FJI g ff C Document of " U' t}f The World Bank

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FJI g ff C Document of " U' t}f The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE TELEPHONE ORGANIZATION OF THAILAND WITH THE GUARANTEE OF THE KINGDOM OF THAIBAND FOR THE THIRD TELECOMMUNICATIONS PROJECT August 29, 1978 Report No. P-2236-TH This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 GLOSSARY CURRENCY EQUIVALENTS US$1 = B B 1 = US$0.049 B 1,000,000 = US$490,020 METRIC EQUIVALENTS 1 meter (m) feet (ft) 1 kilometer (km) miles (mi) 1 hectare (ha) acres (ac) 6.25 rai 1 liter(l) gallons (gal) LIST OF ABBREVIATIONS AND ACRONYMS CAT - Communications Authority of Thailand CIF - Cost, Insurance and Freight EGAT - Electricity Generating Authority of Thailand IEAT - Industrial Estates Authority of Thailand IFCT - Industrial Finance Corporation of Thailand ISF - Interest Subsidy Fund ITU - International Telecommunications Union MWWA - Metropolitan Water Works Authority NAC - National Audit Council NESDB - National Economic and Social Development Board NGOT - Natural Gas Organization of Thailand NHA - National Housing Authority OECF - Overseas Economic Cooperation Fund PEA - Provincial Electricity Authority PTD - Post and Telegraph Department RTG - Kingdom of Thailand SRT - State Railway of Thailand STD - Subscriber Trunk Dialling SWEDTEL - Swedish Telecommunications Consultants AB TOT - Telephone Organization of Thailand UHF - Ultra High Frequency UNDP - United Nations Development Fund VHF - Very High Frequency FISCAL YEAR THAILAND: October 1 - September 30

3 FOR OFFICIAL USE ONLY THAILAND THIRD TELECOMMUNICATIONS PROJECT Loan and Project Summary Borrower: Guarantor: Amount: Terms: Telephone Organization of Thailand (TOT). Kingdom of Thailand. $90 million. 20 years including 5 years of grace, with interest at 7.90% p.a. Project Description: The project seeks Li extend and improve domestic telephone services in Thailand particularly in rural areas where 235 out of 524 currently unserved rural districts will be provided with long-distance telephone service for the first time. About 45,000 lines and 200 new long-distance links to be installed in provincial areas will provide more convenient telephone access to the rural population. Access to public pay telephones will be significanty increased in Bangkok to serve lower income population. The institutional improvements to be implemented under the project will further strengthen TOT's management and operational, capabilities. The project, includes installation of (a) about 185,000 lines of local exchange equipment with associated cables and subscribers' plant for connecting about 170,000 new subscribers and about 6,000 public call offices; (b) about 3,000 lines of local exchange equipment to replace old equipment and mobile exchanges in Bangkok; (c) about 13,000 lines in seven existing tandem exchanges in Bangkok for inter-exchange traffic; (d) about 15,000 line!s in existing trunk automatic exchanges for subscribers' trunk dialling traffic; (e) microwave radio systems and on two new routes upgrading, replacement and addition of microwave radio equipment on 12 existing routes, and adding about 12,500 channel ends; (f) about 200 UHF and other transmission systems and station equipment for about 210 long-distance call offices for extension of service to rural areas now without service; (g) vehicles, civil works and other facilities for implementing the project. This document ha a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents m.iay not jth.fwise be disclosed without World Bank authorization.

4 - ii - Estimated Costs: $ Million % of Local Foreign Total total Local Network Switching Equipment Cables and Outside Plant Subscriber Plant Subtotal Long-Distance Network Switching Equipment Transmission Equipment Rural Call Offices Subtotal Land and Buildings Vehicles Miscellaneous Works Contingencies Total Base Costs Physical Price Subtotal Total Project Costs

5 - iii - Financing Plan: $ Million Local Foreign Total Bank Bilateral Loans (OECF) Commercial Bank Loans Government Loan TOT Total Estimated Disbursements: $ Million Bank FY Annual Cumulative Economic Rate of Return: 21% Staff Appraisal Report: Report No TH, August 17, 1978.

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7 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE TELEPHONE ORGANIZATION OF THAILAND WITH THE GUARANTEE OF THE KINGDOM OF THAILAND FOR THE THIRD TELECOMMUNICATIONS PROJECT 1. I submit the following report and recommendation on a proposed loan to the Telephone Organization of Thailand for the equivalent of $90 million to help finance the Third Telecommunications Project. The loan would have a term of 20 years including 5 years of grace, with interest at 7.9% p.a. A loan of $22.0 million equivalent from the Overseas Economic Cooperation Fund (OECF) was secured in February The loan would have a term of 20 years including 7-1/2 years grace with interest at 3.5%. A further loan of about $40 million from OECF on the same terms but at an interest rate of 5% is expected to be finalized by March 31, Commercial banks co-financing for about $30 million is being arranged. PART I - THE ECONOMY /1 2. A Basic Economic Report entitled "Thailand - Toward a Strategy of Full Participation (2059Th)" has just been completed and is to be distributed to the Executive Directors in early September, 1978 and later to the members of the Consultative Group prior to its meeting December 5-6, The findings of this report considerably expand our understanding of Thailand's economy and of the essential characteristics of the poverty group. The principal conclusions of the report have been incorporated in the following paragraphs. A major revision of Part I fully reflecting the report will be included in the next PresiLdent's Report. Country data are given in Annex I. Recent Political and Economic Development 3. The Government of Prime Minister Thanin, which was installed following the assumption of power by the National Administrative Reform Council (NARC) in October 1976, lasted one year. On October 20, 1977, members of the NARC, dissatisfied wilth the Thanin Government's domestic and foreign policies and its 16-year timetable for restoring democratic processes, ousted the Prime Minister and his cabinet. The NARC then reconstituted itself as the National Policy Council, the highest political authority in the country. In November, the National Policy Council appointed General Kriangsak Chomanan to be Prime Minister and he then formed a cabinet comprised mostly of civilians. Under the interim constitution a general election was supposed to be held within one year but the new permanent constitution has not yet been approved and elections are likely to be postponed until early The new government affirmed its support of the objectives of the country's Fourth Five-Year National Economic and Social Development Plan ( ) and announced its intention to undertake more aggressive development policies. Its principal concerns are alleviating rural poverty, particularly in the Northeast, and /1 Parts I and II of this report are a partially updated version of the recent President's Report (No. P-2363-THl dated June 27, 1978) for the Natural Gas Development Engineering Project in Thailand, distributed to the Executive Directors on June 29, 1978.

8 improving relations with neighboring socialist countries. Since December 1977, steps have been taken to normalize relations with Laos, Viet Nam and Democratic Kampuchea. 4. Thailand's economic performance since 1960 has been good. Rapid growth of the agricultural and industrial sectors, which recorded average annual growth rates in constant prices of 5% and 10%, respectively, enabled real GDP to expand at an average rate of about 7.6% annually. The country also achieved impressive investment and savings rates throughout this period. Gross domestic capital formation ranged from 20 to 27% of GDP, with private investment constituting two thirds of total investment. The share of gross domestic savings in GDP ranged from 19 to 24%. As a result, in no year did the resource gap (import surplus needed to realize the levels of consumption and investment achieved) exceed 5% of GDP, and was considerably less in most years. 5. During the international recession of 1974/75, the economy demonstrated considerable resilience; it has now recovered from the deceleration of growth which marked the second half of The growth rate of real GDP rose from 5% in 1974 and 7.7% in 1975 to 8.2% in 1976, and 6.2% in In sharp contrast to the situation in 1973/74, when the external sector and private investment provided the main impetus to growth, the much-needed stimuli to demand since 1975 came from the public sector, with a strong expansion in export receipts reinforcing the growth of domestic demand in the latter two years. 6. The balance of payments has deteriorated in recent years, however, despite continued rapid rise in export earnings. Both 1975 and 1976 registered much higher current account deficits than occurred in previous years ($600 million in 1975 and $450 million in 1976 compared to $50 million in 1973 and $90 million in 1974). A large part of these deficits was due to the decline in Thailand's terms of trade by 33% between 1973 and The import price index rose by 60% in 1974, mainly due to the hike in oil prices; however, a substantial improvement in prices of most of the country's major exports helped to limit the decline in the terms of trade in that year to less than 10%. In 1975 through 1977 there were moderate import price increases and stable or falling export prices led to a further substantial fall in the terms of trade. In 1977, despite an unprecedented high level of exports, the current account deficit amounted to $1.1 billion. 7. As a consequence of the higher current account deficit and lower net capital inflows, reserves, which had increased in 1974, declined by $195 million in Although there was some improvement in foreign direct investment, total private capital inflows declined in Capital inflows to the public sector, on the other hand, increased substantially as the Government's first borrowing of $100 million from a syndicate of private banks was drawn down and project loans committed in 1974/75 began to be disbursed. Taking into account an SDR 67 million loan under the compensatory financing scheme of the IMF, the overall balance of payments in 1976 recorded a small surplus but a deficit of about $377 million occurred in 1977, which was financed mainly by drawing down reserves. The country's net reserves in December 1977 amounted to $1.2 billion, equivalent to slightly less than 3 months' imports, as compared to a reserve level of almost 6 months' imports equivalent at the end of 1974.

9 Thailand enjoyed a large measure of price stability in 1975 and Slower demand growth, stable export prices and a moderate increase in import prices contained the rise in the consumer price index to 5.3% in 1975 and 4.2% in 1976, a sharp deceleration from an annual average increase of 20% in 1973 and Inflation increased somewhat in 1977 with the rise in the Consumer Price Index rising by 7.2%. Development Objectives, Constraints and Prospects 9. The new Government's policy concerns and development strategies are reflected in the Fourth Plan ( ). The Plan's principal objectives include a growth target of 7%, equitable distribution of income, reduction in the rate of population growth, faster generation of employment opportunities and a balanced development of the different regions. Projected public sector development expenditures amount to $12.5 billion for the Plan period as compared to a level of $4.6 billion achieved over the Third Plan ( ). Nevertheless, the Plan alddresse sectoral issues and strategies only in broad terms, and concrete policy and programs to meet the Plan's economic and social objectives remain to be defined. The Bank has therefore initiated an intensive program of economic studies to help the Government define a policy and investment framework for implementation of the Fourth Plan. These studies, as well as concurrent work under way within the Government, are focusing on problems of employment and income distribution and will help to define the policy issues involved more precisely. 10. Some of these studies are still in progress but the findings of the basic economic mission Lndicate that the Thai economy has many positive features which augur well for rapid and broadly distributed growth. These include the sustained rapid rate of economic growth over the past two decades; relatively equitable distribution of rural land; responsiveness of Thai farmers to superior technology; extensive provision of infrastructure by the Thai Government; dynamism of the private sector in both industry and agriculture; and, finally, the major gains made in family planning in recent years. From the high population growth of 3% annually during the 1960s, the rate of growth had slowed to 2.6% in 1976 and 2.5% in However, social and economic progress in the future is likely to require a more active role on the part of the Government if the goals of the Plan are to be achieved. 11. Agricultural growth in the past has been based to a large extent on the expansion of cultivated areas. Prospects for further expansion of cultivated areas are now limlited and future growth of the sector will have to be based mainly on more intensive utilization of cultivated areas, improvement in yields, continued diversification of crops, including, in some areas, different forms of cropping patterns and farming practices, and availability of agricultural credit. All of these would require increased Government assistance to the private rural sector. Furthermore, a significant part of the rural population, particularly in the north and northeast regions, has not fully participated in the recent growth in rural income, and special programs will have to be formulated to accelerate income growth in these areas. In the past, public rural investment has concentrated on the expansion of the irrigation network in the central plain. A greater effort is now required to develop upland and other rainfed areas through research, extension services and rural infrastructure development. Income levels of farmers in these areas are much lower than

10 - 4 - in the irrigated areas and their increased productivity is necessary to ensure continued growth of the agricultural sector as well as to improve the distribution of income. 12. While growth in the agricultural sector may be expected to remain fairly rapid for some time to come, the impetus for future growth will have to come increasingly from the industrial sector. Industry, construction and services will have to provide an increasing share of employment and income opportunities for the growing population. Industrial policy and programs should be designed to create jobs for the rapidly growing labor force at increasing levels of productivity and wages. Greater effort will be required to encourage the location of industries outside Bangkok, and to promote small-scale and rural industries. While continued rapid growth of manufactured exports remains feasible, the large domestic rural sector also offers opportunities for a balanced industrial growth strategy based on production of low-income consumer goods, agricultural inputs and equipment, and processed agricultural products as well as on production for foreign markets. 13. A central development issue in Thailand today, therefore, is managing the transition from an economy whose growth is based on the extension of land under cultivation and import substitution industries to one based on increasingly intensive use of land and on industries producing for domestic and export markets under competitive conditions. Effective policies and programs will be necessary to ensure that economic growth is maintained and income disparity not widened during this period of transition. In the past, the Government's role has been confined largely to short-term economic management, where it's performance has been good, and to the provision of basic economic and social services. In order to achieve a relatively smooth transition, the Government will have to undertake more coordinated and longer-term actions. This implies that an integrated and carefully planned program of reform of public institutions will have to be implemented. Such a program should be carried out systematically and gradually over a period of years and would need to include: (a) changes in the system of personnel management; (b) improving the capacity of ministries to plan, monitor and control activities of their respective departments; (c) greater decentralization of decision-making to the provincial and local levels; and (d) rationalization of the functions of, and coordination among, the central government agencies responsible for planning, budgeting, staffing and economic management. 14. The implementation of policies needed for a satisfactory rate of economic and social progress will require a steady increase in public expenditures over the next few years. Public expenditures have increased substantially in nominal terms since 1974, but these increases have merely restored the share of the public sector in the country's expenditures to that prevailing before , when public spending declined in real terms as a result of an anti-inflationary policy. A reasonably ambitious development program for the next few years will, therefore, require much greater efforts to mobilize both domestic and external resources than in the past. Government domestic revenue as a percentage of GNP (13.4% in 1977) was low compared to other

11 - 5 - developing countries at similar levels of development due to low tax rates, high exemptions and a somewhat-below-average rate of compliance. Improved resource mobilization through increased taxation of property and income and better collection efforts will make the tax system more progressive. Such changes would also make it feasible to reduce taxation of foreign trade, particularly on rice and other exports, which has inhibited agricultural growth. 15. The deterioration in the country's terms of trade has raised substantially the external capital flows needed for achieving a satisfactory rate of growth. The financing of the tentative investment program of the Fourth Plan is likely to require commitmaents of about $3-3.5 billion in project financing and further public borrowing of $ million through sources such as Eurocurrency loans, suppliers' credits and industrial countries' export financing facilities. This public sector borrowing program would raise the public debt service ratio (service payments on public debt as a percentage of exports) from 2.6% in 1975 ito 8.2% in Although the service ratio for total debt, which amounted to 13.4% in 1976, is projected to remain below 20% throughout the Fourth Plan lperiod, the unfavorable development of the country's balance of payments since 1974 and the significantly larger role required of the public sector to maintain growth in the future justify some concessionality in the foreign financing of government projects. At their meeting of March 22 and 23, 1977, members of the Consultative Group considered these projected amounts of external borrowing reasonable and supported the Government's objective to seek a major part of such financing on concessional terms. It therefore seems appropriate to include a limited amount of IDA credits in the Bank Group's lending to Thailand. In addition, external agencies, including the Bank Group, have in recent years increasingly concentrated project lending to Thailand in the agricultural and social sectors that have high social benefits but low foreign exchange components. To achieve the higher level of external resource transfer that is now required, it is necessary, in selected projects when the foreign exchange component is low, to finance some local currency expenditure. PART II - WORLD BANK OPERATIONS IN THAILAND 16. Thailand first borrowed from the Bank in 1950 and has received 46 loans amounting to $1,151.2 million, net of cancellations. Most of these have been for transportation ($295.5 million), irrigation ($218.8 million) and power/energy and rural electrification ($245.9 million) with, in addition, one for a dual-purpose power and irrigation project ($65.8 million). The remaining loans have been for water supply ($55 million), telecommunications ($63 million), education ($52.3 million), industry ($42.8 million), rural development ($21 million), livestock ($5 million), rubber replanting ($50 million), national agricultural extension ($28 mi:llion) and a sites and services project in Bangkok ($8.6 million); with the rural development and livestock loans having been made under the terms of the Interest Subsidy Fund. Thailand has also received four IDA credits: one for $19.5 million for an education project; two credits totaling $12.5 million for irrigation improvement; and one credit of

12 - 6 - $33.1 million for a population project. In general, Bank-financed projects have been carried out satisfactorily and in accordance with expectations. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as well as notes on the execution of ongoing projects as of July 31, Over the past year, loans have been approved for national agricultural extension, irrigation, power and industrial development. In the current two-year cycle, projects to support a broad range of agricultural development, agricultural credit and research, rural infrastructure, education, small- and medium-scale industries, population and low-cost housing and traffic management would account for about two thirds of the proposed program. Continued lending is also planned for power, including rural electrification, coal expansion, and natural gas development. In transportation, the emphasis has shifted from major highways to provincial and rural roads and improvement of inland waterways and coastal ports. 18. The Bank continues to diversify its lending program in Thailand with the objective of assisting the Government to expand its effort to improve the distribution of income as well as to maintain a rapid rate of growth. Increasingly, projects are selected and designed to spread development benefits to the lower income groups and the more needy regions. One of the main functions of the Bank's regional mission in Bangkok is to assist the Government in developing projects to meet these objectives. 19. Bank loans and IDA credits, disbursed and outstanding, amounted to $309 million, as of December 31, 1976, representing about 38% of public external debt (disbursed and outstanding). This is not excessive in view of Thailand's modest overall public external debt (5.2% of GDP in 1976). In addition, although the level of Bank commitments is expected to increase over the next five years, the Bank Group's share is projected to decline below 30% of total public external debt by The Bank's share in total debt outstanding would remain at about 20%, and its share of debt service is not expected to exceed 10%. 20. IFC has made two equity investments totaling $380,000 in the Industrial Finance Corporation of Thailand; three loans and an investment, totaling $32.17 million, in the Siam Cement group; a loan of $300,000 to Concrete Products; an equity investment of about $300,000 in Mutual Fund Company; and a loan of $2.5 million and an equity investment of $200,000 in United Sugar Terminal Company. IFC has recently approved a line of credit of $2.0 million for small- and medium-scale enterprises to be administered by Siam Commercial Bank. IFC has also completed the appraisal of a project for producing carbon black. Prospects for other IFC operations are reasonably good. IFC has been asked to arrange the debt financing of approximately $50 million for a $90 million zinc mining and refinery project. Other likely operations are the development of privately sponsored industrial estates, two projects to expand cement production, and one for the manufacture of glass bottles and containers. At the Government's request, the Capital Markets Department carried out a reorganization study of the Government Housing Bank, which is currently being implemented by the latter institution.

13 PART III - THE TELECOMMUNICATION SECTOR Sector Org.nization 21. The public telecommunication services in Thailand are state-owned and are operated by two state enterprises under the Ministry of Communications: the Telephone Organization of Thailand (TOT) and the Communications Authority of Thailand (CAT). TOT is responsible for domestic public services and CAT for public telegraph, telex and all international services. A third entity, the Post and Telegraph Department (PTD) under the same ministry, is responsible for allocating radio frequencies and representing the Government at all international telecommunications meetings. TOT and CAT coordinate their activities through joint committees. Also, the managing director of TOT is a member of CAT's Board of Directors and the President of CAT is a member of TOT's Board of Directors. This ensures high-level coordination of policy issues relating to the two entities. Due to inadequate public long-distance telephone facilities in rural areas, many government agencies and large commercial firms operate their own private networks. Three privately owned domestic factories manufacture telephone subsets and certain types of telephone cables. Development of Telephone Services 22. Since the early 1970s, the telecommunication sector in Thailand has been undergoing rapid development in an attempt to meet the increasing flow of business and administrative information required to support Thailand's continued growth. Telephone facilities in 1972 comprised about 127,300 telephone lines in Bangkolc and about 34,400 lines in the provinces. Against this, there was an unsatisfied demand of 186,700. In 1972, TOT embarked on an 8-year (FY72-79) Development Program costing $382 million (foreign costs: $160 million). This program, now under implementation, was supported by two Bank loans - $37 million (864-TH) in 1972 and $26 million (1253-TH) in By the end of the Program in 1979, about 133,500 telephone lines will have been added in Bangkok and about 51,600 in the provinces. The total number of telephones (liness plus extensions) will be about 485,600, raising the telephone density from 0.61 telephones per 100 population in 1972 to 1.02 in In addition, through expansion of long-distance telephone facilities, the program aims at progressive introduction of nationwide subscriber trunk dialling service (STD) from Access to Telephone Services 23. The planned 115% increase in telephone lines during FY72-79 was inadequate to meet the conservative forecast demand growth of about 10% p.a. The unsatisfied demand for new telepnone connections in the country has risen from 186,700 at end 1972 to about 287,800 at end Thailand's 1977 telephone density /1 of 0.83 was significantly lower than in many other countries in the region (Malaysia , Papua New Guinea , Philippines - /1 Telephones per 100 population.

14 ). The high concentration of telephones in Bangkok, the country's administrative and commercial center, is to be expected, but in absolute terms, the city's telephone density of 4.8 telephones per 100 residents is also significantly lower than those for Manila , Kuala Lumpur , and Singapore In the provinces, telephone service is concentrated in 110 urban localities with about 17.6% of total population. Of the 660 amphurs (district administration areas) in the country, only 136 have access to telephone service. This has inhibited the Government's plans for decentralizing civil administration and dispersal of industry. Of the 524 amphurs without service, 53 amphurs have a population of over 100,000 each. Telephone Usage and Quality of Service 24. Forty-seven percent of the telephone lines in Bangkok and 79% in the provinces are installed in business premises. A substantial proportion of the lines classified as residential is also primarily used for business purposes. Seventy-one percent of all calls in Bangkok and 81% in the provinces relate to business purposes. The domestic long-distance traffic reflects the dominance of Bangkok and in general about 50-60% of all long distance calls originating in the provinces are for Bangkok. 25. In the Bangkok local network, about 50% of calls dialed during peak business hours are unsuccessful mainly because of called numbers being busy, a result of shortage of working lines in relation to the demand, and technical faults. TOT has instituted remedial measures to upgrade the technical quality of local networks and improve maintenance to reduce incidence of faults but until the shortage of telephones could be met, call failures due to called number being busy will continue. The quality of operator-controlled long-distance service is subject to long delays due to shortage of circuits and manual operating positions. The inadequacy of trunk service affects most adversely the rural areas which depend on telephone service to obtain administrative, commercial, health care and other services from nearby towns and Bangkok. Demand for Service 26. Waiting lists of potential subscribers are not officially maintained. Hence, identifiable demand for telephone connections in Bangkok and the provinces has been conservatively estimated on the basis of an analysis of demographic data and of historical evidence relating to the extent to which increased supplies into unserved areas have stimulated previously unknown demand. The average growth rate in demand has been forecast at 11.4% p.a. during FY This is conservative and below the norm of about 15% in most developing countries. 27. The past growth of long-distance service has been considerably hampered by a shortage of long-distance circuits and manual operating positions. Also due to lack of local telephone facilities in rural areas, the long-distance traffic needs of the rural areas have not been satisfied. With the expansion of both the long distance and local networks, particularly the improved access to service in rural areas, and gradual introduction of STD service from 1980, the long-distance traffic growth has been forecast at an average annual rate of about 27% during FY Based on experience under similar conditions in other countries, the forecast is conservative.

15 - 9- Sector Objectives and TOT's FY78-82 Program 28. Considering the present state of development and the financial constraints, TOT has, with Bank encouragement, set itself the following long-term objectives for development of telephone services in Thailand by 1990: (a) telephone densities of 25.0 in Bangkok and 2.0 in the rest of the country to achieve an overall density of 5.1 in Thailand; and (b) all villages and towns with population of 2,000 and over to have access to telephone services. The sector objectives are reasonable and capable of achievement. After some adjustments to the original program, the current program was approved by the Government in May 1978 with an estimated cost of $673 million including foreign costs of $336 million. Sector Fragmentation 29. Due to TOT's financial inability to provide adequate countrywide service, many government agencies and private concerns have established their own private radio networks. This has led to diseconomies and high-cost technical solutions for development of national telecommunications facilities. The Government has appointed an expert to regulate radio frequencies and a committee to regulate future licensing of private networks. Under the proposed project, the Government will, by December 31, 1980, restrict licensing of new private networks where the needs of public and private agencies can reasonably be met by TOT, and impose license fees for private radio systems to discourage the use of the limited radio frequencies for private networks. This should also encourage use of public facilities rather than independent networks (Section 3.03 of the draft Guarantee Agreement). Bank's Role in the Sector 30. The Bank has helped finance two telecommunications projects in Thailand (para. 22). The projects financed by these loans provided for rehabilitation and expansion of the domestic telephone network, improving quality of service, introduction of automatic subscriber trunk dialling (STD) service for long-distance calls and improving access to service. Commencement of the first project was delayed by nearly two years due to the political situation and delays in arranging co-financing. Total and foreign costs escalated by about $85 million and $31 million, respectively. For the Bankfinanced items, the project is maintaining the new schedule and $36 million (97%) of the Bank loan has been committed. The project is expected to be completed in September The second project is currently at the procurement stage. However, procurement of the long-distance equipment financed under a bilateral credit has been delayed due to a controversy within the Government over selection of the supplier. Project completion is now expected by September 1980, about nine months behind schedule, and improvements to STD will now be completed by mid The amount of $13 million (50%) of the Bank loan has been committed and the balance is expected to be committed in The Bank's assistance to the sector since 1972 has enabled higher levels of investments than would otherwise have been possible. Such investments, however, have proven short of requirements, resulting in low per capita availability of telephones and in large segments of the population being

16 still without access to telephone service. Nevertheless, equally important has been the Bank's contribution towards steady institutional reforms within TOT such as internal reorganization, improvements in methods and procedures for construction and maintenance of physical assets, improvements in accounting and budgeting systems, rationalization of tariffs, reduction of accounts receivable from Government, etc. These gains have not only brought about more efficient use of the investments but improved TOT's managerial, technical and financial performance. These gains also need to be consolidated during the proposed project and the Bank's continued participation in the sector, besides meeting part of the foreign costs of development, would further assist TOT in its endeavors to achieve the sector objectives (para. 28), improve access to service in rural areas, further strengthen its organization through institutional improvements (para. 41), and raise tariffs for maintaining its financial viability and providing an adequate level of internal funding of its capital expenditure (paras ). The Bank would also be able to guide TOT towards correct decisions on procurement at a time of rapid technological changes and in undertaking the Economic Study of Telecommunications in Thailand which would enable both TOT and the Government to improve the quality of investment decisions. PART IV - THE PROGRAM AND THE PROJECT History 32. In 1976, TOT drew up a two-phased program of development of telephone services in Thailand up to Phase I incorporating the proposed third project for FY77-82 and Phase II for FY This program was approved by the Government in September, On review, the Bank felt that: (a) the rate of growth under the program was very low and failed to deal adequately with the problem of rising level of demand; (b) quality of service needed substantial improvement; (c) provisions for improving access to rural areas were inadequate; and (d) the financial performance of TOT based on current tariffs would be unsatisfactory throughout the program period. On the Bank's recommendation, TOT enlarged the scope of Phase I to provide for a higher rate of growth, improve services, and provide access to service to more rural areas. To finance the increased development costs and provide for a higher level of internal funding, TOT agreed to propose to the Government an increase in telephone tariffs. Because of these changes and the need for government approval of the enlarged program and tariff proposals, TOT rescheduled the two phases of the development program as Phase I: FY78-82 comprising the proposed project and, with some overlap, Phase II: FY80-84 for future works. The project was appraised in October/ November 1977; a post appraisal mission visited Thailand in March, 1978 to agree revised financial data and to prepare new forecast financial statements. The revised program together with increases in telephone charges was finally approved by the Government in May, Negotiations were held in Washington from May 31 to June 5, The Thai delegation was led by H.E. Khun Sukho Suwansiri, Charge d'affairs a.i., and Minister Plenipotentiary, Embassy of Thailand, assisted by Khun Sudhibhan Nimmanhaemin of the Ministry of Finance and Khun Manas Leeviraphan and Khun Vichai Panyadilok representing the Telephone Organization of Thailand.

17 Project Description 33. The project is designed to further sector objectives and provides for a self-contained, balanced and integrated development of domestic telephone services. Access to public pay telephones will be significantly increased in Bangkok. In rural areas 235 out of 524 currently unserved rural districts will be connected to long-distance telephone service for the first time, which will provide more convenient telephone access to about 13 million rural populatilon. The project includes installation of (a) about 185,000 lines (140,000 in Bangkok and 45,000 in the provinces) of local exchange equipment with associated cables and subscribers' plant for connecting about 170,000 new subscr:ibers (129,500 in Bangkok and 40,500 in provinces) and about 4,500 public call offices in Bangkok and 1,500 in the provinces; (b) about 3,000 lines of local exchange equipment to replace old equipment and mobile exchanges in ]Bangkok;(c) about 13,000 lines in seven existing tandem exchanges in Bangkok for inter-exchange traffic; (d) about 15,000 lines (8,500 in Bangkok and 6,500 in the provinces) in existing trunk automatic exchanges for Subscriber Trunk Dialling (STD) traffic; (e) microwave radio systems on two new routes and upgrading, replacement and addition of microwave radio equipment on 12 existing routes and adding 12,500 channel ends; (f) about 200 UHF and other transmission systems and station equipment for about 210 long-distance call offices for extension of service to rural areas now without service; (g) vehicles, civil works and other facilities for implementing the project. Details are given in the report entitled "Thailand- Appraisal of the Third Telecommunications Project" (No TH, dated August 17, 1978) which is being distributed separately to the Executive Directors. Annex III of this report incorporates key dates, implementation action and the special conditions for the project. Project Costs and Financig 34. The total cost of the project, including contingencies, is estimated at about $307 million equivalent and has a foreign exchange component of about $180 million or about 59% of total cost. The proposed Bank loan of $90 million (50% of foreign costs) would finance the following items: switching equipment ($31 million); cables and outside plant ($15 million); subscriber's plant ($5 million); transmission equipment ($18 million); station equipment for rural longdistance links ($3 million); vehicles ($1 million); and contingencies. The cost estimates are based on prices paid by TOT in recent contracts and updated to mid Of the balance of foreign exchange costs ($90 million), OECF loaned $22 million in February 1978 (including $2 million equivalent to cover local costs) on a term of 20 years including 7-1/2 years grace with interest at 3.5%; a further $40 million loan from OECF on similar terms but with interest at 5% will be finalized by March 31, Commercial Bank financing of $30 million is being arranged; likely conditions of commercial loans being a term of about 7-10 years, including about 5 years grace, with interest rates comparing favorably with prevailing LIBOR rates. These funds are required to finance works under FY80-84 program and, therefore, the commercial banks loans will be negotiated as required. A provision for cross-effectiveness of the second OECF and commercial banks loans has not been made as funds will only be needed after the effectiveness of the proposed loan. However, provision has been made for consultation with the Bank and suspension of the proposed loan (Sections 6.01 and 6.02 of the draft Loan Agreement). The local costs of the project ($127 million equivalent) will be financed by TOT except for $2 million equivalent agreed

18 to be financed by the OECF loan and $5 million equivalent through a Government loan on a term of 10 years including 5 years grace and with interest at 8%. Contingencies 35. The provisions for equipment and civil works are based on detailed designs and engineering. Also, the continuous and dispersed nature of telephone development with simultaneous installations at a very large number of locations allows adequate flexibility for adjustments as unforeseen additional requirements at some points are compensated by unexpected reductions at others. Hence, a physical contingency provision at 2% of annual local and foreign base costs is considered adequate. Telecommunications equipment contracts are normally fixed price contracts. To cover possible increases in price up to the date of contract for international procurement, a price contingency of $26.9 million equivalent to about 17.6% of base foreign costs plus physical contingency has been included. To cover likely increases in local costs due to increase in wages and costs of civil works, a price contingency of $23.0 million, equivalent to 19.7% of base local costs plus physical contingency, has been included. Telephone Organization of Thailand (TOT) 36. TOT is administered by a seven-member Board of Directors which lays down broad policies. The Under-Secretary of State, Ministry of Communications, is the Chairman. The Managing Director has full responsibility and adequate authority for day-to-day operations. TOT operates on commercial lines but, like most state enterprises, its investment plans, capital budget and tariffs for telephone services are subject to government approval. Consultants appointed in 1973 under Loan 864-TH will continue to assist TOT until 1979 in internal reorganization including changes in the accounting, budgeting and stores inventory systems, in improvements in plant construction and maintenance procedures, and in implementation of its expansion programs. TOT's current organization is sound and its management effective. Further institutional improvements would help strengthen TOT's decision-making process and performance (para. 41). 37. Staff. TOT currently has a staff of about 9,500 which works out to about 26 per 1,000 telephones, less than in many other developing countries. By 1982, the number of staff would increase to about 11,800, but the ratio of staff per 1,000 telephones would have improved to 15 through increased productivity, economies of scale due to increased size of unit installations and improved organization for construction and operation. TOT has no difficulty in recruiting staff and staff turnover is negligible. 38. Training. TOT has at present a central training center in Bangkok for engineering and vocational training of new staff and in-service training of existing staff in new techniques and procedures. For future additional training needs, TOT proposes to establish four regional training centers for vocational training of lower categories of staff who are usually recruited and employed on a regional basis. Project Implementation 39. The tempo of development under the proposed project will be appreciably higher than under the previous projects, in terms of both physical installations and investments. Due to the increased level of development and

19 also the effect of the ongoing projects, the average annual investment is expected to increase from $22.5 million during FY72-77 to $135 million in FY78-82, an increase of 487%. During the same period, average number of new lines connected per year is expected to increase from 20,800 to about 64,000, an increase of 207%. TOT staff is sufficiently experienced to implement the project, prepare engineering designs, technical specifications and bid documents, evaluate bids, and prepare contracts. All installations would be carried out by TOT staff but with suppliers' supervision for any new or sophisticated design of switching equipment. The major installations under the proposed third project will commence in FY80 by which time installations under the earlier projects would have been completed. The proposed project is expected to be completed by September 30, 1982 and no unusual problems or delays are anticipated in project execution. Consultants 40. The Swedish Telecommunications Consultants AB (SWEDTEL), financed by the Bank under Loan 864-TH, have been assisting TOT as consultants since January They have advised on reorganization within TOT, given engineering assistance in improving plant maintenance and operation, organization of installations, preparation of technical specifications, and tender evaluations. They have also recommended changes in accounting, budgeting and stores inventory systems which are under implementation. Their performance to date has been satisfactory. The Bank agrees with the assessment that TOT has now developed adequate internal capability and will not need further assistance of the consultants after the expiry of their current contract in Institutional Aspects 41. In order to strengthen further TOT's managerial and operational performance, the institutional and procedural improvements agreed to be implemented under the project are: (a) Economic Study of the Telecommunications Sector: From January 1979, TOT will prepare, in consultation with the Bank, terms of reference and commence work on a study to estimate the incremental cost of different types of telecommunications usage and the incidence of its benefits, and examine the possibilities for cross subsidization to extend service to new areas. The study will contribute to a better definition of sector objectives and investment decisions towards telecommunications development in the 1980s (Section 4.05 of the draft Loan Agreement); (b) Fundamental Planning Unit: By September 30, 1979, TOT will set up and thereafter maintain as a part of its organizational structure, a fundamental planning unit to: assess the long-term (10 to 20 years) telecommunications needs of the country and set sector development objectives and priorities in consultation with other government agencies and private national organizations; study latest technology in telecommunications and determine modifications, if any, necessary to meet needs peculiar to Thailand; assess likely trends in development and operating costs to devise short-term (three to five years) plans; estimate requirements of material,

20 financial and manpower resources for each plan; examine the adequacy of tariffs to generate the required funds; propose changes, if any, with their time schedules, in the organizational structure and functions within TOT (such as decentralization of detailed planning, plant engineering and construction to field units, establishment of a research and development unit, etc.); consider justificaton and basis for domestic manufacture for telecommunications facilities, etc. (Section 4.04 of the draft Loan Agreement); (c) Management Information System: TOT will develop an adequate management information system to provide the top management with continuous and adequate data on the technical and financial performances of the various services, trends in expenditures and revenues, progress on works, incoming new demands, and data on other parameters which would enable the management to take timely decisions on investments and priorities of development and on remedial measures to rectify deficiencies. TOT has the capability of designing, implementing and operating the management information system without external assistance and will institute the system by September 30, 1979 (Section 4.06 of the draft Loan Agreement); (d) Official Waiting Lists: Given the difficulties in forecasting the demand for telephones even in areas currently served, to ensure more accurate forecasts of demand and equitable distribution of resources, TOT has agreed to establish by March 31, 1979, and thereafter maintain official waiting lists of potential telephone subscribers for all areas, including those without service at present (Section 4.07 of the draft Loan Agreement); TOT will also review the need to establish "priority" and "nonpriority" waiting lists in Bangkok and reserve an adequate percentage of system capacity for applicants in each category. Applicants under priority listing would be required to purchase subscriber bonds of Baht 30,000 and the rest, bonds of Baht 10,000 (see para. 45); (e) Procedures for Connecting New Telephones: At present, TOT calls for applications from potential subscribers through newspaper advertisements after the basic exchange and cable facilities are commissioned. During the several weeks it takes to process the applications and to complete the wiring and installation of telephones at subscribers' premises, the installed exchange and cable facilities remain idle. This results in loss of revenue. Until such time as waiting lists are available for each exchange, TOT will advertise in advance for applications for service and review the pending applications so that it can complete the administrative formalities and technical installations and give service to new subscribers simultaneously with the commissioning of the additional local exchange and/or cable facilities, or immediately thereafter. TOT has agreed to implement the above procedures by March 31, 1979 (Section 4.07 of the draft Loan Agreement); and (f) Billing System: While TOT's billing system is computerized and satisfactory, the present system of house-to-house bill collection through bill collectors is inefficient and inadequate to cope with

21 the requirements of an expanded network. TOT has agreed to evaluate alternatives with a view to devise a new system, satisfactory to the Bank, and adopt and initiate by October 1, 1980, a progressive changeover to the new system of bill collection so as to complete the changeover by September 30, 1982 (Section 4.08 of the draft Loan Agreement). TOT's Past Financial Position 42. TOT's financial performance in recent years has been satisfactory and its present financial position is sound. The financial results have generally been in line with those forecast during appraisal of the second project. Due to reduced revenues caused by delays in the execution of the program, TOT's financial rate of return in FY75 was 9.1% which was below the covenanted 10% but, since then, increased earnings have enabled the rate of return to rise above 10%. During FY76 and FY77, TOT was able to fund internally about 34% of the total investment requirements. In FY77, the debt/equity ratio was 46/54 and the current ratio 2.7. Revaluation of Assets 43. TOT's official financial statements are published with assets valued at historical costs. During negotiations, TOT agreed that (a) commencing June 30, 1979, it will establish and thereafter maintain an assets register set up on the basis of appropriate techniques, satisfactory to the Bank, for classification of assets and determination of asset lives; and (b) it will study methods of revaluation and for the purpose of setting tariffs commencing with fiscal year beginning Oct. 1, 1979, and thereafter, calculate the rate of return based on assets revalued in accordance with methods satisfactory to the Bank (Sections 5.02 and 5.03 of the draft Loan Agreement). Tariffs and Financial Forecasts FY Until July, 1978, telephone charges in Thailand had not been significantly increased for 23 years although the free call allowance was eliminated in 1975 with rentals being reduced to compensate for this. Tariffs for government subscribers, which had been substantially lower, were also brought on a par with general tariffs. Since late 1976, new subscribers have been required, before being connected to the service, to purchase Subscriber Bonds. In Bangkok, applicants pay Baht 30,000 or Baht 10,000 depending upon whether service is required within three months or later; in the provinces, the subscription rate is Baht 3,000 and Baht 1,000 for exchanges above and below 1,000 lines, respectively. 45. Domestic telephone services in Thailand have been developing without any substantial government budget suport or significant local borrowings for capital expansion. Consequently, expansion has been tied to TOT's capacity to generate funds from internal sources and to borrow externally. Internal funding of capital expenditures declined from 59% in FY74 to 21% in FY76 causing the debt/equity ratio to increase from 22/78 in FY74 to 46/54 in FY77, a satisfactory result considering the increased capital expenditure over the period. The substantially higher rate of expansion during the proposed project requires an increase in the level of internally generated funds so

22 that TOT can continue to maintain a prudent financial positioni. TOT increased tariffs in July, 1978 so that revenues would be adequate to meet 30% of the proposed investment expenditures during FY78-82 and generate a satisfactory rate of return. The local call charge increased from Baht 1 to Baht Further tariff increases are scheduled for FY80, when local call charges as well as STD rates will be increased. 46. Analysis of TOT's forecast financial position indicates that existing tariffs and those planned for FY80 will meet TOT's past obligations and funding requirements for the project period. The financial performance of TOT and its financial position at the end of the project period are expected to be satisfactory. The forecast financial statements are based on a Bank lending rate of 7.45%. However, the effect of not using the current rate of 7.90% is very minor and does not materially affect the financial forecasts or the financial performance indicators which have been used to justify the project. The proposed tariff increases, higher operating efficiency, increased revenues due to subscribers gradually taking full advantage of the expanded network (especially through subscriber trunk dialing), and economies of scale in the construction program will enable TOT to increase the internal funding of an increasing capital expenditure. During the project period TOT will likely continue to pay a 9% bonus to its employees and also make remittances to government from FY80 onwards of about 30% of net profits (an estimated $61 million). TOT is initially required to earn a minimum rate of return of 10% on revalued assets and maintain a debt service coverage not less than 1.5 times (Sections 5.06 and 5.07 of the draft Loan Agreement). Nevertheless, the financial forecasts indicate that a minimum rate of return of 11% on revalued assets would be maintained during FY78-82; further, the operating ratio would be about 66%, debt/equity ratio between 60/40 and 65/35, and debt service coverage not less than 2.0. Accounts Receivable 47. In accordance with a covenant under the Guarantee Agreement 1253-TH, the Government took steps to establish the nature and cause of accumulated past accounts of government departments and agencies and then issued directives for making budget provisions to settle such accounts by September 30, 1983, as well as settling all new telephone accounts on a current basis. The progress of the settlement of the past accounts receivable will be monitored through normal reporting requirements for the project (Section 3.02 of the draft Guarantee Agreement). Accounts and Audit 48. TOT's budgetary system is not fully integrated with the accounting system, and requires a proper chart of accounts and works accounting procedure. TOT is now implementing changes in the accounting system recommended by the consultants, which are satisfactory. The present auditing arrangements by the National Audit Council as laid out in previous loan agreements are satisfactory and would continue under the proposed loan (Section 5.04 of the draft Loan Agreement).

23 Procurement and Disbursemernts 49. All procurement under the proposed loan will be subject to international competitive bidding in accordance with Bank Group's "Guidelines for Procurement." A 15% preference margin, or the prevailing customs duty if lower, will be extended to local manufacturers in the evaluation of bids. Off-the-shelf items to meelt urgent requirements, costing less than $10,000 each, will be purchased through normal government procurement procedures which are satisfactory to the Bank. Disbursements will be made at the rate of 100% against the foreign exchange costs of directly imported items, or the ex-factory cost for items of local manufacture when awards are won under international competitive bids, or 65% of total expenditure on items procured locally. It is expected that disbursements will be completed by December Benefits 50. In Thailand, lack of swift and reliable communications is becoming a bottleneck as the Government increases investments in agriculture, industry and electricity in rural areas. Because of the lack of an adequate public telecommunications network, a large number of private VHF communication networks have been installed in the provinces. From a national resource point of view, such fragmentation of communications facilities is a relatively inflexible and high cost solution. 51. Bangkok. Currently, only 59% of the identified demand for telephones has been met in Bangkok, which is the hub of the communications network in Thailand. This low level of satisfied demand creates service problems and thwarts business and government communications both within the metropolitan area and with the rest of the country since it is difficult to call into the Bangkok network during business hours. The project, which will add 140,000 lines in Bangkok will alleviate this pressure somewhat, thereby providing better communications both to urban business sectors such as the service industry, which is highly dependent on telephone communications and which is Thailand's fastest growing employment sector, and to the provinces. Also, to the extent that good telephone communications is a substitute for face-to-face communication, the additional lines in Bangkok should slow the growth of vehicle traffic congestion and petroleum consumption and reduce atmospheric pollution. 52. Provincial Areas;. In the provinces, installation of 44,800 lines will provide more convenient telephone access to the rural population. An additional 235 out of the 524 currently unserved amphurs will receive some form of telephone service, 25 through new exchanges and 210 through rural long-distance call offices. Improved telephone access will also promote the Government's goals of stimulating economic development in the rural areas, encouraging administrative decentralization, the essential social services, and a reduction of the transport-related costs of projects in priority sectors. In particular, the provision of services related to health and welfare in rural areas involves, in many cases, use of staff with limited expertise who obtain direction and advice over the telephone from more qualified personnel at main centers.

24 Least Cost Solution. Given TOT's existing network and the fact that the proliferation of private networks has virtually exhausted existing VHF radio frequencies, the dimensioning and timing of the works under the program, of which the Bank project is an integral part, are based on engineering studies designed to determine the least cost technical means for improving service to existing subscribers, partially meeting new demands, and expanding service into some of the areas now without service. 54. Return on Investment. A rate of return based on willingness of consumers to pay proposed tariffs is an underestimate of benefits since, among other things, it does not include the consumer surplus which subscribers and other callers receive. In Bangkok, an estimate of a portion of this consumer surplus was made, however, by taking into account the apartment and office rent differentials which some consumers now pay in order to have a telephone. Accounting for these observed rent differential payments in Bangkok, the quantifiable economic rate of return on the Program is approximately 21%. 55. Benefits are also underestimated because, while the costs included in calculating the internal rate of return are those for extending and upgrading the network and providing facilities in the newly served rural areas now, the available capacity of various components of equipment will only be fully utilized when additional investment is made in the future. Thus, the costs incurred during the FY78-82 period will generate additional untabulated benefits during the period following FY Distribution of Benefits. Internal cash based on the proposed higher tariffs will finance 30% of TOT's FY78-82 expansion program and provide the Government with remittances to Treasury (para. 46). In effect, from FY80, telephone tariffs would once more become an administratively simple form of taxation which will generate for the Government the local currency equivalent of $61 million over the years FY80 to FY82. In addition, TOT will pay about $100 million as duties on imported plant and equipment. The revenue accruing to Government can be used in other national priority development sectors, or allocated back to the telecommunications sector for more rapid expansion in provincial areas. If it is used for programs primarily impacting on the general population, the telephone tariff tax, in addition to mobilizing domestic resources, is likely to have favorable income distribution implications. 57. With regard to a direct impact on low income population, the Program is designed to provide significantly increased telephone access to rural dwellers. In Bangkok, lower income population will be provided more convenient access through public pay telephones which will be increased from the current one per 2,880 people to one per 525 people by the end of the program period. Thus, a more equitable distribution of telephone access will be achieved under the program. Finally, the differential in the price of Subscriber Bonds between Bangkok and the provinces (para. 44) allows lower income rural dwellers to acquire an individual telephone much more cheaply than their higher income metropolitan counterparts.

25 Risks 58. The project objectives are reasonable and capable of achievement. With TOT's past experience and current performance, no problems or delays are expected in project execution. In spite of an increase of 120% in local network capacity under the project, by 1982, only about 67% of the total demand for telephones would have been met. With about 33% of the total demand in 1982 still unsatisfied the risk of building up excess capacity in local networks is negligible. If forecast growth of 27% p.a. in long-distance traffic is not realized, any excess provision in long-distance facilities would be used up by additional traffic generated through future expansion of the local networks. Ecology 59. The project would have no adverse ecological effects. PART V - LEGAL INSTRUMENTS AND AUTHORITY 60. The draft Loan Agreement between the Telephone Organization of Thailand and the Bank, the draft Guarantee Agreement between the Kingdom of Thailand and the Bank, arnd the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed separately to the Executive Directors. In addition to the features of the draft Loan and Guarantee Agreements which are referred to in the text and listed in Section III of Annex III, the following feature is of particular interest: The following event of suspension has been added, namely, the second OECF loan agreement and the commercial bank loans shall have failed to become effective by March 31, 1979, provicled, however, that this provision shall not apply if the Borrower establishes to the satisfaction of the Bank that adequate funds for the Project are available from other sources on terms and conditions consistent with the obligations of the Borrower (Section 6.01 and 6.02 of the draft Loan Agreement). 61. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 62. I recommend that the Executive Directors approve the proposed loan. Attachments August 29, 1978 Washington, D.C. Robert S. McNamara President by Ernest Stern

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27 ANNEX I TABLE 3A Page 1 THAILAND - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) THAILAND REFERENCE COUNTRIES (1970) TOTAL MOST RECENT AGRIC ESTIMATE PHILIPPINES KOREA SOUTH JAPAN GNP PER CAPITA (USS) POPULATION AND VITAL STATISTICS POPULATION (MID-YR, MILLION) POPULATION DENSITY PER SQUARE KM PER SQ. KM. AGRICULTURAL LAND VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) CRUDE DEATH RATE (/THOU,AV) 19.B INFANT MORTALITY RATE (/THOU) 84.3/a B1.0,, 13.1 LIFE EXPECTANCY AT BIRTH (YRS) GROSS REPRODUCTION RATE POPULATION GROWTH RATE (%) TOTAL URBAN URBAN POPULATION (% OF TOTAL) AGE STRUCTURE (PERCENT) 0 TO 14 YEARS TO 64 YEARS YEARS AND OVER AGE DEPENDENCY RATIO ECONOMIC DEPENDENCY RATIO 1.0/b 1.1 /a 1.1/a FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) USERS (% OF MARRIED WOMEN) EMPLOYMENT TOTAL LABOR FORCE (THOUSAND) LABOR FORCE IN AGRICULTURE (%) /a 50.4/a 19.0 UNEMPLOYED (% OF LABOR FORCE) : / INCOME DISTRIBUTION % OF PRIVATE INCOME RECOD BY- HIGHEST 5% OF HOUSEHOLDS HIGHEST 20% OF HOUSEHOLDS LOWEST 20% OF HOUSEHOLDS LOWEST 49% OF $OUSEHOLDS DISTRIBUTION OF LAND OWNERSHIP X OWNED BY TOP i0% OF OWNERS....,, X OWNED BY SMALLEST 10% OWNERS...., HEALTH AND NUTRITION POPULATION PER PHYSICIAN POPULATION PER NURSING PERSON /c /c /b /b POPULATION PER HOSPITAL BED /d 69O.D PER CAPITA SUPPLY OF - CALORIES (X OF REQUIREMENTS) 96.0/e PROTEIN (GRAMS PER DAY) 43.3ew OF WHICH ANIMAL AND PULSE 8.47e DEATH RATE (/THOU) AGES EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL SECONDARY SCHOOL YEARS OJF SCHOOLING PROVIDED (FIRST ANO SECOND LEVEL) , VOCArIONAL ENROLLMENT (X OF SECONDARY) /d ADULT LITERACY RATE (%), HOUSING PERSONS PER ROOM (URBAN) OCCUPIED DWELLINGS WITHOUT PIPED WATER (X) /c 5.0 ACCESS TO ELECTRICITY 78 C (X OF ALL DWELLINGS) 63.0/d RURAL DWELLINGS CONNECTED TO ELECTRICITY (X) /e CONSUMPTION RADIO RECEIVERS (PER THOU POP) PASSENGER CARS (PER THOU POP) 2.0 5S ELECTRICITY (KWH/YR PER ZAP) NEWSPRINT (KG/YR PER Cs_) SEE NOTES AND DEFINITIONS ON [EVERSE

28 ANNEX I Page 2 NOTIES Unless otherwise noted, (e.g., GNP per capita and population), data for 1960 refer to any year betwen 1959 and 1961, for 1970 between 1969 and 1971, and for Most Recent Estimate between 1973 and * Although Japan's GNP per coyitt is much higher than that of Thailand, Japan ha bean selected as an objective country because Thailand's development process can reasonably be measured against that of Japan, and Asian country which is highly trade orietned, has moved from an agriculturally based to an industrially based economy, and in doing so has retained its cultural distinction. TRAILAND 1960 /a ; /b Ratio of population under 15 and 6 and over to total labor force; /c , rural only; /d 1962; /I average /a Ratio of population under 15 and 65 and over to total labor force; /b 1968; Ic Including assistant nurses and midwives; /d As percentage of population in Bangkok matropolitan areas; /a Other 67 provinces. MOST RECENT ESTIMATE: /a Ratio of population under 15 and 65 and over to total labor force; /b Preliminary data, these figures represent upper limits on incoma received for lover income households, and lowar limits on upper income groups due to uncorrected under reporting of higher incomes; /c Including assistant nurses; /d Only upper secondary divided betwen vocational and academic, lover secondary is unified classes - 849,000 in lower secondary, 110,000 upper academic, 130,000 in upper vocational. PHILIPPINES 1970 /a As percentage of employment; /b Governmant personnel only. KOREA REP. OF 1970 /a As percentage of employment; /' Registered, not all practicing in the country; /c Piped water inside. R13, July DEFINITIONS OP SOCIAL INDICATOS Lund Arce (thou kas 2 ) Population per nursin person - Population divided by nusber of practicing Total otal surface area comprising land area end inland vaters, male and female graduate nurses, "trained" or "certified" nurses, and Agric. - Moat recent estimate of agricultural area used temporarily or pema- auxiliary personnel with training or experience. nently for crops, pastures, market & kitchen gardens or to lie fallow. Population par hospital bed - Population divided by sumber of hospital beds available in public and private general and specialized hospital and GNP per capita (US$) - GNP per capita estisatas occurrent market prices, rehabilitation cantera; xcludes ursing homes and estsbliahments for calculated by same conversion onthod as World Bank Atlas ( bais); custodial and preventive care. 1960; 1970 and 1977 data. Per capita supply of calories (% of requires-nte) - Computed frm energy equivaleot of net food supplies available in country per capita per day; Puulation and vital statistics available supplies comprise domestic production, Imports less exporta, ad Population (nid-vear million) - As of July first: if not available, verage chengas in stock; net supplies exclude animal feed, seeds, quantities used of two and-year estioates; 1960, 1970 and 1977 data, In fond processing and losss in distribution; requirements were estimated by FAO based on physiological needs for normal activity and health ronaid- Pupulation density - per sqeure kmo - Mid-year population per square kilometer ering environmental temperature, body weights, age and sex distributions of (100 hecttros) of total area. population, and allowing 10% for waste at household level. Population density - per square ks of agric. land - Computed as above for Per capita supply of protein (gras por day) - Protein content of per capita agriculturs1 land oly. net supply of food per day; net supply of food is defined as above; requirements for all cosoatries established by USDA Economsic Research Servic.a Vital statistics provide for a minimum allowance of 60 grats of total protein per day, and Crude birth rate per thousand, verage - Annuel live birthb per thousand of 20 grape of animal and pulse protein, of which 10 grama should be animal mid-ycar population; ten-year arithmetic averages ending in 1960 snd 1970, protein; these standards are loemr than those of 75 grams of total protein and five-ye-r average ending in 1975 for most recent estimate, and 23 grams of animal protein as an average for the world, proposed by FAO Crude death rate per thousand., average - Annual deaths per thousand of mid-year in the Third World Food Survey. population; ten-year arithmetic averages ending in 1960 and 1970 and five- Per capita protein supply from animal and pulse - Protein supply of food ycaraverage g.ding in 1975 for most repent estimate, derived from animals and pulses in gr per day. Infant nortality rate (/thou) - Annual death. of infants under one year of age Death rate (/thou) axes Annual deaths per thousand in age group 1-4 per thousand live births. years, to children in this age group; euggueted as an indicator of Life expectancy at birth (yr.) - Average number of years of life remaining at malnutrition. birth; usually five-year averages ending in 1960, 1970 and 1975 for developing countries Cpoo- reproductinr rte - xv-rage-numbr of live daughters a woman will bear Education Adiuated enrollment ratio - priarcy school - Enrollment of a11 ages as parin her normal reproductive period if she experiences present age-specific centage of primary school-age population; includes children aged 6-11 years fertility rates; u-ua 1y fiv-yea averags ending in 1960, 1970 and 1975 but adjusted for different lengths of primary education; for countries with for developing countrieu_ universal education, enrollment may exceed since some pupils are below Population growth rate (%) - total - Compound annual growth rates of mid-year or above the official school age. population for , snd Adjusted enrollment ratio - seamondary school - Computed as shove; secondary PoPulation oroeth rate (7) - urban - Computed like groth rate of total education requires at least four years of approved primry instruction; population; different definitions of urban areas may affect comparobility of provides general, vocational or tescher training inatructions for pupils data among countria. of 12 to 17 years of age; correspondence courses are generally excluded, Urban population (7 of total) - Ratio of urban to total population; different Years of schooling provided (first and second lavels) - Total years of definitionu of urban areas may affect comparability of data among countris. achooling; at secondary level, vocational instruction may be partially or completely excluded. Axge structure (percent) - Children (0-14 years), working-age (15-64 years), vocational enrollment (% of secondary) - Vocational institutions include and retired (65 yeses and over) as percentages of mid-year population, technical, induatrial or other programs which operate independently or as Age dpendenoy ratio - Ratio of population under 15 and 65 and over to thase departments of secondary in titutions. of agoe 15 through 64. Adult literacy rate (X) - Literate adults (able to read and write) aa per- Economic depe.dency ratio - Ratio of population under 15 and 65 nd over to centage of total adult population aged 15 years and over. the labor force in age group of years. amaiky planning - acceptors (cumulative, thou) - Cumulative number of acceptors H."oins of birth-control devices under auspices of sational fmily plamaing progr- Parsons per room (urban) - Average nober of persons per room in occupied since inception. conventional dwellings in urban areas; dwellings *xclude nom-parm-neot Family planning - usere (7. of married women) - Percentages of married women of structures and unoccupied parts. child-bearing age (15-44 years) who use birth-control devices to a11 married Occupied dwellinas without piped water - Ol) Occupied conventional dwellings wonen in same age goup. in urban and rural areas without inside or outside piped water facilities as percentage of a11 occupied dwellings. Employment Access to electricity (% of all dwellings) - Conventional dwellings with Total labor force (thousand) - Economically active persons, including armed electricity in living qurters as percent of total dwellings in urban and forcee and unemployed but excluding housewives, students, etc.; definitins rural er as. in various countries are not comparable. Rural dwellinxs connected to electricity C%) - Computed as above for rural Labor farce in agriculture (%) - Agricultural labor force (in farming, forestry, dwellings only. hunting and fishing) as percentage of total labor force. Unmployed (7 of labor force) - Unemployed are usually defined a persona who cor umption are able and willing to take job, out of a job on a given day, remained out Radio receivers (per thou pop) - All typee of receivers for radio broadcasts of a job, and seeking work for a specified minimum period not exceeding one to general public per thousand of population; excludes unlicensed receivers weak; ny not be comparable between countries due to different definitions in countries and in years when registration of radio sets as in ffect; of unemployed and source of data, e.g., employment offica tatitics, sample data for recent years may not bh cmprable sintc most countries abolished surveys, compulsary unemployment insurnce, licening. Pasenser cars (par thou POp) - Passen.gr cars compris mator cars seating Income distribution - Percentage of private income (both in cash and kind) lees than eight person,; exclude mbulances, hearses and military received by richest 5%, richest 20%, poorest 20%, and poorest 40% of house- vehicles. holds. Electricity (kwh/vr par cap) - Annual consumption of industrial, comercial, public and priwtce electricity is kilowatt hours pr capita, generally Distribution of land ownership - Pernentegee of land owned by wealthiest 10% based en production data, without allownce for losses in grids but allowand pooreat 107 of land owners. ing for imports and eperts of electricity. Newprint (kg/yr per cap) - Per capita snnual consumption in kilogrem, Health and Nutrition Population per phyaician - Popultion divided by number of practicing estimated from domestic production plus net imports of newsprint. phyaicoaus qualified from a edir-l achool at university level.

29 ANiNEX I Page 3 of 4 ECONOMIC DEVSLOPMENT DATA SHEET Actual Projected Growth rates (Z) 1975 share /L of GOP (Z) A. National Accounts (Million USS$ at 1975 prices) 1. Gross domaestic product 7, , , , , , , Gains from terms of trade Gross domestic income 6, , , , , , , Imports 1, , , , , , , ixports - volume 1, , , , , , , Exports - adjusted for TOT 1, ,353.D , , , , Resource gap - adjusted for TOT Tot-l consueption 5, , , , , , , Investment 1, , , , , , , Domestic savings adjusted for TOT 1, , , , , , , GDP at current US$ 4, , , , , , , B. Sector Output (Share of GDP) 1. Agriculture C lndustry Services C. Prices ( ) 1. Export price index Import price index Terms of trade index GDP deflator (US$ Annual average exchange rate D. Selected Indicators ICOR import elasticity Average national savings rate Marginal national savings rate Imports/GDP Investment/GDP Resource gap/gdp ) Value added /b Lbor force /c V.A. per vorker _/b c E. Outout. Labor Force end Productieitv in 1975 US$ million 1 Millton 2 USS Z of average 1. Agriculture 4, Industry 4, , , Services 5, , Total/average 14_ IO0.0 F. Public Finance (2 of GDP) /c e(central Government) 1. Current revenue Tax revenue Current expenditures Budgetary savings Total public investment C. Fuel Imoorts (Current US$ millions) (X of total imports incl. NFS) La Preliminary. /b At current market prices. /c Estimate.

30 AM"it I P.o 4 of 4 BALANCE OF PAYMENTS, 90UT8 AS IOTAOCE. DEBT AND CRiflttotMINEBS L [990 6u-,rc of Balance oif Poenet Uoporta ((ncl. disg NF1) [.2L0.0 1, , , ,B51.4 3, , , ,065.8 peoria (inclodhng OPO) [, ,617.0 [ ,42.2 3, , ,6bO.3 12, ,771.6 Oeource baloon _ ,099.8 _-,705.6 bot factor oerrice idtoo_ 1.4 -[ ,341.8 Not iccrent popanre 2d [ b0i.d Of ohich on poblic t 4 LT loai. -[ ' L Direct Inoetm--t loco Worker. renttconrea [cat) Cocteot tcuoefce (reto) Z4S Z faloeco on current accoont , Prroato direct Oovoet_nn L ,200.0 Grurc & gra Lt-Ok.e floove- Public Y A LT... Di.bureeneota d27.7 1,183.8 Aa-rtciatioc Nit dlebuoaoeeta chr 8 & ILT loo- Di.b.r.e.e..a , ,081.6 c-orctictior Mat 4daLrenente lee of IMFE ceacurcea Shorct-er capital rane.ctiona ISO C.pcral tran oction. NE [ Change In ro.arves - i.crooro) (- Net f-eesl.nohu.go mroar , ,369, , , ,969.9 /b lord of period) G7rant and LOar Gonoteenra Official groota Total poblic LI T I..a IDA orhroltilororal GCvoooeerta ohich centrully ploonod -oouiaa / SOpItlior _ Fip-DocOo iratitutioa ttoaoroodor IOtor Gr-ot Ir.-et of total co-itn-ot (0) Average ictereat (0) Aver-g- rturity (y-ara) Medica- ord Lone-Trer ObIt idlaboraod eric) Toto1 d.bc cotot-ndig (002 ond of period) , , ,5 I.cIoding undieborard , ,8 1, , PublLc debt -errice _ Itoerert Other M 4 LT debt trvice L Total debt -errco _ _ Debt Ourdec tx) DIbt arrvico uttlo I L3.4 Debt. er_ice ratio / I Debt 'e'lice/cgp Public debt oeovice/goveroant r_'_oue Irceroot Dt total 0D/total t OD l 5.) Totol debt DeOrico/total 0D DOreodo.c. 8 tior for K 4 LT Debt (:) Gret. dleb-reaeo-a/ieport l(including NFS) Io'll creo/ -prn (incluieg Net trofer/orooa dieborea-nc Elporur- (1) 0000 dlrboreuaoc/gco. otel dieborae-nte Book Grop dieb-rre-et/gro.a tota diaboraenrt I0D 0D0/total DOD Ook OrcupD /t3t II8. debt -ervica/total debt -ernice EaBk GCo-p debt rorv[oo/cocai debt cev-ice Ounerruh Debt (lftborred cr1,) Onutoodier 12151/76 (lorteot US5 etlliona) Anuont 0 13ED Dark Group Other _1tilateo CooeoOa-"Do O' o 1c, -entr-li plno-d eco- oea L. - - suppli.e Flnonctol inatitoti.ra 0i BI-da - - Public - debt n Total poblio K t LT deb Other public M & LT debt Other A LT debt Total public debt (iecludiog oodieb..eed) 1, T-oal L/L M t LT debt (inoiodiog ondibor.ed) 2, Preloi nery. /b Nor foroirooeeona 009 eqoiraloot of Li.o 31. /c Incloden CMEA. co.ntriee, op[.e Republic of Chi.n, North Kore-, Nortb Pilt Na. /d I.cloding ret direct io-etnt Locoe.

31 ANNEX II Page 1 of 9 pages THE STATUS OF BANK GROUP OPERATIONS IN THAILAND A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of July 31, 1978) Amounts ($ million) Loan or Less Cancellations Credit No. Year Borrower Purpose Bank IDA Undisbursed Twenty-five loans fully disbursed TH 1972 RTG Education TH 1972 TOT Telecomm TH 1972 RTG Highways TH 1973 RTG Education TH 1973 RTG Irrigation TH 1974 RTG Irrigation TH 1974 EGAT Power TH 1974 IFCT Industry TH 1974 MWWA Water TH 1975 RTG Irrigation T-TH ISF 1976 RTG Rural Dev T-TH ISF 1976 RTG Livestock TH 1976 RTG Rubber TH 1976 TOT Telecomm TH 1976 RTG Education TH 1976 IFCT Industry TH 1977 RTG Agriculture TH 1977 RTG Irrigation TH 1977 EGAT Power TH 1977 IEA'T Industry TH 1978 RTG Population /b TH 1978 RTG Highways TH 1978 PEA Power TH /a 1978 NHA Urban S-10 TH /a 1979 NGOT Energy Total 1, of which has been repaid Total now outstanding Amount sold /c 68.5 of which has been repaid Total now held by Bank and IDA Total undisbursed /a Signed but not yet effective. /b Of which $3.1 is NORAD grant participation. _c Of which $43.3 million sold to the Bank of Thailand.

32 ANNEX II Page 2 of 9 pages B. STATEMENT OF IFC INVESTMENTS (As of July 31, 1978) Amounts ($ million) Year Company Type of Business Loan Equity Total 1959 Concrete Products and Concrete Products Aggregate Ltd IFCT Industry Siam Cement Group Cement and Construction Materials Siam Cement Group Cement and Construction Materials Mutual Fund Capital Market Company Limited United Sugar Food and Food Terminal Limited Processing Siam Commercial Bank Small and Medium Scale Industries Siam Cement Group Cement and Construction Materials Total gross commitments Less cancellations, terminations, repayments and sales Net held by the Corporation

33 ANNEX II Page 3 of 9 pages C. PROJECTS IN EXECUTION /1 (As of July 31, 1978) Loan No. 822 Second Education Project (Kasetsart University); $15.4 Million Loan of May 24, 1972; Effective Date: August 22, 1972; Closing Date: June 30, 1978 This project involves development of Kasetsart University and the relocation of certain units to a new campus. Although the technical assistance and educational aspects of the project are largely on schedule, civil works are about three years behind schedule with consequent delays in furniture and equipment procurement. Delays in civil works are due to: (a) an initial 15-month delay in contracting consultant architects; (b) an 18-month delay in completing tender documents; and (c) 2-5 month delays in contracting civil works. The situation of contract awards is improving: about 90% of the civil works and 50% of equipment packages have been awarded, and the remaining bid package for civil works ($3.0 million) is in the process of being awarded. Furniture and the remaining equipment packages will be contracted in late Contracted construction is progressing well, and the specialist services program under the project is nearly completed. All the fellowships have been awarded; 84 recipients have completed their training. Total project cost will exceed appraisal estimates by 36%. The Government's request for an extension of the Closing Date is being processed. Credit No. 369 Third Education Project; $19.5 Million Credit of April 11, 1973; Effective Date: August 8, 1973; Closing Date: June 30, 1979 Project implementation is about 18 months behind schedule, but substantial progress was made during the last two years. Contracting has reached 95% of civil works and 70% of furniture and equipment. Technical assistance is progressing well. The expert services program is virtually completed. Ninety-five percent of fellowship funds have been committed. Loan No Fourth Education Project; $31 Million of September 13, 1976; Effective Date: February 9, 1977; Closing Date: June 30, 1982 Project implementation is proceeding satisfactorily. /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and wealcnesses in project execution.

34 ANNEX II Page 4 of 9 pages Loan No. 864 First Telecommunications Project; $37 Million Loan of December 5, 1972; Effective Date: March 1, 1973; Original Closing Date: December 31, 1977; Current Closing Date: December 31, 1979 The project is generally maintaining the revised time schedule established in 1975 following initial delays in procurement. The procurement action on all Bank-financed items is now substantially completed and $36.1 million of the Loan has been committed. The balance of $0.9 million will be committed in About 77% of the local telephone network expansion has been completed and the balance will be completed by end Delayed procurement of long-distance transmission equipment under a bilateral loan will cause the project completion to slip to September Loan No Second Telecommunications Project; $26 Million of June 11, 1976; Effective Date: August 25, 1976; Closing Date: December 31, 1980 The procurement action has been initiated on all components of the project. The Loan is expected to be fully committed in FY78. Civil works are in progress. Local network expansion is expected to be completed as per schedule by mid-1979 but due to a year's delay in tender award for transmission equipment under a bilateral loan, the long-distance network expansion for the project is only expected to be completed by September 1980, nine months behind schedule. Loan No. 870 Fifth Highway Project; $28.6 Million Loan of December 26, 1972; Effective Date: March 26, 1973; Original Closing Date: December 31, 1977; Current Closing Date: December 31, 1978 Works under the project have been divided into nine contracts, of which four have now been completed. Work on seven of the contracts was interrupted in 1974 because rapid increases in costs led to financial problems for the contractors. Work was resumed on three contracts after renegotiating the contract prices with the Government. The other four contracts were terminated by agreement between the Government and the contractors; new contracts were awarded and work was resumed in early Over 80% of the work has been completed. Because of higher prices in the bids for completing the unfinished work, total cost of the project is expected to be around $75 million, or about 28% above the appraisal estimate, with Government financing the overruns. Despite these difficulties the project is likely to be completed no more than one year behind the original schedule. The highway maintenance study and feasibility studies for future projects have been completed, and detailed engineering of the roads found to be feasible has been completed.

35 ANNEX II Page 5 of 9 pages Loan No Sixth Highway (Provincial Roads) Project: $110 Million of March 23, 1978; Effective Date: June 22, 1978; Closing Date: December 31, 1982 Loan declared effective on June 22, Credit No. 379 Chao Phya Irrigation Improvement Project; $5.5 Million Credit of May 9, 1973; Effective Date: August 23, 1973; Closing Date: June 30, 1978 The project is expected to be completed by end July Construction has been somewhat delayed because of procurement difficulties for civil works. However, disbursements are in line with appraisal estimates. Yields and cropping intensities on the completed parts of the project are roughly equal to appraisal estimates. A project extension service has been set up and is operating satisfactorily. Final disbursements are being made. Credit No. 461 Northeast ]rrigation Improvement Project; $7 Million Credit of February 19, 1974; Effective Date: October 7, 1974; Closing Date: June 30, 1979 The project is about one year behind schedule due to delays in appointing consultants and in procuring earthmoving equipment. During the 1976/77 working season there was a marked improvement in the pace of construction, especially on the tertiary canals. Progress in rehabilitation of main canal systems has been satisfactory although somewhat behind schedule. Encouraging progress is beilng made in developing agricultural extension services in the project areas. The estimated project cost is $24.7 million, or about 96% over the appraisal estimate. In part, the increased cost is due to price inflation being hilgher than foreseen at appraisal. Also, a large part of the increase is due to a decision to provide new tertiary canals over the entire project area and to adopt higher standards for tertiary development than envisioned at appraisal. The higher costs are compensated for by increases in projected commodity prices and the economic rate of return is now estimated at 28% compared to 22% at appraisal. Progress on the rainfed rice component has improved due to strengthened project management and organization. Loan No Phitsanulok Irrigation Project; $95 Million Loan of July 25, 1975; Effective Date: October 31, 1975; Closing Date: June 30, 1983 Although the start of major construction was delayed by about a year, prospects are good tlhat the revised schedule can be adhered to. A contract was recently awarded for the first of four major civil works contracts; tenders have been received for the second contract; and most of the equipment for the project is delivered or on order. The on-farm works are proceeding on

36 ANNEX II Page 6 of 9 pages schedule, with four pilot projects in operation. The consulting services for the project were recently reorganized to provide a nucleus of resident staff and a greater level of assistance in project management. Systems for monitoring project benefits and water-associated diseases are being established and the reporting of project progress has improved. The preliminary phase of the Chao Phya Basin Study, also financed from the Loan, has been completed, and the next phase is continuing. Work will begin soon on a feasibility study for the Phitsanulok II Project. Consultants are being selected for the RID Administration and Organization Study. Loan No Second Chao Phya Irrigation Improvement Project; $55 Million of September 23, 1977; Effective Date: December 23, 1977; Closing Date: June 30, 1983 Preparatory activities are progessing well. A Project Director, Project Managers for the Chao Phya and Mae Klong components, and a Project Coordination Committee have been appointed and consultants have been engaged for the Chao Phya component. Equipment procurement has begun and designs and contract documents are being finalized for the 1978 on-farm construction program of 10,900 ha. Project monitoring and cost recovery systems are being set up and the Chao Phya project area came under the National Agricultural Extension Project in October. Loan No. 1198T Northeast Thailand Rural Development Project; $21 Million Loan of February 27, 1976; Effective Date: June 29, 1976; Closing Date: June 30, 1981 The project has seven components: construction of 1,300 km of village access roads; strengthening maintenance programs for 2,000 km of existing rural roads, including provision of equipment; rural electrification; village water supplies; development of improved techniques for upland crop cultivation; an agricultural extension program in four provinces; and agricultural development in two existing land settlements. After a delay of one year in appointing consultants good progress is being made on the engineering of the village roads and the first of nine construction contracts has been awarded. Procurement problems continue to delay the water supply component. Progress on rural electrification is excellent and this component will be completed on schedule in September Progress on agricultural extension and land settlements is satisfactory. The upland crop component has been delayed by staffing and organizational problems. Loan No. 1199T Livestock Development Project; $5.0 Million of February 27, 1976; Effective Date: May 25, 1976; Closing Date: June 30, 1981 Progress of the main component is satisfactory. The seed production and pasture development programs are progressing reasonably well, although the "loaned" bull program has been hindered by the delay in importation of cattle.

37 ANNEX II Page 7 of 9 pages Permanent staff are being appointed to the project, and the technical assistance component is being albly implemented by the New Zealand Government. Disbursements are considerably behind schedule, but should pick up within the next few months once outstanding requests for disbursements are received in the Bank. Loan No Rubber Replanting Project; $50 Million of September 13, 1976; Effective Date: January 14, 1977; Closing Date: June 30, 1981 Despite some initial delays in procuring fertilizers, project implementation is progressing satisfactorily. Loan No National Agricultural Extension Project; $28 Million of May 17, 1977; Effective Date: September 1, 1977; Closing Date: December 31, 1982 Project implementation is progressing well; costs remain close to the appraisal estimate, but disbursements are slightly behind schedule, mainly due to lengthy procurement procedures. Disbursements are expected to be close to, or ahead of, the appraisal estimate in Additional supervisory staff appointments at district and provincial level will be made and the overall system of training and visits will be further improved. Proposals for monitoring are being prepared, a project accounting system is being established, and monthly reports are presented in a timely manner. Loan No. 977 Srinagarind (Ban Chao Nen) Hydroelectric Project; $75 Million Loan of April 15, 1974; Effective Date: June 14, 1974; Closing Date: December 31, 1980 Project implementation is satisfactory. Loan No Pattani Hydroelectric Project; $50 Million of September 23, 1977; Effective Date: December 20, 1977; Closing Date: December 31, 1982 Project implementation is satisfactory. Loan No The Accelerated Rural Electrification Project; $25 Million of March 9, 1978; Effective Date: June 7, 1978; Closing Date: June 30, Loan declared effective on June 7, Loan S-10 Natural Gas Development Engineering Project, $4.9 Million of July 28, L978; Closing Date: June 30, 1980 Loan signed bul: not yet effective.

38 ANNEX II Page 8 of 9 pages Loan No Bangkok Water Supply Project; $55 Million Loan of June 28, 1974; Effective Date: December 2, 1974; Closing Date: June 30, 1979 The project consists of expansion and improvement of raw water facilities, construction of a treatment plant of 800,000 cu m/day capacity and transmission tunnels and distribution centers to meet the expected water demand of the metropolitan area through A complementary project financed by Asian Development Bank (ADB) includes trunk mains, distribution pipes, tubewells and purchase of water meters. All contracts of the IBRD project have been awarded and construction accomplishment, as measured by contractor earnings, is 43%. Due to delays in the award of contracts, the project completion will probably be delayed by about 18 months to the last half of Due to inadequate tariffs, which were last revised in May 1972, MWWA's financial performance continues to be poor. MWWA's proposals for raising the water tariffs in line with the increased operating costs, shelved by the previous Government, have been withheld by the new Government pending general improvement in water supply. Loan 1556-TH Bangkok Sites and Services Project; $8.6 Million of June 15, 1978; Closing Date: December 31, 1981 Loan signed but not yet effective. Loan No. 992 Second Industrial Finance Corporation of Thailand (IFCT) Project; $12.0 Million Loan of June 4, 1974; Effective Date: September 4, 1974; Closing Date: September 30, 1978 The full amount of the $12 million Loan has been committed. The commitment was more rapid than originally estimated. Disbursements have also been very satisfactory. Since June 1974 when the loan was made, IFCT's financial condition has continued to be good. Loan No Third IFCT Project; $25 Million of December 8, 1976; Effective Date: March 14, 1977; Closing Date: December 31, 1980 Loan commitment rate has been slower than expected because of sharply depressed investment climate in Capital structure and liquidity position have improved, however, with success of share capital increase. Satisfactory progress has been made on institution-building aspects of project. Loan No The Minburi (Lat Krabang) Industrial Estate Project; $4.75 Million of December 5, 1977; Effective Date: March 24, 1978; Closing Date: December 31, 1981 Loan declared effective on March 24, 1978.

39 ANNEX II Page 9 of 9 pages Credit No. 767 Population Project; $33.1 Million of February 27, 1978; Effective Date: June 30, 1978; Closing Date: December 31, 1981 Loan declared effective on June 30, 1978.

40 ANNEX III Page 1 THAILAND THIRD TELECOMMUNICATIONS PROJECT Supplementary Data Sheet. Section I: Timetable of Key Events (a) The project was prepared over a period of about 18 months: mid 1976 to end (b) The project was prepared by TOT. (c) The Project was first presented to the Bank in September, 1976; a preappraisal mission visited Thailand in August, (d) Date of departure of Appraisal Mission: October 10, (e) Negotiations were held in Washington from May 31 to June 5, (f) Planned date of effectiveness: December, Section II: Special Bank Implementation Action: None Section III: Special Conditions 1. The Guarantor has agreed that: (a) the Government will restrict licensing of new independent private networks, arrange for all telephone needs of public and private agencies to be provided, where possible, exclusively by TOT, and impose a license fee on all private radio systems (para. 29); (b) the Government will continue with measures established under Loan Agreement 1253-TH for clearance of past accounts receivable by TOT from Government, and adopt by September 30, 1979 procedures to settle outstanding accounts due by the Government and its departments and agencies so as to settle all such accounts by September 30, 1983 (para. 47). 2. The Borrower has agreed to: (a) ensure effectiveness of a loan of $40 million from OECF and commercial bank financing of about $30 million by March 31, 1979 or such other date as the Bank shall agree (para. 34);

41 ANNEX III Page 2 (b) undertake the ecornomic study of telecommunications in Thailand (para. 41.); and (c) maintain tariffs at levels adequate to provide a minimum rate of return of 10%. From FY80 onwards, the rate of return will be based on the current value of net fixed assets in operation (para. 46).

42

43 f ~~~~~~~THAILAND TELEPHONE ORGANIZATION OF THAILAND (TOT) PlMICROWAVE -20 B RM A flhiang~. WORKS Ba~~~~~~n P Sok Iha. Ban on, 9 OnM., Rak --- t-- B'Pak Thon. Pnao RADIO AND CABLE CARRIER SYSTEMS UNDER THE TELECOMMUNICATIONS PROJECT 20- (FY78-82) Chiang Sanaph Mai4~ Do K MonR. Nani. La-lhon.ahU Tan No haa Nn Pang Lo h Hoa-S., Ton DanSol ¾ LAO PEOPLE'S DEM. REP. ~ ~ ~ ~~9Chiong Khan Loplao ~ LoiSonh Non Khol ho S -okhnhl N n Bo n P Ehga n Nah N ih v Tak Ehinnn HwagTon BaPoyoggNlTo ~K EhoK- Ta- ha Eaa ~, jo~ EanophoongIPhooh. y fhog PMonh-Nao Rob ~~~~~~n Solaphom gao~~~'phch.. K~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Son PhhNoggashnhN.o Son BoaDo B BagPa. Wn Nob Kobin Bon Th. (PY)~~~~~~~~~~~~~~~~~~~onk h~~~~~~~~~~~~~.9k.k Tahn ni~hnbago PIhngn lphohn oba o noogn oh o4 tnlda 41 A N ida ~~~~~~~~~RDEMOCRATIC KAMPUCHEA -12- ~~~~~~~~~~~~~~~~~~~~~ ~{io / Tenon wc OF rha~iland Woh.Ba- - aoffaoooo-o'ai EXINTING MICROWAVE SYSiTEMS 0h. '00000 oo~1h,on,nnannecnd H BOBIER CPS YBYTMOR U?BOOADeOTO WodBnnOnahoc,ap BINE EAPACETY odnnn on nei,ooonooo Ranong Lannggown MgIgpggoeA5E SYSTBMB0g NJEW ROUTES EXISOTINGO CABLE CAEABOBSYTM ~0 TERMNSAOOB REPEATERSt"DOOMP BUA AL BRPEATEMSWITHOIT DOggP BSA gb-inteonatinalbou0ndabies " noofohnoonna IND A I CHINA g., N~~~~~~~~~~~k 9 3~ BURMA K N~~~~~~~~~~~~~~~~~~~~~~~~' ThongSong.hoaN.KI n'ono To Eloog Hoal ~ ~ ~ ~ ~ ~ ~ ~ THAILAND> o N Kannang h on~~~~~~~~~~~ go~~~~ (DEMOCRATIC) Ranna om nakhna - - A,ooto,oonan ~~ MPUCHE bnna A~~~~~~~~~~~aonn - KIOMETERS Baon Sah ROK. PoBno la ~b MALAYSIA