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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 16521 IMPLEMENTATION COMPLETION REPORT Public Disclosure Authorized CZECH REPUBLIC TELECOMMUNICATIONS PROJ ECT (Loan 3644-CZ) Public Disclosure Authorized April 24, 1997 Infrastructure Operations Division Central Europe Department tl Public Disclosure Authorized Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency UJnit= Koruna Ceska (Kc) = CZK Parity: CZK I = tJS$ 27.4 Dec. 1996 Equivalency of I US$ in (CZK since 1993 (Annual Average) 1993 29.45 1994 29.23 1995 27.33 1996 27.00 Appraisal year average (1 99)2/93) was C/K 29.0 per US$ 1. WEIGHTS AND MEASURES Metric System FISCAL YEAR OF BORROWER Giovernment and SlT Telecom: .January 1 - December 31 ABBREVIATIONS AND ACRONYMS CR - Ceske Radiokomunikace EU - European UJniioni EBRD - European Bnak for Reconstruction and Development EIB - EuropeaniInvestment Bank GSM - Global Systcmi Mobile ICB - International Competitive 13idding IDP - Institutional Development Program I'J'U - International Telecommunications Union (Geneva) JV - Joint Venture MIS - Management IntformiiationSystem MoE - Ministry of Econom1y MTPT - Ministry of ''ransport, Post & Telecommunications (Ministerstvo Dopravy a Spoju) PHARE - EU grant program PllJ - Project Implementation Unit l'PO - I'roject lProgran Oft'icc S PT - Sprava PJosta 'I'eikomunikaci (Cech Republic's !ormer Post and Telecommunications Organization) SR - Sprava Radiokomlunikaci Vice President: Johannes F. Linn Acting Director: Hlans J. Apitz Acting Division Chief: Henk Busz Staff Member/Task Manager: Alberto Cruzat FOR OFFICIALUSE ONLY Table of Contents Page No. Preface ................................................................................................................. Evaluation Summary.......................................................... i Part I: Project Implementation Assessment .1 A. Background and Project Objectives. I B. Sector Reform, Regulation and Privatization. 2 C. Achievement of Project Objectives. 4 D. Implementation Record and Major Factors Affecting the Project ................... 6 E. Project Sustainability.................. 7 F. Bank's Performance................. 7 G. Borrower Performance.................................................... 8 H. Assessment of Outcome.................................................... 8 I. Future Operation.................................................... 9 J. Key Lessons Learned.................................................... 9 Part II: Statistical Tables ......................................................... 10 Table 1: Summary of Assessments................................................... 11 Table 2: Related Bank Loans/Credits................................................. 13 Table 3: Project Timetable................................................... 13 Table 4: Credit Disbursements: Cumulative Estimated and Actual................................................... 14 Table 5: Key Indicators for Project Implementation.......................... 15 Table 6: Key Indicators for Project Operation................................... 16 Table 7: Studies Included in Project .................................................. 17 Table 8A: Project Costs ....................................... 18 Table 8B: Project Financing................................................... 18 Table 9: Economic Costs and Benefits.............................................. 19 Table 10: Status of Legal Covenants.................................................. 20 Table 11: Compliance with Operational Manual Statements............ 21 Table 12: Bank Resources: Staff Inputs ........................................... 21 Table 13: Bank Resources: Missions............................................... 22 Appendices: ......................................................... 23 A. Map IBRD24.627 This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contentsmay not otherwisebe disclosedwithout WorldBank authorization. I IMPLEMENTATION COMPLETION REPORT CZECH REPUBLIC TELECOMMUNICATIONS PROJECT (LOAN NO. 3644-CZ) Preface This is the Implementation Completion Report (ICR) for the Telecommunications Project in Czech Republic, for which Loan 3644-CZ in the amount of US$ 80.0 million was approved on September 9, 1993 and made effective on January 14, 1994. The Credit had a Closing Date of June 30, 1998; however, after privatization of SPT Telecom in July 1995, the new owvnersdecided to cancel the un- disbursed amount of the Loan (US$ 69.7 million) and pre-pay the disbursed amount (US$ 10.3 million). Final disbursement took place on March 12, 1996. The Loan balance was canceled and the amount disbursed pre-paid on May 1, 1996; with this action, the Loan was closed before the agreed Closing Date of June 30, 1998, and there are no additional obligations due to IBRD under this loan. Cofinancing for the Project was provided by the European Investment Bank (EI13)and the European Bank for Reconstruction and Development (EBRD). The ICR was prepared by Alberto Cruzat of the Telecommunications and Informatics Division (IENTI) and reviewed by James Bond, Chief, Telecommunications and Informatics Division (IENTI); Henk Busz, Acting Chief, Energy/Transport Operations Division (EC2ET), and Franz Kaps, Project Adviser (EC2DR). Preparation of this ICR was begun during the Bank's December 1996 Mission, which was organized after the cancellation and pre-payment of the Loan amounts which took place on May 1, 1996. It is based on material in the project file. The borrower contributed to preparation of the ICR by discussing a first Draft during the December 1996 Mission, and expressed its inability to provide additional written comments. i IMPLEMENTATION COMPLETION REPORT CZECH REPUBLIC TELECOMMUNICATIONS PROJECT (LOAN NO. 3644-CZ) Evaluation Summary Background 1. The first telecommunications project in the Czech Republic, which was supported by IBRD Loan 3644-CZ in the amount of US$ 80.0 million, was implemented by the Sprava Post a Telekomunikaci (also called SPT TELECOM, s.p. or SPT, s.p.). SPT, s.p. was established by decree of 1989 as a State -owned enternrise. Before 1989 postal and telecommunications services were in the hands of a traditional PTT, part of a Ministry, without financial independence, though not a State enterprise. In September 1991 a joint-venture was set up, under the name EUROTEL, by SPT TELECOM, s.p. with the consortium Atlantic West (Bell Atlantic and U.S. West International) to install and operate the analog mobile cellular and the data networks. The separation of postal and telecommunications activities took place on January 1, 1993, with the creation of Czech Post, s.p. and SPT TELECOM, s.p. This coincided with the split of the Federation between Czech and Slovak Republics (see paragraph 5). Project Objectives and Description 2. The 1993-1995 expansion plan of SPT TELECOM supported by IBRD Loan 3644-CZ for US$ 80.0 million equivalent, and was co-financed by the European Bank for Reconstruction and Development (EBRD) with a Loan of ECU 70.0 million, and the European Investment Bank (EIB) with a Loan of ECU 65.0 million. The main objectives of this operation were: (A) to support the digitalization and expansion of the network to: (a) reduce congestion on key network elements; (b) rapidly provide modem digital communications for businesses (especially export oriented businesses); and ( c) provide a sound foundation for future modernization and expansion of the entire network; and (B) to make institutional and policy improvements aimed at: (a) increased efficiency in telecommunications investment and operations; (b) improved quality of service; and ( c) transition to full commercial operation. The privatization process 3. The Government of Czech Republic approved in September 1993 a privatization project, as a result of which SPT TELECOM, s.p. was transformed on January 1, 1994 into SPT TELECOM, a.s. (joint-stock company). On 11 July 1994 SPT TELECOM, a.s. issued bonds for the second round of the voucher scheme privatization process. In this Voucher or Coupon privatization, every Czech citizen of ii at least 18 years of age chose the company which shares he/she would prefer to own. As a result of this process the Government kept 70% of the shares, 26% went to Voucher shareholders, 3 % to the Restitution Fund and 1% to the Donation Fund. In June 1995, all 23,512,565 shares of SPT TELECOM, a.s. were quoted on the Prague Stock Exchange. The second step in the privatization of SPT was the selection of a Strategic Partner, based upon an increase of 37% in the number of shares; the number 37% was chosen in order to keep the Government as dominant shareholder with 51% (70%/1.37 = 5 1%). As a result of the increase of 37% in the number of shares, the Government ended with 51 %, the Voucher Shareholders with 19%, the Restitution Fund with 2%, the Donation Fund with 1% and the Strategic Partner with 27% (37/1.37 = 27%). Selection of a Strategic Partner 4. The strategic partner was selected by international bidding. On July 10, 1995, TelSource became the Strategic Partner of SPT by payment of US$ 1.32 billion in cash plus US$ 0.13 billion in the form of management, software and other services, for 27% of SPT's shares. The privatization