FILECOPY ReportNo. 717-ET Ethiopia Appraisalof a TelecommunicationsProject Public Disclosure Authorized

April 18, 1975 Public Utilities Department TelecommunicationsDivision Not for PublicUse Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

International Developpmen:Association

Thisreport was prepared for officialuse only by the BankGroup. It maynot be published,quoted or cited without BankGroup authorization. The Bank Group does not acceptresponsibility for the accuracyor completenessof the report, CURRENCYEQUIVALENTS

US$l = Eth$2.070 Eth$1 = US$o04831

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS,ACRONYMS AND DEFINITIONS

Carrier - A system of providing a number of telephone circuits over one radio link, coaxial cable or pair of wires Channel - One circuit of a carrier system carrying speech or telegraphic signals Crossbar - An autamatic telephone exchange switching system utilizing a connecting matrix of the crossbar type with common-control registers DEL - Direct exchange line Fifth DevelopmentProgram - BTE's Development Program for 1974-78 Fill - Percentageof installedcapacity of a cable or telephone exchange actually in service Fourth Development Program - BTE's Development Program for 1968-73 Gentex - Telegraphexchange switchingsystem used by the public telegraph service HF - High frequency (3-30 Mhz) BTE - Board of Telecommunicationsof Ethiopia ITU - InternationalTelecommunications Union Mhz - Megahertz Microwave - Radio systems working at frequencies above 300 Mhz but normally applied to systems working at frequencies above 1,000 Mhz Multiplex - The equipment in a carrier system which shifts and stacks the different circuits in the frequency spectrum appropriate to the particular carrier system SIDA - SwedishInternational Development Authority SPADE - A system of time sharing on a demand assignment basis a group of satellitecircuits between severallow traffic routes. With this system a circuit is established between two earth stationsonly for the durationof the calls routed through these stations STD - Subscriber trunk dialing (Direct Distance Dialing) TELEX - Teleprinter exchange service UHF - Ultra high frequency radio (300-3000 Mhz) VHF - Very high frequency radio (30-300 Mhz) ETHIOPIA

BOARDOF TELECOMMUNICATIONSOF ETHIOPIA

APPRAISAL OF A TELECC(MMUNICATIONSPROJECT

Page No.

SUMMARY AND CONCLUSIONS...... i-ii

1. INTRODUCTION ...... 1

2. THE ECON(O4YAND THE SECTOR ...... 2

The Economy .2...... 2 The TelecommunicationsSector . 2 Existing TelecommunicationFacilities . . 3 Local Telephone Service ...... 3 Long Distance Service .3...... 3 Telegraph and Telex Service.. 4 International Services ...... 4 Ongoing Works (Fourth DevelopmentProgram) ...... 4

3. THE PROJECT..4

The Project.... 4 Cost of the Project ...... 5 Items for IDA Financing.... 7 Procurement.... 7 Disbursements.... 8 Execution of the Project ...... 8

4. JUSTIFICATION. 9

Market Demand ...... ,,.... 9 (a) Local Telephone Service. .. 9 (b) Long-DistanceService .10 (c) Telegraph and Telex Service ,...... It...... 10 (d) International Communications ...... 10 Least Cost Solution ...... ,.;.. 11 Return on Investment ...... 1

5. THE BENEFICIARY ...... 12

Organization and Management...... 12 Staff and Training ...... 12 TABLE OF CONTENTS(Continued) Page No.

Accounting ...... 13 Audit ...... 13 Tariffs ...... ,13 Insurance 1...... 14

6. FINANCES... 1h

Past Earninas ...... * 14 Collection Performance. 1 Financial Position... 15 FinancingPlan. . . 16 Future OperatingResults . . .17 Fiscal Impact.. . 18

7. AGREEMENTSREACHED AND RECOMMENDATION.18 LIST OF ANNEXES

1. InternationalStatistical Data 2. Basic StatisticalData 3. Existing TelecommunicationsFacilities 4. The Project 5. Estimated Schedule of Disbursements 6. Demand and Supply of Telephone Direct Exchange Lines (Chart No. 'WB-9224) 7. Supply of Telex Connections (Chart No. WB-9223) 8. Economic Analysis of the Project 9. OrganizationalChart 10. Tariff Excerpts 11. Income Statements 12. Balance Sheets 13. Funds Flow Statements 14. Debt Statements 15. Notes and Assumptions on Financial Statements 16. Performance Indicators

MAP

IBRD - 11315

ETHIOPIA

BOARD OF TELECOMMUNICATIONS OF ETHIOPIA

APPRAISAL OF A TELECOMMUNICATIONS PROJECT

SUMMARY AND CONCLUSIONS i. The Government of Ethiopia requested IDA assistance in 1972 for the financing of the Fifth Telecommunications Development Program (1974-1978), to be undertaken by the Board of Telecommunications of Ethiopia (BTE). The pro- ject proposed for IDA financing is the whole of this program, of which a part is already financed under Credit 453-ET approved in November 1973. ii. This would be the sixth Bank Group lending for telecommunications development in Ethiopia. The fourth project, financed under Loan 605-ET initiated in 1969, is proceeding satisfactorily though a few items earlier planned for completion in 1973 are now expected to be completed by mid 1975. The start of the implementation of the Fifth project, which is the part of the Fifth Telecommunications Development Program financed under Credit 453-ET, was delayed due to labour disturbances in Ethiopia, but progress is now satisfactory. iii. The Fifth Development Program (1974-78) of BTE which is the proposed project, aims to extend and improve service to meet anticipated demand in the areas now being served and to extend service to some of the areas of the in- terior of the country where telecommunications services are sparse or non- existent. The project includes the addition of 40,000 automatic and 4,500 manual exchange lines; four new microwave systems extending good quality com- munications to new areas of the country; and an earth satellite station which will greatly improve international communications.

iv. The estimated cost of the project is US$60.6 million equivalent in- cluding a foreign exchange cost of US$38.8 million equivalent. The proposed IDA credit of US$16 million together with Credit 453-ET for US$21.4 million would finance the foreign exchange cost of the project except for some items costing US$1.4 million, which BTE is financing from its own resources.

v. The borrower would be the Government of Ethiopia, which would relend the funds to the beneficiary, BTE, which would be responsible for execution of the project.

vi. All procurement under the credit would he through international competitive bidding with the exception of the provision of extension equip- ment for existing telephone exchanges and transmission systems. This equip- ment, estimated at US$0.5 million (3% of the proposed credit), would be procured from the original suppliers for reasons of compatibility and economy. - ii - vii. As part of the internationalcompetitive bidding for Credit 453-ET, options are being obtained for the purchase of equipment to be financed by the proposed Credit, thereby permittingadditions of the same types of equipment throughoutthe project period and eliminatingthe need for a second round of competitivebidding. viii. The forecastsindicate that tariff revision will be required during the later half of the project period in order to ensure the continuedsatis- factory mobilizationof resources for future expansionneeds. The project is technicallyand financiallysound.The minimum estimate of economic return is at least 13.5% using shadow prices reflectinga 33% premium on the foreign exchange component. ix. The project is suitable for an IDA credit of US$16.0 million to be re-lent to BTE for a term of 20 years includingfive years grace at an interest rate of 7-1/4%. ETHIOPIA

BOARDOF TELECOMMUNICATIONSOF ETHIOPIA

APPRAISAL OF A TELECOMMUNICATIONS PROJECT

1. INTRODUCTION

1.01 The Government of Ethiopia requested IDA assistance in 1972 for the financing of the Fifth Telecommunications Development Program (1974-1978), to be undertaken by the Board of Telecommunications of Ethiopia (BIE). This program was appraised in January 1973 following which Credit 453-ET covering a first part of the program, was approved in November 1973 for an amount of US$21.4 million. A second Credit, for USS16 million, is now proposed to cover the balance of the foreign exchange component of the program.

1.02 Since this program of expansion was appraised in 1973 in connection with Credit 453-ET, this report is largely an updating of the information contained in the appraisal report for that credit (No. 163-ET, dated October 5, 1973).

1.03 Prior to Credit 453-ET (para. 1.01), the Bank Group had made four loans for telecommunications development in Ethiopia. The first loan, for US$1.5 million, was made in 1951 to the Empire of Ethiopia to help finance a project which was completed in 1956. The next three loans were made directly to BTE. The second loan, 314-ET for US$2.9 million, was made in 1962 and was related to a project which was completed in 1965. The third loan, 441-ET for US$4.8 million, was made in 1965 and was related to a project completed in 1969. The fourth loan, 605-ET for US$4.5 million with participation from the Swedish International Development Authority (SIDA) who provided an equal amount, was made in 1969 to cover part of the foreign cost of the 1968-73 expansion program. Progress oni this program has been satisfactory; however, certain items originally scheduled for completion in 1973 have been delayed by about one year and are now expected to be completed by mid 1975.

1.04 The Fifth Development Program (1974-78) will extend and improve service to meet demand in areas now being served and extend services to some areas in the interior of the country wiere telecommunications services are sparse or nonexistent. It will also provide high quality telecommunications to other countries through use of an earth satellite station.

1.05 Thieestimated cost of the program (which is the project) is Eth$125.5 (US$60.6) million with a foreign exchange component of Eth$80.4 (US$38.8) million. Credit 453-ET, for an amount of US$21.4 million, finances the foreign exchange component of a first part of the program, except for certain facilities costing about US$1.4 million which are financed by BTE, from its own funds. The proposed Credit, for an amount of US$16 million, would finance the remainder of the foreign exchange component of the program. - 2 -

1.06 BTE was established in 1952 in connection with the first 'ank lending operation for telecommunication in Ethiopia. It is responsible for all public telecommunication services in Ethiopia and would be the beneficiary of the proposed credit. The borrower would be the Government of Ethiopia.

1.07 This report is based on information obtained from BTE and on the findings of a mission composed of Messrs. A. Grisez and B. liolmgrenwho visit- ed Ethiopia in September 1974.

2. THE ECONOMY AND THE SECTOR

The Economy

2.01 Ethiopia, situated in the northeastern part of Africa south of tshe Red Sea, covers an area of about 1.22 million km2, consisting of highlands and plateau except in the easternmost part and along the Red Sea, where the topography changes into lowlands. The two most important cities and indus- trial centers are Addis Ababa, the capital, and Asmara, in the province of Eritrea. The country's most important ports are Massawa and Assab, both on the Red Sea. Agriculture is spread throughout the country except for the less-fertile southeastern region.

2,02 Ethiopia's population is estimated at 26 million, growing at an annual rate of 2.5%. More than 90% of this population lives in rural areas, mainly at subsistence levels, though emigration to the cities is increasing; the largest urban concentrations occur in Addis Ababa, the capital (about one million inhabitants), and in Asmara (about 230,000 persons).

2.03 The Gross National Product (GNP) is approximately US$2.1 billion (1973) with a 4% annual growth rate (1967-1973). The income per capita, US$80, is among the lowest in the world and is increasing annually at a rate of only about 1.5%. Agricultural production accounts for ahout 50% of the GNP and for over 90% of export earnings.

2.04 An adequate telecommunication network is required to support the economic development of the country. The difficult topography, the wide area over which agriculture is distributed and the scarcitv of good all weather roads makes telecommunications particularly important for coordinating the movement, distribution and marketing of agricultural and other products. Also, industry, commerce and the young tourism industry need adequate national and international facilities.

The Telecommunication Sector

2.05 BTE is solely responsible for all public telecommunicatioas services in Lthiopia and between Ethiopia and other countries. BTE is organized as a Government owned commercial corporation under overall direction of the 'linistry - 3 - of Communications and has considerable autonomy to administer its day-to-day operations. Details of the organization and management of BTE are set out in paragraph 5.01.

Existing Telecommunication Facilities 1/

2.06 As of June 30, 1974, Ethiopia had about 63,700 telephone stations, giving a telephone density of 0.25 per 100 population. Only five of the other African countries for which statistics are available have lower telephone densities. Comparative figures for other developing countries are given in Annex 1.

2.07 About 40,000 Direct Exchange Lines (DEL's), or 86% of the total number of DEL's in Ethiopia were connected to 17 automatic exchanges while the remainder, i.e. about 6,300 DEL's or 14% of the total number of DEL's, were connected to 285 small manual exchanges spread over the whole country (June 1974). Basic data on BTE and information on the existing facilities are set out in Annexes 2 and 3. The main routes of the long distance network are shown on Map IBRD 11315.

Local Telephone Service

2.08 As of June 30, 1974, Ethiopia had 17 automatic telephone exchanges, two of which were in Addis Ababa. Their installed capacity was 55,300 lines, 35,500 of them in Addis Ababa. Most of the equipment is of the modern cross- bar type; it is well maintained and should provide good service for many years.

2.09 There were, at the same date, 285 manual exchanges, with an installed capacity of 12,515 lines, serving the small towns and rural areas. Service is usually provided only in the daytime.

2.10 The outside plant is in reasonably good condition, particularly in the main cities where underground pressurized cables are used. The cable fill is high, in some areas reaching 100% and therefore needing relief.

Long Distance Service

2.11 The long distance network consists of a 960-channel microwave system linking Addis Ababa and Asmara, a number of VHF systems and openwire lines, which are supplemented by carrier systems on main routes. The network com- prises 260,000 trunk-circuit kilometers (June 1974).

1/ Statistical data given in the following paragraphs relate to June 1974; they were the most recent data available at the time of the appraisal mission. Similar data for the beginning of the vth Development Program (December 31, 1973) can be found in Annex 2. - 4 -

2.12 Automatic trunk exchanges in Addis Ababa, Asmara and Dessie were put in service in May 1973 and provide subscriber trunk dialing service (STD) between these three cities, Massawa and Debre Zeit. Manual switchboard positions released after the introduction of STD service between these cities have been reassigned to other routes, thus improving significantly the quality of service on these routes and allowing their traffic to increase substan- tially.

Telegraph and Telex Service

2.13 Telegraph service is provided over the telephone network and HF radio.

2.14 Telex service is provided through a 400-line automatic exchange in Addis Ababa and from manual exchanges in Asmara, Assab and Dire Dawa. The number of telex subscribers as of June 1974 was 271. The service offered to the subscribers connected to the manual exchanges is poor, partly due to congestion in the long distance telex network.

International Services

2.15 International telephone, telegraph and telex service is offered via HF radio to 19 destinations abroad and via an open-wire line equipped with a carrier system to Djibouti.

Ongoing Works (IVth Development Program)

2.16 Execution of BTE's Fourth Development Program (1968-73), financed by Loan 605-ET, is completed, except for (i) three microwave systems linking Addis Ababa with Dire Dawa/Harrar, Jimma, and Shashamane, which are expected to be put in service by mid-1975, and (ii) a GENTEX network with terminals in 14 cities, whose commissioning is awaiting the commissioning of the above microwave systems.

3. THE PROJECT

The Project

3.01 The project is the whole of BTE's Fifth Development Program for the five-year period 1974-78, of which a part is already financed under Credit 453-ET. It aims essentially at (i) meeting the anticipated growth of demand for telephone connections in areas already served, (ii) extending the tele- phone service to about 100 localities which do not have at present any tele- communications facilities, (iii) expanding and modernizing the long distance network in order to meet the demand for long distance traffic, (iv) expanding suitably the telegraph and telex networks, and (v) improving the international services, which are at present severely congested. The project has been -5- largely drawn up by BTE: foreign experts have assisted in the survey of micro- wave systems and an earth satellite station.

3.02 The project comprises the followingmain items:

(i) installationof about 40,000 lines of automatic exchange equipment, and about 4,500 lines of manual exchange equipment;

(ii) installationof cable distributionnetworks and subscribers' plant to provide about 45,000 telephoneconnections;

(iii) provision of four microwave links (Dessie-Assab;Asmara- Tessenei, Shashamane-Moyale,and Addis Ababa-Ghimbi)with a total route length of 1,500 km and various medium capacity VHF/UHF radio links (24-120channels) or coaxial cables with a route length totaling 200 km; constructionof 3,000 km of small capacity VHF radio links (less than 24 channels) and rehabilitation of 2,100 km of open-wire lines; and provision of multiplex and carrier equipmentfor the above facilities as well as for expanding the capacity of the existing ones;

(iv) installationof 48 manual switchboardpositions and provision of about 660 lines of long distance automatic switching equipment;

(v) installationof an earth satellitestation, with a SPADE terminal, 1/ for internationalservices and of an associated internationaltelephone transit center which will allow semi-automatictelephone operationwith most foreign countries;and

(vi) various extensions of the telex and telegraphnetworks, includingan extensionof the capacity of the telex switching equipment in Addis Ababa from 400 lines to about 700 lines. Details of the project are given in Annex 4 and in the map.

Cost of the Project

3.03 The estimated cost of the project is Eth$125.5 (US$60.6)million equivalent. Details are given below and in the table of Annex 4:

1/ SPADE is a system of time sharing on a demand assignment basis a group of satellite circuits between several low traffic routes. With this system a circuit is establishedbetween two earth stations only for the duration of the calls routed through these stations. -6-

Local Foreign Total Local Foreign Total …---- Eth$ million ------US$ million ---

Local telephoneservice 11.52 31.74 43.26 5.57 15.33 20.90 Long distance service 6.82 16.60 23.42 3.30 8.02 11.32 Telegraph, telex 0.61 2.89 3.50 0.29 1.40 1.69 Internationalcommunications 2.55 9.43 11.98 1.23 4.55 5.78 Land and buildings 13.34 0.43 13.77 6.44 0.21 6.65 Vehicles, tools, instrumentsetc. 2.65 6.23 8.88 1.28 3.01 4.29 Consultantsservices 0.02 0.66 0.68 0.01 0.32 0.33

Subtotal 37.51 67.98 105.49 18.12 32.84 50.96

Physical contingencies 1.12 2.03 3.15 0.54 0.98 1.52 Price contingencies 6.51 10.39 16.90 3.14 5.02 8.16

Total 45.14 80.40 125.54 21.80 38.84 60.64

3.04 The cost estimatesare based:

(a) for imported equipmentand associatedservices, on (i) prices obtained by BTE for similar equipment (microwavelinks, new local telephoneexchanges etc.) during the Fourth DevelopmentProgram (1968-1973),(ii) recent firm price quotationsunder Credit 453-ET for several items, e.g. internationaltelephone exchange, extensionof existing local exchanges,cables, carrier equipment etc., and (iii) budgetaryprice quotationsfrom suppliersfor new types of equipment (earth satellitestation, telex switching equipmentetc.). To reflect the situationat mid-1974, these prices have been updated by using the recent price trend for the various types of equipmentincluded in the project.

(b) for civil works and installation,on BTE's recent experienceof local expenditurefor civil works, buildingsand installation.

These cost estimatesare realistic. The estimatesfor local costs include custom duties on importedequipment, amounting to about Eth$12.8 million or 16% of the CIF cost of the equipment.

3.05 BET's developmentprogram will comprise installationsat a great number of locationsevery year. The quantity of equipmentactually installed in each specific locationmay deviate from presentproposals since it will be adjusted at the time of installationto take into account recent development of demand. But, on average increaseswhich will be needed in some locations are likely to be compensatedby reductionselsewhere. A physical contingency, US$1.5 million, has, however, been included to cover costs of meeting higher than anticipatedtraffic on the long distance service, where the forecast of demand has been conservative,and for a change in pattern of traffic in the Addis Ababa networkwhich might necessitateengineering changes. -7-

3.06 Due to the present uncertain price level of telecommunications materials,a price contingencyof about 15% has been included in the foreign costs. The price contingencyfor local costs, about 17%, will cover the likely price increases,over the project period, for civil works, buildings and installation(including transport). The above provisionsappear adequate since most contracts for imported equipmentshould be awarded by the end of 1975, i.e. 1-1/2 years after the date consideredfor the base estimateof the project cost, and constructionof the bulk of civil works and buildingsshould take place during the first half of the project period.

Items for IDA Financing

3.07 The proposed Credit for US$16 million, togetherwith US$21.4 million provided under Credit 453-ET (see para. 1.01), would finance the foreign ex- change cost of the project (US$38.8million) except for the following items costing US$1.4 million, which BTE is financing from its own resources:

(a) 5,300 lines of local automatic exchange equipment;

(b) about 600 lines of local manual exchange equipment (demand for 1974); and

(c) local network and subscribers'plant (part of demand for 1974).

Contracts for these items have already been awarded. Procurement

3.08 All goods financed by the proposed Credit would be procured through internationalcompetitive bidding in accordancewith the Bank Group's guide- lines for procurementwith the exceptionof some extension equipment for existing facilities. This equipmentwhich is estimated to cost US$0.5 million or about 3% of the IDA Credit, will be procured through negotiationfrom the original suppliers subject to reasonableprices. Negotiatedprocurement is justified by the fact that the initial installations,while designed to meet ultimate capacity requirements,provided only for initial needs and economies will therefore result from the use of existing common equipment,power sup- plies, rack space and other plant items. In order to achieve these economies, it is essential that such additionsbe of the same type for reasons of com- patibility.

3.09 In order to expedite the procurementprocess for equipment financed by the proposed Credit and to allow BTE to standardizeequipment, it was agreed between IDA and BTE during negotiationsof Credit 453-ET that bidding docu- ments for procurementof equipment through internationalcompetitive bidding under Credit 453-ET may cover the requirementsof the whole program; BTE would thus obtain from suppliers firm proposals for equipment financedby Credit 453-ET and options for purchase of equipment to be financedby the proposed Credit. 1/ This procedure,that BTE is following,eliminates the

1/ See appraisal report for Credit 453-ET, paragraph 3.13. -8-

need for a second round of internationalcompetitive bidding for the part of the project to be financed by the proposed credit.

3.10 In accordancewith the above, BTE has proceededwith procurementfor items in Credit 453-ET providing for options for the balance of the 1974-78 program. Procurementhas reached an advanced stage for a few items, e.g. carrier equipment for open-wire lines, already ordered, and local switching equipment,for which bids are under evaluation. Specificationsfor other items included in the project have been prepared (internationaltelephone exchange, for which bids are being recalled, cables, microwave links) or are under preparation (earth satellitestation, UHF/VHF radio links).

3.11 Although at present there is no local productionof telecommunica- tions equipment,there is a local manufactureof electricalcables which could be extended to telephone installationcables and drop wire. To encourage local manufacture,a domestic preferenceof 15% or the custom duties, whichever is lower, should be granted for such items, the estimated cost of which would be less than US$200,000. This preferentialtreatment would be made applicablefor both Credit 453-ET and the proposed Credit in order to maintain consistentawarding procedures for the program. Disbursements

3.12 The proposed IDA credit would be disbursed against the CIF cost of imported equipment and the foreign cost of imported services and the ex- factory cost of any locally awarded contract for installationcables and drop wire (see para. 3.10). The estimatedschedule of disbursementfor the pro- posed Credit is shown in Annex 5, and assumes that disbursementsfrom this Credit would be made only after Credit 453-ET, which is for financing a first phase of the program, have been exhausted. BTE would be authorizedafter consultationwith IDA to use any balance of the proposed Credit for the pur- chase of additionalgoods and services similar to those already procured under the Credit.

Execution of the Project

3.13 Competent staff is availablewithin BTE for the preparationof bidding documents,bid evaluationand detailed engineeringof the project with the exception of (i) the microwave links, which have already been surveyed by ITU and a Japanese conxultingteam sponsored by the Government of Japan, and (ii) the earth satellitestation, which is being surveyed by "CommunicationsSatellite Corporation"(COMSAT) under a contract for consult- ing services awarded early in 1974.

3.14 Except for the earth satellite station, which will be installedby the selected supplier, all other equipmentwill be installedby BTE's own staff under the supervisionof the suppliers.

3.15 On average, procurement and, more generally,project implementation are about six months behind the schedule which was establishedat the time of the appraisalmission for Credit 453-ET (January 1973). Completionof -9-

the project is therefore expected to take place in mid-1979 instead of tLle end of 1978 as initially scheduled.

4. JUSTIFICATION

4.01 The basic justification for the project is to support Ethiopia's development objectives by providing an essential service for administration, trade, industry and agriculture. Particularly, efficient organization of the production, transportation, distribution and marketing of agriculture goods, Ethiopia's main output and export, depends on the existence of a reliable and adequately dimensioned telecommunication network. The project is an important step toward the setting up of such a network; it will develop the primary long distance network to meet traffic requirements between the main economic centers and, while improving the secondary long distance net-- work serving rural areas, it will also extend it to about 100 small localities which at present do not have access to telecommunications services.

4.02 Through the installation of an earth satellite station, the project will improve significantly the quality of international telecommunications services; at present, quality of these services is particularly poor and hampers the growth of a traffic which is needed to support Ethiopia's exports.

4.03 In addition, the improvement and extension of the rural telecommuni- cations network will provide basic infrastructure facilities which will help agricultural and health extension services and will assist setting up of small businesses and industries in rural areas.

Market Demand

(a) Local Telephone Service

4.04 BTE has carried out detailed studies of future demand for telephone connections in each exchange area, using the trend method corrected, when necessary, by appropriate judgement factors (for instance where past history for telephone connections was not representative of demand due to inadequate size and quality of existing facilities). In respect of the main Ethiopian towns these results have been cross-checked through field surveys.

4.05 Using the above method, BTE has forecast a demand for telephone connections (DEL's) of about 81,000 in 1978, i.e., a yearly increase of about 12% from 1971 the base year considered for the forecasts. The growth of demand since 1971 to date conforms to that pattern.

4.06 Although the forecasting method used by BTE is generally valid when applied over a period of time not exceeding 5 to 7 years, current economic considerations suggest that in this specific case it is perhaps somewhat optimistic. Consequently, during discussions between the appraisal mission and BTE, it was agreed that a more conservative estimate of 76,000 DEL's in 1978 (instead of 81,000) would be retained as the best estimate for demand. - 10 -

lhe yearly growth rate corresponding to this revised forecast is about two percentage points below BTE's forecast annual demand growth rate and the expansion program will be in step with the revised forecasts. Annex 6 gives the actual and estimated numbers of DEL's and the exchange capacity during the period 1967-1980. The fill of the exchanges at the end of the project period (1978) averages about 75%, which is reasonable.

(b) Long Distance Service

4.07 BTE's forecasts for long distance telephone traffic have been based on the past trend corrected for the step increases likely to result from the expected improvement in the quality of service. The rate of anticipated growth of traffic varies widely on different links, ranging from a growth of 5% to 25% per annum over the project period. These forecasts appear reasonable; the step increases in traffic forecast for new STD routes are in line with recent experience in Ethiopia following the introduction of STD working. The planned extension of the capacity of the long distance networik is consistent with traffic forecasts.

(c) Telegraph and Telex Service

4.08 The expansion of telegraph service is to provide access, often the only one, to business users and for administrative and social services nurposes in remote areas of the country.

4.09 The number of telex subscribers has increased by 14X annually during the last five years. Since the backlog of demands has already been met, BTE has now forecast a 12% annual growth for telex subscribers for the project period based on demands and applications for this service, largely in Addis Ababa. This is reasonable. Chart WB-9223 of Annex 7 gives the actual and estimated number of telex lines during the period 1967-80.

(d) International Communications

4.10 Despite severe limitations in both the quality and the capacity of HF radio facilities providing at present international services, the international telephone traffic increased 24% and the telex traffic 27, annually during 1968-1973. The commissioning of the earth satellite station and associated switching facilities (mid-1977) will remove present congestion on international routes, provide high quality service to most countries, and allow the international traffic to develop freelv. Based on experience in other countries following such improvements and on expert advice from consult- ants, BTE hias forecast for the international telephone service a 100% traffic increase in the first year of operation of the new facilities, 50%O in the second year, 30% in the third year and 20% yearly thereafter. For international telex and telegraph traffics, which will he less sensitive to improvement of related facilities, BTE has forecast a yearly growth rate of about 18% and 4/'respectively up to 1980. These forecasts are reasonable. - 11 -

(e) Least Cost Solution

4.11 The basic structure of Ethiopia'stelecommunications network has been drawn up some years ago and provides for meeting long-termforecast demand in the most economicalway. Numbering,transmission and routing plans have been carefully consideredand are appropriate for the country. The choice of common control switching systems, made prior to 1953, is sound when viewed against the specific configurationof the Ethiopiantelephone network, and the principal long distance routes are being establishedto provide for easy and economic extension.

4.12 The physical size of the project is based on forecastsof demand for new connectionsand for anticipatedtraffic, and is adequate;provisioning periods for each category of facilities included in the project follow accep- ted practices designed to minimize the present value of all costs.

4.13 The planning of the local network and location of exchanges in Addis Ababa city area has been based on a study of demands for telephones made block by block. The results from this study have been computed to give the least combined cost for local network and switchingequipment. In other parts of the country additions to existing exchanges and opening of new ones have been designed in accordancewith standard plant practicesto provide for least cost.

4.14 Microwave equipmenthas been provided on the main routes. Since few roads exist and the area is generallymountainous, the use of cable routes would be expensive and less reliable. The choice of microwavesfor these routes representsthe least cost alternative.

4.15 The earth satellitestation representsthe best solution for provid- ing internationaltelephone, telegraph and telex connectionsto distant destinations. Further, the installationof a SPADE terminal makes possible at a small marginal cost direct internationalcommunications to a great number of destinationswith occasionaltraffic, without expensivetransits via other countries.

(f) Return on Investment

4.16 The internal rate of return on the project, defined as the discount rate which equalizes the stream of expected revenues attributableto the pro- ject with the capital and operating costs excluding taxes, is 17.4%, when additionalrevenues to be raised through tariff increases (see para. 6.15) are included in the revenue stream. With a foreign exchange component shadow priced at a value 33% above the estimatedcost, the rate of return would be 13.5%. Sensitivityanalysis reflectinga 10% increase in operat- ing cost and a 10% decrease in revenues was made which produced a rate of return of 14.7% (Annex 8).

4.17 Even on the basis of current tariffs, the internal rate of return is estimated at 14.9% which, since this is higher than the present estimated opportunitycost of capital in Ethiopia, indicatesthat the prices currently paid by subscribersare, on average, greater than the long term marginal costs - 12 - of supply. The proposed tariff increase therefore represents a pricin2 stra- tegy which is aimed at recovering considerably more than long term marginal costs from users of the telecommunications system in Ethiopia.

4.18 The foregoing rate of return estimates tend to be conservative in- dicators of the economic merits of the project since (a) the prices charged are a minimum measure of economic benefits to subscribers, and (b) the pro- ject cost estimate includes the full cost of works, such as the earth satelli.e station and the radio relay systems, which will be expanded steadily at small marginal costs after the completion of the project to meet traffic require- ments as they develop (while, in the calculation of the rate of return, re- venues attributed to these works have been restricted to incremental traffic allowed bv their initial equipment capacity).

5. THE BENEFICIARY

Grganization and Management

5.01 BTE's responsibilities and its relationship with the Government are sec out in paragraph 2.05. The organization of BTE is shown in Annex 9. Tne governing body is the Board of Directors, composed of five to seven members appointed by Government. The Chairman of the Board is the Minister of Com- -munications. The General Manager, appointed by the Board, is responsible for 3TE's management and operations. He has the broad authority necessary to effectively carry out his responsibilities.

O,02 BTE's organization :Lsgenerally satisfactory and effective. The responsibilities and duties of each of the three Departments - viz. Engineering, Operations, and Finance and Supply - and, at the level below, of the various Divisions, are adequately defined. The regional organization is also adequate; it is based on seven regional offices, suitably located, which are responsible, under the authority of the Operations Department, for the maintenance and operation of the network.

5.03 At present tiieplanning function is mostly handled by the EngineerinA Department since the Planning and Programming Division, set-up for this purpose in 1972 and directly responsible to the General Manager, has not yet been provided with enough competent staff to carry out this function. The current arrangement works well and is acce-<-ible considering the present size of the networlc and the relative scarcity of competent senior staff.

Staff and Trainip_

5.04 The management and technical staff of BTE are generally well quali- fied anid competent. Many of them have been abroad for training and are effective in their specialities. BTE's staff nas for some years been composel almost entirely of Ethiopians.

3.05 The training school, started in 1953 with the assistance of iTU, effectivelv provides instruction for about 300 students and has a teaching. - 13 - staff of 14. These training arrangements are adequate. 'T'hiecapacity of tne school is being further increased to provide for future needs.

Accounting

5.06 BTE has established the position of Finance Manager reporting directly to the General lanager in accordance with the Bank's recommendations, and have placed the Supply Division as well as the Finance and Data Processing Division under his direction. A collection group has been established which effectively administers the collection of conmmercialaccounts. The internal audit group has matured and is adequately performing its function. The accounting staff is qualified and well trained and is performing reasonably well.

5.07 The accounting practices are reasonably effective. However, due to unsatisfactory internal procedures, financial reports are issued several months after the close of the accounting periods which limits their value to management. The Finance Manager is aware of this situation and is reviewing all accounting routines with a view to the gradual revision of those which are cumbersome. Plans are also being formulated for extending the use of the computer into other areas such as inventory control and accounts receiv- able control.

Audit

5.08 An annual independent audit of BTE's accounts is performed by Getachew Kassage Co., a firm of certified accountants. This arrangement is satisfactory. Assurances have been obtained during negotiations that the accounts will continue to be audited by an independent firm of auditors acceptable to IDA, and that certified financial statements (including the auditor's opinion) will be submitted to IDA within six months after the close of each fiscal year.

Tariffs

5.09 BTE's tariffs have been unchanged over the last 20 years apart from an increase of the local call charge from Eth$ 0.06 to Eth$ 0.08 in 1971. Their level has been, on aaverage, sufficient to allow BTE to earn a satis- factory rate of return (e.g. 11.7% in 1973). Financial projections indicate nevertheless that tariffs will have to be increased from 1977 (paragraph 6.15). BTE has the authority to raise tariffs.

5.10 The tariff structure follows the general pattern followed of most administrations; for telephone services it comprises an installation fee of Eth$ 115 (US$56), paid by the subscriber prior to getting a telephone connec- tion, a monthly rental of Eth$ 5 (US$2.4), a charge of Eth$ 0.08 (US$0.04) for each local call in automatic networks, and varying charges for trunk and international calls. When compared with other countries, the installation fee is on the high side, the monthly rental is on the low side and call charges which provide a large part of total revenues are about average. BTE's present - 14 -

tariffs are described in Annex 10. Meanwhile,with the assistanceof the Bank Group, BTE will begin a study of the economic costs and benefits of telecommunicationsservices which will help the Governmentand BTE in mak- ing price and investmentdecisions; it is envisagedthat this study would serve as a useful example to other developingcountries faced with similar decisions.

Insurance

5.11 BTE carries commercial insurance to cover property damage and employee group insurance. The property damage insurance provides full coverage for all risks.

6. FINANCES

6.01 BTE earned a satisfactory annual rate of return varying from 10.7% to 12.3% during 1968-1973 and internally generated funds during this period were sufficient after servicing all debt to provide 60% of capital invest- ments. However, as a result of a change in BTE's tax status as of July 1973, BTE now has to pay duties and taxes on imported equipment, as well as income taxes. The current level of tariffs, according to the projections, will neither provide an adequate rate of return on net plant in service through the last half of the program period nor provide enough funds for the invest- ment program and as a consequence, additional revenues will have to be raised.

Past Earnings

6.02 In the Joint Financing Agreement for the fourth project, BTE agreed to earn a rate of return of not less than 9% on net fixed assets. BTE ex- ceeded this requirement in all years.

Year 1968 1969 1970 1971 1972 1973

Rate of Return 11.0% 10.71% 11.1% 12.4% 12.3% 11.7,%

In order to take into account the 1973 change in BTE's tax status, under the agreement for Credit 453-ET, the rate of return required was lowered to 8, except for the construction period for which it would be 7% (this corresponds to a pretax return of about 10 and 8.5% respectively). This provision in the Credit agreement 453-ET would be continued. Detailed income statements for the years 1970-73 are included in Annex 11.

Collection Performance

6.03 There has been substantial improvement in BTE's collection practices since the fourth project. The aged accounts receivable do not completely reflect this improvement since they contain old weakly documented accounts which have doubtful value. BTE is reviewing these accounts and those which - 15 -

cannot be properly supported are written off; as a result the amounts out- standing over 120 days decreased in 1973 from 30% to 21%. Current billings are being collected on a timely basis or the service of the delinquent sub- scriber is being terminated. Collection of Government accounts is now satis- factory.

Financial Position

6.04 The financial position of BTE at December 31, 1973, is summarized below. A detailed statement is shown in Annex 12.

Eth$ US$ -- Million --

Assets

Fixed assets

Gross plant in service 116.1 56.1 Less: Accumulated depreciation 46.2 22.3 Net plant in service 69.9 33.8 Plant under construction 6.0 2.9 Net current assets 23.0 11.1

Total assets 98.9 47.8

Liabilities

Equity Share capital 40.0 9.7 Reserve for renewal and expansion 30.1 24.2 Long-term debt 28.8 13.9

Total liabilities 98.9 47.8

6.05 Plant additions prior to December 31, 1967 are valued at the appraisal value at that date and all subsequent additions are valued at cost. Accumulated depreciation is 40% of gross value. Both of these valuations appear reasonable.

6.06 Before December 31, 1967, BTE's share capital was Eth$7.7 million. The corporate charter restricts the aaiountof indebtedness to not more than three times the amount of authorized and subscribed share capital. In order to enable BTE to incur additional debt, its share capital was increased at December 31, 1967, to Eth$20 million, by capitalizing part of the Renewals and Expansion Reserve accumulated from retained earnings. The share capital was similarly increased to Eth$40 million in 1974 to allow for the lending proposed for the Fifth Development Program by capitalizing part of the Re- newals and Expansion Reserve. - 16 -

Financing Plan

6.07 The forecast of sources and application of funds for the period 1970-81 is given in Annex 13, details of debt service is given in Annex 14, and notes and assumptions on financial statements are given in Annex 15. The financing plan for the project implementation period 1974-79 is given below:

Eth$ US$ ------million -----

Requirements

IV Development program 10.1 4.9 6 Proposed project (V Program) /1 125.3 60.5 78 Future program (VI Program) 26.5 12.8 16

Total requirements 161.9 78.2 100

Sources

From Operations 103.0 49.8 64 Less: Debt service 40.9 19.8 25 Net from operations 62.1 30.0 39

Decrease in working capital 1.9 .9 1

Borrowings

SIDA/IBRD-605-ET 9.0 4.4 6 453-ET 44.3 21.4 27 Proposed Credit 33.1 16.0 20 Other 1.5 .7 1 Future Finance (VI Program) 10.0 4.8 6

Total Borrowings 97.9 47.3 60

Total sources 161.9 78.2 100

/1 This estimate excludes Eth$.2 million expended in 1973.

6.08 The above financing plan estimates that 40% of the requirements will be provided from internally generated funds including a small reduction in working capital, principally a reduction in present high cash balances. The remaining 60% of the requirements will be provided by external finan- cing - 6% from IBRD/SIDA Loan 605-ET, 27% from Credit 453-ET, 20% from the proposed IDA credit, and 6% from an assumed future loan for the VIth Develop- ment Program. A small amount (one percent of requirements) will be pro- vided through the financing of some interest during construction under the subsidiary loan agreement with Government, under which the proceeds of the proposed credit will be re-lent to BTE. - 17 -

6.09 The debt/equity ratio during the program period will increase from 29/71 at December 31, 1973, to 54/46 at December 31, 1979 as BTE has to relv more on borrowingsto finance constructionwith the change in its fiscal status. This is satisfactory. Internal cash generationwill cover annual debt service at least 2.2 times during each year of the period. The debt service covenant of Credit 453-ET requires BTE to obtain the Bank's agreement before contractingnew debt unless the debt service coverage as usually de- fined exceeds 1.5. The new credit agreement continues this covenant.

6.10 The relending agreement for the proceeds of the proposed Credit will be on same terms as for the relendingof the proceeds under Credit 453- ET, i.e., 7-1/4% interest, 3/4% commitmentcharge and 20 years repayment in- cluding five years of grace. It will also provide for the financingof in- terest during constructionof up to Eth$1.5 million (para. 6.08). BTE will bear the exchange rate.

6.11 The financingplan does not provide for any dividends to be paid during the constructionperiod. During negotiation,agreement was reached that no dividendswould be paid unless a revised financingplan indicates that dividend payments are feasible. Furthermore,the financingplan shows a need for temporary finance of up to Eth#5 million in the intermediate years of the constructionprogram. During negotiations,assurances were obtained that arrangementswhich would allow BTE to contract short-term finance would be made.

Future Operating Results

6.12 Forecast Income Statements are given in Annex 11. A summary of the results are as follows:

1974 1975 1976 1977 1978 1979 -…m__------millions EthS ------

Revenue 31.7 34.9 38.5 44.9 54.5 59.3 Operating income 5.9 6.5 6.8 8.8 12.4 13.2 Operating ratio (%) 81 81 82 80 77 78 Rate of return (%) 8.4 8.4 7.1 7.0 8.0 8.0

6.13 Operating revenues during the program period are estimated to increase at an average annual rate of 13% as a result of the expanded network, improved long distance facilities and the provision of good communications with other countries. At the same time operating expenses exclusive of depreciation are projected to increase at an average rate of 13% annually. Depreciation has been estimated to increase to Eth$ 11.5 million in 1979 from Eth$ 4.9 million in 1973 due to the increased value of the plant in service.

6.14 The construction program during 1974-79 will result in more than doubling "he value of gross plant in service from Eth$ 116 million to Eth$ 262 million. The net value of plant in service (after deducting accumulated depreciation) will increase to Eth$ 166 million from EthS 70 million. As a result of these factors, particularly the increase in the level of expenses - 18 -

resulting from the removal of BTE's tax exemption, the rate of return would decline from 12.3% in 1972 to less than 6, in 1979 if tariffs were to remaini a. the existing levels. The projections (para. 6.12 and 6.13) assume tariff increases from 1977 (see para. 6.15 below). o.15 The plant placed in service in this program understandably will not be completely utilized by the end of the program period (1979) therefore significant revenue increases can be anticipated as a result of greater utilization during the immediate subsequent period. However, it is not anticipated that these increases will be sufficient to provide funds to service BTE's increased debt and to provide the necessary contribution to the forthcoming Telecommunication Development Program VI. As under the agreement for Credit 453-ET, BTE has agreed to maintain revenues sufficient to produce an annual rate of return of 7% until the project is completed at which time the requirement will be increased to 8% for that and all sub- sequent periods. It is anticipated that this requirement will probably make necessary a tariff increase of about 12% towards the end of the construction period.

6.16 Performance indicators which can be used to measure future per- f-rm,anceare shown in Annex 16.

Fi.,cal Impact t,17 Until recently, BTE's only contribution to Government's revenues was in the form of dividends, which over the 1968-1973 period totaled Eth$2.4 million. But at the same time, it has not required any Government funds for its operatons or expansion programs. The forecast reflects the change in the Government's tax policy making BTE subject to the same taxation as a commercial operation. As a result of this change, BTE will pay over Eth$28 million to Government in the form of taxes and custom duties during the 1974- 1979 period. In addition, Government receipts will increase by an estimated -.hS16 million derived from onlending of the IDA funds of Credit 453-ET and the proposed IDA Credit at 7-1/4%. As in the past, BTE will also contri- bute funds from its operations to its investment program that during the 1974-l1?79period is estimated to Eth$62 million.

7. AGREEMENTSREACHED AND RECOMMENDATION

7.01 The following- agreemerntswere obtained during negotiations:

(a) BTE's accounts will continue to he audited by an independent firm of auditors acceptable to IDA and certified financial statements will be submitted to IDA within six months after the close of each fiscal year (para. 5.08);

(b) BTE will obtain IDA agreement before new debt is contracted unless the debt service coverage exceeds 1.5 (paragraph 6.09); - 19 -

(c) the proceeds of the Credit will be relent to BTE on the same terms as for Credit 453-ET, i.e., 7-1/4% interest,3/4% commitmentcharge and 20 years repaymentincluding five years of grace. Governmentwill finance up to Eth$1.5 million of interest during construction(para. 6.10);

(d) no dividend paymentswill be made during the construction period unless a revised financingplan indicates that dividend payments are feasible (para. 6.11);

(e) Arrangementswould be made to allow BTE to contract short term finance as and when needed (para. 6.11); and

(f) a rate of return of 7% will be maintained until the completion of the project at which time it will be increasedto 8% (para. 6.15).

7.02 The proposed project constitutesa suitable basis for an IDA Credit of US$16 million.

ANNEX 1

ETHIOPIA

BOARD OF TELECC1MCATIONS OF ETHIOPIA (BTE)

International Statistical Data

Gross National Product Population T E L E P H 0 N E S Per Per Capita NATIONAL PRINCIPAL CITIES2/ National International Service g CJONTRY Capita Growth Rate 1970 Total No. Per 100 Pop. Growth Rate % Auto- Staff per o- Total 5, of Total Long Direct Access to: 1970 1965-1970 000's 1970 1970 1965-1970 matic 1,000 tel.PopulationTelephones Distance Submarine j j USj % 000' No. § No. % Ipal2 tSatellite Cable

USA 4,235 3.4 206,800 115,222 56.38 5.4 99.9 n.a. 45 51 E Atl. Parc. X Sweden 2,788 3.2 8,050 4,307 53.74 4.9 99.7 n.a. 34 43 E - X Canada 2,720 2.8 21,700 9,753 42.28 5.5 98.8 n.a. 41 49 E Atl. X Switzerland 2,610 2.4 6,350 2,847 45.38 6.0 100.0 4 31 50 E - X France 2,288 3.7 51,000 8,114 16.05 7.3 80.1 1U 25 50 E Atl. X

Gernar.y (Fed.Rep.) 2,270 3.7 61,800 13,835 22.39 9.4 100.0 n.a. 29 46 E Atl. Ind. X Australia 2,169 2.4 12,500 3,599 29.27 6.1 89.7 22 64 67 E Pac. Ind. X New Zealand 2,o68 1.7 2,950 1,203 42.63 4.6 86.7 18 54 63 F - X UK 1,862 2.0 56,o5o 13,947 24.96 7.0 98.6 20 33 43 E Atl. Ind. x Japan 1,430 10.0 102,800 23,132 22.50 13.4 91.8 n.a. 36 48 E Ind. Pac. X

Italy 1,343 4.6 53,600 8,528 15.98 9.0 100.0 n.a. 23 53 E Atl. X Venezuela 977 1.4 10,650 378 3.70 7.8 97.6 18 35 83 E Ind. Pac. X Argentina 836 1.0 24,400 1,688 6.90 2.5 92.7 24 47 86 G Atl. X Singapore 753 3.8 2,100 136 6.70 11.5 100.0 14 100 100 Trinidad and Tobago 750 4.8 1,000 56 5.6o 8.0 99.8 n.a. 11 63 G Atl.

Costa Rica (1973) 590 2.9 1,775 84 2.16 20.5 95.9 19 19 Bo G Mexico 566 3.4 50,950 1,328 2.67 12.9 93.0 n.a. 27 75 G Atl. Yugoslavia 553 4.2 20,600 623 3.05 11.0 95.9 19 12 49 G Chile 487 1.8 9,800 348 3.60 6.8 87.2 16 35 76 F Atl. Ivory Coast 445 7.5 5,100 38 0.75 12.0 89.0 n.a. 23 83 F-G Atl.

Zambia 4°° 3.6 4,150 52 1.25 10.9 98.0 32 13 62 P Fiji 400 2.7 500 17 3.40 7.9 85.5 33 14 53 G _ X Iran 370 4.9 29,800 307 1.03 8.1 86.1 20 24 82 F Atl. Malaysia 358 4.3 11,050 169 1.58 6.9 89.8 45 3 34 E Ind. Guatemala 331 1.7 5,150 38 0.76 10.6 95.9 20 15 91 P

Colombia 319 i.4 21,350 546 2.63 7.4 96.8 n.a. 26 77 G Atl. - China (Taiwan) 305 6.5 14,250 339 2.37 18.0 82.2 39 26 72 F Pac. El Salvador 292 2.1 3,500 35 1.03 9.7 95.5 33 28 84 G Iraq 275 2.9 9,100 120 1.25 14.1 81.8 47 54 74 P Brazil 258 1.6 93,500 1,787 1.94 7.2 93.3 n.a. 20 66 F Atl.

Papua & New Guinea 221 2.5 2,400 19 0.79 i6.1 85.4 34 4 78 P Senegal 194 1.4 3,800 28 0.73 2.0 92.0 50 31 93 P Atl. Ceylon 188 2.3 12,550 61 0.49 7.7 98.7 n.a. 5 57 P Thailand 180 6.6 36,200 i45 0.54(1972) 12.0 97.0 27 8(Bangkok 74 P Atl. Ind. Ghana (1971) 168 0.7 9,000 47 0.53 10.3 83.9 127 14 only) 76* F

Kenya 134 1.4 10,800 72 o.69 7.1 85.1) (7 73) Uganda 112 1.1 8,550 28 0.29 9.2 79.6) 492/ (5 61) G Ind. -( Tanzania 82 1.2 13,150 32. 0.24 8.8 74.4) (3 43)

Pakistan 106 3.1 129,550 193 0.17 9.8 78.2 140 7 75 F India 102 1.0 550,100 1,160 0.21 8.8 75.7 129 4 50 F Indonesia 1972 102 o.8 118,250 241 0.20 6.7 57.0 72 8 53 F Ind. Ethiopia* 80 2.0 25 200 63 0.25 12.1 88.3 53 4 87 G Nigeria 70 0.3 65,650 81 0.13 6.2 79.2 n.a. 3 57 F Atl.

Nepal 67 O.4 10,800 6 o.o6 19.2 83.9 120 5 91 Upper Volta 56 0.1 5,200 3 o.o6 6.o 82.5 70 3 82 P Malawi 52 2.2 4,500 12 0.26 11.4 89.8 n.&. 3 57 p Mali 50 1.2 5,000 5 0.10 3.0 57.0 117 6 72 P - -

a/ These figures are not strictly comparable. In some cases international, local and long distance services are provided by different organizations in the sane country. Telegraph staff may or may not be included and there are wide variations in the use of contract labor for both maintenance and construction work. The number of telephone operators required also varies with the proportion of nanual to automatic service.

Ž/ e.g., In the USA, 45% of the population live in the principal cities anl have 51% of the country's telephones.

E/F = Excellent - Most cities aid centers connected by microwave or coaxial systems with extensive Subscriber Trunk Dialing. G = Good - Principal cities connected by microwave or coaxial systems with Subscriber Trunk Dialing. F = Faei - Principal cities connected by microwave or craxial systems bht calls handled nemi-automatically or manually. P = Poor - Little or no microwave or coaxial; calls between interconnected cities handled manually.

3/Countries which have satellite earth station. or submarine cable terminals within their borders.

5/ r-vice rovided by a somon organization.

Sources: Population and G.N.P. - World Bank Atlas (1970)

Telephone Statistics - The World's Telephones by A.T. & T. (1970)

Long Distance and International Service - Division Records

* All deta on telephosa service refar to mid-1974. October 16, 1974 ANNEX 2 Page I of 2 pages

ETHIOPIA

BOARDOF TELECOHMUNICATIONSOF ETHIOPIA (BTE)

BASIC STATISTICALDATA

Dec. 1973 June 1974 Dec. 1978 Actual Actual Estimated

(I) Local TelephoneService

Telephonestations 60,778 63,657 101,000 Subscribers'lines (DEL's) 43,986 46,2h2 76,000 Annual growth in subscribers' lines * last 2 years 11% * last 5 years 11.5% Expected annual growth in subscribers'lines (up to 1978) 11.5% Telephone exchanges - total 297 302 398 - automatic 17 17 28 - manual 280 285 370 Telephone exchange capacity - total 67,470 67,815 101,900-*- - automatic 55,800 55,300 85,100** - manual 12,170 12,515 16,800 Exchange fill 65% 68% 75% Unsatisfied demand for DEL's unknown 2,100 -

(II) Long Distance Telephone Service

Trunk channel kilometers 250,000 260,000 460,000 Annual traffic growth (last year) * STD network More than 20% (est.) * manual network

(III) Telegraph and Telex Service

Telex subscribers 261 271 470 Annual growth in subscribers' lines (last 5 years) 14%

* The waiting list has increased over this period from 800 to 2,100. The grovth of demand for DEL's has been therefore higher than the growth in the nunber of DEL's.

** An additional 10,000 lines will be under installation at December 1978.

***e from Ist quarter of 1973 to 1st quarter of 1974 ANNEX 2 Page 2 of 2 pages

Dec. 1973 June 197h Dec. 1978 Actual Actual Estimated

Expected annual growth in subscribers' lines 13% Annual growth of domestic tele- graph traffic (last 5 years) o%

(IV) International Service

Annual growth in telephone traffic (last 5 years) 24% Annual growth in telex traffic (last 5 years) 27% Annual growth in telegraph traffic (last 5 years) -3%

(V) Staff

Total staff 3,307 3,353 3,800 Annual growth (last 5 years) 1.8% Expected growth 3% (maximum) ANNEX 3 Page 1 of 5 pages

ETHIOPIA

BOARD OF TELECOMMUNICATIONS OF ETHIOPIA (BTE)

EXISTING TELECOMMUNICATIONS FACILITIES

1. LOCAL TELEPHONE SERVICE

1.1 The total switching capacity, number of connected telephone lines and telephone stations in Ethiopia as of June 30, 1974, were as follows:

No. of Exchange Connected Telephone Exchanges Capacity Lines (DEL's) Stations

Automatic exchanges

* Addis Ababa 2 35,500 27,849 40,940

* Provinces 15 19,800 12,121 15,411

Manual exchanges

* Provinces 285 12,515 6,272 7,306

Total 302 67,815 46,242 63,657

1.2 Details of the 17 automatic exchanges are given below. Figures between brackets mean extensions ordered but not installed by June 30, 1974: ANNEX 3 Page 2 of 5 pages

Exchange Connected Exchange Location Capacity Lines (DEL's) Fill (%)

Addis Ababa

* Filwoha 17,000 (3,000) 13,859 81.5

* Arada 18,500 (1,000) 13,990 75.6

Adi Ugri 100 89 89.0

Asmara 10,000 6,356 63.6

Assab 1,000 451 45.1

Debre Zeit 400 (400) 391 97.8

Decamare 400 164 41.0

Dessie 600 (400) 484 80.7

Dire Dawa 2,000 1,020 51.0

Gondar 500 462 92.4

Harrar 1,000 532 53.2

Jimma 1,000 (500) 699 69.9

Keren 400 173 43.3

Massawa 1,000 545 54.5

Nazareth 1,000 571 57.1

Shoa 200 75 37.5

Wonji 200 109 54.5

Total 55,300 (5,300) 39,970 72.3

The average exchange fill, which is 72.3%, is reasonable. The automatic exchange equipment is the modern crossbar type, with the exception of Harrar, Himma and 9,500 lines in the Filwoha exchange where Ericsson's 500-point selector system is used.

1.3 The manual exchanges are mostly of the magneto type. Exchange capacities vary from 5 to 600 lines. Service is usually provided only during daytime, except in a few localities where it is available day and night. ANNEX 3 Page 3 of 5 pages

The distribution of the manual exchanges in the different regions is given below (as of June 30, 1974):

No. of Exchange Connected Exchange Region Exchanges Capacity Lines (DEL's) Fill (%)

Addis Ababa 76 2,530 1,233 48.8

Asmara 41 2,170 1,030 47.5

Dire Dawa 27 1,110 543 48.9

Dessie 36 995 404 40.6

Jimma 34 1,555 858 55.2

Gondar 33 935 543 58.1

Shashamane 38 3,220 1,661 51.6

Total 285 12,515 6,272 50.1

1.4 The subscribers' distribution networks are established according to sound engineering principles. In the large cities they make extensive use of cross-connection cabinets and concrete ducts that are manufactured by BTE's workshops. The fill of the cables is generally rather high. In September 1974 it was in Addis Ababa about 76 percent for the primary network and up to 100 percent in some areas for the secondary network.

1.5 All private installations in Ethiopia are owned, installed and maintained by BTE. As of June 30, 1974, the numbers of PABX's and PMBX's in the country were respectively 349 and 196.

2. LONG DISTANCE SERVICE

2.1 The primary long distance network is mainly based on a 960-channel microwave link between Addis Ababa and Asmara, inaugurated in May 1973, and on open wire lines using copper or copperweld wires and equipped with carrier systems. Three other 960-channel microwave links to connect the cities of Harrar, Jimma and Shashamane to Addis Ababa are at present under construction. They are expected to be commissioned by January 1975. The secondary long distance network is based on open wire lines, equipped with carrier systems and on VHF radio systems with a capacity ranging from one to five telephone channels.

2.2 At the end of 1973, the long distance network comprised about 250,000 trunk-circuit kilometers. Subscriber trunk dialling (STD) was possible ANNEX 3 Page 4 of 5 pages between Addis Ababa, Asmara, Debre Zeit, Dessie and Massawa. After completion of the three microwave links mentioned in para. 2.1 it will be extended to Dire Dawa, Harrar, Jimma, Nazareth and Shashamane. It will then be available between 83 percent of the Ethiopian subscribers,against 76 percent at present. An indirect consequenceof the extensionof the STD service to new routes will be to remove largely the present congestionof trunk manual switchboards and to improve consequentlythe quality of service on routes still operated manually. Although it has improved after the introductionof the STD service on the Addis Ababa - Dessie - Asmara route (mid-1973)for the reasons just mentioned, this quality of service is still rather poor, subscribersoften having to wait one hour or more before a long distance call can be put through.

3. TELEGRAPHAND TELEX SERVICES

3.1 Telegraph service is generallyprovided using the long distance telephonenetwork and to remote places by use of HF radio in some cases.

3.2 Telex service is provided by an automatic400-line crossbar exchange in Addis Ababa and by manual exchanges in Asmara, Assab and Dire Dawa. By mid-1974, the number of subscribersconnected totaled 271, of which 186 were in Addis Ababa.

3.3 A national GENTEX network is nearing completion and will connect the following cities:

Addis Ababa Nazareth

Asmara Shashamane

Massawa Jimma

Makale Nekempte

Dessie Bahar Dar

Assab Gondar

Dire Dawa Harrar

All GENTEX terminalswill be equipped with both Latin and Amharic type of teleprinters.

4. INTERNATIONALSERVICES

BTE provides internationaltelephone, telegraphand telex services by HF radio to the followingcities: ANNEX 3 Page 5 of 5 pages

London Kinshasa (telephoneonly) Frankfurt (telegraphand telex only)

Paris New York ( " " ) Tokyo ( " " " "I )

Aden Athens ( " " ) Accra (Telephoneand telegraph only)

Djibouti Bangui ( " " ) Lagos ( " " It )

Rome Poona ( " " ) Khartoum ( " " " " )

Abidjan Mogadishou ( " " ) Cairo ( " " " " )

Nairobi Beirouth (telegraphonly)

Some of the HF channels have been equipped with LINCOMPEX. There is a landline route with four telephone channels to Djibouti in the French Territory of Afars and Issas.

The internationalroutes are heavily overloadedand the telephone service offered is very poor. Telegraph and telex services on these routes are neverthelessreasonably good. ANNEX 4 Page 1 of 6 pages

ETHIOPIA

BOARD OF TELECOMMUNICATIONSOF ETHIOPIA (BTE)

THE PROJECT

The main items of BTE's Fifth DevelopmentProgram (1974-1978), which is the Project considered for Bank financing,are given below. The cost of the Project is set out on page 6 of this Annex.

A. Local Telephone Service

(i) New Automatic Exchanges Estimated Location In-ServiceDate Capacity

Addis Ababa

- Keira (Aug. 1977) * 8,000 June 1979

- Bole (June 1977) * 5,000 June 1979

- Addis Ketema (June 1977) * 8,000 June 1979

- Old Airport (June 1977) * 5,000 June 1979

Akaki Besseka Jan. 1976 200

Asmara March 1979 3,000

Makale March 1978 800 Shashamane June 1977 600 Agaro Jan. 1978 800 Awassa June 1977 600

Reserve ** Dec. 1978 800 Total new exchange equipment 32,800 lines

* Dates between brackets to correspondto partial commissioning. ** Location not yet defined. BTE is hesitating between Jijiga, Debre Markos and other localities. The capacity shown is still tentative. ANNEX 4 Page 2 of 6 pages

(ii) Extensionof Automatic Exchanges

Estimated Additional Location In-ServiceDate Capacity

Add is Ababa

- Arda II June 1975 3,000

- Filwoha II September 1974 1,000

Debre Zeit March 1975 400

Dessie November 1974 400

Jimma November 1974 500

Gondar September 1977 500

Massawa September 1977 600

Dire Dawa September 1978 600

Total extension equipment 7,000 lines

(iii) New Manual Exchanges

Manual switchboards,with a capacity ranging from 20 to 200 lines, will be installed during the project period in about 100 localities which are not served at present. Total capacity of these switch- boards will be about 4,500 lines.

(iv) MiscellaneousLocal Switching Equipment

Estimated CompletionDate

a. Extension of the tandem exchange in Addis Ababa December 1978

b. Relay sets for local exchanges August 1977

(v) Local Networks

Cable, ducts, cable pressurizationequipment and line concentrators will correspond to the increase in the switchingcapacities. The total capacity of the cable networks will be increased by about 140,000 pair-Kms over the project period. ANNEX 4 Page 3 of 6 pages

(vi) SubscriberPlant

PABX's, PMBX's, telephone sets and installationmaterial.

B. InterurbanExchanges and STD Equipment

(i) Extensionof present trunk exchanges to provide for about 360 additionallong distance circuits.

(ii) New 4-wire trunk exchange for Shashamane.

(iii) STD equipmentfor Jimma, Nazareth,Makale, Assab, and Dire Dawa.

(iv) Installationof 48 manual switchboardpositions.

C. Interurban Network

(i) Installationof 960-channelmicrowave links, with standby, on the followingroutes:

Estimated Route CompletionDate

a. Asmara - Tessenei Jan. 1977

b. Dessie - Assab Jan. 1977

c. Shashamane - Moyale Dec. 1977

d. Addis Ababa - Nekempti - Ghimbi Dec. 1978

(ii) Low capacity coaxial cables and VHF/UHF radio links:

Estimated Technical Solution Route Completion Date Envisaged *

a. Agaro - Jimma Sept. 1977 Coaxial cable

b. Awassa - Sashamane Sept. 1977 " i

c. Ghimbi - Gore Dec. 1977 VHF/UHF radio link

* Further study to be undertaken by BTE will determinethe most appropriate solution for each route considered.

(iii) New open-wire line and cable carrier systems and extensionof existing systems, providingabout 200 additionalcircuits (two terminations). ANNEX 4 Page 4 of 6 pages

(iv) Constructionof about 3,000 Km of single-channelVHF radio links and rehabilitationof about 2,100 Km of open-wire lines.

D. Telegraph and Telex

(i) Addition of 300 lines of automatic telex (and gentex) switching equipment and provision of switching facilitiesfor domestic and internationalautomatic operation.**

(ii) 165 teleprinters,latin and Amharic character types.

(iii) Tape readers and transmitters,buffer stores and voice frequency telegraph equipment providing about 270 additional telegraphchannels.

E. InternationalService

(i) Earth satellite station for about 50 pre-assignedcircuits and 12 "demand assigned" circuits (SPADE system), inter- national telephone exchange in Addis Ababa for semi-automatic traffic and connectingmicrowave system. This equipment is estimated to be put in service in March 1977.

(ii) Improvementof internationalHF radio facilities.

F. Land and Buildings

(i) Ten new buildings for telephone exchanges.

(ii) Buildings for repeaters stations.

(iii) Standardized2, 3 and 4 room buildings and kiosks.

(iv) Buildings for stores.

(v) Extension and repair of existing buildings.

(vi) Land for new buildings.

G. Motor Vehicles

(i) 86 sedans.

(ii) 102 transporters.

** Technical Solution is not yet defined. ANNEX 4 Page 5 of 6 pages

(iii) 54 cross country vehicles.

(iv) 35 trucks.

(v) 65 motor-cycles.

(vi) 11 specialvehicles.

1H. Tools, Instrumentsand Training Equipment

I. Power Equipment

Emergencypower generators,rectifiers and batteries. ETHIOPIA

BOAi)D 0P TELLC(.MMNICATItlli iv LTHIOPIA (BTE)

Annual Project Expenditures (thousands of Eth$)

1974 1975 1976 1977 1978 1973 Total L.anai Servine Local Foreign Total L-cal Foreign Total Local Foreign Total LanaI Foreig, Total Local Foreign Total Local Foreign Total Lanai Foreign Total Exchange Equipment 200 972 1,172 93 1,416 1,509 248 2,914 3,162 1,595 4,893 6,488 631 2,414 3,045 90 543 633 2,857 13,3141/ 16,1711/ Local Net.eek 961 1,400 2,361 1,864 4,118 2,254 1,170 2,916 4,086 1,220 2.896 4,116 840 2,537 3,377 6,055 12,123_/ 18,17B2 Subscrib-er Plant 368 899 1,267 409 998 1,407 657 1,308 1,965 617 1,430 2,047 560 1,665 2,225 2,611 6,300 8,911 Long Diatance Service

Exchange RquIpment - 100 100 100 300 400 183 770 953 53 295 348 35 135 170 371 1,600 1,971 Open wire lines (rec-estr-ntion) Single channel ViB1 liLnkc. Goaxiel - nables 249 353 602 704 1,052 1,756 1,237 1,556 2,793 884 777 i,66i B5O 1,n4c 1,598 3,9q4 4,786 8,7 la Multiple. sod Carri-r Equipment - 249 249 i16 872 988 387 1,412 1,799 292 1,330 1,622 141 308 449 936 4,171 5,107

Microsave, U-F/VHF radio links - - - - 604 604 480 1,510 1,990 786 2,416 3,202 322 1,510 1,832 1,588 6,040 7,628 Telegraph and Telex

Exnhange Equipment - - - * 140 140 - - - 280 1,120 1,400 - 140 140 280 1,400 1,680 VFT Equipment, .teleprinters and Osiscellene-us 39 200 239 46 219 265 97 492 589 100 340 440 44 244 288 326 1,495 1,821 International Services

Earth Satellite Station 25 - 25 507 974 1,481 1,652 3,867 5,511 _ ',121 ,1l - 773 773 2,184 7,735 9,912 International E-change - 150 150 - - 285 1,200 1,485 - 150 150 - - - 285 1,500 1,785 HF radio - 20 20 50 100 150 32 60 92 - 20 20 . - 82 200 282 Lnd and Buildinn 1,203 - 1,203 3,957 182 4,139 6,300 98 6,398 899 153 1,052 984 - 984 13,343 433 13,776 Motor Vehicles 245 778 1,023 232 724 956 204 604 808 229 751 980 207 606 913 1,117 3,463 4,580 Toala. lnstrutrents and 297 386 683 338 545 883 210 560 779 254 376 630 193 117 310 1,292 1,984 3,276 Training Esaipmsent

Power Sceniy 6 31 37 35 134 169 109 313 422 61 202 263 27 100 127 Constante 238 780 1,018 - - z.- 219 160 179 300 - 300 2 u_ .0 - - -_ 66o 6, Sub Total 3,593 5,538 9,131 8,470 10,674 19,144 13,251 19,880 33,131 7,270 1947 26,740 4, 1,597 1431 90 543 633 37,508 67,984 105,492 Physical Contingeneies 107 161 268 254 318 572 398 597 995 218 34 802 145 348 493 3 16 19 1,125 2,024 3,149 Price Contiog-cnies ___ - 750 793 1.543 2.218 2,650 4,868 1.872 3,758 5.630 1.630 3,005 4.635 37 182 219 6.,507 10,388 16,895 Total Project 3,700 5,699 9,399 9,474 11,785 21,259 15,867 23,127 38,994 9,360 23,812 33,17e 6,609 14,950 21,559 130 741 871 45,140 80,39631125,5361/ IBTE financed 3,700 2,667 6,367 9,474 29 9,503 15,867 - 15,867 9,360 - 9,360 6,609 - 6,609 130 - 130 45,140 2,978_3/ 48,118.2' IDA financed - 3,032 3,032 - 11,756 11,756 - 23,127 23,127 - 23,812 23,812 - 14,950 14,950 - 741 741 - 77,418 77,418

1/ This figure ineludes Eth$162,000 for expenditures -ade in 1973.

2/ This figure includes Eth$120,0'O for enpeeditsres made is 1973.

3/ This figuec includes Eth$282,000 for expenditures -ade in 1973.

NOTE; Price Ir.uc-aseo osid-red in the -alulatiho, of the pr,iu ssvtlr-goroo alIosrs ass the (ii psercthage): - local costs (nosttding ountom duties): '.% yeaolo so average; _ foreigo -sts sod cusntom dutie: 4 i: 1074, 47i 1:n 1075 ansd 5% ther-atte . Thets p-retagsses hove beet applied f,on- mid-197 , s,1hot i- .he dats co-sei seed ior to bane estiste oP the proJect -cot. Thbyo h boos ,-:timwso -s.t , o. I so.',. s: .ind: 'i) : r 1 ca c-ots,on on one ata.i BTE'c salary polio y should linat future incrsases ir: i, st-lotios casto. These -p,-oesesst ruogslly vs half il totalocal csts.. tuolols. .:t- d: 5 vs Se - t.l r:ersted -i,sr tl econd half of the project period. On the other hood, tho impact of the -bstantsal yearly increossotespested fur other 1us o t. be ±>'.c :-itt.uli PtL *:p:-e- rPot t:of essco theoe csuts will be generated during the first half of the poj,,est period; and (ii) fos f-selgo sosts, the prire of teleta'nss4ssttion oppent ts;to, i- . t . thIs aoen- d-st t lo-ras-ed competi- tion, ir ed prueps,ntiit dstnil y the dt,y cprie Is the pat, gain ped.octiVito h.aViog kept lie pri,et stalls fur sver a decade - -d 1o .Lc ca , i 0.st w1price oust' raw otter- 5s ials, envesially copper, whish accou-st for a nalbtastisa portion of the.

Apr~1I,), i,7 ANNEX5

ETHIOPIA

BQARD OF TELECOMKUNICATIONSOF ETHIOPIA (BTE)

Estimated Schedule of Disbursements

Cumulative Disbursements at Ead of Quarter IDA Fiscal Year Credit Proposed Total of and Quarter 453-ET / Credit I/ two Credits (U S $ t h o u s a n-d s-) 1974/75 December31, 1974 1,465 - 1,465 March 31, 1975 2,040 - 2,040 June 30, 1975 3,770 - 3,770 1975/76 September 30, 1975 5,340 - 5,340 December 31, 1976 7,140 - 7,140 March 31, 1976 9,730 - 9,730 June 30, 1976 12,550 - 12,550

1976/77 September30, 1976 15,320 - 15,320 December 31, 1976 18,310 - 18,310 March 31, 1977 21,250 - 21,250 June 30, 1977 21,400 2,780 24,180

1977/78 September30, 1977 21,400 5,630 27,030 December31, 1977 It 8,420 29,820 March 31, 1978 " 10,270 31,670 June 30, 1978 if 12,010 33,410

1978/79 September 30, 1978 " 13,860 35,260 December 31, 1978 15,640 37,040 March 31, 1979 15,800 37,200 June 30, 1979 16,000 37,400

1J This schedule has been set up under the assumption that Credit 453-ET would be exhausted prior to any withdrawal from the proposed Credit. ANNEX6

ETHIOPIA BOARDOF TELECOMMUNICATIONSOF ETHIOPIA DEMANDAND SUPPLYOF TELEPHONEDIRECT EXCHANGE LINES

THOUSANDS

120 120

0 110 * 110

100 O 100

* A -o94,000

90 0 9

0 ,/ 85,000

80 _ 80

* /A- <76,000 * /' 7 70 ,"70 0DEMAND - 8.0i68,000

* 4.0N LINES CONNECTED

600-- ~~~~~~ ~ ~~~~~~~~~~~60,90060

* /,4- 54,600

* 50 /,~.. :49,000

* /// ;* 46,244

EXPRESSED DE-4943,986

*i / LINES CONNECTED

30 LEGEND: 30

/ TOTAL CAPACITY OF AUTOMATIC EXCHANGES

6TOTAL EXCHANGE CAPACITY (AUTOMATIC PLUS MANUAL EXCHANGES)

/ - 76,000 NUMBER OF DEL'S

20 20 PROGRAM

ACTUAL FORECAST

15.9 I l _ I I I I I I I I I I . I ,YEARS 1967 68 69 70 71 72 73 74 75 76 77 78 79 80 (SEMI-LOGARITHMIC SCALE) World Bank-9224 ANNEX7

CONNECTIONS 100cr

_ 900

800 ETHIOPIA BOARDOF TELECOMMUNICATIONSOF ETHIOPIA SUPPLYOF TELEX CONNECTIONS

700

600-

550

500 -

4501-tRtt 4

400 -

450 -$

:300- 400 -$

175 ADDIIS ABABA] 250 / ./

150 _

300 /|PROGRAI ETHIOA

125 - ACTUAL FORECAST

1ol YEARS 1967 68 69 70 71 72 73 74 75 76 77 78 79 80

(SEMI-LOGARITHMIC SCALE)

World Bank-9223 ANNEX 8 Page 1 of 3 pages

ETHIOPIA

BOARD OF TELECOMMUNICATIONSOF ETHIOPIA (BTE)

Economic Analysis of the Project

Benefit Period

1. The following internal rate of return analysis is based on a project lifetime of 25 years, commencingin 1974. All costs and revenues used for the calculationsare in constant mid-1974 prices.

Capital Expenditure

2. Capital expendituresare the project costs net of taxes, custom duties, price and physical contingencyallowances (the latter being for making possible an increase in the capacity of certain facilities if demand is higher than expected).

3. Some of the equipment will have a shorter lifetime than the benefit period consideredand will need to be replaced. On the other hand some equip- ment will outlast the benefit period and have a residual value. Therefore, replacementcosts and residual values are included in the constructioncost stream, based on the following lifetimes:

Type of Equipment Lifetime (years)

Switching Equipment 25 Cables 35 Telephone and Telex Apparatus 7 Long Distance TransmissionEquipment 15 Earth Station Equipment 15 Vehicles 7 Buildings 50 Miscellaneous 10 to 25

Operating Costs

4. Operating costs attributableto the project are assessed:

(a) for wages, on the basis of (i) the additionalnumber of staff needed for the maintenance and operation of the project works, (ii) qualificationof this staff, higher on average than qualificationof present staff, and (iii) correspondingsalaries and fringe benefits at mid-1974 prices; ANNEX 8 Page 2 of 3 pages

(b) for the operating expenses,on estimatedexpenses, net of taxes and custom duties, for each category of expense such as spares, energy, transportation,etc.

Operating Revenues

5. Operating revenues attributableto the project are assessed on the basis of BTE's incrementaloperating revenues from the date when present network capacity is fully used to the date when additional capacity installed under the project is completelyused. These dates are respectively,on average, mid-1976 (exceptfor some works in Addis Ababa, which will be commissionedearly 1975) and the end of 1981. After 1981, operatingrevenues stay at the level reached at the end of 1981.

Rate of Return

6. Based on the above assumptions,the streams of costs and revenues attributableto the project are as follows (in thousandsof Eth$).

Capital Other Operating Operating Net Year Expenditures Wages Costs Revenues Cash Flow

1974 9,093 - - - (9,093) 1975 18,664 210 70 460 (18,484) 1976 30,030 554 210 1,390 (29,404) 1977 22,540 1,147 425 5,661 (18,451) 1978 13,685 2,375 880 12,891 (4,049) 1979 602 3,295 1,366 17,816 12,553 1980 - 4,020 1,888 22,838 16,930 1981 4,277 2,260 28,958 22,421 1982-83 - 4,277 2,441 31,503 24,785 1984 7,188 4,277 2,441 31,503 17,597 1985-86 - 4,277 2,441 31,503 24,785 1987 5,531 4,277 2,441 31,503 19,254 1988-90 - 4,277 2,441 31,503 24,785 1991 7,188 4,277 2,441 31,503 17,597 1992 14,113 4,277 2,441 31,503 10,672 1993-97 - 4,277 2,441 31,503 24,785 1998 (26,675) 4,277 2,441 31,503 51,460

7. The internal rate of return on the project, defined as the discount rate which equalizesthe stream of expected revenues attributableto the project with the capital and operatingcosts, is 17.4%.

8. If the foreign exchange componentof capital expendituresis shadow priced at a value of 33% above the estimatedcosts, the rate of return would be 13.5'. The foregoing implies that, on average, prices paid by subscribers is greater than the long run marginal cost of supply. ANNEX 8 Page 3 of 3 pages

9. A sensitivity analysis produces the following results:

Rate of Return

Revenue decrease of 10% 15.3% Operating cost increase of 10% 16.9% Revenue decrease of 10% and Operating cost increase of 10% 14.7% ANNE%9

BOARD OF TELECOMMUNICATIONSOF ETHIOPIA ORGANIZATION CHART

BOARD OF DIRECTORS

GENERAL MANAGER

DEPUTY GENERAL MANAGER

STANDING COMMITTEE

.LRELATIONS

PLANNING & PROGRAMMING

r ORGANIZATION&A N | METHODS l

- ._ ~~~~INTERNALAUDI

-| FINANCEDIVISIO7N

l X D~~~~~~~~~~~~~~~rAlTAPROCESSINGl DIVISION

-|WTRAFFICDIVISIO |0

| OPERATIONS l lMITNNECORD.| | DEPARTMENT [| DVSO

i REGIONS 17) |

-| RADIO DIVISION l

I ENGINEERIN IELPOEDVSNI |DEPARiTMENT

IADMINISTRATIV |-DIVISION |

World Bank-75421R1 ANNEX 10 Page 1 of 3 pages

ETHIOPIA

BOARD OF TELECOMMUNICATIONS OF ETHIOPIA (BTE)

Tariff Excerpts

1. Telephone

Billing is monthly. Automatic exchange subscribers are subject to a two-part tariff comprising a rental for each line plus a charge for each local call. Manual exchange subscribers are charged a rental with no local call charge. Long distance calls are based on a three-minute call duration on non-STD routes and on a varying pulse duration on STD routes.

Eth$

(a) Installation fees

Primary line 115 Indoor extension 75

(b) Rental - per month

Automatic exchange 5 Manual 5 Residence - 20 or less subscribers 5 - over 20 subscribers 6 Business and Government - 20 or less subscribers 10 - over 20 subscribers 12 Indoor extension 6

(c) Calls - per call

Urban - automatic exchange 0.08 Interurban Non-STD - for three minutes or less Day rate Varying, based on airline miles 0.20 - 4.80 Night rate - 19.00 to 08.00 Varying, based on airline miles 0.20 - 3.40 ANNEX 10 Page 2 of 3 pages

Examples:

Day Night

Addis - Ababa - Asmara 2.40 1.60 - Assab 2.00 1.30 - Dire Dawa 1.20 0.80 - Jima 1.60 1.00 - Shashamane 0.90 0.70 - Tessenei 3.20 2.20

Asmara - Assab 2.80 1.90 - Dire Dawa 3.60 2.50 - Gore 4.00 2.80 - Massawa 0.70 0.60 Harar - Tessenei 4.40 3.10

Jima - Om Hager 4.80 3.40

STD - varying pulse durations based on airline miles and time of day 0.08 International - for three minutes or less (by agreement between countries)

Examples:

Yemen (PDRY) 10.50 Denmark 24.90 Germany (both) 23.85 Greece 22.05 Italy 22.05 Japan 36.75 Kenya 11.10 USSR 33.45 Somalia 9.90 Sudan - various rates for different locations 0.80 - 8.25 Sweden 26.10 Switzerland 22.95 UK 23.75 USA 30.00

2. Telegrams

(a) Inland - ordinary - per word 0.10 urgent - per word 0.20

(b) International - per word (by agreement between countries) ANNEX 10 Page 3 of 3 pages

Examples:

Afars and Issas 0.60 Chile 2.25 Germany (both) 1.20 Greece 1.25 Italy 1.15 Japan 1.20 Kenya 0.36 New Zealand 2.60 Somalia 0.95 Sudan 0.35 Sweden 1.15 Switzerland 1.25 UK 1.00 USA 1.20

3. Telex

(a) Installationfee 1,490.00

(b) Rental - per month 145.00

(c) Calls - 3 minutes or less

Urban 0.60 Interurban Addis Ababa - Asmara 1.50 - Assab 1.35 - Dire Dawa 0.90

Asmara - Assab 1.80 - Dire Dawa 2.55 Assab - Dire Dawa 2.55 International- by agreement between countries ETHIOPIA BOARD OF TELECoMMUNICATIONS INCOME STATEMENTS (ETH $ THOUSANDS)

YEARS ENDING DEC 31: 197i HiF9 1lY 1974 1975 1976 FORE-CAST 1981

0 85716 94287 TELEPHONE SUBSCRI8 Sb040 390e2 43986 48385 53223 58545 64400 70840 77923 7792 8572 :ADDED 3440 3022 4924 4399 4838 5322 5654 6440 7084 33937 10 10 wINCREASE X 11 8 13 10 10 10 10 10 10 60 0 120002 IS2002 TELEtPHONES S051b 54483 80778 67738 74512 31963 90160 99175 109093 31285 32038 POPULATION 0 0 26500 27136 27787 28454 29137 29836 30552 0 0,38 0.91 TELEPHONES/100 POP 0.00 0,00 0,23 0,25 0,27 0,29 0,31 0,33 0.36 0.00

OPERATING REVENUE

TELEPHnNE 9450 .RENTAL 3607 3915 42bb 4849 5334 5868 6455 7100 7810 3741O 8591 12031 -CALL CHARGES 5114 5882 o529 7113 7669 8266 8911 9607 10S54 S1921 ItI1O 15901 -TRUNK CHARGES 5428 5869 6380 7282 8420 9598 10716 11947 13142 e1085 1445e 9674 -INTERNATIONAL 7lbO 1071 1329 1595 1914 2297 3904 5486 6832 22007 8199 2104 2314 .INSTALLATIUNS 1080 834 1120 1188 1306 1437 1581 1739 19IS 91b3 1992 437 9b7 -OTHER 212 195 246 257 287 317 347 377 407

TOTAL 16201 17566 19870 22e6 24931 27783 31913 3623e 40957 183583 44947 49639 204$0 7S17 8645 TELEx 1690 2243 3096 3250 3737 4298 4943 5084 6537 2202 367 367 TELEGRAPH DUM 322 363 367 3e7 367 3b7 367 387 367 20700 3450 3450 TELEGRAPH INT 2959 2963 3450 3450 3450 3450 3450 3450 3450 11520 2225 2270 2ROADCASTING 1509 1345 1328 1l20 1732 1856 1991 2139 2182 4287 718 719 OTHER 3o9 1125 130S 712 713 714 715 71e 717 13000 4800 5000 TARIFF INCREASE 0 0 0 0 0 0 1500 5900 5600

TOTAL 23050 25605 2991e 31882 34930 38968 99879 S449Z 59310 28371. 69025 70290 ...... _ ...... ,...... ,,...... __ ......

OPERATING EXPENSES … 92908 Z2298 25309 SALARIES 7889 9088 10222 11449 12822 14361 IbO84 18015 2017O S2373 12056 132h2 OTHER 4055 4468 4e36 6629 7192 8386 9141 99b4 10964 702 152 162 PROV FOR BAD DEBTS 100 220 50 9Z 102 112 122 132 142 49289 12356 13593 DEPRECIATION 3691 4254 4999 5355 s9b6 7065 8797 10583 11521 3132 3065 TAXES 0 0 1780 22eo 2223 1898 1921 3359 3344 14809

TOTAL 15735 18030 21I87 25791 28408 31620 36068 42052 46143 210080 50294 55391 ...... ;...... ---...... ,...... , ..______, 13731 14899 OPERATING INCOUM 7315 7s7s 7729 5871 65Z2 b898 8803 12440 1317 53661 13731 14899 NET INCUME BEF INT 7315 7575 7729 58.7 6522 6848 8813 124440 13187 53b61 9449 INT CHARGED OP 1314 1447 1548 1843 2570 3833 5s398 6468 7223 27335 8163

NET INCUME 6001 8128 6181 40Z8 3952 3015 3415 5972 5944 28326 5o68 5450

RATE OF RETURN *BEFORE TAXES 12,4 12,3 1493 11,o 11.2 8,9 8,5 10,1 9,9 9,9 9,8 9.o 7.7 7,9 8,0 .AFTER TAXES 12,4 12,3 11,7 8,4 8,4 7,1 7,0 8,0 7.9 79 79 OPERAIING RATIO X b8 70 74 81 81 82 80 i7 78 80 (.2(1 0,23 0,23 REV/GROSS PLANT 0,24 0,25 0,27 0,27 0.2b 0,25 0,23 0,23 0,23 4,50 PLANT 3,91 4,21 4,54 4,50 4,50 4,50 4,50 4,50 4,50 4,50 4,50 DEPREC/GROSS 55 TELtPH REV/SUBS 472 468 479 482 991 497 519 536 5a4 51 549 a 8 TARIFF INCRESE 0 0 0 0 0 3 12 t0 4

APPLICATION OF NET INCOME 0 .DIVIDENDS 450 700 850 0 0 0 0 0 0 0 0 5568 5450 -RETAINED EARNINGS 5551 5428 5331 4028 3952 301t 3415 5972 5944 26326 0 1 0 1 1; f I 6 2 6 1 R I q 2 i 9 0 ISV4HONI INVId 29 ?Q "q go Lq 29 09 gs 0 9 0 9 pq % JNVId SSOMD/IIN R 9 C, IRCa QS (94; 9 r, q C, QS 99 6 1 6 9 9 9 I Q I ci I q I q I q t 9 I 9 1 22 S2 % A98/37JPVArIOI

w 9 1 2 9 1 2 n 11 f 12 1 1 ? L 4 5 I at, f of, o it, I 19 OIIVH JN3wino s- 2 1 I 2 a 1 2 a T I It 6 a o 910 (; I o 1, # o , a o t, o Allnol/igic t 1; 94; P4; tyS 2 s f7f 6 2 6 2 i AITOMI 9 lq3o/1140

q6jq2 olt2"2 ?9,; I ?p 9261 T2 f6L691 O"fiqt T2OSf I 2TLO?t 9 16ciO 1 99qgtt S 2 r, t 9 ivioi ......

L SPIE I OfQ?T OWRI I ogist qot?2 I 6qt2l 0009 0 ncL 0 969 qgLq S' OFE ivici ......

0 0 0 09 T ty 9 1717 p 69TE 0 0 0 0 0 SIJVM(181AO, Lsfif 1 ofe2l 0 9 9 I I 0 0 0 1 1 OOOOT 0 0 0 6 OOOP 0 0 CSL 0 969 qgLq ToFi 319VAVd siNnooov- 93111119VII lNi8n)

6112ti "Tst2l 0 9 I f I I 061901 IqL26 OOOOL q99917 9006f 09L92 L6OL2 6TT2? JOIG WH3i tIN01

02SLOI OL0201 POSQh qsqo6 qgSlyq I k I I 9 QS19t 17020i qLTOL FLP L I?9 190 6ci ivini ...... 02SL9 otoeq ?Osqc; qsqocl 99517" I L t I " 9&195 " OZOIF 9LIot f 9L I" 19061i S!)N I NHV flINTV!38- 0000" 0000" 0000?7 0 0 0 01) 0 0 0 ot, 0 0 0 0 0 oooot? 0000" 0000" 0 0 0 0 2 0000? IVildVO- Ilnol ...... S31111lqVII qbli92 Plft2P2 ?9;122 926 1 12 fbL691 OOff9l 1 2 Oqf I M M 916SOT 99q96 f 2qt7Q iviol ...... tf 214T 6S295, 1 q OFS' I 9L 057 90192 U09? 0"962 22905' t?6662 V72L 2 1 01 02 ivici ...... a t z oeq osq 029 06S 09S (El; oos I?? EfY2 1?2 1 83HiO- 009si 00?ST OoRtli 0 017171 000t7l 009it 10?fl OORZI 26R2T 917st7 t OT16 9 31 8011AAN I- 917LJ T 1 f?172.01 06hh 61LO telL SST 9 69GS 990S 2tos L 09c; s I LI; 33H GINnO33V' (;61S Ti 17T 1 6 2 0 0 0 L924; f TL i ?btl t?t?92 62?t dMnS AMVNOdWql V996 2OL9 029L 920L I FLS' 9 s t Lrz t7sor, "st fof 0 0 0 P 0 0 9f. 0038 IVNOIIVMIdO SYNV8 ONV HSVOw siqesv omHno

2000E ?OOL? 20022 If2sl 247 L 17 1 f if I r 6LS61 1; s 96 1 9SO9 QTL9 I O if. SSI8!)QHd NI NHOM

09C;4;6 1 TC216L I 6OS99t Of6SqT V"6q"l LibSO I 70QS9 qf2OL 9996 9 9 01 29 1 21 09 INVld 13N ...... 60SPT 9 1 6 1 0 t 09SS6 6C 0 179 9 r, OE I 6S9t?9 176W, q2q J(; I L?917 0921 ty q"2i5l NOTIVI338dlO ISSII 690tiC 690iQ2 6qO292 6966b2 66EO?2 96SOLT q6ff"t tq9T?j LS 191 1 996i 0 1 996t6 NOllV8ldO NI INVId

Tg6T OR6T- GL61 9L6T LL61 -- -9L6T i6i ftL6T EL61 oM IM :Te 330 40 sv IsV33MOA 001S I H

(SONVsmii $ H13) S133HS 3)NVIVS SNOIIVOIWWWO2121 .40 auvog VIdOTH13 ETHI-OPIA BOARD OF TELECOMiMUNICATIONS FUNDS-FLOW,STATEMENTS CETH $ THOUSANDS)

HISTORY ~~~~~~~~~~~FO!;EC.AST 1 9111 ENDING:DEC 31: 1971 1I97R2 1973 1974 1975 297b 1977 191 1979 1974-79 19810 YEARS TOTAL

INTER~NAL SiJURCLS 53661 13731 lQh99 -NET INCUME OLF IN 7/315 7515 7729 5871 6522 6848 8833 12ua40 13167 123S6 13593 "DEJPRLC1ATION 3691 142544 4999 5355 5'168 7065 8797 1 0583 11521 49289 0 -w(JTHEk ~~1173 562 86 Q 0 0 0 0 0 0 0 2 76t7 A TOTAL 127;79 123917 17;17; tIC' 12490 339137 17610 -3023 24688; 102950;

OPER~ATIO)NALRE QUIREMENTS -WOWKIN(o CAIFITAL 1136 2043 -1740 -463 9644 657 1078 1,659 1113 5008 til I16386 16544 'DEBT SLRVILE 2977 3116 3475 3656 4471 boas 71449 84849 10974 40864 13829 0 *DIVIDENDS 450 700 850 0 0 0 0 0 0 0 0 173 TOTAL 453 55 55 39 435; 6482 8521 10148; 1207;487;45

NLT AVAILABLE 11142 1056Ž FNUM OPERATJONS 7616 6532 10229 8033 7055 7431 90A3 128753 12601 51078 CUNSTIRUCTION REQuIREMENT S 0 0 IV INV PROGRAM 8955 1 1588 9257 10124 0 0 0 0 1012LJ 0 0 -PR~OPOSEDPROECT 0 0 282 9399 2?1259 38994 33172 e1559 B7t I ?5?54 30 0 00 3300 0 'FUTURE PROJECT 0 0 0 0 0 0 0 8500 18 0 00 e6500 871;; 16118 000 300 TOTAL 895 I58 %9 192 15 9 33172' 30059;;

BALANCE TO) FINANCE 1'S39 5056 -890 11490 1412041 31 563 24089 1718'j 6270 104"00 188b8 22438 fINANCID BY% 0 0 SUPPLIERIS & UTHFR 11I2l 0 0 0 0 0 0 0 0 0 0 IBRO 441/605-5IDA 2410 6671 3b08 9029 0 0 0 0 0 9029 0 0 0 TDA 453-ET 0 0 0 303.e 13758 23127 6383 0 0 4 430 0 0 IDA PROPOSED 0 0 0 0 0 17429 la9bo 141 331.20 0 FUTURE(VI PR0&) 0 0 0 0 0 0 1) 0 10000 10 000 0000/000e?o 2 1500 0 0 IDCPPROPOSED CREDI 0 0 0 0 0 0 10 00 5 0)0 0 ...... -...... TOTAL 2 52 2 6671 3608 1I?0 61 11758 2 3 1a7 248 12 15,450 1071 979I49 20000 22000

SUHIPLUS(DPI1CIT) 1142 - i4383 (JF FUNDS 1183 1615 14298 511 -2446 -8436 723 u173's 4 a711 -6851 11433 995 ACCUMULATED 1229 28144 7142 7713 5267 .3169 '21446 .14180 29i 291

NET AVAILABLE FRUm OPERATIONS/ 3? 32 "CUNSTRUCTION RfQ% 85 58 107 41 33 19 27 43 87 35 e4,9 3, 9 3,3 oPLANT IN OPFER*X 7, t 6,3 8,8 6,6 4.9 4,4 4,1 5,2 a ,8 DEST SERVICE COVER 4.1 4,0 3,7 3,1 2,8 2,4 ), 4 2,7 2,2 2,5 1,4 1,7 ANNEX 14 ETHIOPIA BOARD OF TELECOMMUNICATIONS DEBT STATEMENTS (ETH $ THOUSANDS)

FORECAST YEARS ENDING:DEC 31: 1974 1975 1976 1977 1978 1979 1974-79 1980 1981 1982 1983 TOTAL

IBRD 314-ET .AMURTIZATION 429 455 483 508 538 573 2986 606 641 330 o 'BALANCE 4134 3679 3196 2688 215u 1577 0 971 330 0 0 mINTEREST 250 225 198 169 139 107 1088 73 37 9 0

IBRD 4'41ET *AMORTIZATION 613 631 675 713 768 787 4188 539 8ed 911 960 vBALANCE 8812 8175 7500 6787 6024 5237 0 4395 3510 2599 1639 aINTEREST 502 '467 431 393 352? 310 2455 265 217 618 117

IB0 605-ET 0BORROhINGS 4480 0 0 0 0 0 4480 0 0 0 0 wAMORTIZATIUN 425 463 488 5ZS 5b3 S5l 3051 6l1 638 663 6B5 *BALANCE 10625 10162 9674 9149 8586 7999 0 7386 6748 6085 5397 sINTEREST 5S59 676 645 612 576 539 3606 Soo 459 a417 373 *COMMITMENT CHGE 2 2 0 0 0 0 5 0 0 0

SIDA oO5ET -BORROWINGS 4549 0 0 0 0 0 4549 0 0 0 o wAMORTIZATIUN 0 0 0 0 0 375 375 750 750 750 750 aBALANCE 11251 11251 11251 11251 11251 10576 0 10126 9376 8626 7876 .INTEREST 180 225 225 225 225 221 1301 210 195 180 165

SUPPLIERfS (LmE) nAMURTIlATION 34b 340 346 305 157 0 1500 0 0 0 0 -8ALANCE 1154 808 462 157 0 0 0 0 0 0 0 -INTEREST 86 64 41 20 5 0 217 0 0 0 0

IDA 453-ET n80RRUOINGS 3032 11758 23127 6383 0 0 44300 0 0 0 0 .AMURTIZATIUN 0 0 0 0 0 1429 1429 2858 2858 2858 2858 '"BALANCE 3032 14790 31917 44300 4430C 42871 0 40013 37155 34297 31439 -INTEREST 110 646 1911 2980 3212 3160 12019 3005 2797 2590 2383 -CUMMITMENT CHGE 155 265 135 24 0 0 579 0 o 0 0

IDA PPRIPOSED w8URRUNINGS 0 0 0 17429 14950 741 33120 0 0 0 0 -AMORTIZATIUN 0 0 0 0 0 0 0 0 1263 1358 1456 SBALANCE 0 0 0 17429 32379 33120 0 33120 31857 30499 e9043 .INTEREST 0 0 0 632 1806 2374 4812 2401 2355 2260 2158 wCOMMITMENT CHGE 0 0 248 307 b2 3 el0 0 0 0 0

FUTURE(VI PROGRAM) *BORROWINGS 0 0 0 0 0 10000 10000 20000 22000 24000 26000 PBALANCE 0 0 0 0 0 10000 0 30000 52000 76000 102000 .INTEREST o 0 0 0 0 400 400 1600 3280 5120 7120

IDC.PROPUSED CREDI .80RROhINGS 0 0 0 1000 500 0 1500 I 0 0o *AMORTIZATIUN 0 0 0 0 0 0 0 0 57 62 67 "BALANCE 0 0 0 1000 1500 1500 0 1500 14a3 1381 1314 -INTEHEST 0 0 0 36 91 109 236 109 107 102 98

LUAN NAME:

DEBT SUMMARY PBORRWhINGS 12061 11758 23127 24612 15450 10741 97949 20000 22000 24000 26000 -REPAYMENTS 1813 1901 1992 2051 2021 3751 13529 5666 7095 6932 6779 WBALANCE 39008 48565 70000 92761 106190 113180 11318O 127514 142419 159487 17870b *COMMITMENT FtES 157 268 383 331 62 3 1203 0 o 0 0 sINTEREST 1686 2302 *3450 5067 6406 7220 26131 8163 9449 10847 12414 *INTEkEST & CF 143 2570 3833 5398 846C 7223 27335 8163 9449 10847 12414 wDEST SERVICE 3656 4471 5825 7449 8489 10974 40864 13529 16544 17779 19193 TOTAL OPENING 28760 0 0 0 0 0 0 0 0 0 e

AVE MAT YRS 10,7 12,1 13,6 14,8 14,9 15,0 13,5 15,7 16,1 16,3 1603 AVE INT X 5,44 5,85 6,45 6,63 6,50 6,59 6,24 6,78 7,00 7,19 7,34 ANNEX 15 Page 1

ETHIOPIA

BOARD OF TELECOMMUNICATIONSOF ETHIOPIA (BTE)

Notes and Assumptionson Financial Statements

Income Statements

1. TelephoneRentals. Based on the number of telephonesubcribers projected to grow at 10 percent p.a., and an annual average per subcriber of Eth$ 105.

2. Telephone Call Charges. Based on the number of telephone subcribers, an annual calling rate of 1,925 calls per subscriberwhich is projected to decline by 2 percent p.a., and the present charge of Eth$ .08 per call.

3. Telephone Trunk Charges. Based on followingassumption: for the new high quality-capacitylinks, initial increasesof revenues of about 50% due to improved quality and steady annual increases of 14% (four percentage points above the increases in subscribers);and for the other routes annual increasesof 8% p.a.

4. Telephone International. Average annual growth rate for past five years has been 28%. Projected to increase by 20% p.a. (which would slow down to about 15% p.a. in 1982) and due to the improved quality and availability of service of the earth station, an additional initial increase of 75% in 1977 when it is expected to be commissioned.

5. Telephone Installations. Projected on the basis of the number of subscribersto be added in each year and the past average of Eth$ 270 per added subscriber.

6. Telephone Other. Represents revenues from moves and changes of telephone equipment.

7. Telex. BTE's revenue forecast assumed a growth rate of 9% in the 1974-1978 period. Growth in the past five years has been around 20% and the number of telex subscribershave been projected to increase by 12%. There- fore, the forecast has been revised upwards and a growth of overall telex revenues of 15% have been assumed.

8. Telegraph. Domestic and internationalrevenues are expected to remain constant.

9. Broadcasting. Based on the new contract and anticipatedgrowth of operations. ANNEX 15 Page 2

10. Tariff increase is the additional revenue required to earn the minimum rate of return.

11. Salaries. BTE's forecast includes the salary increases granted early in 1974, an annual overall increase of 9.3% plus estimated additional wage requirementsrelated to the microwave and earth satellite installations resulting in a compounded growth rate of about 11% p.a. during the construc- tion period. To provide for possible additional increases in the future, a 12% compounded annual growth rate has been applied. The policy of the Board is to limit the increases in the number of staff to 3% p.a. (this has been the case in the past).

12. Other Expenses. Includes provisions for: (i) additional facilities such as the microwave and earth satellite station: (ii) the removal of BTE's tax exempt status; and (iii) increased fuel costs. Overall annual increasesof 16% is expected compared to 5.7% during the 1968-1973 period.

13. Depreciation. Projected on the basis of a composite rate of 4.5% on average gross plant in service.

14. Profit Tax. Projected on the basis of an average rate of 36% on net income.

Balance Sheets

15. Plant in Operation. Based on estimates of the value of the plant to be commissionedin each year.

16. Work in Progress. Balance of constructionexpenditures and work in progress at the beginning of the year less plant commissioned (see paras. 14 and 18).

17. Cash and Banks. This item has been notionally separated into the balances required for operations (operationalrequirements) and balances not immediatelyrequired for operations (temporarysurplus). Operationalrequire- ments have been projected as 25% of expenses for salaries and other.

18. Accounts Receivables. Projected as 16% of revenues (58% days) which is slightly less than in the past duieto improvementsin collection perform- ance and write-off of uncollectableaccounts.

19. Inventories. The increases reflect the additional stores required as a result of expanded operations. BTE's actual financial statementsfor future years will probably show higher values as part of work in progress actually at least partly will be accounted for as inventories.

20. Overdrafts. This represents short-term cash requirementsprojected to be needed to cover peaks in the constructionprogram. ANNEX 15 Page 3

Funds Flow Statement

21. Internal Sources - Other. This representsadjustments made to prior years results.

22. Working Capital Requirements. Includes net changes of current assets and liabilitiesexcept for cash and banks for which only operational requirementsare included. Cash balances in excess of or below the opera- tional requirementsare shown as surplus or deficit of funds at the end of the statement. ETHIOPIA

BOARD OF TELECOMMUNICATIONSOF ETHIOPIA (BTE)

PERFORMANCEINDICATORS

Actual tite 1971 1972 1973 194h 1975 1976 1977 1978

AdditionalDEL's 3,470 3,022 4,924 5,000 5,600 6,300 7,100 8,000

Staff per Thousand Telephones 61 59 54 50 47 44 40 38

Revenue per DEL (Eth$) 472 468 479 482 491 497 519 536

OperatingRatio (%) 68 70 74 81 81 82 80 77

Rate of Return on Net Assets(%) 12.4 12.3 11.7 8.4 8.4 7.1 7.0 8.0

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