical today given the rapidly growing demand for mobile, satellite and other wireless services, including wireless Internet access and multimedia services, which will become increasingly popular in the near future. Effective management of this scarce resource requires modern spectrum management and monitoring equipment, that will Project Appraisal Document 6 Nicaragua Telecommunications Sector Reform Project allow for international coordination of frequency allocations, spectrum planning, registering of national frequency allocations, as well as detection of interferences and fraudulent use of the radio frequency spectrum in support of the associated enforcement function. The Project will support the design, preparation of bid speci]fications, purchase, installation, testing, and commissioning of a modem radio frequency management and monitoring system, and training of TELCOR's staff in its use. Currently, TELCOR has neither the qualified staff nor the systems to carry out its functions effectively. The Project will support the institutional strengthening of TELCOR, including inter-alia technical assistance to develop regulations, issue licenses, review tariff policies, draft interconnection agreements, and a complete training program for TELCOR's staff, in addition to the procurement of the above-mentioned spectrum management and monitoring system. c) Privatization of ENITEL With the support of the Project, fourty percent of ENITEL's shares and management control will be sold to a strategic investor, ten percent to ENITEL's workforce, and an additional one percent given to ENITEL workers. Over the next three years, the Government has committed to sell its remaining 49% through stock placements. The new ENITEL will have investment obligations to expand and improve service throughout Nicaragua. ENITEL will have three years exclusivity over basic telephone services, starting on the date of the privatization. At the end of the period, all services will be under full competition. Local tariffs were substantially increased in September, while international tariffs were reduced, providing a 10% overall revenue increase for ENITEL. Additionally, the Government has started a voluntary separation program that offers workers a month of salary for each year of work plus two months for each 5-year period of work. The program has been very successful; since its adoption about 600 workers have resigned. ENITEL expects to recover the cost of the program in about one year. ENITEL plans to increase the amount of money allocated to this program with the assistance of the Govemment in order to reduce the number of staff before privatization. Coupled with the reduction of 20% of costs, these two measures have increased the attractiveness of the company. An additional measure, to restructure its debt, is underway. These three measures have prepared ENITEL for a new privatization process. Making ENITEL a financially attractive property is key to attracting a reputed operator to Nicaragua who will expand and improve services. Invitations to prospective investors to pre-qualify for the bid were issued on September 22, 1999, and the process is expected to be completed in May of 2000. d) Increased access to telecommunications services in the rural areas. Because of their isolation, rural areas need ready access to telecommunications services even more than urban areas. However, the sparse population, remoteness and difficult topography of the villages, as well as the lower incomes of their population, reduce the supply of rural telephones. The Government has recognized the need to provide telephone services to the poorest of Nicaragua and has decided to create a Fund from operator's contributions to provide financial incentives to private companies to invest in the rural areas. The Fund, managed by TELCOR, will operate by inviting operators to bid for licenses to operate rural telecommunication services in the rural areas of a defined region of the country (rural sub-projects). The Fund will aeward a license and financial incentives to the operator that commits to install, for the minimum subsidy, the required number and type of telephone lines, payphones and Internet access points in the target region, according to the terms of the bid specification. The Project will support the creation of the Fund, development of the Operational Manual, demand studies and will finance a limited number of rural sub-projects. Project Appraisal Document 7 Nicaragua Telecommunications Sector Reform Project e) Mitigation measures for the year 2000 computer problem. ENITEL needs to upgrade the software and hardware of its computer systems both in the telephone exchanges and the X.25 data network used by the banking system to exchange information, to comply with the year 2000 requirements. The Project will support the software and hardware upgrades for the telephone exchanges and data network. Since January 1 is only a few weeks away, ENITEL has already contracted the supply of these upgrades, and will request reimbursement under the proposed Credit. The Government has requested IDA to allocate up to ten percent of the Credit amount for retroactive financing for this component. C. Project Description Summary 1. Project components (please see Annex 1): Indicative % of IDA- % of IDA- COMPONENT Category Costs Total financing financing __ (t.) _(S$m ]) Strengthen the institutional capacity and policy functions of Policy/ 2.48 14% 2.12 85% TELCOR: Institution * review and draft necessary legal amendments and building regulations (e.g. to make the entity more independent; model licenses; tariff re-balancing; consumer protection; interconnection agreements; environmental regulations) * assess and recommend institutional changes to TELCOR (e.g., structure, management, procedures, administration) * identify training needs and prepare action plan * conduct training 2) Establish modem radio spectrum management and Institution 4.35 24% 3.89 90% monitoring system: building * Assess needs, develop tender and evaluate offers * Procurement of new system * Training in use of the system and adaptation 3) Create rural telecommunications development fund: Policy/ 1.44 8% 1.26 88% * prepare rural telecommunications strategy Institution * analyze legal and economic issues and design new fund building/ * prepare fund guidelines and regulations Investment * undertake demand studies and prioritize allocation of funds into rounds * prepare bidding process * conduct first round of bidding process and allocate fund proceeds * finance development of pilot community informnation centers (telecenters), for extension of the Internet and telephone service to rural areas 4) On-going privatization of ENITEL: Policy 3.93 22% 3.39 86% * legal and financial technical assistance * public relations campaign 5) Project management. Financial support to the implementing Project 1.47 8% 1.31 90% agency Management 6) Y2K. Upgrade of software for telephone system and data Emergency 4.33 24% 3.92 90% packet system for the year 2,000 TOTAL 18.00 100% 15.90 88% Project Appraisal Document 8 Nicaragua Telecommunications Sector Reform Project 2. KEey policy and institutional reforms supported by the project: * TELCOR institutional strengthening and increased operational autonomy * Installation of modem spectrum management and monitoring system * Tariff rebalancing * Support for ENITEL privatization process * Full liberalization of the sector 9 Improvement of access to service in rural areas O Support for the introduction of new telecommunications services 3. -Benefits and target population: The project will benefit all telecommunications users in Nicaragua by increasing the availability of telephone lines and improving service. The introduction of competition in the sector and the stronger role of the regulating agency will serve to control cost of services and also have a favorable impact on service quality and variety. The expansion and improvement of telecommunications services would contribute to economic development and improve the quality of life by improving health and education services and enhancing public administration. Residents of rural areas, in particular, would benefit greatly by obtaining access to telephone services, often for the first time. Businesses, which increasingly depend upon telecommunication services to be competitive, will benefit especially from lower costs for intemational communications and greater variety of value-added services. Moreover, foreign investors will be more attracted to Nicaragua if it has a modem telecommunications sector. Strengthening TELCOR would lead to more transparent and accountable regulatory framework, reducing the risks and increasing the interest of private investors (especially foreign) as operators would know the rules for licensing, tariff adjustments, interconnection, etc. TELCOR would also gain by increasing its capacity to manage radio spectrum and thereby ensure the availability of frequencies and reduce radio interference problems. This would make private investment in wireless technologies more attractive and improve the quality of services offered. 4. Institutional and implementation arrangements: The project financial and administrative management unit for all components would be UCRESEP (Unidad Coordinadora de la Reforma del Sector Publico), within the Vicepresidency of the Republic. UCRESEP was established in 1995 as the project management unit for the IDA Institutional Development Credit and has performed satisfactorily in this function. A financial management and accounting system, in accordance to IDA guidelines, is in place. However, UCRESEP will implement the new LACI system for production of PMRs. Technical management of the ENITEL privatization process will continue to be handled by a special unit within ENIT EL. This unit reports directly to the Executive President of ENITEL. A special unit within TELCOR will be in charge of the management of technical aspects of the project components related to TELCOR. This unit will report directly to the Director General of TELCOR. The implementation arrangements will be reflected in implementation agreements to be signed by effectiveness with TELCOR and ENITEL. Project Appraisal Document 9 Nicaragua Telecommunications Sector Reform Project The Government and IDA agreed on a 2 million PPF to finance the project preparation and to continue the privatization of ENITEL. D. Project Rationale 1. Project alternatives considered and reasons for rejection: IDA's strategy for the telecommunications sector calls for shifting the government's role from ownership and operations to policy making and regulation, promoting efficiency and service quality, and increased private sector participation in investments and provision of services. The proposed project approach is consistent with this strategy, while other alternatives were rejected because they were not. The first alternative was to introduce competition in the market by strengthening the current Government- dependent regulator rather than seeking to increase the regulator's independence. However, since a direct linkage between the regulator and the Government would severely restrict the former's ability to arbitrate in a competitive market free of political pressures, this approach was rejected. The second alternative was to focus only on the reform of the regulator and not include the privatization component, since it is already an on-going process. This alternative, however, would put the current privatization process at risk, since the funds currently available for that process had been depleted by January 1999. The best chance to achieve real sector reform is to provide additional funding for the privatization together with improving the regulatory function. Thus these two components are mutually reinforcing. Another alternative which was considered was a cross-sectoral regulatory body (power, water, telecommunications, etc.) in order to achieve economies of scope/scale. During project preparation an economic consultant explored this option and provided a report on an entity that would combine the Electricity, Water and Telecommunications Sectors. However, this option was rejected because it would have required amendments of the Electricity and Water laws and the dissolution of the newly created electricity commission. Also considered was the question of what happens with the Project if the Privatization of ENITEL does not take place because of lack of investors' interest. The answer is that the project would continue to be viable for several reasons. First, an improved legal and regulatory framework would attract investment to the country. Second, a strengthened Regulator would instill confidence to investors, that would see their investment secure as they could discuss issues and resolve problems with a capable institution. Third, people and businesses in the rural areas would benefit from the operation of the rural fund, since they would gain access to telecommunication services. Therefore, the Project is beneficial even if the privatization is not successful. However to ensure that the Rural Development Fund is used to finance private companies only, the new Rural Fund Regulations will be reviewed with IDA, and a disbursement condition for this component would be agreed with the Government. Project Appraisal Document 10 Nicaragua Telecommunications Sector Reform Project 2. Major related projects financed by IDA and/or other development agencies (completed, ongoing and planned): _ w ::;i:0 ; ; ; : 0 : --0- 003; ~~~~~LatestSuprisio (Form t590) Raitings0 \~~SCO ISSUE PROJECTSS? IDA-financed: Nicaragua: Modernization of public sector to Institutional Development Credit S S facilitate private sector development; includes privatization of ENITEL Nicaragua: Reduce rural poverty, includes Rural Municipalities Project HS HS institutional development as a component (relates to rural service fund) Nicaragua: Improve efficiency, effectiveness and Health Sector Modernization S S equity of Nicaraguan health system (relates to possible tele-medicine applications) OECS: Opening sector to competition and Telecommunications Sector S S creat:ion of a regulator Reform Project Dominican Republic: strengthen regulator and Telecommunications Regulatory expand rural telecom services Project (not yet effective) Other development agencies Inter-American Development Bank: Nicaragua: Power Sector Reform and creation of new regulatory framework for power Investment Project (in sector preparation) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in proposed project design: Lessons learned in other telecommunication restructuring and privatization projects are reflected in the project design. These are: * A clear, predictable regulatory framework is a prerequisite to attracting investment in the sector; * Government should create an independent, technical, and self-financed regulatory entity to grant new licenses, solve disputes among operators and protect the public interest; * Government should not participate as a provider of telecom services, which are more efficiently run by private companies; and * The financial rate of return for telecom investments in rural areas may not attract private firms. The G,overnment could establish a financing mechanism for telecom projects in rural areas. 4. Indications of borrower commitment and ownership: The strength of the Government of Nicaragua's commitment to privatization and strengthening the regulatory framework for telecommunications is demonstrated by: * Enactment of Law 210 which separated ENITEL and TELCOR functions. * Enactment of Law 293 in July 1998 to allow privatization of ENITEL. Project Appraisal Document 11 Nicaragua Telecommunications Sector Reform Project * Privatization process begun with creation of unit within ENITEL and competitive selection of legal and financial advisors. * Official launching of the privatization process of ENITEL published in the Financial Times on September 22, 1999. * Reduction in the number of ENITEL staff by 600. * Initiation of restructuring of ENITEL's debt. * Tariff increases in January and September 1999. 5. Added value of IDA support in this project: The Government of Nicaragua values IDA for its worldwide experience in telecommunications, privatization and the modernization of regulatory frameworks, as well as for its overall coordination of such programs. IDA's presence also lends international credibility to the privatization process, which may encourage more competitive bidding and thereby improve the private provision and efficiency of telecommunications services. E. Summary Project Analyses 1. Economic (supported by Annex 4): The relatively strong performance of the telecommunications sector in recent years has made a significant contribution to the country's economic growth. Taking into account the benefits of the reform program supported by the project and the high levels of unmet demand, it is expected that the average annual rate of growth of the telecommunications sector over the next several years will gradually reach close to 15% and will taper off slightly thereafter. The economic benefits of the project are likely to include: increased competition; improved range and quality of service provision; reduced prices for advanced services that will allow businesses and the Government to reduce telephony costs and expand their use of information technology; and expanded access to telecommunications in rural areas. Leveraging rural subsidies with a broader sectoral reform program will yield significant returns over the longer term. Indeed, the total costs of the subsidies are likely to be a small fraction of the returns. Increased telecommunications access to international markets will allow for reduced purchasing costs and new export opportunities, especially in the services sector. Advanced information services also have wide-ranging applications in health care and education, and these will become more affordable as prices fall. Such indirect benefits, although difficult to quantify, are certain to far outweigh the directly measured impact. 2. Financial (see Annex 4): As shown in Annex 4, the project will have an internal rate of return of 23%, according to the assumptions made and the detailed financial analysis (in the Project File) that was conducted to evaluate the financial impact of the project. Tariff rebalancing: To better reflect actual costs and thereby encourage competition in local services, TELCOR has recently (September 1999) allowed increases in the tariffs for monthly line rental and local calls. Despite these increases, however, cross-subsidies still exist between international and local services. To correct this further, there is a need for prices of local services to gradually reflect costs. To this end, the project would support studies for tariff rebalancing which will be submitted to TELCOR for study and approval. In addition, a progressive tariff rebalancing scheme will be included in ENITEL's new operating license, to prepare the company for competition after the transitory period. Project Appraisal Document 12 Nicaragua Telecommunications Sector Reform Project Fiscal impact. The financial analysis (in the Project File) suggests that, overall, there will be a positive fiscal impact for the Government, primarily due to increased growth in the sector. Amendments to the law, to be proposed and approved with the help of the project, will allow for the imposition of a new 1% levy on end-user telecommunications services and net international settlements. The revenues from this levy will be allocated to the rural telecommunications development fund for its operations to subsidize the expansion of telecommunications services in rural areas. 3. Technical: Teclhnical viability is mostly a concern for the equipment required for radio spectrum monitoring and direction- finding. While this equipment is readily available, it is highly specialized. Portable monitoring and direction- finding equipment is required for compliance and interference resolution. To minimize technical risks associated with, this project activity, the following requirements have been built into the component design: a. A technical training program for TELCOR personnel on radio spectrum management, monitoring, and measuring; and b. Procurement of radio spectrum management and monitoring equipment, which will be on a turn-key basis and include engineering, installation, commissioning, testing, systems training, one-year warranty, one- year operational support, and Y2K compliance. 4. IThstitutional: Executing agency: UCRESEP. The Government of Nicaragua will be the borrower. TELCOR created a unit that will be responsible for the policy, economic, and technical tasks of the Project related to their components: Institutional strengthening of TELCOR, Radio Spectrum Management, Rural Fund. ENITEL created a unit that will be responsible for the economic, technical and financial tasks related to the Privatization of ENITEL and Year 2000 components. UCRESEP will be in charge of Procurement, Administration and Accounting tasks of 'the Project. The privatization unit in ENITEL will cease to exist after the transaction is closed. AsTELCOR's unit develops capacity to handle the procurement, administration and accounting tasks of the Project, this unit will assume UCRESEP's functions, under an amendment to the Credit documents and the implementation agreement to be signed by TELCOR for effectiveness. The project management component provides resources for key staff of the I'MU and executing agencies, office equipment/supplies, as well as long-term technical assistance to the regulator (estimated for the first year after new legislation is passed). An important aspect oflDA's supervision of the project will be to ensure that adequate resources are, in fact, being dedicated to the project and that project management tasks are being undertaken in a timely manner by appropriate personnel. 5. Social: Studies will be undertaken to identify the communication needs of rural areas, design a Fund to provide financial incentives for private sector provision of services and the process for bidding to extend coverage to these areas, on a least cost subsidy basis. 6. Environmental assessment. Environmental category: C This is a telecommunications restructuring project which involves only policy/institution-building components. There will be no construction/installation of new telecommunication systems under the project. The radio spectrum monitoring equipment to be financed by the project for use by TELCOR receives radio and other electromagnetic signals to determine which frequencies are in use and by whom. It produces no pollution, can Project Appraisal Document 13 Nicaragua Telecommunications Sector Reform Project be small enough to fit inside a briefcase, and will be operated out of existing physical facilities. In addition, environmental guidelines will be built into the design of the rural telecommunications development fund, to ensure no negative environmental impact of rural communications. 7. Participatory approach: a. Primary beneficiaries and other affected groups: This project is intended to benefit all telecommunication users, especially poor and rural citizens that currently do not have access to services. b. Other key stakeholders: Telephone operators (ENITEL and NICACEL) have been consulted. ENITEL is, of course, integrally involved in the privatization component. F. Sustainability and Risks 1. Sustainability: The project supports a sector reform process which is already well underway and has full support from the Government. While the privatization of ENITEL is integral to the Government's reform effort and is an important component of the project, if it is not successfully concluded the remaining project components are still viable. The institutional strengthening of TELCOR and the creation of a rural telecommunications development fund can be accomplished independently of ENITEL's corporate ownership. If properly implemented, the project's benefits should be permanent since the improved legal and regulatory framework would provide for adequate operational and financial independence for TELCOR. 2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1): Risk Risk Rating Risk Minimization Measure Sector Related CAS Objective Political will to give regulator autonomy wanes M Secure consensus of Government before draft laws are considered Government delays execution of project M High profile of the ENITEL privatization initiative by including as condition of ESAF in IMF program Regulatory agency staff are not sufficiently qualified and M Regulator has flexibility/ autonomy in staffing agency does not have adequate financial resources decisions existing budgetary resources available until license fees generated Investors not interested in privatized ENITEL H Design the privatization process to make ENITEL attractive to potential investors Project Outputs Inadequate quality of preparatory and other technical outputs N PPF to finance preparation; IDA's non-objected TORs for external assistance Inadequate capacity to implement project N IDA to continue to work with UCRESEP under PPF Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) Project Appraisal Document 14 Nicaragua Telecommunications Sector Reform Project 3. lossible ControversialAspects (ProjectAlert System): Lack of social acceptance of privatization plan S M Public relations campaign designed to stress benefits Type of Risk - S (Social), E (Ecological), P (Pollution), G (Governance), M (Management capacity), 0 (Other); Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) G. Main Loan Conditions 1. E,ffectiveness Condition The Government will enter into an Agreement under terms and conditions satisfactory to IDA, with TELCOR for components 1, 2 and 3 of the Project (as defined in C. 1, Project Description Summary), and with ENITEL for components 4 and 6 of the Project (as in Cl.) setting forth their respective responsibilities for implementation. The Government will submit to IDA satisfactory evidence that it has carried out the Action Plan to improve procurement management, organization and functions (see Annex 6). 2. Disbursement conditions: Disbursement condition for the Rural Development Fund component would be the preparation and approval by IDA of the Rural Development Fund Operational Manual that will include the procedures for implementation, monitoring and evaluation of the Rural Telecommunication Subprojects, the procedures for the selection of the Eligible Enterprises including the procurement requirements as per Section 3.13 (a) of the Guidelines for Procurement under IDA Credits and the environmental safeguards of Rural Telecommunication Subprojects to IDA. 3. Dated Covenants: By August 31, 2000, submit to its National Assembly a Draft Law, satisfactory to IDA, to strengthen the operational autonomy of TELCOR and to promote increased private sector investment in the Sector. By December 31, 2000, the Government will furnish to IDA the Staff Recruitment and Training Plan (the Staff Development Plan) to be carried out in component 1 of the Project (as of C. 1, above). By October 31, 2001, the Government will submit a report to IDA assessingTELCOR's capacity to assume full implementation of the components 1, 2, and 3 of the Project (as described in Section C. 1.) 4. Accounts/Audits: The Government is selecting the Audit Firm for the Project audit. The PMU will work with the Audit firm to carry out interim audit work throughout the year, aiming at the timely conclusion of the Audit within the specified timeframe. The PMU shall prepare and provide acceptable audits for all accounts to IDA. Annual standard project financial audits will be carried out according to terms of reference acceptable to IDA and shall be furnished to IDA no later than six months after the close of the project's financial year (December 31). Initially, the PMU will use the Statement of Expenditures' procedure for replenishment of the Special Account. However, according to the Action Plan agreed with the Government (see Annex 6), as soon as the PMU becomes compliant with IDA's Loan Administration Change Initiative program, it will produce and submit to Project Appraisal Document 15 Nicaragua Telecommunications Sector Reform Project IDA a Project Management Report (PMR), which allows for the simultaneous monitoring of financial, physical, and procurement activity of the project, while also serving as an application for disbursement from the credit account if so desired. 5. Procurement/Project implementation: The responsibilities for project management shall initially reside in UCRESEP, until the Institutional Development Unit in TELCOR is fully operational, at which time this unit shall be responsible for project management, after satisfactory assessment or Procurement and Financial Management capacity of TELCOR. The Government will review with the IDA the progress in the capacity of TELCOR to assume full implementation of the Project. By March 31, June 30 September 30 and December31 of each year, the PMU shall prepare a quarterly progress reports of the monitoring and evaluation activities of the Project. The Borrower shall review these reports with IDA not later than October 31 of each year. The PMU shall conduct a mid-term review on or about October 31, 2001 to evaluate progress of implementation against planned objectives. The PMU shall prepare a project Implementation Completion Report to be submitted to IDA not later than six (6) months after the closing date of June 30, 2004. The PMU shall furnish to IDA not later than six (6) months after the closing date a plan for the future operation of the project. H. Readiness for Implementation [X] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [X] The procurement documents for the first year's activities are complete and readv for the start of project implementation. [XI The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. I. Compliance with IBRDlIDA Policies [X] This project complies with all applicable Bank policies. [signature] _-- Task Manager: Eloy Eduardo Vidal_ [signature] Sector Director: Danny Leipziger_ [signature] Country Director: Donna Dowsett-Coirolo Project Appraisal Document 16 Nicaragua Telecommunications Sector Reform Project Annex 1 Project Design Summary Nicaragua Telecommunications Sector Reform Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions Evaluation Sector-related CAS Goal: (Goal to IDA Mission) 1) Modernization of the state . Strengthened planning and regulatory IDA analysis capacity of the state 2) Devel cp the rural sector . Reduction in rural isolation and poverty ITU data Overall macroeconomic and rate political stability 3) Consclidate growth through private . Increased private investment in the sector Govemment statistics sector development Project Development Objective (Objective to Goal) Strengthen the policy and regulatory . New regulator established and performing TELCOR, ITU, WTO and Continued Government environment in the well (issuing licenses, handling government statistics commitment to inviting private telecommunications sector and complaints, assigning spectrum) participation in infrastructure improve access to services * WTO offer submitted w/in 2 yrs with Project supervision commitments toward full liberalization * Implementation of WTO offer begun * Number of lines (fixed and mobile) per 100 people at least doubled w/in 3 yrs . Rural access to telecom services increased by 200% * Overall improvement in quality of services (e.g., shorter waiting list, higher completion rates, lower fault rates) . Increased variety of services offered . 40% of ENITEL's shares offered for sale to a strategic investor . All services using cost-oriented methodologies for tariffs by yr. 3 Outputs: (Outputs to Objective) 1) Strengthen institutional capacity . Changes in regulatory framework Project supervision Political will to give regulator and policy functions of TELCOR identified and implemented (e.g., draft sufficient degree of autonomy laws/regulations to give TELCOR operational autonomy) Timely execution of project by . Changes made to structure, management, Government procedures, administration to reflect operational autonomy Regulatory agency has qualified * Tariffs rebalanced staff and adequate financial . Model licenses developed resources . Mechanisms for consumer protection put in place * Model interconnection agreements developed . Training needs identified and action plan prepared . Improved productivity of regulator (timely processing of licensing, consumer complaints and other requests) Project Appraisal Document 17 Nicaragua Telecommunications Sector Reform Project Project Design Summary Nicaragua Telecommunications Sector Reform (cont' d.) 2) Modernize radio frequency * Frequency allocation requests and Project supervision spectrum management and interference complaints handled monitoring function through new system * Annual increase in number of licensed transmitters 3) Create rural development * Operational regulations enacted to Project supervision fund create fund * Fund operational * First round of bidding process completed 4) ENITEL privatization * Public relations campaign undertaken Project supervision Social acceptance of * Initial 40% offered for sale to strategic privatization plan investors w/in I yr; 11% to workers Investors willing to participate in privatization 5) Guarantee Y2K compliance * Software updates for switching Project supervision of all telecommunications equipment installed equipment Project Components/Sub- (costs include contingencies) (Components to components: Outputs) I) TELCOR Institutional Adequate quality of strengthening: US$2.48 m project progress reports preparatory and other I a) establish national technical outputs telecommunications policy I b) propose commitments to WTO I c) propose changes and draft necessary amendments to legal and regulatory environment I d) analyze and recommend changes to regulations, such as tariff rebalancing, interconnection agreements, model licenses le) review and propose institutional changes to TELCOR I f) identify training needs, prepare action plan and conduct training of managers and staff Ig) information systems lh) establish institutional development unit 2) Establishment of a modem US$4.35 m project progress reports radio spectrum management system: 2a) Consultancy to assess needs, develop tender and evaluate offers 2b) Procurement of new system 2c) Training in use of the system and adaptation Project Appraisal Document 18 Nicaragua Telecommunications Sector Reform Project Project Design Summary Nicaragua Telecommunications Sector Reform (cont'd.) 3) Rural development fund US$1.44 m project progress reports 3a) corisultancy to establish rural teleconmmunications strategy 3b) consultancy to analyze legal requirements for the fund 3c) consultancy to undertake demand studies 3d) consultancy to prepare fund guidelines and regulations, prepare and conduct first round of biddJing process for allocation of fund proceeds 3e) investment into the fund for allocation of first round subsidies to subprojects 4) Additional financing for US$3.93 m project progress reports technical assistance for the on- going privatization of ENITEL 4a) consultancy by international legal advisers 4b) consultancy by investment bank 4c) financial audit 4d) public relations campaign 5) Project management US$1.47 m project progress reports Adequate capacity to implement project 6) Y2K mitigation US$4.33 m. project progress reports Project Appraisal Document 19 Nicaragua Telecommunications Sector Reform Project Annex 2 Telecommunications Sector Reform Project Description Project Component 1: TELCOR Institutional strengthening: US$2.48 million (total cost of component) The Government of Nicaragua seeks to endow the Regulatory Entity for the Telecommunications Sector, TELCOR, with enhanced capacities and operating autonomy to regulate and arbitrate in a sector that will be gradually opening to competition and attracting new players. These will demand agile response to their needs in terns of licenses, radio spectrum and numbering resource allocations, interconnection agreement validation, as well as neutral and timely resolution of disputes. Society as a whole will also demand that the regulator guarantee the delivery of services to all citizens and the handling of consumer complaints in an effective and efficient manner. Given that TELCOR's Director General is indeed a Minister appointed by the President of the Republic, TELCOR is incapable of dealing with all these tasks without government interference. This component will provide a solid basis for TELCOR to develop into a truly independent and capable regulatory entity. Specifically, this component will provide the technical assistance to address the policy, legal and regulatory issues regarding the establishment of a truly competitive telecommunications sector with an independent regulator at its heart. The following sub-components are part of the institutional strengthening of TELCOR: la) Consultancy to establish a national telecommunications sector policy: The Government of Nicaragua lacks an explicit statement regarding their vision and strategy towards the telecommunications sector in the country. The only statement of telecommunications sector policy is implicit, embedded in the various sector laws and decrees. Establishing a clear set of policy guidelines will help legislators and regulators in their task of modernizing the telecommunications sector and give the market a strong signal of the determination of the Government to open up the sector to competition and promote private investmnent. The consultancy should finally propose a long-term strategy, with a participatory approach, to policy development and reform. lb) Consultancy to draft an offer to the WTO Agreement on Basic Telecommunications Based on the output of subcomponent la), the consultant will prepare a set of commitments to the WTO Agreement on Basic Telecommunications, in consultation with both TELCOR and the Minister of Trade. The Government will submit the country's commitments to the WTO. Ic) Legal consultancy to review legal and regulatory environment, propose changes to sectoral laws and draft necessary amendments, with the objective of improving the independence of TELCOR This technical assistance will review the legal and regulatory framework of the telecommunications sector in Nicaragua and propose amendments to legislation to guarantee the independence of the regulatory agency. In reviewing the regulatory regime, the consultant will identify regulations that need to be amended as well as new regulations needed. The consultant will also assess the possibility of establishing a multisectoral regulatory agency to regulate the "utility" sectors of energy, telecommunications and water, propose an action plan and the per-tinent amendments to legislation to take this into effect. Prcject Appraisal Document 20 Nicaragua Telecommunications Sector Reform Project Id) Regulatory consultancy to analyze sector regulations, recommend and draft amendments and new regulations (e.g., tariff regulation, interconnection agreements, model licenses, technical regulations and standards), including the environmental concerns, both regarding physical layout of lines as well as consideration for potential impacts and mitigation measures in sensitive areas, and generally support TELCOR on a long-term basis This long term consultancy is aimed at creating a coherent corpus of telecommunications regulation and technical plans, based on the amended legislation, covering the areas of licensing, interconnection, equipment type approval, frequency allocation and spectrum management, numbering plan and universal service, among others. le) Consultancy to review and propose institutional changes to TELCOR, organizational structure, management, procedures, administration, and propose an action plan to transfer stafffrom the old to the new structure This subcomponent will help determine the optimum organizational structure of the new regulatory entity, assess its staffing needs and propose a transition plan to make the structure evolve from its present to its desired state. It will review and propose changes to internal procedures for all its functions, and propose a master information systems plan to automate these procedures. 1]) Consultancy to recruit and train management and staff of TELCOR Once the new structure of the strengthened TELCOR is decided, and a transition plan agreed upon, the skills of existing staff will have to be assessed, and a decision made as to who will be retained and retrained by the new regulator. Any redundancies (not financed through this project) will be consistent with applicable labor laws as well as with World Bank guidelines regarding severance payments. The potential risk that labor redundancies entail will be mitigated by the public relations campaign foreseen under component 4. New staff with necessary skills for the new challenges will have to be recruited and some training given. In particular, this subcomponent will provide technical assistance to: - recruit management and staff of TELCOR (based on output of task le), * identify training needs and prepare training plan based on skills assessments, * conduct training of managers and staff Ig) Procure computer information systems for TELCOR This will involve the purchase of a small number of computers, connected via a Local Area Network, to allow TELCOR to expedite its licensing procedures, and computerize many of the current tasks that are managed by hand. Jh) Establish TELCOR 's Institutional Development Unit This subcomponent will help create an Institutional Development Unit within TELCOR, to lead the process of institutional strengthening of TELCOR. It will coordinate with ENITEL for substantive issues, and with UCR1ESEP for administrative purposes. Project Appraisal Document 21 Nicaragua Telecommunications Sector Reform Project Project Component 2: Radio spectrum management system: US$4.35 million (total cost of component) 2a) Consultancy to assess needs, develop tender and evaluate offers Based on the information given by TELCOR, the consultant will review and finalize the design of the radio spectrum management and monitoring system, including selection of sites for remote monitoring stations. Draft bidding documents, including technical specifications will be developed, as well as an estimated budget and timetable for the implementation of the project. The consultant will assist TELCOR in the evaluation of the offers received. 2b, 2c) Procurement of new system and training in use of the system The system will be procured under standard IDA procurement guidelines, and a specific training program will be designed. Specific training in the use of the new system will be given for technical staff of TELCOR. Project Component 3: Rural telecommunications development fund: US$1.44million (total cost of component) The rural development fund will be made up of contributions by all telecommunications service providers, assessed as a percentage of their operating revenues (typically 1%). The fund will be used to subsidize investments to deploy telecommunications infrastructure to those carriers willing to operate in rural areas, which the Government considers will not be served without the subsidy. Subsidies will be awarded in a competitive bidding process, where potential carriers bid for a subsidy from the fund. The winning carrier will be the one that requires the lowest subsidy and will be granted a license or franchise, which can be exclusive or non- exclusive, to provide service in the concession region. There is evidence from other countries that some rural areas may not require a subsidy. 3a) Consultancy to develop a rural telecommunications strategy Consultancy to explore different alternatives, based on international experience, to improve the development of telecommunications services in rural and underserved areas. Internet services provided through telecenters will also be a target of this study. 3b) Consultancy to analyze legal status of the fund Consultancy to determine legal requirements for the creation of the rural telecommunications development fund and draft required amendments to sector laws. Would naturally be conducted in connection with component 1 c). 3c) Consultancy to undertake demand studies The consultant will assess the economic situation of the sector in the rural areas of the country, establish the "zoning" of the country into rural concession regions, evaluate the objective level of service in each region with a cost/benefit approach (according to the penetration goals established), and prioritize the projects, selecting the most promising for a first round of competitive bidding. In addition, the consultant will analyze the possibility of installing a small number oftelecenters in select locations as a pilot project to be expanded subsequently on a commercial basis into a national network of telecenters and public Internet access points. Project Appraisal Document 22 Nicaragua Telecommunications Sector Reform Project 3d) Consultancy to prepare fund guidelines and regulations, prepare and conduct bidding process for eventual allocation offundproceeds Technical assistance to develop the regulatory structure of the fund, its organization and procedures. The consultant will design the bidding process and documents involved, including a Rural Fund Operational Manual, takiing special attention to building environmental guidelines into the process. The consultant will also assist the administrator of the fund in conducting the first round of competitive bidding to allocate the initial proceeds of the iund (including IDA-funded subprojects as per component 3e), and licensing. 3e) Subprojects of the rural telecommunications development fund The bulk of this component will be IDA's financed sub-projects to develop telecommunications services in the rural! areas. Eligible Enterprises according to the Rural Fund Operational Manual will be selected according to Intemnational Competitive Bidding as per section 3.13 (a) of the "Guidelines for Procurement under IDA Credlits". The goods, works and services required for carrying out said subprojects shall then be procured in accordance with the applicable procedures of said Eligible Enterprises. TELCOR will allocate Fund resources to the Eligible Enterprise that complies with the Bid Specification and bids the minimum subsidy for each one of the sub-projects. Project Component 4: On-going privatization of ENITEL: US$3.93 million (total cost of component) 4a) International legal consultancy This subcomponent will provide the legal advisers for the privatization of ENITEL, who will draft all the necessary legal documents for the transaction to take place, including the conduction of the due diligence process. 4b) Investment bank fees and charges This will cover the retainer fee and reimbursable expenses customary charged by investment bankers for this kind of transactions. 4c) E!VITEL financial audit For the privatization to proceed, ENITEL's financial statements need to be audited by an accredited international accounting firm. 4d) Development and implementation of a public relations campaign It is not expected that the privatization will cause much unrest, given the fact that the workers will have a chance to own the company. However, it is important to design a public relations campaign that will explain to the population in general the benefits the privatization will entail. Project Component 5: Project management: US$1.47 million (total cost of component) These are the funds allocated for project management activities. The PMU, initially UCRESEP as explained in the text, will handle the Procurement, Administration and Accounting of the Project. Project Appraisal Document 23 Nicaragua Telecommunications Sector Reform Project This component includes the Project Preparation activities that were carried out in UCRESEP and ENITEL's Privatization Unit. The latter used these funds to recruit technical, financial and economic advisors for the preparation of the privatization. This Unit will cease to exist when the transaction is completed. As described in the text, once TELCOR develops its capacity to manage the Project, full responsibility of Project management will be transferred from UCRESEP to TELCOR. The project will fund local consultants for all three units mentioned above, to provide local legal, economic and technical advice and carry out necessary financial and administrative procedures. This component will also fund travel expenses and operating costs such as local transportation, expenses for office space, equipment and supplies. Project Component 6: Guarantee Y2K compliance of ENITEL's telecommunications networks: US$4.33 million (total cost of component) The project will finance the upgrade of all non-Y2K-compliant software (and minor hardware updates) in ENITEL's switches for the telephone network, as well as equipment in the X-25 data network, to bring them up to date and compliant with the year 2000. Projec t Appraisal Document 24 Nicaragua Telecommunications Sector Reform Project Annex 3 Estimated Project Costs Nicaragua: Telecommunications Sector Reform Project (US$) P.roject Component Local Foreign Total 1) 1'ELCOR Institutional strengthening Consultancies/Management 220,556 1,300,000 1,520,556 Training 101,795 600,000 701,795 Computer information systems 16,966 100,000 116,966 Sub-Total 339,316 2,000,000 2,339,316 2) Spectrum management system Consultancies 4,082 35,000 39,082 Training 15,746 135,000 150,746 Spectrum management & monitoring equipment 408,240 3,500,000 3,908,240 Sub-Total 428,069 3,670,000 4,098,069 3) Rural development fund & telecenters Consultancies 26,191 190,000 216,191 Investment Subprojects 137,847 1,000,000 1,137,847 Sub-Total 164,038 1,190,000 1,354,038 4) Additional TA for ENITEL privatization Consuitancies 437,400 2,750,000 3,187,400 Information Campaign 71,575 450,000 521,575 Sub-Total 508,975 3,200,000 3,708,975 5) Project Management Consultants/Management 73,483 630,000 703,483 Project audit 17,496 150,000 167,496 Miscellaneous (office eq./fiurniture/car/rent) 53,654 460,000 513,654 Sub-Total 144,634 1,240,000 1,384,634 6) Y2K software upgrades Sub-Tocal 430,968 3,694,854 4,125,822 BASE PROJECT COST (w/out contingencies) 2,016,000 14,994,854 17,010,854 Contingencies 119,328 905,146 1,024,474 TOTAL PROJECT COST 2,135,328 15,900,000 18,035,328 Note: Price contingencies 6% (applied to all) Project Appraisal Document 25 Nicaragua Telecommunications Sector Reform Project Annex 4 Telecommunications Sector Reform Cost Effectiveness Analysis Summary Present Value of Flows Fiscal Impact Economic Financial Analysis Analysis Taxes Subsidies Project Costs Greater than US$ 18.0 mln financial IRR, NPV=$3.6mln US$ 24.9 mln Budget due to positive IRR-23% (Net Present subsidies to externalities Value of all ENITEL would tax flows, be eliminated 1999) Main Assumptions: * Projecting revenue generated by the increased number of lines and improved revenues per line * Annual revenues with reform program increase 15% in yrs. 1-5; 12% in yrs. 6-10; 8% in yrs. 11-40; without reform program revenue only increases by 12%, 9%, and 6% respectively. - A baseline growth of GDP of 5% - Continuity of the present exchange rate throughout the period. - A 40-year implementation period. * Net Present Values based on 20% discount rate. Notes NPV: Net Present Value, discounted cash flow at 20% IRR: Internal Rate of Return Taxes: Includes sales tax, corporate profits tax, and import duties on equipment Project Appraisal Document 26 Nicaragua Telecommunications Sector Reform Project Annex 5 Table SA - Financial Summary Nicaragua: Telecommunications Sector Reform Project (US$) Implementation Period | FY00 |IFY01 FY02 FY03 FY04 TOTAL Prcject Costs Investment Costs 7,851,097 2,330,680 3,856,543 1,441,565 420,116 15,900,000 Recurrent Costs 1,051,207 350,859 481,251 192,444 60,950 2,136,711 Total 8,902,304 2,681,539 4,337,794 1,634,009 481,066 18,036,712 Financing Sources (%) IBRD 7,851,097 2,330,680 3,856,543 1,441,565 420,116 15,900,000 Government 1,051,207 350,859 481,251 192,444 60,950 2,136,711 Total 8,902,304 2,681,539 4,337,794 1,634,009 481,066 18,036,712 Main Assumptions: - Price contingencies: 6% Project Appraisal Document 27 Nicaragua Telecommunications Sector Reform Project Annex 5 Table 5B - Financial Summary by Category Nicaragua: Telecommunications Sector Reform Project (U S$) Implementation Period l FY00 FY01 FY02 FY03 FY04 TOTAL Expenditure Category (USS) .. I Goods 4,084,854 480,000 2,800,000 370,000 10,000 7,744,854 2. Consultants' Services 969,100 1,266,000 367,499 343,500 108,900 3,055,000 3. Training 180,000 360,000 127,500 54,000 13,500 735,000 4. Rural Telecoms Subprojects 0 0 250,000 500,000 250,000 1,000,000 5. Operating costs of PIU 170,200 92,000 92,000 92,000 13,800 460,000 6. Refunding of the PPF 2,000,000 0 0 0 2,000,000 7. Unallocated 446,943 132,679 219,544 82,064 23,916 905,146 TOTAL 7,85 1,097 2,330,680 3,856,543 1,441,565 420,116 15,900,000 M ain A ssum ptions: - Price contingencies: 6% Project Appraisal Document 28 Nicaragua Telecommunications Sector Refonn Project Annex 6 Telecommunications Sector Reform Procurement and Disbursement Arrangements Procurement A capacity assessment was conducted at ENITEL and TELCOR as agencies responsible for procurement and at UCRIESEP as the management unit responsible for administrative management of contracts and project accounting. These agencies were assessed in the high risk category, and as such, the project requires close supervision and compliance with a proposed action plan. This action plan includes improvements in areas, such as: procurement management; organization and functions; support and control systems; and record keeping. The Action Plan's main points are: (1) Preparation of a Procurement Plan, for both goods and consulting services, including programming the main Project contracts and tenders for the 4 years of execution, grouped accCding to Annex 2 of this document. The Plan will be completed by Credit Negotiations. (2) Training of Key Staff before Project implementation, in Procurement matters such as the initial plan for procurement for goods and for consultants, review of data sheets for selection of consultants and goods, review of potential problems, evaluation methodology, the content of contracts and special conditions of the contracts. Training will happen in the period after Credit Negotiations and before Credit effectiveness. (3) Preparation of a Project Operations Manual including the organization of the Project, the responsibilities of each one of the units involved in the Project, the key staff in each unit and their terms of reference, the initial procurement plan mentioned above, the budget and expense program, the training program for staff, and Project Procurement Audit. The Manual will be completed by the end of February, 2,000. The Project Procurement activities will be supervised every 6 months, reviewing the processes during the period and the expected plan for the next 6 months, in relation to the Action Plan described above. The procurement methods are summarized in Table 6A. 1. Procurement of goods and BOO contracts will follow the "Guidelines for Procurement under IBRD Loans and IDA Credits, dated January 1995 (revised January and August 1996, September 1997 and January 1999). Procurement of consultant services will follow the "Guidelines for the Selection and Employment of Consultants by World Bank Borrowers", dated January 1997 and revised September 1997 and January 1999. Standard bidding documents (SBD) will be used for all IDA- financed procurement. Gooas International Competitive Bidding (ICB) will be used for contracts of US$150,000.00 equivalent or more under the radio spectrum management component which includes a supply and installation contract for radio spectrum frequency monitoring equipment. Goods contracts for office and other equipment and computer-related purchases costing between US$25,000 and US$150,000 will be procured under National Competitive Bidding (NCB) up to an aggregate of $550,000. For goods under part A of the Project below $40,000 and for contracts below US$25,000, national/international shopping will be used up to an aggregate amount of US$200,000. Four contracts to upgrade telephone exchanges and data transmission networks for Y2K compliance will be procured by direct contracting from the original equipment manufacturers up to an aggregate amount of about US$3.7 million. BOO Contracts ICB will be used for BOO contracts financed under the Rural Telecommunication Development Fund. Under this ftnd, private operators willing to operate in rural areas will compete for contracts based on a selection Project Appraisal Document 29 Nicaragua Telecommunications Sector Reforn Project criteria on qualifications and minimum subsidies. These contracts will conform with Section 3.13 (a) of the Guidelines for Procurement. The private operators selected in this manner shall be free to procure the works, goods, and services required for the facility from eligible sources, using their own procedures. Consultant and Training Services Consultant and training services will be procured under contracts awarded under QCBS and other selection methods as indicated in Table 6A.2. Consulting assignments for which a firm is to be hired and which have a value equal to or greater than US$100,000, shall be procured according to Quality and Cost Based Selection (QCBS). Project audits shall be selected by least-cost selection (LC) due to the standard nature of the assignment. Individual Consultants (IC) shall be selected in accordance with section 5 of the Guidelines, up to an aggregate amount of about US$1.5 million. For the privatization component, teams of legal and financial advisors selected by QCBS under credit 2690-NI will be rehired by Single-Source Selection for reasons of economy and continuity. Both teams perforned satisfactorily during the first attempt of privatization and are familiar with the process. Review Procedures Requirements for prior review are summarized in table 6B. All contracts for goods procured under ICB shall be subject to IDA's prior review. The first three (3) contracts procured under NCB, as well as national/international shopping will be subject to IDA's prior review. Consulting contracts with firms estimated to cost US$100,000 or more, will be subject to prior review of all steps in the process. Contracts for employment of individual consultants estimated to cost US$50,000 or more will also requirelDA's prior review of all steps in the process. Short list and terms of reference for all consultant contracts as well as individuals, irrespective of dollar amount, are subject to prior review. Disbursement Disbursement will take place over the four-year period of the project, with an anticipated project closing date of June 30, 2004. The disbursement schedule is presented below. (The allocation of loan proceeds is provided in Table 6C). Disbursements for the first year reflect the refunding of the Project Preparation Advance of US$2 million. There will be retroactive financing up to 10% of the credit amount to finance the most urgent measures of the Y2K component. FY00 FY01 FY02 FY03 FY04 Annual 7.85 2.33 3.86 1.44 0.42 Cumulative 7.85 10.18 14.04 15.48 15.90 An Action Plan for the establishment of a financial management system was agreed to between IDA and UCRESEP, dated September 3, 1,999. According to this plan, a project accountant and an accounting firm as project auditor is being selected. Further, a Financial Management Assessment was carried out in UCRESEP, and found the entity ready for Project Implementation. The main elements of the Action Plan are as follows. (1) ENITEL, TELCOR and UCRESEP agreed on the physical and financial indicators for project monitoring, before Credit Negotiations. (2)UCRESEP is hiring the Audit Firm. (3) UCRESEP/TELCOR is purchasing a computer software for the preparation of Project Management Reports ("PMRs") under LACI, compatible with the existing accounting system. (4) UCRESEP/TELCOR will prepare a Project Manual, including the budget and financial planning of expenditures, the timetable of events and the processes needed for generation of the PMRs. Project Appraisal Document 30 Nicaragua Telecommunications Sector Reform Project The Action Plan also seeks to incorporate the use of procedures under IDA's Loan Administration Change Initiative (LACI), but would allow for the initial use of traditional disbursement procedures (which include direct payments, special commitments, Statements of Expenditure (SOE)) until the new LACI procedures are fully in place. In either instance, a Special Account shall be established and maintained in US dollars in the cen'ral bank, or a commercial bank acceptable to IDA. Using the traditional disbursement procedures, US$900,000 (about four months of eligible expenditures) would be the authorized allocation for the Special Account. The use of Statement of Expenditures (SOEs) would be allowed for the following types of expenditure: * contracts for goods costing less than US$150,000; * contracts for the employment of consulting firms costing less than US$ 100,000; * contracts for the employment of individual consultants costing less than US$50,000; * training; and * operating costs. Once a full conversion to the LACI procedures has taken place, the PMU would produce and submit to IDA a Project Management Report (PMR) on a quarterly basis, which allows for the simultaneous monitoring of financial, physical, and procurement activity of the project, while also serving as an application for disbursement from the loan account to the Special Account. The amount will be based on the expected eligible expenditures for the subsequent six-month period. Using LACI procedures, the total amount in the Special Account would not exceed US$3.18 million. In addition to submission of quarterly PMRs or the use of traditional disbursement procedures, the project will be required to submit an annual audit report to IDA, the format of which was discussed with the borrower. The audit should be performed by an independent auditor acceptable to IDA, and the report should be received by IDA no later than six months after the close of the project!s financial year (December). Project Appraisal Document 31 Nicaragua Telecommunications Sector Reform Project Table 6A. 1: Project Costs by Procurement Arrangements (in US$) Procurement Method Total Cost Expenditure Category Nat'l/Int'l (As per table 6C) ICB NCB Shopping Other NIF 1. Goods 3,500,000 350,000 200,000 3,694,854 888,569 8,633,424 (3,500,000) (350,000) (200,000) (3,694,854) (0) (7,744,854) 2. Consultants' Services 3,055,000 779,208 3,834,208 (3,055,000) (0) (3,055,000) 3. Training 735,000 117,541 852,541 (735,000) (0) (735,000) 4. Rural Telecommunications 1,000,000 137,847 1,137,847 Subprojects (1,000,000) (0) (1,000,000) 5. Operating Costs of PIU 460,000 53,654 513,654 (460,000) (0) (460,000) 6. Refunding of Project Preparation Advance 2,000,000 2,000,000 (2,000,000) (2,000,000) 7. Unallocated 905,146 119,328 1,024,474 (905,146) (0) (905,146) Total 4,500,000 350,000 200,000 10,850,000 2,096,149 17,996,150 (Total IDA Financed) (4,500,000) (350,000) (200,000) (10,850,000) (0) (15,900,000) Note: Figures in brackets are financed by the IDA credit ICB: International Competitive Bidding NCB: National Competitive Bidding NIF: Not IDA-financed Nat'l/lnt'l shopping: National and international shopping Other: Includes direct contracting (for Y2K component) and selection of consultants under IBRD/IDA guidelines; Includes refunding of the PPF, which was used to finance consultants services It also includes unallocated category, for which no procurement method has yet been foreseen Project Appraisal Document 32 Nicaragua Telecommunications Sector Reform Project Table 6A.2: Consultant Selection Arrangements (in US$) Consultant Services Selection Method Total Cost (incl. Training) QCBS CQ SS LC NIF Firms 1,360,000 2,750,000 150,000 670,574 4,930,574 (1,360,000) (2,750,000) (150,000) (0) (4,260,000) Individuals 1,530,000 226,176 1,756,176 (1,530,000) (0) (1,530,000) Total 1,360,000 1,530,000 2,750,000 150,000 896,750 6,686,750 (5,790,000) Note: Figures in parentheses are financed by the IDA credit QBCS: Quality and cost-based selection CQ: Consultant's Qualifications (for TELCOR and ENITEL's execution units) SS: Single-source selection (for privatization component) LC: Least-cost selection NIF: Not IDA-financed Project Appraisal Document 33 Nicaragua Telecommunications Sector Reform Project Table 6B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review 1. Goods > $150,000 ICB Prior Review < $150,000 NCB Prior Review first 3 contracts < $25,000 Nat'l/int'l shopping Prior Review first 3 contracts All Direct Contracting Prior Review (for Y2K) 2. Consultants' Services > $100,000 QCBS Prior Review and Training for firms * < $50,000 CQ Prior Review for individuals* < $100,000 LC (for audit firm) Prior Review forfirms* All SS (for privatization Prior Review for firms * advisers) *Short list and TORs for all consultant contracts as well as all individuals, irrespective of dollar amount are subject to prior review. Note: ICB: Intemational Competitive Bidding NCB: National Competitive Bidding Nat'l/Int'l shopping: National and intemational shopping QCBS: Quality-and Cost-Based Selection CQ: Consultants' Qualifications IC: Individual Consultants SS: Single-Source Selection LC: Least-Cost Selection F'roject Appraisal Document 34 Nicaragua Telecommunications Sector Reform Project Table 6C: Allocation of Credit Proceeds a/ Amount Expenditure Category (US$) Financing Percentage 1. Goods 7,744,854 100% of foreign expenditure, 80% of other local expenditures 2. Consultants' Services 3,055,000 100% 3. Training 735,000 100% 4. Rural Telecommunications Subprojects 1,000,000 100% of the amount specified in each Subproject Agreement 5. Operating costs of PIU 460,000 90% 6. Refunding of the Project Preparation Advance 2,000,000 Amounts due pursuant to Section 2.02. (b) of the Credit Agreement 7. Unallocated 905,146 TOTAL 15,900,000 a/ The description of the expenditure category as defined in the Credit Agreement Project Appraisal Document 35 Nicaragua Telecommunications Sector Reform Project Annex 7 Telecommunications Sector Reform Project Processing Budget and Schedule A. Project Budget (US$000) Planned Actual (At final PCD stage) US$72,600 US$70,700 B. Project Schedule Planned Actual (At final PCD stage) Time taken to prepare the project (months) 8 months First IDA mission (identification) 01/13/1999 Appraisal mission departure 12/07/1998 08/23/1999 Negotiations 10/01/1999 10/20/1999 Planned Date of Effectiveness 03/15/2000 /_/19 Prepared by: ENITEL and TELCOR Preparation assistance: Project Preparation Facility World Bank staff who worked on the project included: Name Specialty Eloy E. Vidal Task Manager Juergen Franz Sector Leader Juan Navas-Sabater Telecoms Specialist Kashmira Daruwalla Procurement Analyst Marta Molares-Halberg Senior Counsel Michael Fowler Disbursement Officer Jaime Roman Principal Procurement Specialist Adan Cajina Procurement Consultant Luz Zer6n Financial-Consultant Susan Hume Operations Officer Marta Priftis Program Assistant Project Appraisal Document 36 Nicaragua Telecommunications Sector Reform Project Annex 8 Telecommunications Sector Reform Documents in the Project File* A. Project Implementation Plan B. World Bank Staff Assessments Economic and Financial Analyses of the Project C. Other Ley de Incorporaci6n de Particulares en la Operaci6n y Ampliaci6n de los Servicios Piblicos de Telecomunicaciones, Ley 210, December 1995 Ley de Reforma de la Ley 210 de Telecomunicaciones, March 1998 Analysis of the Current Legal and Regulatory Framework of the Telecommunications Sector ENITEL Information Memorandum Draft Concession Contract - ENITEL Design of the Frequency Spectrum Monitoring and Management System for TELCOR Project Appraisal Document 37 Nicaragua Telecommunications Sector Reform Project Annex 9 Status of Bank Group Operations in Nicaragua Operations Portfolio As of 30-Sep-99 31. f Ee root. Rerve..,, expected Orlinql- ;ncunt in US$ F:illic-s a-.d actua>l i'scal disbseoot7 a Proje=t ID Ycar Borrouc: Purpose I3RD' IDA Cancellatio,s l:disrursed Oriq Fro Acr'd ilumber of Closnd ?rc5ccts: 39 Active ?ro3ects NrI-PE-0613 2C0C HINISSRY OF EDUCAJ1ON ECUCATION 1I C. Q 2.50 0.00 54.21 Q 0.0 O .00 Ili-PE-40197 1399 GOVERNMENT OF N:CARAGUA rISE 1I0 0.00 45.00 0.00 36.61 -5.23 0.Q0 NT-PE-52080 1999 MAGFOR FOREST9Y 0.00 9.00 o.00 o.41 .7C o.00 il-PF-35753 199 REPUSL7C OF NiCARAGUA RHALrN SECT _ Q. 00 24.00 0.00 22.5" 3.^9 0.03 NT-PE-531705 1399 REPP17RI,l OF NICARAGUA SRANSPORT 11 0.00 47.40 0.00 27.6' -S.47 0.09 Sr-P5-7777 1498 REPUBL7C OF NrCARAGUA FINAN SEC. ADJSS44EN 0.00 71.40 0.00 R.6.9 15.29 '0 R!-PE-719C 1997 REPUBLIC OF NICARAGUA R'JRAL iW1NICIPALITIES O.00 30.00 0.00 7.-9 -5.00 0. 0 9!-P-37S9 19936 COVERN4MEN7 OF NICARAGUA ROADS REHAB & '0INT 0.^0 25.00 C.00 1.P0 5.6' 0.50 Z-ipE-35080 1995 GOVT. O- NICARAGUA INSTITUTIONAL DEV CR 0.00 22.00 .o00 3.57 .3; 0.03 N:-E-E7'2 1995 KINISTRY OF EDXCATION EDUCATION 0.C3 47.20 0.00 13.52 3.I9 7.41 Ni-PE-7 10 1994 GOCvT OF NICAF.RGUA TECR & t9N 0T 0.'0 44.00 0.00 3.3? 5, 44. n.G0 Total 0.03 418.0 0.. 00 -... 19.7I I.71 Active Projecro Cl..ed Proelcts Total Total Disbursed l;SRD ar-d 1DAI: 206.44 623.34 829.7a .,f wh:ch ha" been repaid. - D.C0 23s.35 234.95 Totl now held by0 I0RD nd IDA: 418.50 383.56 902.09 AInount sol. D 0.00 5.52 5.62 C): which repaid 0.00 5.S2 5.62 Tot.1 U,.disb-r.ed : 2309.9 0.52 _ 03.33 a. Intendld disorsamnents :D date min"us actul disours2macns to cate as projected at apprainal as of 30-Jur-99. Not o: Disbursement date is -p1etad al _sh eod P.' she l-rut oeek of the month 3.d is currenti; as ot 30-Sep-95. Project Appraisal Document 38 Nicaragua Telecommunications Sector Reform Project Nicaragua STATEMENT OF IFC's Held and Disbursed Portfolio As of 31-Jul-99 In Millions US Dollars ----------Held-------- --------Disbursed----- -----------IFC ------IFC-------- FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 Frutan 2.00 1.00 0.00 0.00 .50 .43 0.00 0.00 1998 La Colonia 4.00 0.00 .50 0.00 2.00 0.00 .50 0.00 1999 SEF Dicegsa 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 Total Portfolio: 7,00 1.00 .50 0.00 3.50 .43 .50 0.00 Approvals Pending Commitment Loan Equity Quasi Partic 2000 FINARCA 2.00 .60 0.00 0.00 Total Pending Commitment: 2.00 .60 0.00 0.00 Project Appraisal Document 39 Nicaragua Telecommunications Sector Reform Project Annex 10 Nicaragua at a glance 9122/99 Laffn POVERTY and SOCIAL America Low- Nicaragua & CtIb. ineome Development dlamond Population ,mid-year (ViorS) 4.8 502 3,515 Life expectancy GNP per capita fAtias method, US$S 410 3,940 520 GNP (AtIa method, US$blihns) 2.0 1,978 1,844 Average annual growth, 1982-98 Population I%) 2.8 1.8 1.7 Labor forae I%) 4.1 2.3 f,9 GNP Gross Moat recent eattm~~~~~~~~~ ~~ ~~ ~~ ~~ per primary Most reont esffmate (latest year strall , 1992-ffi) capita enrollment Poverty (% ofpopulaton beow natonalpove*Int ). so Urban population (16 oftotalpopuion) 64 75 31 Life expectancy at birth (years) 68 70 63 inhfnt mortality (per 1,000Jlve bfrths) 43 32 69 Child mainutritidn (% ofchildrenunder 5) 12 a .. Access to safe water Access to sate water (% ofpopulaton) 62 75 74 Iliteracy (% of populstln age 154) 37 13 32 Gross primary enroliment (%of school,age populabtn) 103 113 108 - Nicaragua Male 101 ,. 113 Low-income group femaie 104 103 KEY ECONOMIC RATIOS and LONG-TIERM TRENDS 1977 1987. 1997 1S98 Economic ratIos' GDP (US$ billons) 2.2 2.9 2.0 2.1 Gross domestic investrnenIGDP 25.6 15.8 32.2 34.5 Exports of goods and services/GDP 32.1 11.8 42.8 37.7 Trade Gross domestic savings/GDP.- 20.3 13.8 -4.5 -5.3 Gross national savkgs/GDP 13.9 13.3 -8.0 -S.' Current account balancelGDP -8.6 -27.5 -30.3 -32.9 . /\ Interest payments/GDP 2.3 0.4 7.6 7.2 Domesic ' Investment Total debtWGDP 57.1 271.2 291.0 283.9 Savings Total debt service/exports 14.6 14.4 31.5 32.2 Present value of debt/GDP -. .. 224.2 Present value of debttexpotts .. .. 410.5 Indebtedness 197747 198.98 1997 19s8 199-03 (average annual growth) GOP . -2.0 2.0 S.1 4.0 6.4 Nicaragua GNP per capita -5,7 0.6 6.6 3.3 3.6 Low-income group Exports of goods and services -8.3 11.0 4.0 4.4 7.4 STRUCTURE of the ECONOMY 1977 1987 1997 1998 Growth rates of output and Investment (%) (fX oftGDP) Agriculture 22.9 28.9 33.9 34.0 40 Industry 26.0 23.1 21.6 21.5 20 Manufacturing 19.2 18.7 15.5 15.1 Services 51.1 48.0 44.5 44.4 Private consumption 70.8 52.0 89.9 91.1 420 General govemment consumpton 8.9 34.2 14.6 14.2GDI 0 GDP Imports of goods and services 37.4 13.8 79.5 77.5 (average annual growth) 197747 1988-98 1997 1998 Growth rates of exports and Imports (/) Agriculture -3.2 4.3 8.3 4.2 45 Industry -1.4 2.2 5.7 4.6 Manufacturing -0.4 0.9 3.8 2.1 Services -1.7 0.5 2.6 3.6 1s Private consumption -7.8 2.1 8.8 9.6 o General govemment consumption 17.5 -5.5 -0.7 -0.4 a 3 s ss 97 Gross domestic investment 0.8 6.9 22.2 20.0 4s Imports of goods and services -0.5 6.2 14.1 7.9 Exports 0 Imports Gross national product -2.8 3.4 9.6 6.1 Note: 1998 data are preliminary estimates. The diamonds show four key indicators in the country (In bold) compared with its income-group average. If data are missing, the diamond will be incomplete. MAP SECTION I IBRD 30587 82NICARAGUA 86858480 RAAN CHINANDEGA MASAYA is' 1 Wopono~~~~~~~~~~~~~~~~~5 5.P~, N. 1)21 TELECOMMUNICATIONS SECTOR2 PWUE~RT CABEZAS 54 Conn o,,2 N 3 Do--z ST S.- lTrnTooo,od H1.o 104 AASAOA 4 o0io 56 S., Fn--oMiN-d 105 L.oC...pon REFORM PROJECT .c\.~Si---n 51 Soo6o O SW---] 5858Vil 0 078 don SELECTED CITIES '~~7 Po-npol1, SR T-Ionl 100 No5,.-no PROJECT 25 60osR ASN El Vioj 10 ooon MJNICIPAI CAPITALS (,.r., on b-Rb Ion RAAS o 1U88ADG 110 0-20L00 Qo, solo INTERNA 094 EAR S A ON ® ~~~~~~~DEPARTMENT CAPIDAIS 8L.qO 81 Cn- do, Rio Go-noo 62 Chimlgopop 9BR,-oco P. oo, 3 Por lg, CA NAZO * TILEPIIONE ER HAN ES- NATIONAL CAPITAL 108101 M_sflodolRopo 44. IR.o.. 11S, o 11 El Ro.. 65 Coooo 1 Dn-oo MUINICIPAL ROUNDARIES - ~12 o LL,,u o~N 1124Joo - 12 goooPsoono LEON 114 JINOTEPR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~E N !OTP noOonlononbon loon, 0cc O~~~~~~~~~~~~EPARTMENT ROUNDARIED / 'nN G-WERRD 60 Ao 000 n E...onn - - INTERNATIONOABOUNDAROES .s 16E ET.ILL,o 68 Solo Ron, nl PoT, , 17Son_ T..,.o 0, ~~~~~~~~~~~~~~~~~~~~ ~~~~ ATLANTiCO J7lnonococndoR.cOcoodo 6 ERlcoI JbLnCoq.noo 27 0 ~~~~~~~~~~~~~~~~ ~ ~~~~~~~~~~~~ ~ ~~NORTE Puerto 14' 18Ro..o Co, 70 Mo1poisl6 f 27 ~~~~~~~~~~~~~~~~Cobezos IT 9Co.. Islad 771 ToSno~ -- GRANADA / JINOTEGA 72 OnonoWoqon ~~~~~~~~~~~~~~~~~~~211218 GRANADA JINOTEGA ~~~73 LEON 12 Enno - 000% - 5 3 OINOTEGA20W 0CA j*~~ ~~~~~~~~28 -30 021 Ion Prol -37 oon 2 N-dio OJCQTAL G 7 g-122-i 131%.2 -3*34 D20 2E3 Do-oonnd o MA4TAGALPA RIVAS \38 -`L 37 24 Don Robo1 dsl Nool 76 R-nAo OGr-d I204 50040 OTGf A DRI *42 '43 25oL.Conoonoo 77 L.oDo 04 OnIo, I 28 '40 28 JINOTIGA 78 Son Ltdno 125 Fo-s, 44 " 2 79 AiATAGALP 126 Esco Ano AS P 2I N UE VA SEGO VIA 80 Son Romoo 127 S.n J.go I 2~~~~~~~~~3 *627 Jooo8 Roo R1onn- 128 DIVAS 4 0425 5' MA 38 24 ~~~~~ ~ ~~~~~~.76 ' ,o 0.o 8SnMno82uoo12 AMoyoopo 48,prn.n *29 ~ Ro,loo83 Ciodod Donio 130Aoio 0110002 n35 0n200&O 25 21~~~~~~~~~~~~~~~~~~~~~`.7 L DOp I 52 So-nn..n 131 Son,lnood.dLon * Estali Thisoinogon 660 IE,Iha' ' I1OCOTAL 85 Son So--n 132 CoLoon- .86 0061 00)261 - - nO. 32 Mononno 06 Esqopoon~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3 -, 5 E,,P 3'5 2 1 130 53 So onno8 oMyCHONTALES $ooooIonnpoo.n 4-0 on 8~U7 83.IN2 M fO7nL'n 35 Coodod Sn,dino 154 JUIGALPA 5,nLJooOnonAk6oA9035 o ' 3 Monno BOA CO 135 1 Loonond 59 .86 - 0 9 37 o~~~~~,oo 0 9 Son Joolo oRonon- 136 So-ooon go Chm-d.g. -69 .~~~~~84 '87 90 Sonn Loo 137 So Pnd,, dolooog C0iloionL8 * 85'86 % MADRIZ 91 0OACO 138 Doo,M Tnrooo 62~~~~~Jjl FF20105 0. j n 38 Tono3opn 82 Tnoopo 138 VilE Sondono~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~18I 9 T.p 19vi6 ..i 626' 70 ~ .89 36SMOO2 Soo cono--Acpp - 72 79 5 .90 BOA CO 40 T.1o,,A-0 TO Co-o-op j65 Bc 1P..- RIO SAN JUAN 01880 , ~~~~~~~~~~ ~~~l9~. ll . -42 TspnooMANAGUA A4 Mo.""n 01731 74 0'' ' 80ke 9 4 T A TC 3 S-JIondo R,.C-o RE Son, F--nonnUCro 142 Fl Anon-do ID '~_ ~Mqraqr . ATAN8C 3- --', 44 Son Lo-o 96 Son Rof-sldd1Son, 141 S-nMg,ol 7 00 *I ~~~~~~~~~~~~~~~~~~13 0-136 SoftR 12. 1 45 Wo.Sobo-o 97 Mo-oc 14N4 750 j&-RTM A'A135. 65Snonoonn9 0 Co'RooA4 nSLnoAco (0 'AN V 112R1 ~~~~~~~~~~~~~~~~~~(q -46A00-14JOON,AE# 07-PoMo9NoooV11.Cr-F -AS - S For4 711,088 0~~~~~~10151 0,0 S1T - 06 BItl6 r . 71.f9 oilonddso 87'nso 43I''o -_ 0D II8I be ow 96 n 46 54.10 o' 0 i'fT oA o5 1 grAMEXICO 80828 2,0,0 OoOo 01000700 00' ' 133,~~~~~~~~~~~~~~~~~~~ 9IN1 0- ' - ~~~~'43 OSATRMA0AK- HONDURAS On OCEAN~~~~~~~~l "k 5000 7.o~~~~~~~~~~~~~~~6 2L T,6 00 ,, - ep00 (I ' 14ko)tco , RI A ¾ I!N 8 0. Ono 000 0000~~~~~~~~~~~~~~~~13 NICIARAQUAEU 0000~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ iT GA M,6~-(~ CCEA 0 0 o, 0 148. ~~~~ PACIFICA IDUA > AIAR I ~~ANAOUA ~~~~~COSTA RICAVoopnpood60oosbnnnSNc. CA' > 0000 86' 0' 550 84' ' 820 '80 oR ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CQCOMBIA~~~CLOBI OCTOIERO 9