World Bank Documentdocuments.worldbank.org/curated/en/134201468291023443/pdf/multi-page.pdfRest of...

Document of .

The World Bank

FOR OFFICIAL USE ONLY

Report No. 2727-OM

STAFF APPRAISAL REPORT

OMAN

OMAN TELECOMMUNICATION CORPORATION (OMANTEL)

FIRST TELECOMMUNICATIONS PROJECT

April 22, 1980

Transportation, Water and Telecommunications DepartmentEurope, Middle East and North Africa Regional Office

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Currency Unit - Rial Omani (RO)

US$1 RO 0.345RO 1 = US$2.895

FISCAL YEAR (FY)

January 1 - December 31

LIST OF ABBREVIATIONS AND

ACRONYMS USED IN THE REPORT

Arab Fund : Arab Fund for Economic and Social DevelopmentARM, ARF, ARK : Crossbar exchange systems developed by

L. M. Ericsson, SwedenC 23 : A crossbar switching system developed in JapanC&W : Cable and Wireless, Ltd. (British company)DELs : Direct Exchange LinesGHz : Gigahertz (109 Hz)HF/VHF/UHF : High Frequency (HF) up to 30 MHz/Very High Frequency

(VHF) between 30-300 MHz/Ultra High Frequency (UHF)between 300-3,000 MHz

IAN : International Account Number used by OMANTEL forcharging international services

ITU : International Telecommunication UnionMHz : Megahertz (106 Hz)OMANTEL, SAO : Oman Telecommunications CompanyOMANTEL : Oman Telecommunication CorporationPABX : Private Automatic Branch ExchangePBX : Private Branch ExchangePCOs : Public Call OfficesPDO : Petroleum Development Oman, Ltd.PTT : Ministry of Posts, Telegraphs and TelephonesSaudi Fund : Saudi Fund for DevelopmentSCPC : Single Channel per CarrierUAE : United Arab EmiratesUNDP : United Nations Development Programme

FOR OFFICIAL USE ONLY

OMAN

OMAN.TELECOMMUNICATION CORPORATION (OMANTEL)


STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. THE TELECOMMUNICATIONS SECTOR ------------------- 1

Background and Organization ---------------------------- 1

Access to Service -------------------------------------- 2Usage of the Service------------------------------------ 3Quality of Service and Existing Facilities ------------- 3

Demand for Service ------------------------------------- 4Sector Goals ------------------------------------------ 5Sector Constraints ------------------------------- 5The Bank's Role ---------------------------------------- 6

II. THE PROGRAM AND THE PROJECT ------------------------------ 6

The Plan and the Program ------------------------------- 6

Project Concept --------------------------------- 7The Project -------------------------------------------- 8Project Costs ------------------------------- --- - 8Contingencies ---------- …------……----------------------- 9Project Financing -------------------------------------- 10Items for Bank Financing ------------------------------- 10Disbursement ------------------------------------------- 11Procurement ------------------------------------------- 11Project Implementation --------------------------------- 11Performance Indicators --------------------------------- 12

III. ECONOMIC ANALYSIS ---------------------------------------- 12

Telecommunications and Development --------------------- 12Distribution of Benefits ------------------------------- 12Tariff Policies ---------------------------------------- 13Least Cost Solution ------------------------------------ 13Return on Investment ----------------------------------- 14

Risk -------------------------------------------- 15Environmental and Health Aspects -------------------…-- 15

This report is based on the findings of a Bank mission which visited Omanin June/July 1979, comprising Messrs. A. Gravell (Engineer), D. Lomax(Senior Financial Analyst) and J. Chang (Financial Analyst) and updated

by another mission of Messrs. Gravell and Chang in February 1980.

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

Table of Contents, Continued

Page No.

IV. THE IMPLEMENTING AGENCY ------------------------------------- 15

Organization ---------------------------------------------- 15Management and Control ------------------------------------ 16Staff and Training ---------------------------------------- 17Staff Numbers --------------------------------------------- 18Accounting and Budgeting System --------------------------- 18Billing and Collection ------------------------------------ 18Audit ----------------------------------------------------- 19Inventories ----------------------------------------------- 19Insurance ------------------------------------------------- 19

V. FINANCIAL ANALYSIS ------------------------------------------ 20

Past Financial Performance -------------------------------- 20Present Financial Position -------------------------------- 20Accounts Receivable --------------------------------------- 21Valuation of Assets --------------------------------------- 21Financing Plan --------------------------------------- 22Future Financial Performance ------------------------------ 23Future Capital Structure ---------------------------------- 24

VI. RECOMMENDATIONS --------------------------------------------- 24

LIST OF ANNEXES AND CHART

Page No.

1. Examples of Economic Development Since 1970 ----------------- 26

2. International Telephone Statistics -------------------------- 27

3. Existing Facilities at December 31, 1978 -------------------- 28

4. Programmed Growth of Direct Exchange Lines ------------------ 31

5. Construction Program, 1980-1985 ----------------------------- 32

6. Details and Scheduling of Items in Bank Project ------------- 34

7. Cost Bases for Items in Development Program ----------------- 39

8. Schedule of Disbursements ----------------------------------- 42

9. Performance Indicators -------------------------------------- 43

10. Summary of Basic Telecommunications Tariffs ----------------- 44

11. Return on Investment ---------------------------------------- 46

12. CMANTEL Organization Chart ---------------------------------- 48

13. Draft Job Description for Technical Expert ------------------ 49

14. Draft Job Description for Financial Expert ------------------ 51

15. Income Statements, 1978-1985 -------------------------------- 54

16. Balance Sheets, 1980-1985 ----------------------------------- 55

17. Funds Flow Statements, 1980-1985 ---------------------------- 56

18. Debt Statements, 1980-1985 ---------------------------------- 57

19. Notes and Assumptions on the Financial Statements ----------- 58

20. Related Documents and Data Available in the Project File ---- 61

Map - IBRD No. 14664

I. THE TELECOMMUNICATIONS SECTOR

Background and Organization

1.01 Until 1975, public telecommunications services in Oman were operatedby the British company, Cable and Wireless Ltd. (C&W). This company wasgranted an exclusive license in 1939 to provide international telecommunica-tions into and out of Oman, and in 1950 it obtained a license to installand operate local telephone systems in Muscat and Mutrah. It was not until1971, however, that telephone service was introduced into Salalah, the secondmost important city in Oman, and about 1,000 km south of Muscat.

1.02 During 1974, the Government of Oman decided to take over the opera-tion of the telecommunications services from C&W and in 1975 the Governmentbought C&W's telecommunications assets in Oman, and the Oman Telecommunica-tions Company, SAO (OMANTEL SAO) was formed for the purpose of operating andmaintaining the public national and international telecommunications services.The company was established with shareholdings as follows:

The Ministry of Posts, Telegraphs and Telephones 17,999(on behalf of the Government)

The Central Bank of Oman 1

Cable and Wireless Ltd. 12,000

Total 30,000

The shares have a face value of RO 10. From July 1, 1980 OMANTEL, SAO willchange over to a new public corporation, Oman Telecommunication Corporation(OMANTEL), which will be 100% owned by the Government of Oman (paragraph4.03).

1.03 The Ministry of Posts, Telegraphs and Telephones (PTT) which, until1978 was a Department within the Ministry of Communications, is currentlyresponsible for the regulation of telecommunications services within thecountry, allocates radio frequencies for all services, and licenses privateradio installations. The Minister of Posts, Telegraphs and Telephones is tobe Chairman of OMANTEL.

1.04 Responsibility for radio broadcasting and television services is

with the Ministry of Information and Culture, which provides and maintainsbroadcast transmitters but leases relay transmission facilities from OMANTELSAO. The Civil Aviation and Defense Departments both maintain and operatetheir specialized telecommunications services, and the country's oil company,Petroleum Development Oman Ltd. (PDO), has installed and operates a fairlyextensive private telecommunications network. OMANTEL SAO provides someleased circuits to these three entities and meets the telecommunications needs

of all other government agencies.

-2-

1.05 Oman has no local telecommunications manufacturing industry andnearly all the material requirements for the sector must be imported. Mostof the installation works are also contracted to foreigners leaving OMANTELSAO staff with operation and maintenance activities, and subscribers' lead inand telephone instrument installation.

Access to Service

1.06 Access to telephone service in Oman is inadequate, particularly inthe rural areas. At May 31, 1979, there were 10,692 direct exchange lines(DELs) in Oman of which 7,169, or 67%, were in the capital area of Muscat 1/,1,602 (15%) were in the southern city of Salalah and 1,921 (18%) were insmaller settlements in rural areas. Of the 27 existing telephone exchangesin Oman, 18 are in smaller communities in rural areas but much of the countryremains without telephone access. Registered waiting applicants are mainly inthe capital area (where some applications for service have been unsatisfiedfor as long as five years) and in Salalah. There is an unknown number ofpotential subscribers in areas where the network has not yet penetrated.

1.07 The estimated present and future DEL and telephone densities 2/ forthe capital area around Muscat and the rest of the country are shown in thefollowing table:

LADecember 1978 December 1985-

DELs Telephones DELs Telephones

Capital Area 5.2 12.3 10.3 20.4Rest of Country 0.4 0.5 0.9 0.9Oman Total 1.0 1.9 2.3 3.9

/1 The estimates for 1985 are based on implementation of the1981-1985 Five Year Plan and program of which the proposedBank financed project is an integral part.

1/ The capital area is defined as the coastal strip about 50 km in lengthstretching from Al Bustan, a little south east of Muscat, to Seeb on thewest of the capital city.

2/ The density is defined as the number of DELs or telephones per 100 ofpopulation and is based on population estimates and projections assessedby the consultants (financed under TA Loan 980-OM) who assisted OMANTELSAO in the preparation of their national telecommunications developmentplan (paragraph 1.22). In Oman the DEL density is a better measure oftelephone access because telephones include a large number of privatebranch exchange (PBX) extensions.

-3-

The telephone density for the country as a whole (1.9) is about average for

Middle East countries and is generally above that for Africa and Asia exclud-

ing Japan (Annex 2). The DEL density in the capital area at 5.2 is also

about the same as in other Middle East capital cities, e.g., Damascus - 7.0;Tehran - 8.2; Baghdad - 4.9; Riyadh - 6.5; and Amman - 4.7.

Usage of the Service

1.08 Existing telephones are classified according to their location in

residences or offices. At present, about 55% are residential and 45% busi-

ness. An unknown percentage of residential telephones are used primarily for

business due to the past and current difficulty of obtaining connections in

the business districts.

1.09 At the present time there are virtually no Public Call Offices

(PCOs) in Oman which provide non-subscribers with telephone access. Inter-

national calls may be made only by those subscribers who have a special

account number for charging purposes or by using the "pay station" telephones

at OMANTEL headquarters in Muscat. The average telephone revenue per DEL in

1978 was approximately RO 352 (US$1,019) which is among the highest in the

world. About 75% of this is call revenue. Existing tariffs are discussed

in paragraphs 3.06 and 3.07.

1.10 The telex network is presently manual with about 350 subscribers.

The recorded waiting list is 150 but the real unsatisfied demand is consider-ably higher than this figure. An automatic electronic telex exchange is

currently being installed in Muscat and all telex subscribers in the country

will be transferred to it when it is completed in mid-1980. It will have

an initial capacity of 1,200 lines. There is no domestic telegraph service

in the country.

Quality of Service and Existing Facilities

1.11 The quality of the existing service is generally acceptable outside

of the busy hour period. The maintenance standards are reasonable, exchange

buildings housing switching and transmission equipment are airconditioned, and

outside plant is of fair quality. The hot dry climate of Oman during most of

the year, and particularly in the capital and inland areas, provides a good

environment for outside telephone plant as moisture is normally the main

source of performance degradation.

1.12 There are shortages of junction circuits in parts of the capital

area and this causes some call congestion during busy hours. There is also

a shortage of national trunk circuits in general and insufficient circuits

on the subscriber dialing route to the United Arab Emirates (UAE).

1.13 The majority of existing switching equipment is of the crossbar

type and has been installed within the last six years. The long distancenetwork comprises coaxial cable, microwave radio and some satellite circuits.The latter operate between Muscat and Salalah where there is a satellite

television relay facility. Satellite television relay facilities are also

provided between Muscat and several inland centers to enable programs to be

rebroadcast by regional transmitters. The existing technical facilities aredescribed in more detail in Annex 3.

-4-

Demand for Service

1.14 The demand for telephone service in Oman has exceeded the supply,

at least in the capital area and Salalah, since the provision of telephone

service in these areas began.

1.15 The only comprehensive study of existing and potential demand that

has been undertaken to date is that made by a team of Bank-financed telecom-munications consultants (paragraph 1.22), with the help of OMANTEL SAO staff,

during 1978. This study was made difficult by among other things the absence

of reliable demographic data and the existing inadequate telephone penetration.Based on best available estimates of existing population and growth rates for

the capital area, Dhofar, the interior, Musandam, offshore Islands, and desert

areas 1/, on limited historical telephone data, and on assumptions relating to

forecast changes in economic activity and income level, future demand for DEL's

in Oman was projected as shown in the following table:

Total Annual Per-

Installed Registered Expressed centageYear DELs Waiting List Demand Growth Rate

For DELs

1970 557 NA NA -

1971 852 NA NA 35

1972 1,116 NA NA 24

1973 2,126 NA NA 47

1974 2,900 NA NA 271975 3,700 NA NA 22

1976 6,649 NA NA 44

1977 9,699 NA NA 31

1978 11,122 6,451 17,571 13

1979 12,900 6,700 19,600 141980 16,400 5,450 21,850 21

1981 18,400 6,000 24,000 11

1982 21,000 6,100 27,200 13

1983 25,000 4,900 30,300 171984 28,600 5,100 33,800 12

1985 32,500 5,800 37,600 101986 37,900 4,100 42,000 16

1987 43,400 3,600 47,000 131988 49,400 2,600 52,000 121989 56,100 2,100 58,200 121990 63,500 1,500 65,000 12

1/ The capital area is as defined in paragraph 1.06, Dhofar comprises Salalahand its environs in the south and the interior consists of the areas north-

west of Muscat and Nizwa and southeast to Sur. The desert areas comprisethe large bulk of Oman where there is currently no telephone access.

- 5 -

1.16 Long distance telephone traffic has been substantially depressedin the past due to congestion. Hence, a future growth rate of initially 35%followed by 20% per annum has been assumed. This is in line with growthrates experienced in other similar countries.

1.17 The telex network is rudimentary at present but a new electronicnational and international telex switching center is now being installedand modern electronic teleprinters are being purchased. The telex growthrate has been estimated at 25% per annum over the next several years, fallingto 15% per annum, in the late 1980s. These projections are also based ongrowth rates experienced in other similar countries.

Sector Goals

1.18 Telecommunications sector goals are in harmony with those ofnational development plans which, by resolution of the Development Council,are required to give priority to income generating projects in non-oil sectorsto supplement oil receipts and to effect a wider geographical distribution ofinvestments in order that the benefits may be shared by different regions ofthe country. It is envisaged that such wider distribution would narrow the gapin the standards of living in different regions with special emphasis on theleast developed regions thereby maintaining and developing existing areas ofpopulation and protecting them against the danger of mass migration to thosealready densely populated. Equally important are those national goals todevelop local human resources to increase Omani participation in economicactivities and to improve the efficiency of government administration.

1.19 There are two main thrusts in the objectives of the Governmentof Oman for the telecommunications sector. One is to provide an effectivenational telecommunications service satisfying all areas of the country'sbusiness and community needs and providing the essential support necessary forcontinuing national economic development. The other is to establish a fullygovernment owned telecommunications organization with effective and competenttechnical and financial management. This includes moving towards Omanizationof management and operational staff as quickly as possible, becoming finan-cially selfsufficient within the next decade, and raising necessary capitalthrough its own borrowings.

Sector Constraints

1.20 To date, the major sector constraint in developing the telecommunica-tions sector has been the inadequate capacity of OMANTEL SAO to formulate anintegrated technical and financial development plan, which complements nationalinvestment programs and goals in other priority sectors. This has been due inpart to the short time OMANTEL SAO has been in existence, its limited charter,and to some lack of national planning guidelines. The establishment of aDevelopment Council in November 1974 (with the Bank's assistance) provided thebasic national guidelines for telecommunications planning, and two consultants,employed by OMANTEL SAO and funded by the Bank under a technical assistanceloan, have put together the national telecommunications master plan (paragraph1.22).

1.21 Despite the limited life of OMANTEL SAO and the constraints men-tioned above, the management has coped with reasonable success with its first

- 6 -

network development Venture, increasing the DELs from about 3,000 at the end

of 1974 to over 11,000 at the end of 1978, and is currently further extending

the network capacity. Based on its past performance and with the assistance

proposed as discussed in Chapter IV, the management of OMANTEL SAO will be

able to execute new telecommunications projects, including the proposed Bank

financed project, in an efficient and timely manner, after the new corporation

is established.

The Bank's Role

1.22 The Bank first became associated with the telecommunications sector

in Oman through a project identification mission carried out in May 1977.

Following this mission, the Bank assisted OMANTEL SAO by preparing terms of

reference to secure consultants to prepare a national telecommunications

master plan, and to help design a project which might be suitable for Bank

financing. Part of the cost of the consultancy was financed by the Bank under

Technical Assistance Loan No. 980-OM as amended on June 27, 1978, following a

request by the Government. Several subsequent visits were made by Bank staff

to advise the consultants and OMANTEL SAO staff. The Bank's role in the

telecommunications sector in Oman is primarily focused on promoting institu-

tion building, and providing independent technical and economic advice. The

funding proposed allows for this, and in addition will assist the new OMANTEL

in gaining the expertise necessary to take advantage of the international

competitive bidding process, and in becoming familiar with the lower prices

which such a process can bring.

II. THE PROGRAM AND THE PROJECT

The Plan and the Program

2.01 The telecommunications development program derives from the Master

Plan prepared by consultants during the period August 1978 through March

1979 (para 1.22). This plan deals with a twelve-year period from 1979 through

1990. The consultants recommended an implementation program divided into

three overlapping phases, each phase covering approximately five years and

containing a package of inter-related works. This was designed to allow

reviews of plan assumptions and progress of works to be made at appropriate

intervals and, if necessary, enable timely variations in investment to bemade to keep it closely matching the needs and objectives.

2.02 The program presented in the Master Plan has been accepted by the

management of OMANTEL SAO and by the Development Council and the FinanceMinistry in Oman. The 1980-85 phase of the program, however, was modified

slightly with the assistance of Bank staff at the time of project appraisal.

The modifications, which are not substantial, relate to the early years of

the program and have been agreed with OMANTEL SAO management.

2.03 The total construction program costs, including contingencies, overthe period including 1980 and up to 1985 are as follows:

/1Cos ts

Item RO Millions US$ Millions

Ongoing Works 1.704 4.933Bank Project 33.582 97.220Future Works 17.690 51.212

Total 52.976 153.365

/1 These costs represent the value of the construction over the periodfrom 1980 through 1985. The figures will differ slightly from figuresquoted in paragraph 5.07 and Annex 17 because these latter figuresrepresent funds flow. A portion of the funds will be expended priorto receipt of material and a portion will be retained after completionof construction thus leading to minor differences in the timing ofthe construction program and the funds flow accounts.

More details of the program are shown in Annex 5, page 1 of which showsdetails of the construction program while page 2 shows in addition to theconstruction program the year by year value of the contracts to be placed,the amounts estimated to be transferred to fixed assets each year and theconsequential cash requirements each year.

Project Concept

2.04 The proposed project has been selected from the program based onthe following criteria:

(a) it should comprise a time slice of the development programsomewhat less than the initial five year phase proposed inthe consultants' Master Plan. The critical "take off" periodof approximately three years has been selected cQmprising inthe main 1981, 1982 and 1983 but picking up some earlier 1980costs and some tapering off costs in 1984 and 1985;

(b) it should pick up as its commencing point all of the construc-tion program investment in the initial years that is not alreadyincluded in the ongoing works which are committed; and

(c) it should be designed around items which require longer leadtime--the core elements of the program--which will be put tocontract in 1980 and 1981. These items comprise mainly theswitching equipment for local and transit purposes and thelong distance transmission systems. In addition to these,it would include some items such as subscribers' telephoneand telex terminal equipment which could be ordered andbrought into service within the same time frame.

-8-

The Project

2.05 The proposed project, designed on these concepts, provides for thefollowing network additions:

(a) 15,700 new lines of subscribers' local telephone switchingequipment and the replacement of 3,900 lines of obsolescentequipment;

(b) ducts and main subscribers' cables to provide for about16,000 new DELs and provide capacity for future growth;

(c) telephone terminal equipment for about 14,000 newsubscriber services and about 5,500 new PABX extensions;

(d) about 350 public call offices (PCOs) to be located in bothurban and rural areas;

(e) 6,000 lines of switching capacity in new private branchexchanges;

(f) international and national trunk switching and transmissionsystems to carry the projected traffic loads with acceptablecongestion standards; and

(g) switching and miscellaneous equipment to increase the auto-matic telex network to about 1,800 subscribers, commence thepublic telegraph service in 1981 or 1982, and cater for anydata transmission requirements.

2.06 In addition, the project includes:

(a) construction of buildings, provision of motor vehicles, trainingand test equipment and furniture and fittings; and

(b) consultants' services and technical assistance in management,training and engineering.

2.07 A more detailed description of the project's composition is includedin Annex 6.

Project Costs

2.08 The total cost of the project is RO 33.6 million (US$97.2 million)which includes a foreign exchange component of RO 21.2 million (US$61.3 mil-lion). The cost details are shown in Annex 5 and are summarized in thefollowing:

-9 -

RO Millions US$ MillionsItem Foreign Local Total Foreign Local Total

1. Local switching 2.120 0.880 3.000 6.137 2.548 8.6852. External plant 1.169 3.945 5.114 3.384 11.420 14.8043. Subscribers' plant 0.738 0.669 1.407 2.136 1.937 4.0734. PABX switching 0.429 0.171 0.600 1.242 0.495 1.7375. Transit switching 0.433 0.091 0.524 1.254 0.263 1.5176. Telex and telegraphs 2.183 0.136 2.319 6.320 0.394 6.7147. Long distance terrestrial 2.832 1.061 3.893 8.199 3.071 11.2708. Long distance satellite 2.068 0.830 2.898 5.987 2.403 8.3909. Technical buildings 1.000 0.449 1.449 2.895 1.300 4.19510. Non-technical buildings 1.180 0.490 1.670 3.416 1.419 4.83511. Motor vehicles 1.180 0.208 1.388 3.416 0.602 4.01812. Training equipment 0.150 0.023 0.173 0.434 0.067 0.50113. Furniture and fittings 0.641 0.094 0.735 1.856 0.272 2.12814. Test equipment 0.055 0.006 0.061 0.159 0.017 0.17615. Medical equipment 0.012 0.002 0.014 0.035 0.006 0.04116. Technical assistance 0.170 0.000 0.170 0.492 0.000 0.492

Total Base Cost 16.360 9.055 25.415 47.362 26.214 73.576Contingencies Physical 0.766 0.434 1.200 2.218 1.256 3.474Contingencies Price 4.030 2.937 6.967 11.667 8.503 20.170Total Estimated Cost 21.156 12.426 33.582 61.247 35.973 97.220

2.09 The project cost estimates are based on OMANTEL SAO recent experi-ence with international competitive bids and analysis by the consultants duringtheir six months study while defining the Master Plan. The consultants' feesunder technical assistance are estimated at an average man/month cost of aboutUS$8,500, including travel, subsistence and other costs. Details of the basesfor the costs of the more important items are included in Annex 7. Costs donot include duty or other excise taxes as OMANTEL SAO is not required to paysuch charges, and the new OMANTEL will also be exempted from these charges.

2.10 Telecommunication construction costs in Oman must allow for the factthat OMANTEL will not reach the stage where it can carry out its own installa-tion work in the near future (Chapter IV). The costs of expatriate labor used

* by installation contractors is high because of some difficult enviromentalconditions. External plant construction costs are also significantly in-creased by the rocky ground conditions, especially in the capital area.Virtually all construction materials have to be imported. Project costs asestimated make allowance for all these factors.

Contingencies

2.11 An allowance of 4% has been added to the base cost estimates forphysical contingencies to cover possible increases in plant requirements whichmight be found necessary on completion of detailed designs. Price contingen-cies have been added based on differing escalation rates for local and foreigncosts. For local costs, an annual escalation rate of 10% has been adopted andfor foreign costs, an annual escalation rate of about 7.5% has been used.

- 10 -

Project Financing

2.12 The financing plan for the project and the program is given inAnnex 17 and is summarized in paragraph 5.08. This plan indicates that, basedon projections of revenues and operating costs, OMANTEL will fund from its netinternal resources RO 43.6 million (US$126 million) of its requirements forthe years 1980 through 1985. The estimated total cost of the constructionprogram through those years, and including the increase required in workingcapital, is RO 56.7 million (US$164 million). The RO 13.1 million (US$38.0million) gap will be covered by external borrowings (US$33.7 million) andby funds already committed by the Government to cover ongoing works (US$4.3million). Based on this financing plan, OMANTEL will finance from its ownresources about US$67.2 million of the total estimated cost of the proposedproject (US$97.2 million); the remaining US$30 million will be financedby the proposed Bank loan (US$22 million) and by funds from the Oman Govern-ment (US$8 million).

Items for Bank Financing

2.13 The items proposed for Bank financing are as follows:

% of Total Foreign CostFinanced by the

RO US$ Bank for Each Item--- in millions--

(a) Local switching equipment 2.1 6.1 100%

(b) External plant 1.2 3.4 100%

(c) Subscribers' plant 0.7 2.1 100%

(d) Long distance terrestrialsystems 2.8 8.2 100%

(e) Testing equipment, and otherequipment for training center 0.2 0.6 100%

(f) Consultants' services andtechnical assistance 0.2 0.5 100%

(g) Unallocated 0.4 1.1

Total 7.6 22.0

Disbursement

2.14 The proposed loan would be disbursed against 100% of foreign ex-change expenditures for imported equipment under items (a) to (f) in paragraph2.13. The estimated schedule of disbursements is given in Annex 8. Theclosing date for the loan would be June 30, 1985.

Procurement

2.15 All items of material or equipment to be financed from the Bank'sloan would be procured through international competitive bidding in accordancewith the Bank's guidelines. This form of procurement would apply to mostother equipment and materials with possible exceptions of increasing thecapacity of the national trunk switching center where it may prove to bejustified on standardization grounds to expand with the same type of equip-ment, and for growth of the telex system, in which area there would be similarcompatibility and standardization considerations. It is not proposed thatthese items be financed by the Bank.

2.16 It is envisaged that the technical assistance covered by 2.13(f)will be provided by persons working under contract with OMANTEL rather thanby employing a consultancy organization, although the latter possibility isnot excluded. The terms of reference or job descriptions for these peoplewould be drawn up with the assistance of the Bank and would be agreed uponbetween OMANTEL and the Bank. The Bank would have an opportunity to commenton the proposed selections (paragraphs 4.07 and 4.13).

Project Implementation

2.17 The implementing agency will be OMANTEL with most of the installa-tion work being carried out by contract. The critical step in meeting thescheduled implementation plan contained in Annex 6 is the preparation andissue of tender documents for subscribers' telephone switching, externalplant, subscribers' plant and transmission equipment. Draft specificationsare already available for switching equipment. Most of the cable and ductreticulation planning and design, which is necessary for the external plantbidding documents, has been completed and there should be no undue delaysin the remainder. Tender documents for these should be ready for issue byMarch, 1980.

2.18 It will be necessary for some survey work to be carried out beforetenders can be invited for the microwave radio systems and it is envisagedthat this would be carried out by ITU consultants. Buildings, which are onthe critical path of most projects, can be constructed quickly in Oman.Architectural and engineering designs can also be arranged expeditiously.OMANTEL will be responsible for the execution of the project and will have thenecessary authority and autonomy to carry out this task (paragraph 4.04).

- 12 -

Performance Indicators

2.19 Performance indicators to help monitor OMANTEL's project implemen-

tation and operational and financial performance are given in Annex 9. These

were discussed during negotiations and confirmed for inclusion in OMANTEL's

project progress reports to be sent to the Bank.

III. ECONOMIC ANALYSIS

3.01 The economic analysis discussed in this chapter relates to the

1980-1985 development program for OMANTEL of which the project forms an

integral part. The program is designed towards achieving the objectives

for the telecommunications sector, which are in turn derived from the

national development plan (paragraphs 1.18 and 1.19).

Telecommunications and Development

3.02 One of the major thrusts of the national development plan is to

establish a wider base for the national economy than at present. It is also

the Government's objective to direct the benefits resulting from the country's

oil reserves over a wide geographical area and to narrow the gap in the

standard of living between different regions and between different groups of

people. The national plan attempts to strike a balance between investment

expenditure on income generating projects on the one hand and on infrastruc-

ture projects on the other.

3.03 The "Master Plan" for the development of telecommunications in Oman

has been framed against this background and its implementation program pro-

vides for a significant expansion of telecommunications services in all forms

and in all areas of the country. In the early stages of implementation, the

major part of investment in local networks will take place in the two impor-

tant developing areas--one along the 50 km coastal strip known as the capital

area and the second around Salalah in the south. Without such improved and

extended telecommunications services, the implementation programs in other

sectors of the national plan would be difficult and more costly. In fact,

achievement of some of the most important national goals such as increasing

social, educational and administrational bonds between the central capital

area and regions like Salalah and, more importantly, the Musandam peninsula

area, the offshore islands, and numerous rural settlements is very much

dependent on the efficient least cost development of the telecommunications

network.

Distribution of Benefits

3.04 The distribution of the benefits resulting from the proposed invest-

ment program will either directly or indirectly be felt by all segments,of the

Omani society. The upgrading of health and educational facilities, greater

efficiency in business, transportation, building industry, etc., which will

flow from improved communications should impact throughout the nation.

- 13 -

3.05 The establishment for the first time in Oman of about 350 PCOs inboth urban and rural areas will extend public access to telephone facilitiesto a broad spectrum of the population, both in geographic and economic terms.In the rural areas PCOs will be installed first in the larger and more eco-nomically viable settlements. In Oman these rural settlements are tightlyclustered units of population and one telephone in the center provides immedi-ate communication access to all inhabitants. Furthermore, the expansion ofthe long distance network will provide television relay to several ruralareas, and the establishment and upgrading of microwave radio long distancelinks will provide the skeleton structure from which small capacity singlechannel radio links may be subsequently extended to many more isolated vil-lages and settlements.

Tariff Policies

3.06 Overall, the Government's objective for tariff policy is to convertOMANTEL, SAO present position of drawing funds from the government budgetto a position of breaking even or contributing funds to the budget in thefuture after the new OMANTEL is established. Financial projections indicatethat Government's objective can be achieved during the next decade. OMANTEL'soperations during the 1980-1985 period are expected to require a net cashoutflow from the Government of about RO 7 million (US$16 million). However,increased earnings from the new investment should eliminate the net outflowsin the late 1980s and produce net inflows from the sector thereafter.

3.07 The telephone tariff structure is framed in such a way that businessfirms in urban areas pay higher installation charges than do urban residentialusers, and all users in the smaller towns and communities. Since 1976, instal-lation charges in the capital area and Salalah have been RO 100 (US$290) forbusiness connections and RO 10 (US$29) for residential connections. In allother areas of the country, the installation charge is RO 10 (US$29) for allconnections. The tariff structure has other favorable facets such as lowernighttime rates for long distance calls. However, during the present periodof acute shortage in the urban areas, price is not being used to effectivelyration subscriber demand for connections--normally service is provided in theorder of applications, but at present the few additional DELs which becomeavailable are allocated by the President of OMANTEL SAO. By the time theproject is completed, it is expected that the unsatisfied demand for connec-tions will be reduced to the level where waiting times in those areas whichhave access to service would be less than 12 months. As a result, it isexpected that price will then begin to serve to allocate supply more effec-tively. Telecommunication tariffs have been increased twice since 1976. InJanuary 1976, annual telephone rental was increased from RO 16 to RO 56 (350%increase) and unit charge for national calls was increased from RO 0.009 toRO 0.03 (333% increase). In January 1977, annual telex rental was increasedfrom RO 288 to RO 480 (167% increase), followed by increases in charges forinternational services in June 1977. A summary of telecommunications tariffsis given in Annex 10.

Least Cost Solution

3.08 The telephone network design has been based on standard engineering/economic techniques for minimizing capital and recurring costs. Expatriate

- 14 -

engineers have carried out most of the planning and design for the networkexpansion. The current technologies adopted are acceptable and effective inproviding low maintenance costs for the future. Appropriate provisioningperiods for the various types of plant have been adopted and internationalcompetitive bidding will be used in procurement. Contractor installation,which is proposed for the major plant items should assure the earliest pos-sible utilization of plant for revenue earning purposes.

3.09 The automatic telex network will be implemented with modern elec-tronic switching and teleprinters. The long distance and internationalnetworks will comprise a mix of coaxial cable, microwave radio and satellitecircuits which should provide an efficient and reliable network. Satellitecircuits will be utilized on those connections where cost-effective technicalalternatives are not available. The extension of the local switching systemwill be either crossbar or electronic switching, depending on the pricesoffered to an open international tender, so ensuring that the most cost-effective technology is adopted. The continuation of subscriber dialing inthe long distance network and the extension of it to international operationswill minimize expenditure on manual switchboards and operator training. Thenew international switching center nearing completion is an electronic systemwhich will provide efficient manual assistance positions with visual displayunits and keying of charging information. All these individual elements ofthe program have been or will be engineered in detail to provide a soundtelecommunications network capable eventually of meeting most of the demandsof the country in a cost effective manner.

Return on Investment

3.10 The internal financial rate of return on the investment for the1980-85 program is 18% (Annex 11). This rate has been calculated as thediscount rate which equalizes the present worth (in 1979 prices) of the streamof revenues based on existing tariffs with the streams of capital and operatingcosts attributable to the program over the life of the installed equipment.

3.11 The use of conversion factors is not required in deriving an esti-mate of the economic rate of return from the above internal financial rate ofreturn. This is because, in Oman, (a) the Omani currency is freely convert-ible; (b) import tariffs are negligible or nil for most goods, (c) traderestrictions do not exist; (d) there is no major distortion in terms ofpricing structure; and (e) there is no restriction on labor mobility and wagesreflect international market prices. However, the above internal financialrate of return does understate the real economic benefits to be derived fromthe investment program. Benefits are understated partly because the internalfinancial rate of return is based on the existing tariff for telecommunica-tions services. Hence it does not reflect part of the consumer surplus whichnew subscribers and other callers receive, nor does it reflect a portion of theindirect benefits received by the total community through better and fastercommunication, e.g., increased business and government efficiency and improvedservice and administration in other sectors such as health, transportation,agriculture, etc.

3.12 Benefits are also understated because the calculation of the internalrate of return includes costs for extending the network and providing facilities

- 15 -

in the newly served areas, while the full benefits of the extension arenot included. This is because the available capacity of various components ofequipment will not be fully utilized until additional incremental investmentis made and additional lines are connected at some future time.

Risk

3.13 There are no unusual risks associated with the project, althoughsome risk is inherent in any project such as this, involving as it does arelatively immature organization operating in a high cost country wherevirtually all materials and most of the labor has to be imported, and wherethere is little past growth and development to provide data for economicand demand projections. The development program and the project have beendesigned in a manner which allows periodic checks of assumptions and forecastsagainst actual happenings, and adjustments may be made if necessary. Theexperience of OMANTEL SAO management in its operations to date indicates thatwith the help of foreign technical assistance it will be able to implement theproject. Sensitivity analysis on the internal rate of return calculationshows that on the most unfavorable combination of main parameters considered(increase of 10% each in capital and operating costs and 10% decrease inrevenues), the rate of return on the 1980-85 investment program would be notless than 12%.

Environmental and Health Aspects

3.14 Telecommunications projects have very little direct impact onthe environment. The plant is mostly unseen and it consumes little energy.Through its use as an alternative to communications involving physical move-ments, however, telecommunications has the potential to conserve energy,reduce environmental pollution, and facilitate such items as health deliveryand emergency care.

IV. THE IMPLEMENTING AGENCY

Organization

4.01 At present, OMANTEL SAO is a joint management company owned 60% bythe Oman Government and 40% by C&W. It has the sole license to operate andmaintain the public national and international telecommunications services inOman. It does not, however, presently own the plant and assets over which thetelecommunications systems operate--these are owned by the Oman Governmentthrough the Ministry of Posts, Telegraphs and Telephones (paragraph 1.02).

4.02 Under the 1975 agreement between the Government and C&W, the Govern-ment has the right to "not earlier than the third anniversary of the date offormation of the (OMANTEL SAO managment) Company and at any time during thecurrency of this Agreement from such day ... to serve twelve-months notice onC&W of its desire either:

(a) to acquire all C&W's shares in the Company ...; or

- 16 -

(b) to require C&W to enter into negotiations ... for the

variation of this Agreement." 1/

4.03 On June 17, 1979, the Government informed C&W of its intention to

exercise its option to purchase OMANTEL SAO and nominated July 1, 1980, as

the terminating date of the twelve months' notice. In addition, the Govern-

ment has decided that, from July 1, 1980, OMANTEL SAO will cease to exist and

that a new public corporation, Oman Telecommunication Corporation (OMANTEL)

will be established to take over all telecommunications operations from

OMANTEL SAO. The management, staff and net assets of OMANTEL SAO will be

transferred to the new OMANTEL, which will be 100% government owned. OMANTEL

will be the borrower for the proposed Bank loan and the implementing agency

of the Bank financed project.

4.04 Under the new arrangements, OMANTEL will become an autonomous entity

taking over the ownership of the telecommunications assets under a new charter

which has been promulgated by Royal Decree. The new charter will enable

OMANTEL to continue its present ability to borrow foreign exchange, and

empower OMANTEL to own telecommunications facilities including those to be

built under the proposed project.

4.05 The present organizational structure of OMANTEL is shown in Annex 12.

The Managers of Finance and Transmission are at present expatriates while the

other top level managers are Omani. The Telecommunciations advisor is also an

expatriate and he reports directly to the President.

Management and Control

4.06 The management, budgeting and control systems operating in the

present organization need considerable strengthening. There is no internalbudgeting system, and the flow of management control information is erratic

and non-structured. There is a need for a disciplined management information

system to provide condensed and relevant information to the President, the

General Manager and the Departmental Managers.

4.07 OMANTEL SAO and the Finance Ministry recognize the management short-

comings within OMANTEL and propose that they be defined in more detail, and

that remedial actions be specified and implemented by experts retained by

OMANTEL. Job descriptions for two persons, one with technical and the other

with financial background, have been prepared to assist OMANTEL in hiring

appropriate persons for this purpose. These are contained in Annexes 13 and

14 and were discussed and agreed upon during negotiations. Provision for

two experienced experts has been included in the proposed loan to enable them

to design, specify and introduce effective management systems in conformity

with the job descriptions over a period of about two years. Assurance was

obtained during negotiations that the two experts would be appointed in

consultation with the Bank not later than September 1980.

1/ Extract from Article 2(f) of Agreement between the Government of the

Sultanate of Oman and Cable & Wireless Limited dated January 27, 1975.

- 17 -

Staff and Training

4.08 Below the top management level, there is a high proportion ofexpatriate staff in the middle management and senior technical levels. Thisis seen in the following table:

Number (at 12/31/78) PercentageStaff Classification Omani Expatriate Total Omani Expatriate

Administrative 82 92 174 47 53

Technical (section heads,asst. engineers, technicians) 66 124 190 35 65

Operators 126 6 132 95 5

Mechanics 13 23 36 36 64

Subtotals 287 245 532 54 46

Linesmen, cable jointers,drivers and unskilled 414 6 420 99 1

Total 701 251 952 74 26

4.09 Although one of the Government's objectives of telecommunicationsdevelopment is the design and implementation of a training program to achieveas rapidly as possible the total "Omanization" of the personnel and staffengaged in the public telecommunications systems in the Sultanate; it will bea number of years before this can be achieved. Training of local staff oftechnical and middle management levels is currently constrained by the lack ofsufficiently pre-qualified local people. To assist in dealing with thisproblem a training plan has been devised and a training center and trainingequipment, which are necessary to carry out the envisioned training program,have been included in the project. Currently, several expatriates are employedas trainers and they are generally competent for the task.

4.10 OMANTEL's maintenance capability and training needs have been con-sidered in project design; PCO sites will be selected taking into accountgeographical distribution and maintenance requirements. No major difficul-ties are anticipated for OMANTEL to maintain and operate the installedfacilities. However, a disappointing feature of the present organization isits inability to carry out installation work, apart from the subscriber's leadin and telephone instrument, with its own labor force. While the capabilityto install switching equipment and transmission equipment comes only after

- 18 -

some years of training and experience, and contractor installation generallydoes not add unduly to switching costs, the use of contractor installation forsubscriber's cables is expensive. During project supervision, the trainingprogram will be reviewed and continually updated to ensure that adequatetraining will take place, including in the area of cable installation. Theannual updates of OMANTEL's total training program will be included in appro-priate progress reports.

Staff Numbers

4.11 At December 1978, the total staff of 952 represented a ratio ofabout 45 per 1,000 telephones or 85 per 1,000 DELs. While this is high,it is explained by two factors; first, the network is very small at present,there being only about 11,000 DELs, and diseconomies of scale are incurred,and secondly, there is overstaffing because of the use of untrained or partlytrained staff. It is proposed that the staff ratio be progressively reducedwith a broad target of halving the ratio of staff to DELs by 1990. Theproposed progress towards the 1990 objective is included as item 3 of theperformance indicators shown in Annex 9, which were discussed and agreed uponduring negotiations.

Accounting and Budgeting System

4.12 The accounting system in OMANTEL SAO is on a cash basis and itsfinances form part of the government budget. All payments for capital expendi-tures have been made directly through government channels. OMANTEL will beoperating as an autonomous entity under a fully commercial practice. Someprogress is being made towards improved procedures but the accounting andbudgeting systems are still in need of substantial improvement.

4.13 OMANTEL SAO has begun preliminary works to convert from present cashaccounts to accrual accounts. To assist in the implementation of the fullcommercial accounting system, OMANTEL will employ a qualified financial expertwith experience in telecommunications operations. Provision for the employ-ment of this expert has been made under technical assistance in the proposedBank loan and a draft job description has been prepared to assist OMANTEL(paragraph 4.07 and Annex 14).

Billing and Collection

4.14 The fixed annual rentals are billed in advance and call charges arebilled after they have been incurred. All bills are paid at OMANTEL SAO head-quarters or local branches of commercial banks. The billing for local callsis presently staggered on a quarterly basis while international telephone andtelex calls are billed on monthly basis. For international calls, subscribersare required to obtain an international account number (IAN) against whichcalls are billed; no deposit is required when opening this account withOMANTEL SAO. The IAN is individual to the subscriber irrespective of the numberof telephones held. Subscribers and the public can also make internationalcalls by paying cash at the OMANTEL SAO headquarters in Muscat.

- 19 -

4.15 The separate billing process for local and international calls willbe combined and computerized utilizing the computer service facilities at theFinance Ministry. OMANTEL SAO expects that the computerization of the wholebilling process will be completed during 1980 and this should reduce thebilling cycle from three months to about one month.

Audit

4.16 OMANTEL SAO cash accounts are pre-audited internally and post-audited on a continuing basis by its internal auditor's office. However, theinternal audit and control has not been effective in the past. To correctthis situation, the job description for the financial technical assistanceprovides for the review of the internal audit and control procedures andhelping OMANTEL implement the necessary changes after the commercial account-ing system is introduced (Annex 14).

4.17 A local accounting firm, Shair and Company, has been the externalauditor of OMANTEL SAO since its inception. However, no audited report hasyet been published mainly because Shair and Company has been involved in re-writing OMANTEL SAO past accounts to bring them up-to-date. During negotia-tions, assurance was obtained that OMANTEL would engage an independentauditor acceptable to the Bank. It was also agreed that OMANTEL wouldsubmit, for FYs8O to 82 its unaudited annual financial statements to the Bankwithin six months of the close of the fiscal year and its audited annualfinancial statements with auditor's report within eight months of the close ofthe fiscal year, as it is considered unlikely that OMANTEL can do better thanthis during the next several years. However, OMANTEL should be able toimprove its accounting practice after its staff becomes familiar with the newcommercial accounting system and thereby reduce the time needed for accountspreparation and consolidation. During negotiations, OMANTEL agreed to submit,from FY83 and onward, its unaudited and audited annual financial statementswith auditor's report, respectively within four and six months of the close ofthe fiscal year.

Inventories

4.18 Stores inventories and a material management system do not exist.The specification of a system, and its implementation, will be included inthe job description referred to in paragraph 4.07.

Insurance

4.19 In view of the dispersion of OMANTEL SAO assets, and the consequen-tial diversification of risks, OMANTEL SAO does not insure against fire andother loss or damage. This same policy will continue in the future and is inline with the policy adopted by most telecommunications administrations and isacceptable.

- 20 -

V. FINANCIAL ANALYSIS

Past Financial Performance

5.01 There has been no cash surplus since the inception of OMANTEL SAOin 1975 and deficits up to 1977 have been financed by the Government. Afterthe two major tariff increases in 1976 and 1977 (paragraph 3.07) and with theexpansion of its services, OMANTEL SAO operating results have been improvingsteadily. Preliminary figures for 1978 show a cash surplus of about RO 1.8(US$5.2) million. A summary of the cash statements of OMANTEL SAO during theperiod FY75-78 is given below:

Fiscal Year Ending 1975 1976 1977 1978December 31 ------------ RO Thousands ----------

Operating revenues 204 2,557 3,738 5,767Operating costs 832 4,102 3,882 3,972Operating (deficit) surplus (628) (1,545) (144) 1,795

Present Financial Position

5.02 At present, OMANTEL SAO is a management company and does not own thetelecommunications assets it operates (paragraph 4.01). However, to obtain anassessment of its financial position when it changes over to a 100% governmentowned corporation and takes over the telecommunications assets in the future(paragraph 4.04), a notional estimation of the financial position of OMANTELSAO as of December 31, 1979, has been prepared as follows:

(millions)As of December 31, 1979 RO US$

ASSETSFixed Assets

Net plant in operation 21.7 62.8Work in progress 1.3 3.8

Total Net Fixed Assets 23.0 66.6 VCurrent Assets 6.0 17.4

Total Assets 29.0 84.0

LIABILITIESEquity and Government financing 27.3 79.0Current Liabilities 1.7 5.0

Total Liabilities 29.0 84.0

- 21 -

Accounts Receivable

5.03 The overall level of subscribers' accounts receivable as ofDecember 31, 1979 is estimated at RO 3.2 million, which is about five monthsof the current year's revenues. However, this amount includes overdue ac-counts which are about three months of the year's billings; this is notunreasonable given the present quarterly billing system. The management ofOMANTEL SAO is aware of the need to improve its overall accounts receivableposition and is beginning to pursue a rigorous disconnection policy. Thecomputerization of the billing process is expected to further improve theaccounts receivable position (paragraph 4.15).

5.04 About half of the overdue accounts as of December 31, 1979 belongto government subscribers. The Government is aware of this problem and hasprovided in the FYs79-80 budget for each department special funds whichare earmarked for the current payments of telecommunications services. Asregards the overdue payments, the Government has instructed OMANTEL SAO toidentify the accounts that should be paid and any that may have been writtenoff. During negotiations, assurance was obtained that the Government wouldsettle all existing arrears promptly and cause all public agencies to settletheir future accounts within two months of the billing date and that OMANTELwould maintain the overall level of its accounts receivable at about threemonths' billings from FY81 through FY83, and at about two months' billingsfrom FY84 and thereafter.

Valuation of Assets

5.05 At the time when OMANTEL SAO was formed, the assets of C&W asof December 31, 1974 were taken over by the Government under a conveyanceagreement of August 2, 1975 and were subsequently valued at RO 1.6 million(US$4.6 million). Since then, the Government has been directly providingfunds for capital expenditures, but no plant accounts have been kept. Inpreparation for the transfer of the assets after the complete ownership bythe Government, OMANTEL SAO has begun the process of evaluating these fixedassets and stores, and is expected to advise the Bank by June 30, 1980 ofthe result of this evaluation.

5.06 Preliminary estimate of the net fixed asset value by OMANTEL SAO asof December 31, 1979 is about RO 21.7 million (paragraph 5.02). To reducepossible distortion in future assets value by price inflation on the one handand declining unit costs from improved technologies and economies of scaleon the other, the net fixed assets in operation have been tentatively adjustedto reflect the current value of the assets and revalued on a trial basis, by4.5% per annum for the forecast period (Annex 19). During negotiations,assurance was obtained that, starting from FY81, OMANTEL would review anddetermine annually the value of its fixed assets and notify the Bank ofthe results not later than June 30 of each fiscal year. The purpose of thereview is to determine whether adjustments to the value of fixed assets arenecessary for calculating the rate of return and to assure that, if necessary,appropriate revaluation would be made in a manner acceptable to the Bank.

- 22 -

Financing Plan

5.07 The forecast of sources and applications of funds is based onOMANTEL's capital expenditure program for the period 1980-85 and a summary ofthe financing plan is given below. Detailed funds flow statements arepresented in Annex 17.

(in Millions)For the period 1980-1985 RO US$ %

RequirementsOngoing works 1.5 4.3 2.6Proposed project 33.6 97.3 59.3Future works 18.7 54.1 33.0Working capital increase 2.9 8.4 5.1

Total requirements 56.7 164.1 100.0

SourcesInternal cash generation 46.8 135.4 82.5Less: Debt service 3.2 9.2 5.6

Net internal cash generation 43.6 126.2 76.9

Borrowings:For the proposed project:

Proposed Bank Loan 7.6 22.0 13.4Government loans 2.8 8.0 4.9

Subtotal 10.4 30.0 18.3

For ongoing and future works 2.7 7.9 4.8

Total borrowing 13.1 37.9 23.1

Total Sources 56.7 164.1 100.0

5.08 During the period 1980-1985, OMANTEL's net internal cash generationis expected to contribute about 77% of total financial requirements. Thiscontribution will be supplemented by external borrowings. For the proposedproject, in addition to OMANTEL's internally generated funds and the proposedBank loan of US$22.0 million, the Government will provide for about US$8.0million from its own resources. The Bank loan of US$22.0 million wouldrepresent about 73% of the total borrowings needed for the implementation ofthe proposed project.

- 23 -

5.09 In the financial forecasts, the Bank loan is assumed to carry aninterest rate of 8.25% per annum with ten years repayment including four anda half years' grace period. Borrowings from the Government are non-interestbearing and repayable in ten years including a six year grace period; theseterms and conditions are in line with the current practices in Oman forgovernment loans to organizations similar to OMANTEL.

5.10 During negotiations an assurance was obtained that the Governmentwould provide funds, on terms in line with the Government's policy and satis-factory to the Bank, to meet any required foreign or local expenditure neces-sary to complete the program.

Future Financial Performance

5.11 Financial statements projected for FYs 80-85 are given in Annex15 through Annex 18. A summary of OMANTEL's future financial performanceis given below:

Fiscal Year Ending 1980 1981 1982 1983 1984 1985December 31

Operating revenues(million RO) 9.6 12.5 15.2 17.9 20.8 24.3

Operating expenses(million RO) 7.8 9.2 10.9 13.0 15.3 17.7

Operating income(million RO) 1.8 3.3 4.3 4.9 5.5 6.6

Operating ratio (%) 81 73 71 73 74 73

Rate of return onrevalued assets (%) 8 12 13 12 11 11

Current ratio (times) 3 3 3 3 2 2

Debt/equity ratio (%) 7/93 11/89 17/83 20/80 19/81 16/84

Debt service coverage(times) 65 75 42 21 17 6

5.12 OMANTEL's projected financial performance over the project periodis satisfactory. The operating ratio will be about 70%, the current ratiowill be above 2.0 and the debt coverage ratio will be above 6.0 through theproject period.

- 24 -

5.13 No tariff increase is expected to be required during the projectperiod. The present forecasts show that a 10% rate of return on revaluedassets would be adequate to meet OMANTEL's future financial requirements.During negotiations, assurance was obtained that OMANTEL's tariffs would bemaintained at levels sufficient to achieve at least 10% rate of return onrevalued net fixed assets in operation, starting from FY81 (paragraph 5.06).

Future Capital Structure

5.14 The Government has decided that the transfer of telecommunicationsassets to OMANTEL will take the form of equity. OMANTEL SAO is presentlyevaluating the fixed assets and stores associated with its telecommunicationsoperations (paragraph 5.05) and the final result will be used as the basis todetermine the amount of government's equity to OMANTEL. OMANTEL would trans-fer its net profits to the Government only after making due allowance forOMANTEL's requirements for debt service, investment programs, increase inworking capital and allocation for any statutory requirements. Duringnegotiations, assurance was be obtained that any modification of OMANTEL'sfuture capital structure would be made in consultation with the Bank.

VI. RECOMMENDATIONS

6.01 During negotiations, assurance was obtained from the Governmentthat it will:

(a) promptly settle existing arrears and introduce procedures toensure that all government agencies pay current bills withintwo months of the billing date (paragraph 5.04);

(b) make available appropriate funds to cover any financing gapfor the funding of the project (paragraph 5.10); and

(c) inform the Bank and seek its comments prior to any futurechange in OMANTEL's capital structure (paragraph 5.14).

6.02 During negotiations, assurance was obtained from OMANTEL that itwill:

(a) employ, not later than September 1980, internationally recruitedpersonnel with technical and financial background, satisfactory 9

to the Bank, for assistance in the design, specification andimplementation of appropriate management systems (paragraphs4.07 and 4.13);

- 25 -

(b) engage an independent auditor acceptable to the Bank(paragraph 4.17);

(c) provide the Bank with unaudited and audited annual financialstatements with auditor's report, respectively, within sixand eight months of the close of the fiscal years for FY80through FY82, and within four and six months for FY83 andonward (paragraph 4.17);

(d) maintain the overall level of its subscriber accounts receiv-able at about three months' billings from FY81 through FY83,and at about two months' billings from FY84 and thereafter(paragraph 5.04); and

(e) starting from FY81, review and determine annually the value ofits fixed assets, and notify the Bank of the results not laterthan June 30 of each fiscal year. If necessary, appropriaterevaluation of its fixed assets will be made in accordancewith methods acceptable to the Bank (paragraph 5.06).

6.03 During negotiations, assurance was obtained from the Governmentand OMANTEL that they will set and maintain OMANTEL's tariffs at levels suffi-cient to achieve at least 10% rate of return on revalued average net fixedassets in operation, starting from FY81 (paragraph 5.13).

6.04 The proposed project constitutes a suitable basis for an IBRD loanto OMANTEL of US$22.0 million equivalent for a term of ten years including agrace period of four and a half years.

OMAN

OMAN TELECOMMUNICATION CORPORATION-(OMANTEL)


Examples of Economic Development Since 1970

1970 1971 1972 1973 1974 1975 1976 1977 Annual Growth %

No. of schools 16 41 68 111 176 207 261 310 44.8

Pupils 6,941 15,332 24,481 35,565 49,929 55,752 64,975 75,887 34.8

Hospital beds 12 216 526 664 934 1,000 1,252 1,409 81.4

Post offices 2 10 12 17 20 27 37 42 46.3

Telephones 557 989 1,208 2,226 2,937 3,701 6,649 9,912 43.3

Roads (blacked topped) 10 27 198 300 427 708 1,272 1,447 86.2

kms

Roads graded kms 1,817 2,168 3,060 3,620 4,105 5,495 8,500 10,509 24.5

Gross power generated 8.0 12.0 22.2 38.9 72.6 121.9 214.2 329.2 59.1

x 106 (government)

Employment (Omani) 1,630 2,857 4,765 7,403 9,035 - 15,668 17,269 34.3

Expatriates 120 225 553 1,670 3,000 - 6,643 9,496 72.7

Petroleum 106 barrels 121.3 107.4 102.8 107.0 105.8 124.6 133.7 124.1 0.4

Exports (RO million) 78.7 82.3 83.6 114.9 419.1 489.2 551.2 559.4 32.3

Imports (RO million) 21.0 40.2 57.6 85.8 211.7 348.4 383.8 392.9 51.7

Government revenue 45.4 50.1 53.0 68.5 311.5 459.4 505.4 613.3 45.1

Source: 1. Oman Current Economic Position and Prospects, October 1979, IBRD.

2. Master Plan for the Development of Telecommunications in the Sultanate of Oman,

March 1979, OMANTEL.

- 27-

AS1EX 2

OMAN

OMAN TELECOMMUNICATION CORPORATION (OMIANTEL)

_FIRST TELECOMMUSNICATIONS PROJECT

Iste-onio..al Telephon Stetistine

TELEPHONES - JANUARY 1978P OUL NP PER CAPITA-' D- NATIONAL PRENCIPAL CITIES P-REST OP COUNTRY

TION Y7 Pee A-. Ann nch-nRe Auto- cenlage Ocetegecapits Seouth Lines Tntel Tele- Per eati- Total Per of Total Pee of

COUNTRY Mid-1977 us4 (Pe-net) (DELs) Telephoses ph-ne 100 cR1105 Telephone 100 Nat'1 Telephone 100 Net'1(nlin) 1927 1960-77 (ONUs) (SONs) EEL Pop. 7. (NOSe) Pop. 7, (COOs) Pop. 7.

AFRICAAlgeria 17.0 1,110 2.1 172.4 297.7 1.7 1.6 87.3 257.9 n.. 6.63.8 ne 13.4Burondi 4.2 130 2.2 3.0 5.0 0.7 0.1 99.0 3.4 ne 67.1 0.86 . 32.9C-nr..n 7.9 340 2.9 14.3 14.3 1.0 0.2 100.0 9.3 1.1 64.6 5.0 0.1 35.4Central African Rep. 1.9 250 0.2 n. n.. - - na .. 5. - -e.-Chad 4.2 130 -1.0 2.5 3.9 1.6 0.1 100.0 2.5 0.5 64.9 1.4 0.3 35.1Egypt 37.8 320 2.1 323 n..3/- na . - -n. - -Ethiepie 30.2 110 1.7 54.6 78 1'4 0.3 85.8 60.3 3.7 76.6 18.4 0.4 23.4Gha.. 10.6 380 -0.3 36.01 - 63.62 1:8 0.7 84.9 s.. - -.. - -I-ory Coas.t 7.5 690 3.3 25 33 66.3 2.6 0.9 95.5 63.7 3.1 98.8 5.8 0.02 1.2Kenya 14.6 270 2.5 63:3 2 143.8 2.3 1.0 87.4 115.7 8.4 80.3 28.1 0.2 19.3Liberia 1.7 420 1.8 n.e.1. 8.4 - 0.6 100.0 8.3 2.3 98.2 .0 0.01 1.8Melt 6.1 110 1.0 4.0 2 .. - - ne .. - -ne M-uitania 1.3 270 3.6 n.. ne -- - n.ne. - -na - -Meorltius 0.9 760 ne 16.3 29.1 1.8 3.3 100.0 11.8 8.2 40.4 17.3 2.3 09.6Morocco 18.3 500 2.2 n.. 210.0 - 1.2 81.3 158.7 3.0 75.6 51.3 0.4 24.4Niger 4.9 160 -1.4 4.4 n.. - - n. n.. - -. e - -R..nde 4.4 130 1.0 2.7 4.5 1.7 0.1 100.0 ne. - -s. - -Sene gal 5.2 430 -0.3 20.5 42.1 2.1 0.8 99.2 42.1 0.8 100.0 0.0 0.0 0.0Sudes 16.9 290 0.1 44.2 62.3 1.4 0.3 91.4 55.7 2.9 89.4 6.6 0.04 10.6T..n..nie 18.4 190 2.6 24.3 74.3 3.0 0.5 79.7 39.5 4.9 80.0 14.8 0.1 20.0Egend. 12.0 270 0.7 21.03 48.9 3/ 2.3 0.4 78.5 35.5 4.9 72.6 13.4 0.1 27.4uippee Volta 5.5 130 0.6 4.6- 8.6- 1.9 0.1 88.1 3.5 - 97.3 0.1 -- 2.5Zseoie 5.1 450 1.5 26.2 34.5 2.1 1.3 97.1 43.9 2.4 80.5 10.8 0.5 19.5

AMERICAS

BReail 116.1 1,360 4.9 3,060.2 4,708.0 1.5 4.0 97.7 3,598.4 12.2 78.4 1,108.6 1.2 23.6Cana.da 23.3 8,460 3.6 8,954.8 314 505.7 1.6 63.2 99.8 7,445.1 72.2 51.3 7,060.6 25.9 48.7C.l.sbia 24.6 720 2.7 1,163.9- 1,396.6 1.2 5.6 98.4 1,046.0 9.3 74.9 350.6 2.5 25.1Custa Ripe 2.1 1,240 3.2 101.0 145.1 1.4 6.9 99.2 128.9 14.3 88.8 16.2 1.4 11.2go Sal-d-r 4.2 350 1.8 63.2 70.4 1.1 8.6 98.4 58.7 3.7 83.3 11.7 0.4 16.7Osatesala 6.4 790 2.8 67.8 70.6 1.0 1.4 100.0 70.6 8.8 100.0 0.0 0.0 0.0Mesics 63.3 1,120 2.8 1,982.4 3,712.4 1.9 5.5 98.3 3,137.5 12.3 84.4 574.9 1.4 -15.6Trinidad & Tehago 1.1 2,380 1.6 40.5 74.9 1.8 7.0 99.8 46.5 46.7 62.0 28.4 2.9 38.0United Scarce 220.0 8,520 2.4 85,074.0 161,448.0 1.9 74.4 99.9 83,830.0 79.3 51.9 77,618.0 67.9 48.1liruguap 2.9 1,430 0.8 n.. 268.0 - 9.6 93.8 212.0 17.5 78.4 56.0 3.5 21.6V.e....ela 13.5 2,660 2.7 634.6 847.3 1.3 6.4 99.6 705.8 12.6 83.3 141.5 1.9 16.7

ASIABangladesh 81.2 90 -0.4 72.5 289.2 1.2 0.1 70.5 47.8 n.ea. 53.6 41.6 n.e. 66.4Beea .31. 5 140 0.9 24.4 32.6 1. 3 0.1 67. 8 32.6 - 0.1 89.9 4.4 48.0 0.1China Rep. 16.8 1,170 6.2 1,112.3 1,685.1 1.5 10.0 96.0 1,685.1 20.0 100.0 0.0 0.0 0.0India 631.7 150 1.3 1,681.5 2,247.2 1.3 0.4 85.7 1,200.9 3.9 53.6 1,046.3 0.2 46.4Ind.neeia 133.5 300 3.3 229.1 324.5 1.4 0.2 68.2 245.5 1.6 76.8 79.0 0.1 23.2Iran 34.8 2,160 7.9 770.6 828.6 1.1 2.5 91.5 757.8 6.5 91.5 70.8 0.3 8.5Iraq 11.8 1,550 3.8 n.. 319.6 - 2.6 95.8 223.5 1.9 69.9 96.1 9.7 50.1Japan 113.2 5,670 7.7 37,503.2 50,625.6 1.3 44.2 99.2 22,090.3 52.2 59.2 28,535.3 39.5 40.8Koera. Rep. 36.0 820 7.4 1,568.7 1,978.4 1.3 5.2 97.2 1,417.8 9.2 71.7 560.6 2.9 28.3Lebanon 2.9 n.a. n.&. n.a. n.a. - - n.a. n.e. -. - n.a. - -Malaysia 13.0 930 3.9 228.0 374.7 1.6 2.9 91.0 225.6 78.9 60.2 149.1 1.2 39.8

Napal 1~~~ ~ ~~~~3.3 110 0.2 89 9 9.44 1.1 j/ 0.1 803.0 188 28 9. 0 6 0.0 6.3.4/ 4/ _ 18:7 ~~~~~~~~~~~~~i 5.~-:3 88.6 2:4 o.I03 11.4**O.= ~~~~0.8 2,540 n.e.1.1 21.1-' 1.9 - 1.9 ~~0 0.0.

Pakistan 74.9 190 3.0 230.8 287.9 1.2 0.4 n.e. n... - - n..a-.Philippines 64.5 450 2.5 341.6 567.3 1.7 1.3 95.2 519.1 5.8 91.5 48.2 0.1 8.5Singapore 2.3 2,880 7.5 307.8 455.1 1.5 19.6 100.0 455.1 19.6 100.0 0.0 0.0 0.0

A-Sri Lanka 14.1 200 2.0O 5.7 74.2 1.6 0.5 99.9 47.3 5.0 63.8 26.9 0.2 36.2Syria 7.8 910 2.3 151.1 193.0 1.3 2.5 89.6 133.9 5.4 79.7 39.1 0.8 20.3Thailand 43.8 420 4.5 249.8 366.9 1.5 0.8 97.1 308.2 4.8 84.0 58.7 0.2 16.0EYse, Arab Rep. 5.0 430 n.. n.e.. na .. ne n... - -

EUROPE ,0. 09 4.4France 53.1 7,290 4.2 9,996.3 17,518.8 1.8 32.9 99.9 9,911.4 59.3 56.6 7,0. 2.9 44

Oe.sany, Fed. Rep. 61.4 8,160 3.3 16,047.9 22,931.7 1.4 37.4 100.0 9,327.8 54.0 40.7 13,603.9 30.8 59.3Sweden 8.3 9,2.50 2.9 4,178.4 5,930.3 1.4 71.7 100.0 2,880.4 84.3 48.4 3,049.9 62.9 51.4S.iteerland 6.3 9,970 2.1 2,588.8 4,145.2 1.6 65.9 100.0 1,918.2 86.7 46.3 2,227.0 54.6 53.7United Kingdea 55.9 4,420 2.5 15,184.0 23,182.2 1.5 41.5 100.0 9,065.3 51.7 39.1 14,116.9 36.8 60.9USSR 258.9 3,020 3.7 16.100,0 19,600.0 1.2 7.5 98.0 5,200.0 20.5 26.5 14,400.0 6.1 73.5Yugosla-Ia 21.7 1,960 5.6 n.e. 1,555.7 - 7.1 98,3 685.0 20.2 44.0 870.7 4.7 56.0

OCEANIAAsetralia 14.1 7,340 2.9 4,055.0 5,835.3 1.4 41.5 97.4 4,432.6 49.4 76.0 1,402.7 27.4 24.0Fiji 0.6 1,210 n.ea. 18.5 32.7 1.8 5.6 90.2 16.0 18.4 49.0 16.7 3.3 51.0New Zealand 3.1 4,380 1.9 1,070.8 1,715.3 1.6 54.5 95.7 972.8 n.ea. 56,7 742.5 n.e. 43.3Fepus Nas Guinea 2.9 490 3.4 n,. 37.8 - 1.3 98.6 33.5 13.4 88.5 4.3 0.2 11.5

P/Fpulation and GNP statistics: Werld Devalepsent Indicatora. The Wurld Sash, June 1979

2/ Telephone statistics : The Weeld's Telephones, AT&T, January 1978

3/ Stetistics for these co..ntries are derived fRen ceisus reports in, the Wenld Rank, ass tatistiRs ar -vilahieia The Weed's TeIephonee, AT&T.

4/ Deenehee 1978 estinates and statistics prepared hy the Bank-finan.ced tesm of cenaultanta with OMANTEL .ei. ane

5/ Including capital area and Dhufr region.

6/ Including internal are..

Noe-b-e 1979

- 28 -

ANNEX 3Page 1 of 3 pages

OMAN



Existing Facilities at December 31, 1978

1. Basic Data

Telephones 21,000 (estimated)DELs 11,122 (at Sept. 30, 1979)Local switching capacity 15,960Telephone exchanges 27Waiting list 6,451PCOs 0Telex services 354Telex waiting 437Public telegraph offices 0

2. Local Telephone Services

2.01 The local telephone service is 100% automatic. The type ofswitching equipment is shown in the following table:

Number of Number ofEquipment Type Exchanges Lines Capacity

C 23 3 2,700ARF 102 13 10,500ARK 522 9 1,500ARK 511 1 60Strowger 1 1,200

2.02 The C 23 crossbar exchanges were supplied by Hitachi and are housedin containers as are all of the exchanges in the network except those atMutrah, Greater Mutrah, Qurrum, Seeb and Salalah. The buildings whichaccommodate these exchanges are air conditioned and of good quality.

2.03 The step-by-step exchange does not have automatic number identi-fication and there is no room for expansion in the existing building. Itsnumbering does not conform to the national numbering system and it will notbe able to access the new automatic International Gateway exchange.

- 29 -


2.04 The L. M. Ericsson crossbar exchanges have been provided withinthe last five years and are in good condition.

2.05 A large number of PABXs (more than 340) of a variety of types arein use. Most are within the capital area. There is a total of about 7,300working PABX extensions and about 2,800 extensions to DELs giving in allabout 10,100 additional telephones compared with DELs. That is a telephoneto DEL ratio of 1.9 (21,222 to 11,122).

2.06 The external plant comprises the following cable types:

(a) polythene insulated and sheathed, moisture barrier;

(b) polythene insulated and sheathed, jelly filled; and

(c) self-supporting aerial, polythene insulated and sheathed,screened.

Primary cables in the capital area are installed in PVC ducts.

3. Trunk Network

3.01 Trunk circuits are generally of high quality and are provided overcoaxial cable (four tube and single tube, small diameter) and microwaveradio. The existing systems comprise of the following:

Coaxial Cable

Mutrah-Azaiba : 4 tube, 12 MHzAzaiba-Sohar : 4 tube, 4 MHzAzaiba-Nizwa : 4 tube, 4 MHzNizwa-Bahla : Single tube, 120 ch.Suwaiq-Rostaq : Single tube, 120 ch.Sohar-Khatmat : Single tube, 60 ch.Azaiba-Risail : Single tube, 120 ch.

Microwave Radio, 960 Channels

Izki-SurSohar-BuraimiBuraimi-Ibri

- 30 -


3.02 A domestic satellite system is operating over a leased transponderin an Indian Ocean satellite of INTELSAT. The main earth station is atAl Hajar near Muscat. This is the site of the standard earth station forinternational traffic. For the national network nonstandard 30 feet earthstations are located at Al Hajar and Salalah and are being installed atBuraimi, Saham, Nizwa and Sur. Between Al Hajar (Muscat) and Salalah, 24SCPC telephone circuits are provided, and TV relaying is possible in eitherdirection. The other earth stations have "TV receive only" capability.

3.03 There is currently no public telecommunications service to orwithin the Musandam peninsula.

3.04 There is a national trunk switching center at Muscat, located inthe main OMANTEL building at Ruwi. It is an L. M. Ericsson ARM 201/2 type4 wire exchange equipped for 500 incoming and 500 outgoing trunks. Atpresent 396 incoming and 354 outgoing circuits are operating with traffic of130 and 125 erlangs respectively.

4. International Telephony

4.01 International traffic is carried primarily over the Indian Ocean,INTELSAT satellite. The standard earth station is at Al Hajar, 40 kilometersfrom Greater Mutrah to which it is connected by a dedicated 1+1 microwaveradio system. The manual international exchange is located at Greater Mutrahand an electronic exchange is being installed. International subscriberdialling with automatic message accounting (AMA) will be possible when thisinstallation is completed, probably towards the end of 1979.

4.02 Traffic to the United Arab Emirate is subscriber dialled, via thenational ARM exchange and is bulk billed. It is carried over the nationalsystem to Buraimi and hence over 24 channel VHF, coaxial cable and microwavesystems to the UAE Gateway exchange at Abu Dhabi.

5. Telex

5.01 The telex network is presently manual with switchboards at Muscatand Salalah. An electronic exchange manufactured by Siemens is beinginstalled and should be ready about mid 1980. International telexlinks are provided from both Salalah and Muscat. Siemens electronic tele-printers are being standardized for the telex network.

5.02 There is no domestic telegraph service.

6. Other Facilities

6.01 Apart from OMANTEL, other agencies operate telecommunicationsfacilities in the country. The principal such agencies are The DefenseDepartment and Petroleum Development Oman Ltd. (PDO). PDO operates someprivate exchanges and an extensive microwave radio network for pipelinecontrol and monitoring purposes.

OMAN


Programmed Growth of Direct Exchange Lines

Area 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Capital 7,087 8,041 10,751 11,857 13,505 16,388 18,839 22,090 25,145 28,411 31,716 35,625 39,709

Interior 2,309 2,835 3,249 3,669 3,885 4,183 4,455 4,546 5,648 6,907 8,518 10,183 12,100

Dhofar 1,726 2,057 2,439 2,822 3,399 3,897 4,469 5,046 5,972 6,681 7,521 8,411 9,410

Special - - - 99 254 481 690 800 1,130 1,372 1,630 1,924 2,238

Total 11,122 12,933 16,439 18,447 21,043 24,949 '28,453 32,482 37,895 43,371 49,375 56,143 63,457

x

OMAN


Construction Program 1980-1985(RO Thousands)

1980 1981 1982 1983 1984 1985 TOTALF-riga Local Total Forign Local Total Forign Local Total Forign Local Total Forign Loca Total Forign Local Total F-rega Local Total

A. BANK FINANCED PROJECT

Local snitching 2 - - 220 80 300 1,060 434 1,494 840 366 1,206 - - - 2 _ - 2,120 880 3,000Eltoroal plant (main) - - - 101 400 501 590 2,068 2,658 478 1,477 1,955 - _ - _ _ - 1,169 3,945 5,114Suhbcribers' and 201 180 381 166 151 317 131 119 250 145 140 285 95 79 174 - - - 738 669 1,407

distribution plantPrioate branch enohangas 125 50 175 80 30 110 70 33 111 98 39 137 48 19 67 - - - 429 171 600Tranait anitching - - - - - - - - - 350 20 370 83 71 154 - - - 433 91 524Telen and telegrapha 628 53 681 457 27 484 616 32 648 374 18 392 108 6 114 - - - 2,183 136 2,319Lung distance tra--miaaion - - - 450 200 650 1,364 557 1,921 616 209 825 300 65 365 102 30 132 2,832 1,061 3,893

(terrestril)Long dintanun transmission - - - - - - - - - 828 410 1,238 1,085 379 1,464 155 41 196 2,068 830 2,898

(satellite)Technical buildinga 350 156 506 480 214 694 130 58 188 40 21 61 - - - - - - 1,000 449 1,449Non-technical bhildings 210 50 260 340 170 510 315 135 450 315 135 450 - - - - - - 1,10 490 1,670Motor oehicles 266 50 316 210 38 248 224 32 256 220 43 263 260 45 305 - - - 1,180 208 1,388Training equip-ent - - - - - - - - - 173 - 173 - - - - - - 173 - 173Furniture and fittinga 200 35 235 210 40 250 106 19 125 62 13 75 40 10 50 - - - 618 117 735Tet equipm-nt 10 1 11 10 1 11 10 1 11 10 1 11 15 2 17 - - - 55 6 61Medical eqipment - - - - - - - - - 12 2 14 - - - - - - 12 2 14Technical assistance 30 - 30 60 60 60 600 20 - 20 170 170

Total Bare Cost 2,020 575 2,595 2,784 1,351 4,135 4,684 3,488 8,172 4,581 2,094 7,475 2,034 676 2,710 257 71 320 16,360 9,055 25,415Physical toutingencies 66 19 85 117 58 175 218 165 383 235 150 385 116 38 154 14 4 18 766 434 1,200Price contingencies 200 60 260 215 200 415 973 972 1,945 1,590 1,250 2,840 931 405 1,336 121 50 171 4.030 2J937 6967

Total 2,286 654 2,940 3,116 1,609 4 725 5,875 4,625 10,500 6,406 4,294 10,700 3,081 1,119 4,200 392 125 517 21,156 12,426 33,582

B. ONGOING WOR S (Including 1,176 520 _ - - - 1,704Contingencies)

C. FUTURE WORK0 (Including 1,050 7,140 9,500 17,690Contingencie-)

D. TOTAL CONSTRUCTION PROGRAM 45116 5.253 10,500 11_750 11_340 10,017 F n

~~~~~~~~~~~~~~~~~~~~64~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

- 33 -

ANNEX 5POF'O 2 of 2

c0 Fg S IR J

o5F -0

o, .0 .0 | .k o l 'F 'F . '0

0.00 1 - ,-1 N

F ... 0g l R

* _F _jO c olFOl

-- OOi0 '

| - 0o s<8

3, 25 OF F |< R S

4 0s' ' 01 F- 0 0 1 0

o o4 ' 0 F i ~ I I -

;3' 0 o..0.

0s O. 0' G O S ,.

03 o FO10 4 I N - R

H O I OD ° FR0 I Rao~~~~~. 0' OF o0'HO I t

44 I o *~ O *

* F. 14 4, b . .>

I F 10 FIOD0' OFF1|O I I

~~ 3,~

OFF3 e I~

0'~ ~ 10 0' _j '. .

| * 3 31 . 3 S 1 e 2F4 I FF4

F' | ' G e F' Z f

- 34 -


OMAN



Details and Scheduling of Items in Bank Project

1. Local Switching Equipment

(a) To be contracted in 1980

- Muscat (new exchange) 5,000 lines- Greater Mutrah (extension) 5,000 lines- Unspecified (new exchanges) 400 lines

(b) To be contracted in 1981

- Qurum (extension) 2,000 lines- 'Wattayah (new exchange) 2,000 lines- Azaiba (replacement) 2,000 lines- Al Hajar 200 lines

- Qurayat (new exchange) 200 lines- Masnah (replacement) 200 lines- Salalah (extension) 2,000 lines- Raysut (new exchange) 200 lines

- Unspecified (new exchanges) 400 lines

Total 19,600 lines

(c) The initial 5,000 lines installed at Muscat will allow therecovery of two container type C 23 exchanges, one of 1,000lines and the other of 700 lines, now serving the area.The initial extension at Greater Mutrah of 5,000 lines willallow recovery of a 1,200 line step-by-step and a 1,000line C 23 container type exchange. Thus, the net increasein capacity from (a) and (b) is 15,700 lines.

External Plant

2. Provision is made for main subscribers' cables, junction cables,ducts, manholes, etc., to match about 16,000 net additional lines of localswitching equipment in accordance with section 1 above.

Subscribers and Distribution Plant

3. The project provides for subscribers' equipment and externaldistribution plant such as poles and drop wire in the program years 1980

- 35 -


through 1983 plus about halfway through 1984. This would provide foradditions of new subscribers as follows: 1980 - 3,500; 1981 - 2,000;

1982 - 2,600; 1983 - 3,900; 1984 (half year) - 1,800; making a total of

about 13,800. In addition, provision is included for PABX extensions,amounting to approximately 5,500 and for the terminal equipment for about360 PCOs.

Private Branch Exchanges

4. The project provides for additions of about 6,000 lines of capac-ity for PABXs through the period up to about halfway through 1984.

Transit Switching

5. The project includes provision in the transit switched network foradditional capacities to carry the extra traffic generated by the new sub-scribers and to improve the present grade of service in the traffic carryingcomponents of the network. It covers the national and international network.

Telex and Telegraphs

6. The project includes expansion of the telex network to about 1,800subscribers by the end of 1984 and the commencement of a gentex service in1981 or 1982.

Long Distance (Terrestrial)

7. Included under this item are the following microwave radio trans-mission systems:

Nizwa-Salalah (approximately 1,000 km)Nizwa-Ibri (approximately 130 km)Greater Mutrah-Azaiba (approximately 30 km)

Long Distance (Satellite)

8. The project includes a standard (large) INTELSAT earth station atAl Hajar to work into the Arabsat system and four small (11 meter) non-standard earth stations with TV receive only facilities and SCPC terminalsequipped for 12 channels. Of these four small stations, three would besituated in the Musandam peninsula at Bukha, Bayah and Khasab, and thefourth on the offshore island of Masirah.

Technical Buildings

9. This item covers buildings required for accommodation of switchingor transmission equipment.

- 36 -


Non-Technical Buildings

10. The project includes phases 1 and 2 of a new OMANTEL headquartersbuilding, each phase costing about RO 600,000, a central stores building ata cost of about RO 170,000 and a training center estimated to cost RO 300,000.

Motor Vehicles

11. The project provides for increasing the motor vehicle fleet toservice the larger organization required for the development of the telecom-munications system as well as vehicles required for replacement through theperiod 1980-1984.

Training Equipment

12. This provides for measuring and testing instruments, model electro-mechanical and electronic switching exchanges, PABXs radio and othertransmission equipment, etc.

Furniture and Fittings

13. Included under this item is office furniture and equipment andhousehold furniture for additional staff quarters.

Test Equipment

14. This includes provision of testing and measuring equipment tosupplement that which will be provided with the exchange and transmissionequipment orders.

Medical Equipment

15. This includes equipment necessary for the establishment of in-housemedical centers to provide better employee facilities, help reduce staffturnover and lost time through medical courses.

Technical Assistance

16. This item covers five manyears for two high level and experiencedtelecommunications personnel--one finance and accounting oriented and theother engineering planning and programming oriented who will work separatelyin their own fields and together to prepare comprehensive specializedsystems and general management information systems, budgeting systems andthe like. Their job descriptions are set out in Annexes 13 and 14.

- 37 -


Scheduling for Significant Items

17. The implementation of the project will require scheduling forimportant items of equipment generally in accordance with the followingtimetables. It will be necessary to arrange supply of other items suchas telephone instruments, multiplexing equipment, etc., in conformitywith indicated scheduling of the major equipment items and the actualdemands as they occur. More detailed scheduling is shown in the MasterPlan.

(a) Exchange Equipment and Main Cables

Bids Contract DeliveryRequested Placed Commenced Commissioning

Location By By By By

Muscat June 1980 March 1981 December 1981 June 1982

Greater Mutrah June 1980 March 1981 December 1981 June 1982Extension

Qurum June 1980 March 1981 January 1983 December 1983Extension

Wattayah June 1980 March 1981 January 1983 December 1983

Azaiba June 1980 March 1981 March 1982 December 1982

Al Hajar June 1980 March 1981 March 1982 December 1982

Qurayat June 1980 March 1981 January 1983 December 1983

Masnah June 1980 March 1981 March 1982 December 1982

Salalah June 1980 March 1981 January 1983 December 1983Extension

Raysut June 1980 March 1981 March 1982 December 1982

- 38 -


(b) Microwave Radio Sstems

Bids Contract Delivery

Requested Placed Commenced Commissioning

System By By By By

Nizwa-Salalah January 1981 October 1981 October 1982 December 1983

Nizwa-Ibri September 1980 April 1981 April 1982 December 1982

Mutrah-Azaiba September 1980 April 1981 April 1982 December 1982

(c) Satellite Earth Stations

Bids Contract Delivery

Requested Placed Commenced Commissioning

Location By By By By

Al Hajar June 1981 March 1982 January 1983 December 1983

Bukha December 1980 June 1981 March 1982 December 1982

Bayah December 1980 June 1981 January 1983 December 1983

Khasab December 1980 June 1981 January 1983 December 1983

Masirah December 1980 June 1981 January 1983 December 1983

- 39 -


OMAN



Cost Bases for Items in Development Program

1. General

1.01 The costs for the development program and for the project havebeen based on estimates prepared by the telecommunications consultantswho produced the Master Plan. The bases are described in detail in thereport entitled "A Master Plan for the Development of Telecommunicationsin the Sultanate of Oman: 1979-1990."

1.02 There are two major roots for the cost estimates. One is thegeneral ruling prices for telecommunications equipment obtained through theBank's experience with international competitive bids and the second is theactual prices bid to OMANTEL in international competitive bids over thepast five years.

2. Local Switching and Main Cables and Ducts

2.01 Costs were estimated for different sizes of individual installa-tions and are reduced to a "per line" basis. The switching equipment allowsfor high traffic which is experienced in the commercial areas and for sometandem switching.

2.02 The external plant is based on unit prices from previous bidsbecause detailed design work is not yet possible for cable and duct reticula-tion due to lack of road alignments, etc. Subscribers' reticulation hasbeen laid out on an "office plan" basis. Junction cables, ducts, manholesand cabinets are included in the external plant figure. Plant on the sub'-scribers' side of the "distribution point" is not included.

2.03 Prices are shown in Rials Omani with US dollars in parentheses.

- 40 -


Cost per LineDucts, Cabinets,

Size of Switching Switching Main Cable etc., plus CableInstallation Equipment Installation Material Cost Installation(Lines) RO (US$) RO (US$) RO (US$) RO (US$)

300 230 (666) 60 (174) 93 (269) 330 (955)600 202 (585) 45 (130) 84 (243) 232 (672)

1,000 134 (388) 44 (127) 75 (217) 232 (672)2,000 104 (301) 42 (122) 66 (191) 232 (672)5,000 91 (264) 39 (113) 66 (191) 232 (672)

3. Subscribers' Distribution

3.01 Studies in Oman of past installations give an average of fourpoles to three subscribers. The cost of a pole plus its hardware and drop-wire has averaged about RO 30. Installation costs, including transport,etc.,. add another RO 30 giving an installed cost of RO 60 and a "per sub-scriber" cost of RO 80. Installation of the telephone instrument is RO 10for material and RO 10 for labor, etc., giving a total figure of RO 100 orUS$290 per subscriber.

3.02 Additional cost of approximately RO 400 (US$1,160) has been in-cluded for the terminal equipment for each PCO to be provided. This isdesigned to cover the cost of the multi-coin instruments and appropriatehousing.

4. Telex

4.01 Costs of about RO 525 (US$1,500) per line have been estimated forthe telex exchange capacity and about RO 1,000 or US$3,000 per teleprinter.The additional miscellaneous telex equipment has not been separately esti-mated as its cost is covered by the unit cost per teleprinter used.

5. Long Distance Transmission

5.01 Transmission system prices have been determined taking into accountthe difficult conditions in Oman. The following average prices have beenadopted:

- 41 -


Transmission System RO (US$)

Microwave radio route survey 60 ( 174) per kmMicrowave radio system purchase andinstallation 2,670 (7,730) per km

Small tube coaxial cable system, 4-tube,one-pair equipped, 1.3 MHz 3,200 (9,300) per km

Single small tube coaxial cable, 120-channel capacity 1,800 (5,200) per km

Multiplex equipment 220 ( 640) channel endStandard A earth station 1.66 m (4.8 m) per station11 meter earth station, includingtelephony SCPC equipment 0.3 m (0.87 m) per station

6. Buildings

6.01 An average cost of RO 20 (US$60) per square foot has been taken forall buildings. This rate includes air conditioning and services.

- 42 -ANNEX 8

OMAN



Schedule of Disbursements

IBRD Cumulative DisbursementFiscal Year at End of Quarter

and Quarter (US$ Thousands)

1980/81

December 1980 100

March 1981 200

June 1981 300

1981/82

September 1981 700

December 1981 1,300

March 1982 2,700

June 1982 4,200

1982/83

September 1982 5,500

December 1982 7,500

March 1983 9,900

June 1983 13,900

1983/84


December 1983 18,900

March 1984 19,700

June 1984 20,500

1984/85


December 1984 21,500

March 1985 21,800

June 1985 22,000

- 43 -

ANNEX 9

OMAN



Performance Indicators

A set of indicators which would assist in monitoring OMANTEL'sfuture performance during the 1980-85 period is given below. OMANTEL isexpected to indicate in its periodical progress report to the Bank theactual performance relating to the projected figures.

For Fiscal YearEnding December 31 1980 1981 1982 1983 1984 1985

1. Additional telephone con-nections (DELs) installed 3,506 2,008 2,695 4,296 3,275 3,100

2. Additional. telex linesinstalled 200 300 200 300 300 300

3. Number of employees per1,000 DELs 71 70 67 60 56 53

4. Gross operating revenues(RO million) 9.6 12.5 15.2 17.9 20.8 24.3

5. Telephone revenuesper average DEL (RO) 427 450 473 474 472 480

6. Operating ratio (%) 81 73 71 73 74 73

7. Rate of return onrevalued assets (%) 8 12 13 12 11 11

8. Debt service coverage(times) 65 75 42 21 17 6

9. Debt/equi.ty ratio (%) 7/93 11/89 17/83 20/80 19/81 16/84

10. Current ratio (times) 3 3 3 3 2 2

11. Subscriber accountsreceivable (in days) 140 108 98 90 74 60

- 44 -ANNEX 10Page 1 of 2

OMAN



Summary of Basic Telecommunications Tariffs(Effective June 1, 1977)

Telephone1. Installation Charges (in RO) Business Residential Telex

(a) Capital area (including Seeb) 100. 10. 100.(b) Interior area 10. 10. 100.(c) Salalah area 100. 10. 100.

2. Annual Rental (in RO) 56. 56. 480.

3. Telephone Call ChargesLocal: RO 0.03 per unit callLong distance:

(a) Periodic pulse metering principle is being employed by RO 0.03per unit for subscriber dialled calls. The pulse durationis inversely related to distance; there are two different tariffsfor day and night calls.

(b) Subscriber dialling facilities are also available for calls tothe United Arabic Emerites (UAE). Like domestic traffic, thesecalls are charged on a periodic pulse metering basis, the pulseduration being four seconds by day or night.

(c) Capital to Salalah traffic is handled on a manual basis. Callsare charged at RO 1.125 for a minimum of three minutes and375 Baizas for each additional minute or part thereof. Thereis no concessional night rate.

4. International ServicesCharges per Minute (RO)

Zone Area Telephone Telex'

(i) Gulf, etc. 0.5 0.5(ii) Lebanon, Saudi Arabia, etc. 0.8 0.8(iii) East Africa, India, Iran, etc. 1.0 1.4(iv) Cyprus, Europe, Hong Kong, etc. 1.6 1.6(v) Africa, North & South America 1.8 1.8

5. Telegraph ServiceZone Area Charges per Word (RO)

(i) Gulf, etc., Indian Subcontinent, Iran 0.1(ii) Lebanon, Saudi Arabia, East Africa, Iraq,

Iraq, etc. 0.2(iii) Africa, Cyprus, Europe, Hong Kong,

North & South America 0.3

- 45 -

ANNEX 10Page 2 of 2

6. Details of other charges for various type of equipment and miscel-laneous services such as shifting, barring, reconnection, numberchanging, etc., are given in the project files.

- 46 -


OMAN




Benefit Period

1. The benefit period of the program extends from 1980 to 2005, whenon average the equipment provided under the program is expected to havesubstantially completed its useful life.

Capital Expenditures

2. Capital expenditures are based on the estimated requirements duringthe program period (1980-1985) excluding preinvestments for the future pro-gram; preinvestments in 1978-1979 for the 1980-1985 program are included inthe capital expenditures. Price contingencies are excluded.

Operating Revenues and Costs

3. Incremental revenues assigned to the program are primarily basedon the expected additional telephone and telex subscribers and the trafficincrease brought about by the program. Incremental costs excluding depre-ciation and interest are based on the additional assets, traffic and staffrequirements expected from the program. All revenues and costs have beendeflated with expected local price increases of 10% per annum to bring themto the 1979 price level and make them comparable with the capital expenditures.

Net Benefits

4. A summary of the program's cost and benefit streams at 1979 pricelevel is given as follows (in million RO):

Capital Operating NetYear Expenditures Costs Revenues Benefits

1978 3.6 0 0 -3.61979 1.4 0 0 -1.41980 5.2 0.8 2.3 -3.71981 5.8 1.5 4.5 -2.81982 7.4 2.3 6.0 -3.71983 6.7 3..O 7.4 -2.31984 2.1 3.6 8.5 2.81985 0.3 4.2 9.6 5.1

1986-2005 0 4.0 9.6 5.6

- 47 -



5. The internal rate of return for the above net benefits stream is18.0%. No shadow pricing has been attempted because the RO is freelyconvertible and the market prices reasonably reflect the true wages in Oman.

Sensitivity Analysis

6. A sensitivity analysis has been performed with the followingresults:

Rate ofReturn (%)

10% increase in capital expenditures 16.210% increase in operating costs 16.610% decrease in revenues 14.6Combination of all factors above 11.6

- 48 - ANNEX 12

OMANOMAN TELECOMMUNICATION CORPORATION (OMANTEL)

FIRST TELECOMMUNICATIONS PROJECTTop Level Organization (OMANTEL SAO, December 1979)

Board of Directors!/

IPresident

nternaecom Avisor Ma nager Admin istrativeAudItemal and . Secretary Assistant

u It 0 ~~Quality ControlAsitn

* Medical * Accountant 0 Voice Services 0 External Plant * Switching* Housing * Customer 0 Telex 0 Internal Plant 0 Transmission* Personnel Accounts * Telegraphs * Customer Services 0 Drafting3 Training 0 International * National * Commercial3 Archives 0 Tariff and Systems 0 Regions3 Public Relations Traffic 0 International

* Transport 0 Statistics Systems

3 Telephone 0 BudgetDirectory 0 Computer

* Purchasing Coordination

l/The Board of Directors comprises of The Minister of Posts, Telegraphs and Telephones(Chairman), Minister of Communications (Deputy Chairman), an Officer from the P.T & T,President of Omantel and three nominees by C & W. World Bank - 20876

- 49 -

ANNEX 13Page 1 of 2

OMAN



Draft Job Description for Technical Expert

1. The Oman Telecommunication Corporation (OMANTEL) which is responsiblefor all public telecommunications services in Oman requires the services ofan experienced technical and management expert to assist the company indesigning and implementing engineering management systems for the controlof the planning, programming, budgeting, maintenance and operations functionsrelating to the service. The person will cooperate with the finance andaccounting expert to be engaged over a similar period in the development offinancial management systems.

2. In particular, the following specific tasks must be accomplished:

(a) National Technical Plans

Define procedures to ensure continuing review and updating of thefundamental development plans for the telecommunications servicesof Oman. The 1979-90 Master Plan prepared by consultants inMarch 1979 will form the basis for these plans;

(b) Coordinated Works Programming and Scheduling

Define and implement procedures for the establishment of a rollingfive year works program containing detailed lists of individualprojects (such as exchange installations, trunk and junctioncircuit provision, subscribers' cable installations, etc.) requiredto be undertaken in order to implement the plans. The proceduresshould ensure that the timing and dimensioning of the individualprojects are coordinated in such a manner as to enable the utiliza-tion of all plant in the most economic way;

(c) Material Budgeting and Procurement

Define a system for material procurement and stores inventorymanagement and control to ensure that material is available asrequired to enable implementation of the works program. Thesystem will also provide a schedule for preparation of biddingdocuments and allocation of contracts for those works to becontracted so as to develop the telecommunications network inan integrated and coordinated manner;

- 50 -

ANNEX 13Page 2 of 2

(d) Manpower and Training P'lans

Define a system for the preparation and continuing reviewof recruitment and training plans to ensure the supply ofthe appropriate number of persons with the skills necessaryto provide, maintain and operate the telecommunications ser-vices. These plans would define the rate of "Omanization"of CMANTEL and would cover both technical and non-technicalstaff;

(e) Engineering Costing System

In cooperation with the financial expert establish anengineering costing system to provide accurate costs forthe control of operations and construction and providemanagement information for planning, budgeting, tariffsetting and similar purposes;

(f) Management Information System

In cooperation with the financial expert establish a simplemanagement information system to provide the data necessaryto measure performance of all facets of the telecommunica-tions system and enable management to react in a timelyfashion to remedy potential problems; and

(g) Organization Structure

Recommend to the OMANTEL management alternative organizationalstructures including qualifications, experience, skills andnumbers of persons and allocation of functions, which would beboth effective and efficient in meeting the responsibilitiesof the entity.

- 51 -


OMAN



Accounting and Financial Reorganization

Draft Job Description for Financial Expert

1. The Oman Telecommunication Corporation (OMANTEL) which is responsiblefor all public telecommunications services in the Sultanate of Oman, pro-poses to undertake a reorganization of its accounting and financial functions.OMANTEL will employ a financial expert for assistance in the reorganization.

2. The broad objectives of the reorganization are as follows:

(a) Organizational Structure and Staffing - To establish a soundorganization for the accounting, budgeting and financialservices within OMANTEL to ensure effective planning andcontrol of operations.

(b) Accounting - To establish a full commercial accounting sys-tem which will be responsive to management needs of OMANTEL.

(c) Budgeting - To establish an integrated budgeting systemwhich will provide effective budgetary preparation and con-trol for operations as well as capital development (long-and short-term).

(d) Costing - To establish an efficient costing system which willprovide accurate costs and control for operations, capitalconstruction works, and supporting services.

(e) Management Information System - To establish an efficientinformation system which will provide the management withtimely and adequate financial and statistical statements andreports to enable it to effectively plan and control allfinancial operations and to measure the performance of thevarious services and personnel.

(f) Materials Management System - To establish an effective stockcontrol system which will provide adequate control of therequisition, purchase and deliveries of materials.

(g) Auditing - To establish an efficient system of internalcontrol and inspection.

- 52 -


3. OMANTEL's Finance Department has started preparatory works forthe institution of commercial accounts beginning January 1, 1980. Theresponsibilities of the financial expert will include, but not necessarilybe restricted to, the specific points as given in the following outline ofterms of reference:

(a) develop an appropriate organizational structure for theFinance Department with special attention to the followingareas:

(i) the degree of centralization of accounting andfinancial functions and the scope of regionalactivities,

(ii) the authority and responsibility of staff at head-quarters and in the regions, and

(iii) staffing requirements and staff qualifications;

(b) review the existing staff level in the Finance Department;prepare and implement appropriate short- and long-termtraining programs including on-the-job, local and overseastraining for the finance and accounting staff; the short-term program should be designed to familiarize the staffwith the new commercial accounting system;

(c) review the extent and the adequacy of the ongoing works bythe Finance Department for the implementation of commercialaccounts and develop a full commercial accounting systemwhich will cover, among other things, the following points:

(i) asset registers,

(ii) depreciation policy and schedule based on the usefullives of the various assets,

(iii) inventory accounting for stock valuation, sales andwrite-offs, etc.,

(iv) cash management system including accounting proce-dures of cash income, establishing necessary spendingauthority procedures and providing adequate internalcontrol, and

(v) billing and collection procedures including discon-nection policy, write-off policy for unpaid accountsand mechanization and computerization of billingand accounting procedures;

- 53 -


(d) develop and design cost accounting procedures and forms suchas Work Orders, which will provide appropriate allocation ofadministrative expenses and other costs (particularly trans-portation, material and labor costs) to the constructionprojects and among various operations;

(e) develop budgeting and budget control procedures for budgetpreparation, modification and approvals, and for periodicalcomparison of budget and actual expenditures;

(f) design and introduce internal reports which will presentfinancial data in a meaningful manner so that it can beeffectively utilized by management in their operations;establish timely schedules for the production of thesereports;

(g) assist the management with the collection and interpreta-tion of financial data and their application in tariffstudies;

(h) prepare documentations such as chart of accounts, variousaccounting manuals and materials for the training programs;design and introduce necessary forms, schedules and per-formance measurements for the efficient functioning of thecommercial accounting system, giving considerations to worksimplification practices and internal control requirements;

(i) inspect storage locations and review storekeeping practices,procurement and ordering procedures, and inspection pro-cedures to ensure that they are efficient and effective;suggest any necessary changes;

(j) review audit procedures and practices ascertaining that theyare responsive to the new commercial accounting system; makerecommendation on the staffing level and qualifications, andsuggest any necessary changes; and

(k) develop a revaluation method acceptable to the Bank and assistin the preparation of fixed assets revaluation according to themethod.

OMANOMAN TEL.-E:'COMMLJNICAT JON C:UlORPORATION

I'NCOMEl' STATEIMENTS FlOR THEE PERIOD BEGINNINO JAN 1 Y 197STHOUS'3AND RIALS REPO F:RT 'PRA R lED APR 16Y :1.980

OPERiAT'ING .REVENUES 1976 1979 1979 1960 1961 I1963:2 1963 1.964 J1.96B5 1i965r......... E_P -- -N E- Tr oT AL 'TOTA L.rTEL..E'.FHONE:

INSTAAL LAfATIONS 179 69 248 1.71 637 107 1.76 .154 166 668 5-R E[:N'T'AAL S 766 92.6 1694 1204 1430 1619 166.36 216A9 2496 10626.LOCAL CALLS 1695 2196 3693 2967 3650 4270 4625 '.". 5453 6162 27327I-J:NTERNL CfALL S 1277 1392 2669 1679 :'7.92631 3269 3946 4736 5663 22.1663

-OTHE,R .. ........_.35....._ _66 .... _4.....54......._61 .... 2.._ .. B 3 _6 ... 410ISUBTOTAL 3950 4620 6570 6267 7652 9346 1.0907 12614 14626 6161.2

TE-lEX :1.313 1367 2700 2191. 342f. 4569 5664 676131 63122 30755TE:L E GR AFPH 401 431 632 431 431 431 431 431 431 25.6OT'HER .... 44 2 -62 ... 1136 _. _ _242 .. i.... .. .... 2565 _ .... _10 .2...._020 .. 5443

SUBTOTAL ..... 3 .2125 ...... 1323 .... _ 2631 ._ 25125 ....- 15211 ......17232 ... ....2 B035 .. 24262 _100396TOTAL 611.3 7125 132.36 9631 12512 15211 1.7937 20635 2.4269 100395

OPERFATING EXF'ENSES

S TAFF E X PENSE 2516 3031 5547 3661 4441. 5410 6476 7561. 6753 36304OTHERl OPERATING CO 1251 2158 3409 2351 2603 2637 3148 3490 3693 1632.2D:)EFPRECI:[ ATI ON :

ON BOOK1 VALUE 1772 20:1.9 2392 3053 3756 4343 17335RE:VAL. - ADJUST. -..... 1-........2 ....226 .352 ... 52B ... 234 ... 2005

TOTAL 762:1 91B4 10665 13036 15335 17723 73966

OPERATING INCOME' 1S10 3326 4346 4699 5500 6546 26429

AriD: OlTHER INCOME.: 137 151 166 182 201 221 1056I.EE' SINTERE_ST -..._._5 _25 __1 1 ...._4QQ 51 _ ....-- 5 6 4 __1B4

NET INCOME 1869 3404 4341 4681 5120 6203 25636

OPFERATING RATIO(%) 81.2 73,4 71.4 72.7 73.6 73.0 73.7

RATE BASE: BOOK VALUE 23512 25732 29744 38051 46357 52092REVALUED 23997 27266 32472 42196 52220 59894

RATE OF RETURN (%)ON BOON ASSETS 8 13 15 14 13 14ON REVALUED ASSE 8 12 13 12 11 11

TP REV/DEL 427 450 473 474 472 480TX REV/LINE 3701 4033 4154 4291 4281 4272

- 55 -ANNEX 16

OlMAN

OMAN TEL..ECOMMLJNI[CA''TIO':l:lN CORF:ORAT IONFOR 'IHE lERJ:OD' BEGINNINl: J JAN l. :1978REFPORT FP9REP:: ARED' A PR 16 . 98( )

BALANCE SHEETSTHOUSANDl R:[ALS 1980 1981 1982 1983 1984 :1985

ASSETS

PLANT IN OPERATIONBOOK VALUE 32218 35067 44653 57127 68072" 76697REVAL ADJ, 1239 2802 .. 4222 _-_ .222 ....2 .-03Z4 _-1-4.028

SUBTOTAL 33457 37876 49382 64359 78446 90795ACCUM DEPRECIATION

ON BOOK VALUE 6901 8920 11312 14365 18121 22464REVAL ADJ, .-..... _._212 321 ....12301 _.__3522 _._..5282

SUBI'OTAL 7169 9632 12683 16666 21700 27753

NET PLANT 26288 28244 36699 47693 56746 63042

WORK IN F'ROGRESS .. -6Q8 ..5284 _ _..4614 ___3642 .._.-5286TOTAL FIXEDi ASSETS 27896 34028 42827 52307 60395 68328

CURRENT ASSETS

CASH ANDl BANKS 1443 1752 2285 2800 3234 3057ACcTr IRECEIVABLE 3660 3754 4107 4484 4167 41t26INVENTORIES 1476 1682 1993 2544 3130 3619OTHER ---.44 __123 _ _ 2Q2 -- _ .._242 .. __222 _

TO'TAL .- _6223 _._ .Z361 .-----8522 1--.. 0022 -10830 1116LTOTAL ASSETS 34619 41389 51419 62384 71225 79488

LIABIL-ITIES

CAPITAL. 27332 29221 32625 36966 41647 46767CURRENT NET INCOME _._._1882 -3404 ---- 4341 _._ -4681 .-.., 512Q0 --_6203

TOTAL. CAPITAL 29221 32625 36966 41647 46767 52970REVAL. RESERVE .... _._1Q8 _._.2255 __3242 __---_567A ___8066 ._ l814

TOTAL EQUITY 30229 34880 40708 47321 54833 63784

i.-ONG TERM DEBTS 2406 4227 8087 12046 12922 11713I.ESS CUR POR'TION ------ _ - -____0 _ _Q _ _ _1382 _18QQ

TOTAL 2406 4227 8087 12046 11540 9913

CURRENT LIABILITIE 1984 2282 2624 3017 3470 3991CURRENT L/T DEBT ______Q - -- n .-__1382 ..-_1800

TOTAL --- _1284 ---_2282 ___2624 A--3012 _......-.4852 .--- 57.21TOTAL LIABILITIES 34619 4:1389 51419 62384 71225 79488

I:EBT/DEBT+EQUITY 7 11 17 20 19 16CURRENT RATIO 3.4 3,2 3,3 3.3 2.2 1.9

- 56 -

31 17

OMANOMAN TEL..Il'l:MMlUNI CATION CORPORA'T'IJON

F::'OR THEI PE:RRIOD BEGINNING JAN 1 1.978REEPORT PREPA'P::RREDL APR 16 1.980

FUNDS fLOW 1980S'T A'TEMENT'S :1.980 :1.981 198.32 1983 1.984 1985 1985THOUSAND RI ALS TOTAL

INT'E RNAL SOURCES

NET'T INCOME-BJEFORE:: INTE:REST :L947 3479 4512 5081 5701 6767 27487

D E--PRE1:CIA'TION .... 1 80 2 .__2140 ._.-..2618 ..-.._3412 .....4 284 .. _5QZZ _12340TOTAL 3756 5619 7130 8493 9985 11844 46827

R AWDLOWNS

PROPOSED IRID 35 415 2142 3959 876 173 7600GOVERNMENT ANDOT'HER BORROWINGS ..... _._2321 2406 ..... 21 ---....... ._.... ___5425

TO'T'AL 2406 1821 3860 3959 876 173 13095

TOTAL SOURCESOF 1::'l.lNX:DS 6162 7440 1.0990 12452 10861 12017 59922

UJSES OF F'UNDS

ONGOING WORKS 1460 95 0 0 0 0 1555PROPOSED PRO.JECT 4200 6930 9130 7760 3700 1862 33582F'-LJTUJRIE- WORKS ....... ... .........0 - 3 ..... . .8Q32 QQ ._...._84Q _ 18680

TOT AL 566() 7025 9930 10960 9980 10262 53817

DEBT SERVICE

FR:E PAYMEN'r 0 0 0 0 0 1382 1382INTERE:ST 58 .......... 25 ._ 121 _ .4Q Q ....F _581 .._564 ._184

TOTAL 58 75 171 400 581 1946 3231

C:HANGE IN WORKINGCAPrITAl .444 . ...... -34Q _ 1 Q2 1 9.-..._28Z4

TOTAL UJSESOF FUNDS 6162 7440 10990 12452 10861 12017 59922-

I:DE:B£T C,OVE. RAGE(TIMEE 6408 74.9 41.7 21,2 17.2 6.1 37.6

- 57-

ANNEX 18

OMANOMAN ETEL..I-C.:)MM(JN:I[CArION CORFPORAT IOCJN

FOR THE f'ERIOD, BEGINNING JAN 1Y 1980RFEF'ORT PREPFEARE D AFPR 16, 1980

[LEBT STATEMENTS 1980THOUSAND RIAL.S 1980 198:1 :1982 1983 1984 1985 1985

TOTA LPROPOSED IBRD

LOAN COMMITMENT 7600 7600 7600 7600 7600 7600 0DRAWDOWNS 35 415 2142 3959 876 173 7600REPAYMENT 0 0 0 0 0 1382 1382OUTSTANDING 35 450 2592 6551 7427 6218 0INTEREST 1 20 125 377 577 563 1664COMM. CHARGES 57 55 46 23 5 1 186INTEREST&COMM FEE 58 75 171 400 58:1 564 1849

GOVERNMENTBORROWINGS

DRAWDOWNS 2371 1406 1718 0 0 0 5495OJUTSTANDING 2371 3777 5495 5495 5495 5495 28128

DEBT SUMMARY

DIRAWDOWNS 2406 1821 3860 3959 876 173 13095IREPAYMENTS 0 0 0 0 0 1382 1382OUTSTANDING 2406 4227 8087 12046 12922 11713 51401INTEREST CHARGES 58 75 171 400 581 564 1849

- 58 -


OMAN



Notes and Assumptions on the Financial Statements

1. The Income Statements for FYs78 and 79 are primarily based ondraft pro forma accounts prepared by the management consultants andOMANTEL, SAO Finance Department. The following paragraphs relate to themain items of the accounts shown in Annexes 15 to 18, which includechanges reflecting additional information obtained during appraisal.

2. The estimated number of Direct Exchange Lines (DELs) and telexlines for the years 1980-1985 are given as follows:

1980 1981 1982 1983 1984 1985

DELs 16,439 18,447 21,043 24,949 28,553 32,482- Average DELs 14,686 17,443 19,745 22,996 26,751 30,518- Net additions 3,506 2,008 2,596 3,906 3,604 3,929

Telex Lines 700 1,000 1,200 1,440 1,728 2,074- Average lines 592 850 1,100 1,320 1,584 1,901- Net additons 216 300 200 240 288 346

Income Statements

3. Operating Revenues

(1) Telephone revenues include the following items

(i) Installation charges are projected on basis of estimatednet additons of DELs (paragraph 2 above), and averagerevenue per addition in 1978 as follows:

RO 54.100 in Capital AreaRO 50.500 in Salalah AreaRO 10.100 in Interior Area

(ii) Rentals are projected using the estimated average DELsduring the year and an average revenue of RO 81.763.

(iii) Call charge revenues are projected assuming the followingannual growth rates:

- 59 -


1980 1981 1982 1983 1984 1985

(a) National 5 8 5 3 3 3

(b) United Arab 30 15 12 10 10 10Emerites (UAE)

(c) International 35 40 25 20 20 20

(iv) Other revenues include charges for shifting, disconnections,reconnections, etc. An average of RO 3.097 is used withthe average number of subscribers during the year.

(2) Telex revenues include installation charges (based on an averagecharge of RO 100 per addition), rental (based on an average rentalof RO 480 per subscriber) and call charges. The call charges areprojected on the following assumption:

(i) National: based on RO 144.458 per average subscriber in1978 and expected annual growth rate of 50% in 1980, 30%in 1981, 20% in 1982 and 10% in 1983 and thereafter.

(ii) International: based on the expected annual growth rateof 45% in 1980, 60% in 1981, 35% in 1982, 25% in 1983 and20% in 1984 and thereafter.

(3) Telegraph revenues are assumed to remain constant during theproject period.

(4) Other operating revenues include income from leased facilitiesand miscellaneous revenues, and are projected to increase at8% per year.

4. Operating Expenses

(1) Salaries and wages are projected on the basis of OMANTEL'sestimated staff requirements and an inflation factor of10% per year.

(2) Other operating expenses include maintenance, transportation,administration, etc., and are projected on the basis ofOMANTEL's requirements during the project period, in additionto the expected annual increase for each category.

(3) Depreciation is computed by using a composite rate of 6% peryear on the average gross plant in operation during the year.

5. Other non-operating income includes interest and other income, etc.,and assumes an annual growth of 10%.

6. Taxation: OMANTEL, SAO is presently exempted from income tax and customsduties (paragraph 2.09). The forecast assumes the exemption would continuewith the fully government-owned OMANTEL.

- 60 -


Balance Sheets

7. Fixed assets are based on OMANTEL's construction expenditureprogram during FYs80-85 and the expected completion of the major itemsin the investment program for the purpose of calculating rate of return,the opening value is based on the preliminary results of OMANTEL, SAOevaluation of existing assets, adjusted downwards by some RO 2 million tomore accurately reflect current costs of equivalent assets. An average of8.9% is derived from the foreign (7.5%) and the local (10%) inflation ratesweighted by their corresponding foreign and local components of the programcosts. After taking into account the impact of technology improvement andeconomies of scale on reducing the prices of telecommunications equipment,an annual revaluation factor of 4.5% (about half of the weighted averageinflation rate of 8.9%) is assumed in the projection to be applied to thegross fixed asset value and the accumulated depreciation from FY80 onward.This revaluation factor is considered reasonable.

8. Work in progress is projected according to the estimated construc-tion schedule.

9. Cash and bank are projected based on OMANTEL's cash operatingexpenses and capital expenditures.

10. Accounts receivable position is expected to improve over theproject period from presently five months of billing to about two monthsby FY85.

11. Inventories are expected to increase at approximately the samerate as the gross fixed assets in operation.

12. Other current assets reflect prepayments in respect of propertyrentals and sundry receivables, and are assumed to increase at 20% per year.

13. Equity is expected to increase through retained earnings andrevaluation reserves after the Government takes over the full ownershipof OMANTEL. As of January 1, 1980, OMANTEL's equity is estimated at RO 29.0million.

14. Long-term debts include the proposed Bank loan of US$22.0 millionat an annual interest of 8.25% with ten years repayment including four and a half yearsgrace period. Also included are interest free funds to be provided by theGovernment with ten years repayment including six years grace period.

15. Current liabilities largely reflects sums to foreign administra-tions for international traffic. Sundry payables and accounts are alsoincluded. A 15% per year increase has been assumed

- 61 -

ANNEX 20

OMAN


Related Documents and Data Available in the Project File

A. Selected Reports and Studies on the Sector or Subsector

Al - A Master Plan for the Development of Telecommunications inthe Sultanate of Oman, 1979-1990, March 1979.

A2 - Training Assistance to OMANTEL, SAO Tripartite Review Report,UNDP, February 1979.

A3 - Agreement between the Government and C&W, January 27, 1975.

A4 - Article of Incorporation, OMANTEL, SAO, August 2, 1975.

A5 - Draft Article of Incorporation, OMANTEL, February 25, 1980.

B. Selected Reports and Studies Relating to the Project

Bl - Project Preparation Report, March 3, 1978.

B2 - Project Preappraisal Report, February 27, 1979.

B3 - Project Brief, May 16, 1979.

B4 - Issues Paper, July 24, 1979.

B5 - Decision Memorandum, August 7, 1979.

C. Selected Working Papers and Tables

Cl - OMANTEL, SAO Cash Statements, FY75-FY78.

C2 - Draft Balance Sheet, OMANTEL, SAO, at December 31, 1978.

C3 - Rate of Return Calculations.

C4 - Network Development Costs, 1978-1985.

C5 - Various sets of financial projections under different assumpt-ions for asset valuations, etc.

C6 - Miscellaneous working papers for financial statements.

'- w-.:.i t Etigg

z~~~~~~~~~~~~~

Wr ~ z

4 4~~~~~~~~i

d;; V' 'F'-; ?4 C S V"\ ' 4JIg " ' t?ia'X fi tSff

inj~~~~~~~~~~~~~~~~~~~i

-t 0 0" '~ 0,_ .- 'l:,_,. _ $i l, ; 00:0 |t§,S_t

( AP

Yz3 t;tit::s 0 4 / 5 /- | . ;--< -<,- - --- t'-- t; i\03 R gt}j

0------: D --- ::Cy

< TZo' Ss--,'4'<' 0 .I AD=i;f

t~~ ,., Lf . ' . ,:f'-1J5 .'d

-Vt .C,, ?

World Bank Documentdocuments.worldbank.org/curated/en/134201468291023443/pdf/multi-page.pdfRest of...

Documents

Transcript of World Bank Documentdocuments.worldbank.org/curated/en/134201468291023443/pdf/multi-page.pdfRest of...