Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 6.70 MILLION (USS9.12 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR THE TELECOMMUNICATIONS TECHNICAL ASSISTANCE PROJECT May 20,2003 Global Information and Communication Technologies Bangladesh Country Unit South Asia Region Report No: This document has a restricted distribution and inay be used by recipients only in the performance of their official duties. Its contents inay not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective May 1,2003) Currency Unit = Bangladesh Taka (Tk.) Tk.1 = US$ USSl = Tk FISCAL YEAR July 1 -- June30 BTRC BTTB CAS cctld CIDA CPAR CQ DFID FMR GOB IA IC ICT IDA IIFC ISP JBIC MOF MOPT N Shopping NCB PIP PIS PMC PMT PPIAF PSC PSTN QCBS SA SMMS TAPP TRB UNDP VOIP WTO ABBREVIATIONS AND ACRONYMS Bangladesh Telecommunication Regulatory Commission Bangladesh Telegraph and Telephone Board Country Assistance Strategy Country Code Top Level Domain Canadian International Development Agency Country Procurement Assessment Report Consultant Qualifications Department for Intemational Development Financial Management Report Govemment of Bangladesh Implementing Agency Individual Consultant Information and Communications Technologies Intemational Development Association Infrastructure Investment Facilitation Center Intemet Service Provider Japan Bank for Intemational Cooperation Ministry of Finance Ministry of Post and Telecommunications National Shopping National Competitive Bidding Project Implementation Plan Project Implementation Specialist Project Management Consultants Project Management Team Public Private Infrastructure Advisory Facility Project Steering Committee Public Switched Telecommunications Network Quality and Cost Based Selection Special Account Spectrum Management and Monitoring System Technical Assistance Project Proforma Telecommunications Regulatory Board United Nations Development Program Voice-over Intemet Protocol World Trade Organization Vice President: Country ManagedDirector: Sector ManagedDirector: Task Team LeadedTask Manager: Mieko Nishimizu Frederick Thomas Temple Pierre A. Guislain Rajesh B. Pradhan

3 FOR OFTICLAL USE ONLY BANGLADESH TELECOMMUNICATIONS TECHNICAL ASSISTANCE PROJECT CONTENTS A. Project Development Objective 1. Project development objective 2. Key performance indicators Page 2 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices C. Project Description Summary 1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements D. Project Rationale 1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons learned and reflected in the project design 4. Indications of borrower commitment and ownership 5. Value added of Bank support in this project E. Summary Project Analysis 1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies F. Sustainability and Risks 1. Sustainability 2. Critical risks This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 3. Possible controversial aspects 25 G. Main Conditions 1. Effectiveness Condition 2. Other H. Readiness for Implementation I. Compliance with Bank Policies Annexes Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Fiscal Impact of Sector Reform Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary Annex 6: (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 10: Country at a Glance

5 Date: May 20,2003 Sector ManagedDirector: Pierre A. Guislain Country ManagedDirector: Frederick Thomas Temple Project ID: PO Lending Instrument: Technical Assistance Loan (TAL) BANGLADESH Telecommunications Technical Assistance Project Project Appraisal Document South Asia Regional Office CITPO Team Leader: Rajesh B. Pradhan Sector(s): Telecommunications (100%) Theme(s): Regulation and competition policy (P), State enterpriseibank restructuring and privatization (P) [ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ]Other: For LoanslCreditslOthers: Amount (US$m): $9.12 Proposed Terms (IDA): Standard Credit Grace period (years): 10 Commitment fee: % Years to maturity: 40 Service charge: 0.75% BORROWER Total: I 1.99 [DA I 0 I 9.12 I

6 A. Project Development Objective 1. Project development objective: (see Annex 1) The project objective is to improve the performance of Bangladesh's telecommunications sector through strengthening elements of the policy, institutional, and regulatory framework in order to promote the competitive provision of telecommunications infrastructure and services. This will be achieved by: (a) separating the policy and operational roles of the government in the sector by restructuring the Bangladesh Telegraph and Telephone Board (BTTB) to operate on a commercial basis; (b) strengthening the policy function of the Ministry of Post and Telecommunications (MOPT); and (c) strengthening the regulatory capacity of the Bangladesh Telecommunication Regulatory Commission (BTRC). At the end of the project period, it is envisaged that there will be a clear separation in the operational and policy roles of the government and that BTRC's capacity to effectively regulate a competitive telecommunications sector would be improved. 2. Key performance indicators: (see Annex 1) The key performance indicators to measure the achievement of project development objectives will include the following: B. Strategic Context Increase overall telephone penetration from 0.83 percent in 2002 to 3.3 percent by end of BTTB restructured by end of BTTB or its successor company's lines per employee increases from 29 in 2002 to 40 by end BTTB or its successor company awarded a pro-competitive license by BTRC by end of Telecommunications Policy of 1998 reviewed and new policy announced by end Universal access policy adopted by the Government of Bangladesh (GOB) by end Transparent licensing and regulatory regime and clear rules of business by end New operators licensed to provide fixed-line local and domestic long distance services by end of Rebalancing of sector tariffs by end of Radio frequency assigned within 15 days of application by end of 2006, for 90 percent of applications. 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: BD Date of latest CAS discussion: 02/08/2001 The project is consistent with the CAS objective of accelerating and broadening private sector-led growth by supporting governmental efforts to remove structural impediments and establish a conducive environment for private investment. The project will assist in enabling private sector-led growth through regulatory and structural reform in the telecommunications sector. It will promote competition and private participation in the provision of telecommunications services by supporting the development of a sound policy, legal, regulatory, and institutional sector framework. This will facilitate private sector growth and more efficient delivery of services resulting in a reduction in costs for other sectors; and also establish a level playing field for all operators. The project is also in line with the CAS strategy of being responsive to Government initiatives and opportunistic in supporting areas with good -2-

7 prospects for reforms. The project also supports the Government's Interim Poverty Reduction Strategy Paper (I-PRSP) pillar of accelerating pro-poor growth, through substantial expansion of the capacity and quality of infrastructure services, including telecommunications, which serve as an important backbone of a growing economy. The project is consistent with the World Bank Group's Information and Communications Technologies (ICT) Sector Strategy (April 2002), which calls for: 0 Completing telecommunications sector reform in countries that have not undergone sector restructuring by (a) shifting the government's role from ownership and operations to policy making and regulation, (b) promoting efficiency and service quality, and (c) promoting effective competition and increasing private sector participation in the provision of infrastructure and services. 0 Supporting the establishment of clear, stable, and transparent regulatory regimes and building client country regulatory capacity through policy advice, training, and technical assistance. 0 Promoting private sector leadership in extending the reach of Information and Communications Technologies (ICT) through development of information infrastructure and providing technical and investment assistance to extend access beyond the market. 2. Main sector issues and Government strategy: Sector overview. The following section provides an overview of and summarizes the telecommunications sector management and structure in Bangladesh. Bangladesh Telecommunications Regulatory Commission (BTRC) Service Providers Basic Fixed Services Local (limited competition) Domestic Long Distance (monopoly) International Long Distance (monopoly) Cellular Services Competition Value Added Services Competition VSAT service Telecom Authority providers and others Telephone Board -3-

8 The MOPT is the government ministry responsible for formulating the government's policy for the telecommunications sector. The National Telecommunications Policy of 1998 is currently being implemented. The telecommunications sector in Bangladesh is governed by the Bangladesh Telecommunication Act, The law provides an adequate framework for the development of a workable regulatory regime. Through enactment of this legislation, the Government created the BTRC, which resulted in the transfer of regulatory functions from MOPT to BTRC, and the Government appointed the chairman and commissioners of BTRC to start operation on January 3 1, BTRC is responsible for regulating the sector in keeping with both the Act and telecommunications policy as determined by MOPT. It is responsible for licensing operators and ensuring compliance with license terms and conditions; managing the radio spectrum; ensuring technical compatibility and effective interconnection between service providers; monitoring carrier quality of service; approving tariffs; and providing equipment type approval. The incumbent monopoly operator is the government-owned BTTB, established by the 1979 BTTB Ordinance No. XII, to function under the MOPT. This ordinance was amended in 1995, to create the Telecommunications Regulatory Board (TRB) also functioning under the MOPT. TRB was the precursor to BTRC. BTTB has been operating as a GOB department. BTTB's management board consists of a Chairman, four full time members and three part time members, all of whom are appointed by the Government. The MOPT reviews BTTB's annual development plans, the Ministry of Finance (MOF) approves the financing plan and allocates funds. The Planning Commission approves the Annual Development Plan and allocates capital development funds for BTTB. BTTB has a de facto monopoly on domestic fixed-line public telephony and a de jure monopoly over international telephony. The telecommunications sector in Bangladesh has limited competition, with four licensed private sector mobile operators and a number of value added service providers, including Internet Service Providers (ISPs). The mobile operators are directly responsible for 72 percent of all new lines in service since Grameen Phone, the largest mobile operator leases capacity from Bangladesh Railways' fiber optic network and provides nationwide mobile services. Main sector issues. The performance of the Bangladesh telecommunications sector has fallen far short of its potential and remains a significant constraint to economic growth. The main sector issues can be classified under two broad categories: (a) poor sector performance, and (b) weak competition and private investment environment. These issues are further discussed in the following sections. Poor sector performance. Despite being the first country in the region to license private operators to provide services in 1989, Bangladesh lags behind all countries in the South Asia region, both in the coverage and quality of telecommunications services as evidenced by the indicators in Table

9 I Population (in millions) GDP per capita (US$) Main telephone lines in operation (in million) Cellular mobile telephone subscribers (in million) Fixed teledensity * Mobile teledensity Total teledensity Rest-of-country teledensity ** Number of internet hosts Table 2: South Asia ICT Indicators (ITU, WDI 2001) Sangladesh India 1, ,979 Nepal ,513 Pakistan Sri Lanka ,286 * Teledensity means number of lines per 100 people ** Rest of country means excluding largest city, data for This poor performance can be evidenced by a number of factors: e e Limited access to telecommunications services. The overall level of teledensity in Bangladesh is very low at approximately 0.83 lines per hundred persons compared to an international low income group average of 4.00 lines per hundred persons. This low level of teledensity reflects the failure of initiatives to attract the private investment needed for the sector as well as the poor performance of the dominant operator BTTB to meet customers demand. BTTB s capacity limitations constrain supply within the overall sector. Despite high fixed-line connection charges (only recently reduced to approximately USS150 from approximately US$350) BTTB cannot keep up with demand, and installation wait times average several years. Capacity constraints similarly affect interconnection for mobile operators, who in the absence of adequate interconnection, offer mobile-to-mobile only services for a majority of their customers and are unable to expand services in line with growth in demand. The results are (a) a significant unmet demand for basic telephone lines, estimated at about 3.5 million immediately, growing to 10 million within three years; and (b) inadequate fixed-line national and international services. Low rural teledensity: Although approximately 80 percent of Bangladesh s population resides in rural areas, access to services in these areas is limited. Non-Dhaka and rural teledensity is estimated to be only about 0.19 lines per hundred persons. At present, the two private rural fixed-line operators provide only about 26,000 main lines in the rural areas. Telecommunication services provided by cellular companies are not accessible to most of the rural population. Although some cellular operators like Grameen Phone have initiated a village phone program to bring connectivity to rural areas, less than one-third of Bangladesh s 68,000 villages have access to phones. Given the economic importance of access to rural communities and the high cost of rural provision, there is a need for public policy and regulatory intervention to promote access in rural areas. -5-

10 e Poor performance of BTTB. The government-owned and controlled incumbent operator BTTB has not improved its performance despite substantial public investments in the organization. It continues to operate under a protective regime with little accountability to both its owners and customers. For example, as an indicator of efficiency, the BTTB has approximately 29 lines per employee (in 2002), compared to the international low income group average of 69 lines per employee. BTTB has found it difficult to improve efficiency in an environment where it has: (a) faced limited competition, (b) needed to follow civil service procedures for staffing and procurement, and (c) had inadequate access to capital. BTTB, in its current structure, lacks the resources--financial, technical, human resources--and the autonomy to achieve its target of meeting demand. It has very limited decision making authority and needs MOF and MOPT approval for most investments and general expenditures. This has led to limited service availability, lack of new product rollout and generally poor service quality. Competition is also growing in several forms: mobile telephony i s creating a viable substitute for BTTB s services, voice-over Internet protocol (VOIP) (authorized or unauthorized) and falling international settlement rates have eroded BTTB s highly profitable international monopoly. As BTTB lacks the autonomy and incentive to productively invest its profits back into building its network, national infrastructure and sector performance is crippled and this reduces the value of BTTB as a government asset. Competition and private investment environment. Many factors can be attributed to the low level of private investment in the sector. In general, there are inadequate incentives for high levels of private investment to take place. Factors contributing to limited competition and poor private sector investment include: Lack of separation between policy and operational roles of government. BTTB is MOPT s primary advisor on technical elements of policy issues and MOPT is responsible to government for BTTB s revenue. This has not necessarily ensured transparent and accountable development of policies in the sector. It has instead created policy distortions in BTTB s favor and an uneven playing field for private investors in a sector where the government is responsible for both policy formulation and service provision. Further, MOPT s capacity to formulate sector policies remains weak. Limited competition. Important market segments such as international long distance remain closed to competition. While the National telecommunications Policy of 1998 clearly indicates that the basic services and national long distance segments will be opened to private participation, no new operators have as yet been licensed. Further, despite the liberalization of very small aperture terminals (VSAT) service, private VSAT operators are not permitted to resell excess capacity on their networks. Provision of mobile services by the public sector. Progress is being made for the provision of mobile services by the public sector. Public sector provision of mobile services will have to take place in a pro-competitive manner. That is, BTTB has to ensure fair transfer pricing, provide the new public operator and other private operators the same conditions for interconnection and sharing of facilities, and the government has to provide adequate safeguards that level the playing field. The public mobile operator should operate in a pro-competitive basis, without public subsidies or government guarantees. Limited capacity of BTRC. BTRC is a young organization and faces the challenge of institution building while establishing the regulatory regime. BTRC has the authority to establish the -6-

11 regulatory regime relative to issues such as interconnection, licensing, tariffs, spectrum allocation, and other issues that will affect competitiveness of the sector. Using these tools to create the initial regime and communicate them to sector players will be key to creating and maintaining a level playing field that provides certainty and adequate incentives for private investment in the sector. It is critical to build capacity in BTRC so that it can establish and maintain regulatory credibility, which will partly be measured by its ability to render impartial, transparent and enforceable decisions and through the establishment of transparent regulatory processes and procedures. While the Act generally provides for a significant degree of independence for BTRC, it includes certain provisions which may compromise this independence, including: (a) BTRC Commissioners are appointed by government; (b) BTRC reports on its activities through the MOPT, not directly to parliament; (c) MOPT has the right to promulgate rules pertaining to the Act and to direct the BTRC to modify regulations; and (d) BTRC is subject to civil service rules and salaries. 0 Inadequate interconnection arrangements. One of the greatest bottlenecks to enhanced competition and private investment is the lack of interconnection capacity. Interconnection with BTTB is consistently named as one of the top issues to be resolved in the sector by private operators. The current interconnect environment is based on revenue sharing agreements between BTTB and the mobile operators. These agreements are based on retail prices and asymmetric payments (Le., BTTB does not compensate mobile operators for call termination, but mobile operators pay BTTB for termination). An additional feature of the interconnect environment is inadequate supply and difficulty concluding negotiations. An interconnection regime, conducive to fair competition has not yet been established and has thwarted growth of existing cellular service providers. BTRC is mandated to issue interconnection guidelines and resolve interconnection disputes among operators. In this regard, BTRC has received a limited technical assistance grant from the Public Private Infrastructure Advisory Facility (PPIAF) to establish a fair, pro-competitive, interconnection regime. BTTB and the private cellular operators recently signed a memorandum of understanding whereby the private operators will invest approximately US$1.7 million in order to increase BTTB s network capacity to provide increased interconnection for cellular subscribers. This is a positive development. 0 Distorted tarvs. Bangladesh s current tariff regime cross-subsidizes local calls by revenues earned from the national long distance and international calls. Further the price structure does not reflect costs. This has led to an inefficient allocation of resources and has inhibited fair competition and private investment in basic and cellular services. 0 Ineffective spectrum management. A rational and effective spectrum management system that optimizes the use of a valuable national resource is essential for an orderly and competitive telecommunications market. The BTRC has not yet been able to effectively manage the radio spectrum or reap fiscal benefits from the optimal use of this national resource. Ineffective radio spectrum management has been identified as a significant problem by private sector investors. Problems encountered include slow processing of spectrum licenses, excessive spectrum fees, inadequate and inefficient allocation of bandwidth, and interference caused by unauthorized use of spectrum. This has created bottlenecks for sector development and served as a deterrent for new investments in services using wireless technologies. Government strategy. The Government has undertaken several initiatives over the past four years to reform the telecommunications sector, including introducing competition and sector regulation. Some of the key policy initiatives and actions taken by the Government are discussed below. -7-

12 The GOB'S prevailing National Telecommunications Policy of 1998 recognizes competition and private participation as a means of promoting improved sector performance. Private investments and operations are expected to play an increasingly important role in the provision of telecommunications services. The MOPT has an informal goal for the sector of a teledensity of 3.3 by Achievement of this goal will require a capacity increase of 3.5 million lines. MOPT also has an informal goal for telereach of having service available in every village in Bangladesh. With assistance from the Infrastructure Investment Facilitation Center (IIFC), the Government has had public stakeholder consultations and reviewed the 1998 policy, with a view to revise the policy. The Government announced its National Information and Communications Technology Policy in September 2002, as it aspires to use ICTs as a key engine of economic growth. This policy envisions building a knowledge-based society by the year 2006, where access to information allows for citizen empowerment, enhanced democracy, and sustainable economic development. It states that ICT infrastructure will be developed for use in human resource development, governance, E-commerce, banking, public services and other ICT enabled services. The Government recognizes the need for reliable and competitively priced telecommunications infrastructure as a prerequisite for meaningful implementation of its ICT policy. The policy calls for accelerated deregulation of and private participation in the telecommunications sector. The prime minister heads a high level national ICT task force which is spearheading the ICT development agenda. Recognizing that BTTB's poor performance is a key hurdle in implementing its ICT policy, the GOB has taken the decision to restructure BTTB in order to dramatically improve sector performance and meet its ICT policy objectives. It has established a high level task force, led by the MOPT, to examine the various options available for restructuring BTTB. The committee will provide its recommendation on BTTB restructuring to the Government by the end of June Key elements of justification of such a restructuring are to: (a) create a level playing field within the sector by separating the Government's policy function from operations; (b) to empower BTTB to operate as a commercial enterprise with the necessary financial and administrative autonomy to compete with private operators in a dynamic multioperator environment; (c) remove preferential treatment given by the Government to BTTB; (d) allow for the pro-competitive entry of BTTB into the mobile market on a level playing field; and (e) to increase overall employment and government revenue in the sector by allowing for a more robust competitive environment. The establishment of BTRC in January 2002, as stipulated in the Telecommunications Act of 2001, and appointment of its chairman and commissioners, are steps in the right direction towards implementing telecommunications sector reforms. The Government has recognized the need to strengthen BTRC's regulatory capacity to ensure a level playing field in a multioperator environment and is seeking multilateral and bilateral assistance for BTRC capacity building. In addition, the Government has decided to introduce competition in local and long distance services by licensing private operators. The BTRC, assisted by the IIFC is currently preparing the necessary documentation to license new operators. The above initiatives and actions are a clear indication of the Government's commitment to reforming the telecommunications sector. Moreover, the National ICT Task Force of the GOB, headed by the prime minister, is leading the reform process with the Principal Secretary to the Government as the reform champion. -8-

13 The Bank has pursued policy dialogue with the Government and in its assessment of the telecommunications sector, has discussed that a priority issue for improving performance of the sector is to implement its 1998 policy, including BTTB's restructuring. Recognizing that policy implementation requires a long-term view and short-term actions, the GOB and Bank have agreed that the overall long-term sector vision and plan will necessarily include actions on the priority issues in the associated time frames as depicted in Table 3 below: TABLE 3. Time Frame Policy Objectives Priority Issues Priority Action Items SECTOE Short-Term 1. To support independence between policy, regulatory, and operational functions 2. To create a level playing field for telecom operators 1. Separation of policy making and operation roles for Government 2. Sector liberalization 1. BTTB restructuring and MOPT strengthening 2. Revise Bangladesh's WTO Commitments on telecommunications 3. BTRC strengthening 4. Award new licenses 5. Establish and implement a fair interconnection regime OBJECTIVES AND ACT Medium-Term 1. To refine business environment for telecom operators 2. To attract new investment to sector 3. To increase rural access to ICT services 1. Further restructuring of BTTB's successor company 2.Universal Access Strategy 1. Develop options for private participation in BTTB 2. Legislative change to protect BTRC independence 3. Adopt and implement Universal Access strategy IN PLAN Long-Term 1. To continue to attract sufficient investment to serve the needs of the nation 2. To promote innovation and investment 1. Greater private sector opportunities 2. Convergence 1. To Be Determined 3. Sector issues to be addressed by the project and strategic choices: As the table above demonstrates, Bangladesh needs to undertake comprehensive sector reforms if it is to improve overall sector performance and reach the level of growth that is required to improve access and thereby socioeconomic development in the country. The Government has realized this and has begun implementing reforms to improve performance of the sector. The Government has also requested a number of donors, including the World Bank, Canadian International Development Agency (CIDA), United Nations Development Program (UNDP), the Government of Japan and the Department for International Development (DFID) for assistance to implement reforms. As there is strong government commitment and willingness to undertake reforms, it is very important that support be provided in a timely manner, especially as the Government has already made substantial progress on the issue of restructuring BTTB. -9-

14 Issues to be Addressed by the Project Within the issues summarized above and keeping in mind the political realities in Bangladesh, including possible BTTB labor union resistance, the proposed project will support selected interventions that have the highest possibility of improving performance of the telecommunications sector, through increased competition and improved environment for private sector participation. The interventions are intentionally limited to focus IDA resources on addressing key bottlenecks that have affected sector performance. Bank support complements assistance being provided by other agencies such as CIDA, DFID, and PPIAF. IDA resources will be used to address the short-term policy objectives as stated in Table 3. The project will address (i) separation of the government's operational and policy roles; and (ii) developing regulatory capacity in the BTRC to effectively regulate a competitive telecommunications sector. In particular, the following will be addressed: BTTB restructuring. This will address issues related to both the performance of the sector and in improving the environment for private investments and competition. Technical assistance will be provided to MOPT to implement the restructuring of BTTB from a Government department. Restructuring will allow for: (a) a clear separation of government's role as a policy maker and operator; (b) identification and removal of all preferential treatment, including tax and procurement, that BTTB as a government board receives and is a barrier to leveling the playing field; (c) BTTB to be subjected to regulation by BTRC on the same lines as other private sector operators, thereby allowing for all operators to operate in a level playing field; and (d) the government to better manage public expenditure accountability in the telecommunications sector. Restructuring will prepare BTTB for competition through (i) productivity and profitability improvements; (ii) change in orientation towards becoming market and commercially focused; (iii) internal culture change; and (iv) decision-making autonomy and flexibility. This will facilitate funding of development projects and also provide BTTB with access to private capital, and strategic and commercial alliances. Overall, a restructured BTTB will create long term shareholder value and generally improve sector performance. Strengthening thepolicy function of MOPT. A restructured BTTB should not be able to influence MOPT's policy function. In addition, MOPT will no longer have a direct oversight function over BTTB. This separation of policy and operational roles in the government, necessitates strengthening the policy function within MOPT, so that it can establish a policy and institutional framework that encourages improved sector performance and growth, with increased private participation and investments. MOPT will be strengthened by Bank support through technical assistance to build and develop capacity to formulate and oversee sound policy, including the design of a universal access strategy in Bangladesh. Bangladesh has prepared a schedule of specific World Trade Organization (WTO) commitments under the telecommunications service section of the General Agreement on Trade in Services. This is currently being reviewed by the Ministry of Commerce. Support will be provided to review and revise this schedule of commitments so that Bangladesh can consider additional commitments on regulatory disciplines, such as compliance with the WTO Regulatory Reference Paper. Strengthening BTRC's capacity to regulate a multioperator environment and ensure a level playing for all operators. Recognizing that the establishment of a credible regulatory regime in Bangladesh is key to increasing competition and private investment in the telecom sector, Bank support will be utilized to strengthen BTRC and assist in the development of a regulatory - 10-

15 framework that is WTO compliant. Technical assistance will be provided to: (a) establish credible regulations (e.g., interconnection, licensing and tariff regime) that lay the foundation for a competitive telecommunications sector; (b) implement further sector liberalization through the award of new licenses to private investors and removal of barriers to competitive provision of services; (c) address a regulatory strategy to improve rural access; and (d) build capacity within BTRC to address regulatory issues and manage scarce resources like the radio spectrum. BTRC will be provided with assistance to procure and implement a spectrum management and monitoring system. Strategic Choices In selecting the above areas, the project supports the government s efforts to strengthen the environment to promote private investment and competition. The project intentionally does not address: Investments in interconnection infrastructure. The lack of adequate interconnection facilities in BTTB s network has always been a key factor thwarting sector development in Bangladesh. The GOB has asked for Bank assistance to provide funds to procure equipment to facilitate interconnection. However, Bank policy in telecommunications excludes direct financing of telecommunications infrastructure investments. Moreover, private cellular operators are going to finance key equipment in BTTB s network to facilitate the interconnection of their subscribers to BTTB s network. Instead, the Bank will focus on the establishment of an appropriate and credible interconnection regime that provides incentives for BTTB to establish proper interconnection arrangements. While this will help resolve some of the problems, much larger investments are required by BTTB to address this issue. The Japan Bank for International Cooperation (JBIC) has indicated the possibility of funding the expansion of interconnection capacity in BTTB s network if BTTB: (a) adheres to the interconnection regime established by the BTRC; and (b) is restructured to ensure a level playing field for all operators especially since it is entering the mobile market. Furthermore, a restructured BTTB will have the financial autonomy and incentives to reinvest its profits to develop interconnection infrastructure. Investments in a rural accessprogram: Given the dismal state of rural connectivity in Bangladesh, an output based aid (OBA) type program, targeted towards increasing access to telephony and ICTs was considered. However, experience demonstrates that such programs are more successful in countries where regulatory and administrative obstacles to market entry and competition are first removed. The proposed project therefore focuses on establishing a policy and regulatory framework to improve the environment for increased competition and private investment, and developing a rural access strategy for future implementation. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project includes two main components, the MOPT and BTRC components: IDA will finance local and international consultant services, studies and training as well as procurement of necessary equipment. The project is estimated at $ million with proposed IDA financing of $9.12 million. The detailed project cost and IDA financing by components/activities are provided in the table below

16 1. MOPT Component (a) BTTB Restructuring (b) Strengthening MOPT's policy functions (c) Strengthening project management capacity 2. BTRC Component (a) Strengthening regulatory capacity of BTRC (b) Spectrum Management and Monitoring System Total Project Costs % of Total The description of the activities under the two components are summarized below: MOPT Component: The main objective of this component is to separate the policy and operational roles of the Government. This will be achieved through (i) restructuring BTTB; and (ii) strengthening the policy function in MOPT. 0 Restructuring of BTTB. Technical assistance will be provided to implement BTTB restructuring and convert it from the present Government board into a company, registered under the Company's Act. Support will be provided to carry out a number of activities including: Re-examining Ordinance XII of 1979 (amended in 1995) that established BTTB. The Government needs to approve the recommendation made by the high level committee on BTTB restructuring to guide the overall restructuring. Ordinance XI1 may have to be amended to enable the restructuring. The process of drafting, presenting, and amending the ordinance will be undertaken. Further, other legal documents necessary for the restructuring of BTTB will also be prepared. AssetAiability allocation. BTTB's assets and liabilities are currently reflected as government property. In order for BTTB to operate on a commercial basis, it will need title to its assets and to develop depreciation and capital expenditure programs to support them. In addition to developing an inventory and valuation of fixed assets, this task will also include negotiation of land and building ownershiphse between BTTB and Government. Appropriate levels of debt to fund the assets to be transferred from Government to BTTB will also need to be determined. Financial audit and creation of openingjnancial statements. A financial audit will both identify BTTB's operating position and create the initial financial statements that the corporatized BTTB will be required to maintain. The financial audit will also provide valuable information about financial information systems to be created for BTTB. Cost-based tariffstudy. BTRC has a mandate to enforce a reasonable, cost-based tariff - 12-

17 structure, which will mean rate rebalancing for BTTB. In parallel with BTTB restructuring, BTTB and BTRC will work together to establish cost-based rates and a plan to transition to those rates. The transition would require carrying out a benchmarking tariff study which will provide: (a) a tariff proposal by comparing it to other operators in the region, that run their business efficiently; and (b) an action plan with a monthly change in tariffs to rebalance tariffs in a couple of years. This will also provide BTRC with the required analysis to support implementation of cost-based pricing for unbundled network elements. Examining options for rationalization of labor force. A restructured BTTB will likely need to employ fewer than its current labor force of 22,000 staff. As part of the restructuring process, an investigation should be made into a proposed new organizational structure and reduction plan. This reduction plan will need to be negotiated with the union, as well as any potential donors who might provide financing to implement it. Public relations. Because of the sensitivity of the stakeholder community, it is critical that MOPT manage public relations very closely throughout the restructuring planning period. BTTB union officials will be exposed to the experience of unions in telecommunications companies that were restructured in other countries. Development of a business plan. The restructuring of BTTB will require that it develops a corporate business plan to guide its operations after restructuring. Development of aperformance contract for BTTB. In order to ensure that the restructuring of BTTB actually results in improved performance, support will be provided to develop a performance contract for BTTB. Project funds will also be used to carry out annual performance audits. Such a contract would provide incentives to BTTB to improve performance. In the event that BTTB does not fulfill its performance commitments, BTTB could, for example, lose its exclusivity to provide certain services, earlier than planned. Other support as may be needed. It is expected that the restructuring of BTTB will (a) limit BTTB's function only to operations, thereby removing the possibility of the incumbent distorting policy decisions in its favor; (b) allow the GOB, through BTTB's corporate financial statements, to get transparent information on the financial performance of BTTB and its contributions to the treasury; and (c) ensure that BTTB is subject to regulatory oversight by BTRC on a level playing field with all other operators in the sector. These important changes will positively impact sector performance and encourage greater competition and private sector participation. Strengthening MOPT's policy function. Technical assistance support for consultancy and training programs will be provided in order to strengthen MOPT's capacity to carryout its policy functions. This will include (i) policy review and formulation; establishment of processes and procedures for policy monitoring and evaluation; and re-examination of Bangladesh's WTO commitments and preparation of a new telecommunications offer; (ii) development of a universal access strategy; (iii) other studies on policy issues such as convergence, market structure, competition; (iv) capacity building and professional development through in-country, on the job and external training programs; and (v) procurement of equipment and systems to facilitate information sharing and dissemination, within and outside of MOPT

18 Strengthening project management. Limited support will be provided to procure services of local project management consultants in order to strengthen MOPT s capacity to manage and implement the project. In addition, the Government will provide budgetary support towards project management. BTRC Component Strengthening BTRC s regulatory capacity. Technical assistance support to BTRC would include: (i) developing and implementing credible regulations through consultancy programs in the areas of: tariff reform, spectrum management, licensing; fair competition, universal access; interconnection, carrier performance monitoring, dispute settlement, benchmarking and others; (ii) licensing new operators and drafting new pro-competitive licenses for BTTB and its subsidiaries; (iii) capacity building and professional development through in-country, on the job and external training programs; and (iv) establishing adequate tools and facilities for information gathering, dissemination and sharing, including a library, local area network, management information system and website development. In addition, support will also be provided to BTRC to carry out important studies on issues such as country code top level domain (cctld) administration and convergence, that impact ICT development in a country. Strengthening spectrum management: Support for strengthening BTRC s spectrum management function will be provided to (i) assist in reviewing and rationalizing spectrum use in Bangladesh including development of a spectrum allocation plan and a database of spectrum use; (ii) develop a spectrum pricing policy; and (iii) train BTRC staff in addressing spectrum management and monitoring issues. BTRC will also be provided assistance to procure and implement a Spectrum Management and Monitoring System (SMMS) so that it has the tools to effectively manage the radiospectrum. Consultants will assist BTRC in the development of technical specifications for the SMMS, preparation of bidding documents, bid evaluation and contract administration of the system. Support will also be provided to design and implement an appropriate arrangement with private sector to operate and maintain the SMMS. 2. Key policy and institutional reforms supported by the project: Separation of policy and operational role of the government. Strengthen the regulatory framework, to increase competition and private investment in the sector. Award licenses and authorizations to private operators and service providers in liberalized market segments. Restructure BTTB and limit its activities to telecommunications infrastructure and service provision

19 3. Benefits and target population: The project will benefit the Bangladeshi population as a whole by increasing the availability, affordability and quality of traditional and modern telecommunication services. Improved BTTB performance, the introduction of competition and a more effective regulatory framework will lead to the provision of more competitive services in terms of price, quality and variety. It will also reduce information isolation for populations living in rural areas. The improvement and expansion of telecommunication services will contribute to sustainable economic growth. Also, the large non-resident Bangladeshi community will benefit from improved efficiency and affordability of communications services to Bangladesh. The IT industry and businesses, which increasingly depend upon communications services to be competitive, will especially benefit from lower costs and the availability of a greater variety of value added services. A modern telecommunications regulatory framework, ensuring market innovations and competition, will make Bangladesh more attractive to foreign investors. 4. Institutional and implementation arrangements: Implementation period. The project will be implemented over four years, September 1,2003 through December 3 1,2007. Project implementation and coordination. The two organizations responsible for implementing the project are MOPT and BTRC. Each of the implementing agencies will be responsible for executing its respective component. Project Steering Committees (PSC) have been established at each of the implementing agencies to provide overall guidance on the management of the project components. The PSC in MOPT and BTRC, will be headed by the Secretary MOPT and Chairman BTRC, respectively. Project Management Teams (PMT) have been established at MOPT and BTRC to manage in a timely manner the reforms supported by the project. The PMTs are headed by a Project Director and include staff from within the MOPT and BTRC who are knowledgeable in procurement and financial management. The Project Directors for the PMTs are senior officials from MOPT and BTRC. The PMTs in both MOPT and BTRC will also be assisted by local Project Management Consultants (PMC) and Project Implementation Specialist (PIS), respectively, funded under the proposed credit. Their principal task i s to support PMT in the implementation of the project components. The PMC will assist with financial management and facilitate the procurement of the main activities for each component and assist in the administration of procurement planning and preparation of related documents for MOPT, including BTRC. Procurement: Procurement under the project will involve consultants services including training and goods. The project supports the procurement of the spectrum management and monitoring system which will be procured through ICB procedures. For all other goods, since the contracts sizes are very small and shopping is the preferred procedure, IDA will carry out prior review of the first two contracts for shopping. All Goods financed under the Credit will follow procedures outlined in the Bank s Guidelines for Procurement under IBRD Loans and IDA Credits, published in January 1995, and revised in January For consultants services, IDA S prior review will be required for consultants services contracts estimated to cost US$ 100,000 equivalent or more for firms and US$50,000 equivalent or more for individuals. Consulting services and training will be hired in accordance with the Bank s Guidelines: Selection and Employment of Consultants by World Bank Borrowers, published in January 1997, and revised in September 1997, January 1999 and May Procurement of goods and services will follow the Bank s approvedhtandard documents. An assessment of the procurement capacity of the implementing agencies was carried out during pre-appraisal and actions to meet the adequate procurement management requirements were agreed upon. The assessment - 15-

20 and the action plan are provided in Annex 6, para 20. Financial management. The beneficiary agencies financial management capacity assessment was conducted by a Bank financial management specialist. In order to mitigate potential financial management risks and to strengthen financial management capacities, it was agreed that MOPT and BTRC would employ project management consultants and project implementation specialist, respectively, prior to credit effectiveness. The detailed assessment and the action plan agreed to improve the financial management are provided in Annex 6(b). Project reporting requirements, monitoring and evaluation arrangements. The MOPT and BTRC will be responsible for maintaining records and accounts of the activities under their respective project components. MOPT and BTRC will prepare quarterly Financial Management Reports (FMRs), which will project implementation progress, including status of procurement activities, sector reform initiatives, and financial aspects of the project, in accordance with the agreed upon format. The project management consultants in MOPT will assist in the preparation of FMRs to be submitted to the Bank within 45 days of the end of each quarter. The project reporting, monitoring and evaluation arrangements will include, inter alia: (a) quarterly FMRs; (b) three Bank supervision missions annually for the first two years and biannual, thereafter; (c) joint MOPT/Bank and BTRC/Bank annual progress reviews and midterm review (about two years after date of effectiveness of the loan); and (d) completion report to be transmitted by the GOB to the Bank within six months of the closing of the project. Midterm Review. The midterm review will be conducted jointly between MOPT and the Bank and the BTRC and the Bank on the basis of a report prepared by the PMTs with the assistance of the PMC in such a manner as to: (a) assess progress in the implementation of key actions and performance indicators; (b) verify the continued validity of the design assumptions in light of implementation experience and the evolving environment; and (c) identify remedial actions that might prove necessary to achieve the Project's objectives. In addition to the above, during mid term review a detailed sector assessment will be carried out to evaluate sector evolution, vis-a-vis, sector and market structure; performance, issues and challenges. The Bank and GOB will also identify the need for possible future interventions, especially on issues related to deepening sector reform and accelerating rural access to ICT services. Further, a review will also be carried out on the sector tariff rebalancing plans and agreement will be reached on establishing tariff rebalancing indicators and targets. Audit. Project financial statements will be audited annually in accordance with standards on auditing acceptable to the Bank by an independent auditor. The audit of project accounts will include an assessment of the adequacy of accounting and internal control systems, ability to maintain adequate documentation for transactions, eligibility of expenditures for Bank financing and availability of counterpart funds. The audited project financial statements together with the auditor's opinions on financial statements, Special Accounts (SA) and with respect to amounts claimed on the statement of expenditures separately for MOPT and BTRC, will be submitted to the Bank not later than six months after the close of each fiscal year. The auditors of the Foreign Aided Projects Audit Directorate (FAPAD) of the Comptroller and Auditor General (C&AG) are acceptable to the Bank as independent auditors for MOPT component. BTRC's statutory audit by a firm of Chartered Accountant, which are acceptable to the Bank, will also include an audit of the project financial statements. Separate BTRC's audit report on the entity and the project will be submitted to the Bank not later than six months after the close of each fiscal year. Disbursement. There will be two separate Special Accounts in Convertible Taka (CONTASA) - 16-

21 under the project for each of the implementing agencies, in accordance with MOF circular of September 2, 1991, revised on May 4, 1992 and December 24, Both the implementing agencies will be responsible for managing their respective Special Accounts including submission of withdrawal applications to IDA. Transaction based or traditional disbursement procedures will be followed for withdrawal of IDA funds. The proposed Credit will be made available to the Government at IDA standard terms and conditions. The Government will provide the proceeds of the Credit as grant to both MOPT and BTRC for technical assistance. The Government would ensure timely availability of its share of project funding. The counter-part fund for BTRC component would be made available from its revenue earnings for timely utilization of IDA's fund. Counterpart fund of the MOPT component will be included in the Annual Development Program and would be released through the CAO (T&T) and would be paid directly to the beneficiaries on the basis of approved billshnvoices, requiring no separate project bank account. D. Project Rationale 1, Project alternatives considered and reasons for rejection: Rationale Although gaps exist in Bangladesh's policy and regulatory environment, there is a strong government willingness to implement sector reforms in Bangladesh, especially with regard to restructuring BTTB. BTTB's behavior as a Government enterprise department has been a key constraint to sector development. Given the Government's commitment to reforms, including its support for and readiness to separate the policy and operational roles of Government, the Bank can capture an opportunity to facilitate improvements in Bangladesh's telecommunications sector performance. The timing of this proposed operation is key to ensure that the Bank responds adequately and in a timely manner to the GOB'S request. Further the scope of the project has deliberately been kept very limited to address the short term objectives of the Government's reform agenda and focus on the key constraints that have hampered sector development. The basic policy framework, although not perfect, is adequate to pursue this activity. Further, the establishment of the regulator BTRC, which is being provided limited support by both the PPIAF and CIDA, represents sufficient forward movement for IDA to support the government in implementing the remaining agenda on its sector reform program. The project outputs are also consistent with telecom sector targets specified in the Bangladesh Development Support Credit currently under preparation. Alternatives The following project design alternatives were considered and rejected: e Designing the project as a multisectoral (infrastructure including telecommunications) technical assistance facility. This approach was rejected for the following reasons: (a) a multisectoral approach would not allow for fast track processing of a project that is necessary to leverage upon the ongoing telecommunications reform momentum in the Bangladeshi telecommunications sector; (b) IDA is already supporting IIFC and the Infrastructure Development Company Limited (IDCOL), which can provide consultancy services and financing for infrastructure projects; and (c) the experiences from other umbrella technical assistance projects in Bangladesh, to support focused technical assistance projects with a significant portion of pre-identified components in the future

22 e Pursuing a broader Comprehensive reform project, rather than a focused, limited project. The telecommunications sector reform process in Bangladesh is slow but ongoing. The Bank could pursue a more comprehensive reform program that would involve overhauling the existing legislative framework among others. However, given that important, necessary steps to accelerate the reform process have been taken (passage of Telecommunications Act of 2001 and establishment of BTRC), and that there is high-level government commitment to address the most critical impediments to sector development (BTTB restructuring), a focused project, limited in scope would address key issues that have the potential to make a positive impact on sector performance. The implementation of these key reform initiatives would also demonstrate GOB'S seriousness to undertake more comprehensive reforms which could be addressed in a possible future IDA operation. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Sector issue Ban k-financed Regulatory reform component Support of the government's objectives for the telecommunications sector in the Second Five-Year Plan ( to 1985) Other development agencies Project Sixth Technical Assistance Project (completed) Third Telecommunications Project (completed) Latest Supervision (PSR) Ratings (Bank-finance projects only) Implementation Progress (IP) S S Development Objective (DO) S S International Finance Corporation (IFC), private sector development Public Private Infrastructure Advisory Facility (PPIAF) Infrastructure Investment Facilitation Centre (IIFC) with support from IDA (through the Private Sector Infrastructure Development Project) CIDA and DFID Grameen Phone (ongoing) Technical assistance for the Bangladesh Telecommunication Regulatory Commission (BTRC) (ongoing) Licensing of Fixed Line Operators and VOIP service providers I P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HL 3. Lessons learned and reflected in the project design: Highly Unsatisfi ory) The following lessons were learned from other sector reform and restructuring projects and from international experience in the telecommunications sector and are reflected in the project design e Newly established regulatory agencies are frequently overwhelmed, but have little expertise and -18-

23 resources to draw upon. Support from resident advisors, operational advice and hand holding during the initial years of operation are invaluable. Telecommunications sector policies should include a set of incentives to promote access to services for remote rural communities and to improve the affordability and availability of services to the poor in both rural and urban areas. Competition is key to increasing growth in the sector. A clear, predictable regulatory framework is a prerequisite to attracting investment in the sector. Furthermore, the momentum created by policy reform initiatives can lead to sustained sector growth, provided prompt implementation is undertaken. Government should not participate as a provider of telecommunications services, which are more efficiently run as commercial entities. Speed is key to telecommunications reform. The design of this operation is intended to achieve a quick win in the separation of the policy and operational roles of government which is a cornerstone of sector reform. A project that is focused and simple to administer (e.g., focusing just on telecommunications rather than including other sectors) is less likely to get bogged down by administrative or other procedural delays. Strong government commitment is necessary for successful implementation of a technical assistance project. 4. Indications of borrower commitment and ownership: The extent of the Government's commitment to opening the telecommunications markets and establishing an effective regulatory framework and its ownership for this project is demonstrated by the following actions and initiatives. A high-level national ICT task force, led by the Prime Minister, is spearheading the ICT, including telecommunications reform agenda with the Secretary, Prime Minister's office as the reform champion. The establishment of a high-level committee to recommend options to the Government for BTTB restructuring. The committee has recommended that the Government restructure BTTB from a Government enterprise department into a limited liability company in the short term. The Government has approved the National ICT Policy of September 2002, which places significant importance on the establishment of a reliable telecommunications infrastructure in Bangladesh, through deregulation and increased private sector participation in the sector. The establishment of the BTRC in January Government's repeated request for Bank support to implement reforms through a technical assistance program - 19-

24 5. Value added of Bank support in this project: The Bank is involved in dialogue on telecommunication sector reform in over 60 countries, including India, Afghanistan, Nepal, Pakistan, and Sri Lanka in the region. The Government recognizes the value added of Bank support in terms of its extensive international experience in addressing telecommunications sector reform, designing effective policies and establishing regulatory frameworks. This experience coupled with the Bank's neutrality is attractive for the Government. In addition, the Bank has developed significant experience in supporting the international best practice approach to spectrum management and monitoring. The Bank is involved in supporting spectrum management and monitoring in several countries, such as India, Nigeria, Pakistan, Nepal, and Sri Lanka. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): t-' Cost benefit NPV=US$ million; ERR = % (see Annex 4) - Cost effectiveness 0 Other (specify) Given the small size and technical assistance nature of the project, an economic analysis is not required. The project focuses on institutional, policy and regulatory reforms which, if successfully implemented, will enable supply and demand of telecommunications to evolve favorably for consumers. The economic benefits of the project, resulting from improved sector performance and therefore increased penetration and access, are likely to include: improved range and quality of service provision; reduced prices for advanced services that will allow businesses and the Government to reduce business costs and expand their use of information technology; advanced information services also have wide-ranging applications in health care and education, and these will become more affordable as prices fall; improved investment climate; significant increases in off-farm employment and income generation across a number of countries, including Bangladesh; improvements in the quality of service delivery by the government; faster response to emergencies, as proximity to a telephone allow customers to easily receive unsolicited information not requested due to information asymmetries (for example, customers can receive information about imminent major hurricanes that they would not know in advance to request); and equalizing access to information infrastructure has a significant impact on reducing inequality within countries. While, it is difficult to provide a quantitative estimate of the response of private investors to the regulatory and policy environment, greater competition in the sector will lead to improved services, thereby stimulating economic growth, resulting in a broader source of revenues to GOB from tax receipts. Such indirect benefits, although difficult to quantify, are certain. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4)

25 Fiscal Impact: The fiscal impact analysis to estimate BTTB s annual contribution to the national treasury before and after the restructuring i s summarized in Annex 4. Historically, BTTB has produced a significant revenue surplus (cash revenues less cash expenditures) that is transferred to the treasury, which in tum funds BTTB s annual investment requirements. The restructuring of BTTB and the on-going sector reforms (regulation, tariffs, interconnection, competition, licensing, etc.) will greatly influence the size, shape and direction of the sector in the next few years. Because of all the changes that are taking place simultaneously in the sector, an estimate of the fiscal impact of BTTB s restructuring factors in all of these other elements. The government will experience an immediate cash flow impact as a result of the restructure process, but the overall magnitude of the contribution may not be as severely impacted. The treasury can potentially gain more (net cash), year-over-year from BTTB as a limited company. The net amount that is actually transferred to the treasury depends to a great extent on the level of investment made by BTTB. It is also important to note that beginning in 2003 the mobile operators begin to provide more to the national treasury than BTTB, even though it is assumed the mobile operators have been granted a tax holiday through In a high growth scenario, BTTB catches up to the mobile operators, in terms of contributions to the treasury, in the year Technical: The project will assist in establishing an enabling institutional and regulatory environment to help attract and sustain investment in the telecommunications sector. Under this framework, technology choices in the sector will be market-driven. Private investment in the telecom sector will lead to the import of new technology and management know-how. 4. Institutional: 4.1 Executing agencies: The Ministry of Post and Telecommunications and the Bangladesh Telecommunication Regulatory Commission are the two implementing agencies. 4.2 Project management: Each of the implementing agencies will be responsible for executing its respective component. As both MOPT and BTRC have limited experience in managing and implementing World Bank projects, Project Steering Committees (PSC) have been established at each of the implementing agencies to provide overall guidance on the management of the project components. Project Management Teams (PMT) have been established at MOPT and BTRC to ensure timely project implementation. The PMTs are headed by a Project Director and includes staff responsible for procurement and financial management aspects of the project. The PMTs in both MOPT and BTRC will also be assisted by local Project Management Consultants (PMC) funded under the credit and housed in MOPT. The Project Implementation Plan includes detailed arrangements for project and financial management, procurement and accounting procedures. 4.3 Procurement issues: During pre-appraisal, the procurement capacity of MOPT and BTRC was assessed as high risk and an action plan was agreed upon with the implementing agencies to mitigate this risk. See Annex 6 for details

26 4.4 Financial management issues: During appraisal, the assessment of the financial management system in the implementing agencies was completed and actions to meet the financial management fiduciary requirements were agreed. The detailed findings of the financial management review and the action plan to mitigate these weaknesses are provided in Annex 6 (b). The implementation of the action plan during the project period will improve the quality of the financial management. Given the weak financial management capacity, MOPT will appoint before credit effectiveness, a Project Management Consultant (PMC) with a financial management expert in its team to look after the project accounting needs of both MOPT and BTRC and to strengthen the financial management capacity of BTRC. The PMC will define the financial management needs of BTRC and assist in the design and implementation of a computerized accounting system. The PMC will also provide adequate training to all financial management staff to transfer skills and knowledge to sustain an adequate system in BTRC beyond the project period. In addition, MOPT and BTRC will hire a project accountant and an assistant Director (Finance and Revenue), respectively, by January 1, Environmental: Environmental Category: C (Not Required) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. No issues. 5.2 What are the main features of the EMP and are they adequate? NA 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: NA 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? NA 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? NA 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. There are no resettlement issues in the implementation of this project. The project will facilitate BTTB and private operators to expand into rural areas, thus enabling delivery of better social and other services. The restructuring of BTTB may require labor retrenchment. 6.2 Participatory Approach: How are key stakeholders participating in the project? NA 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations?

27 I.._ ----I---- I I-- II- ~ NA 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? NA 6.5 How will the project monitor performance in terms of social development outcomes? NA 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. NA F. Sustainability and Risks 1. Sustainability: By developing an adequate institutional and regulatory framework for market-based telecommunications service provision, the project will help accelerate investment and improve sector performance. Incentives to sustain project objectives include strengthening the regulatory framework so that the rights and obligations of the incumbent and private operators are codified both in the legislation and licenses. Improved service coverage and quality at more competitive prices will be sustained as private investment grows in telecommunications infrastructure and services. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk From Outputs to Objective Government's commitment for the restructuring of BTTB wanes and timely approval to restructure BTTB is not received Risk Rating M Risk Mitigation Measure Despite slow progress in implementing reforms, the government has shown commitment to introducing competition and increasing private investment, including establishment of a high-level committee for BTTB restructuring. - --_l.l Government's efforts to restructure S BTTB management and unions will be fully -23-

28 BTTB meets opposition from BTTB management and unions Government seeks to intervene in BTRC's actions, or BTRC could take actions (possibly politically motivated) which would reduce investor and consumer confidence. Lack of progress on sector liberalization1 award of licenses to new operators From Components to Outputs Government unwilling to follow the agreed upon strategy for BTTB restructuring. MOPT's ability to carry out its mandate i; undermined by lack of staff resources BTRC management is not effective in sarrying out public consultations. BTRC is resource constrained and?rocurement is not implemented in a :imely and effective manner M S M M N N involved in the dialogue on restructuring. Project support will also be provided for carrying out public relations campaigns and conducting workshops to allow union leaders from other telecom operators in the region such as Malaysia and Sri Lanka, share their experiences on restructuring with BTTB. BTRC is required to hold public consultations before making decisions. This process will minimize both undue government influence and non transparent decisions. Govemment has decided to issue license to the private sector for provision of local service. BTRC, with CIDA assistance, is already preparing PSTN licenses. The project will support BTRC in the licensing process. Support for the planned implementation phase of restructuring will not be provided under the project. MOPT is being provided with training support under the project and MOPT has recruited new staff. Bank oversight of terms of reference, selection, and work of technical experts. BTRC is receiving PPIAF and CIDA support to establish a consultation process and develop a track record in developing and issuing consultation papers. BTRC through its precursor TRB has experience in Bank procurement. Bank oversight of terms of reference, selection, and work of technical experts. BTRC's ability to carry out its mandate i s indermined by its lack of financial mtonomy Dverall Risk Rating Risk Rating - H (High Risk), S (Substantial Ris M BTRC has the mandate to levy fees on regulated companies to meet its operating costs. Project funds will be used to develop a medium term business plan for BTRC and support will be provided to fund priority tasks. Bank will continue dialogue with GOB to address BTRC's budget issues. M I M (Modest Risk), N(Negligib1e or Low Risk)

29 3. Possible Controversial Aspects: None. G. Main Loan Conditions 1. Effectiveness Condition 0 MOPT to select and recruit Project Management Consultants (PMC) which shall include a financial management expert. 0 0 BTRC to select and recruit Project Implementation Specialist. Subsidiary Grant agreement between Ministry of Finance and BTRC to be executed 2. Other [classify according to covenant types used in the Legal Agreements.] Ministry of Finance to make available to MOPT and BTRC the proceeds of the credit on a grant basis. MOPT to appoint a Project Accountant by January 1,2004. BTRC to appoint an Assistant Director (Finance and Revenue) by January 1,2004. BTRC shall announce by end 2003 an interconnection regime, which includes interconnection regulations; model interconnection agreement; guidelines and methodologies for determining interconnection costs and charges; reference interconnection offer; and dispute resolution mechanism. BTRC shall ensure that the regime is implemented by end BTRC to have secured land for its spectrum monitoring stations, prior to issuance of bidding documents for the spectrum management and monitoring system. BTRC to develop and implement by end 2004, a National Frequency Allocation Plan and spectrum pricing policy. BTRC to submit to IDA, a Human Resources Development Plan for its spectrum management and monitoring unit by end BTRC's procedure for selecting and appointing the auditor should be specified and be acceptable to IDA. MOPT and BTRC to prepare Financial Monitoring Reports (FMRs) at the end of each quarter, and submit them to IDA within 45 days of the end of each quarter. The PMTs in MOPT and BTRC shall submit audit of the project's financial statements within six months after the end of each fiscal year

30 I 0 MOPT and BTRC shall establish and maintain a PSC and a PMT in each of the implementing agencies throughout the project period. The PMTs in MOPT and BTRC shall submit a midterm review report by September 1,2005; and review said report with IDA by December 1,2005. H. Readiness for Implementation 3 1. a) The engineering design documents for the first year's activities are complete and ready for the - start of project implementation. 1. b) Not applicable. L! 2. The procurement documents for the first year's activities are complete and ready for the start of - project implementation.,a 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. 4. The following items are lacking and are discussed under loan conditions (Section G): I. Compliance with Bank Policies - -~._J 1. This project complies with all applicable Bank policies The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. //&&Ad Rajesh B. Pradhan Team Leader

31 Annex 1: Project Design Summary BANGLADESH: Telecommunications Technical Assistance Project Sector-related CAS Goal: Accelerating and broadening private sector-led growth by supporting governmental :fforts to remove structural impediments and establish I conducive environment For private investment aroject Development 3bjective: [mprove the performance of :he telecommunications sector through :stablishment of an.nstitutional and regulatory Framework favorable to the :ompetitive provision of :elecommunications nfrastructure and services Sector Indicators: Increased private investment, as well as the number (and market share) of private operators in various segments of the telecommunications sector Outcome / Impact Indicators: Increase overall telephone penetration from 0.83 percent in 2002 to 3.3 percent by end of 2006 BTTB restructured by end of 2004 Lines per employee increased from 29 in 2002 to 40 by end 2006 New operators to be licensed to provide fixed line local services by end 2005 New operators to be licensed to provide domestic long distance services by end of 2005 Transparent licensing and regulatory regime and clear rules of business :stablished by end 2004 project reports: lnnual reports of BTRC ind operators 2onsultant reports, BTTB innual reports TU statistics and ndividual consultant 'eports hnual report of BTRC 3TTB's published tariffs ntinued commitment b Private sector willingness to increase investments Stable macroeconomic and political environment (from Objective to Goal) Continued government commitment to develop private sector participation and a competitive market structure BTTB labor union approves of restructuring plans Sufficient supply response to new regulatory and institutional framework Rebalancing of sector - -.-"_~ -l--l.-,

32 ariffs by end of equency assignments nade within 15 days of ipplication for 90 percent )f applications by end of!006. Iutput from each :omponent: MOPT Component Iutput Indicators: 'roject reports: from Outputs to Objective) 3TTB restructured Restructuring option selected by mid Amendments to BTTB Ordinance XI1 adopted by end 2004 celevant consultant reports celevant legislation zontinued commitment in he govemment for the estructuring of BTTB and imely parliamentary ipproval for BTTB estructuring. 3TTB management and inion buy-in to BTTB,estructuring vlopt's policy function itrengthened 0 Universal access policy adopted by end of 2005 ielevant policy documents rimely govemment tpprovals of policies Policy of 1998 reviewed and new policy announced by end TRC Component 3TRC's capacity to,egulate the sector itrengthened 0 Tariff regime announced by end of Licenses awarded to fixed line operators by mid nnual reports of BTRC ielevant published -egulations Zonsultant reports 3overnment does not ntervene in BTRC actions ind BTRC does not take ictions that could reduce nvestor and consumer :onfidence Transparent consultative process institutionalized by mid Interconnection regime announcedbyend

33 Radio frequency assigned within 15 days of application by end 2006, for 90% of applications. 'reject Components I Sub-components: MOPT Component nputs: (budget for each :omponent) Project reports: from Components to Iutputs) Pestructuring of BTTB ;2.08 million TA for implementation of BTTB restructuring 0 TA for other related support Periodic progress report from project unit Report on options and recommendations 3overnment follows the igreed upon strategy for 3TTB restructuring, Legislation for incorporation of BTTB TA to strengthen MOPT'S mlicy function 0 Policy review and formulation; establishment of procedures and processes for policy monitoring and implementation; and preparation of WTO offer ; million Periodic progress report from project unit Draft policies Training plan for MOPT idequate staff resources nade available 0 Other studies 0 Policy advisor 0 Professional Development Computer hardware and software 0 Website development 0 Office Equipment "A to strengthen MOPT'S v-oject implementation ". i million Consultant's reports

34 apacity. ltrc Component bengthen the regulatory kamework 7.11 million Periodic progress report from project unit Timely provision of local counterpart funds 0 Tariff & Pricing Spectrum Management Licensing new operators Draft License for BTTB Draft regulations Annual reports from BTRC Training plan for BTRC BTRC has adequate staff and financial resources BTRC can effectively institute a public consultation process 0 Technical standardization, Quality of service and performance monitoring Procurement of SMMS is not delayed 0 Other regulatory issues 0 Office equipment, software, management information system and vehicles 0 Professional development 0 Procurement of Spectrum Management and Monitoring System (SMMS) 0 Support for SMMS implementation rota1 Estimated Cost $11.11 million

35 Annex 2: Detailed Project Description BANGLADESH: Telecommunications Technical Assistance Project The project objective is to improve the performance of Bangladesh's telecommunications sector through strengthening elements of the policy, institutional, and regulatory framework in order to promote the competitive provision of telecommunications infrastructure and services. This will be achieved by: (a) restructuring the Bangladesh Telegraph and Telephone Board (BTTB); (b) strengthening the policy function of the Ministry of Post and Telecommunications (MOPT); and (c) strengthening the regulatory capacity of the Bangladesh Telecommunication Regulatory Commission (BTRC). By Component: Project Component 1 - USW.00 million A. MOPT COMPONENT : Separation of the Policy and Operational Roles of the Government The objective of this first component is to bring about a separation in the policy and operational role of the government in the telecommunications sector. This effort to prevent telecommunications policy capture by a government owned department will be achieved through: (i) restructuring BTTB into a company; and (ii) strengthening the policy function in the Ministry of Communications. BTTB restructuring is an opportunity to level the playing field for private sector participation in the sector, as it will allow for: a clear separation of government's role as a policy maker and operator; identification and removal of all preferential treatment, including tax, procurement, that BTTB as a government board receives and is a barrier to leveling the playing field; BTTB to improve investment, efficiency and customer orientation, thereby improving sector performance; BTTB to become subject to regulation by BTRC on the same lines as other private sector operators, thereby allowing for all operators to operate in a level playing field; the government to better manage public expenditure accountability in the telecommunications sector. The restructuring of BTTB necessitates strengthening the policy function within MOPT, so that it can establish a policy and institutional framework that encourages improved sector performance and growth, with increased private participation and investments. This component includes, inter alia, the following: (i) BTTB Restructuring - Consultant support would be provided to carry out a number of activities to include: Re-examining Ordinance XI1 of 1979 (amended in 1995) that established BTTB. Government needs to select a model to guide the overall restructuring and then amend Ordinance XI1 to enable the selected model. The process of drafting, presenting, and amending the ordinance will be undertaken. Other legal documents necessary for the restructuring of BTTB will also be prepared. Asset/liability allocation. BTTB's assets and liabilities are currently reflected as government property. In order for BTTB to operate ona commercial basis, it will need title to its assets and to develop depreciation and capital expenditure programs to support them. In addition to developing an inventory and valuation of fixed assets, this task will also include negotiation of

36 land and building ownershipluse between BTTB and Government. Appropriate levels of debt to fund the assets to be transferred from government to BTTB will also need to be determined. Financial audit and creation of opening financial statements. A financial audit will both identify BTTB's operating position and create the initial financial statements that the restructured BTTB will be required to maintain. The financial audit will also provide valuable information about financial information systems to be created for BTTB. Cost-based tariffstudy. BTRC has a mandate to enforce a reasonable, cost-based tariff structure, which will mean rate rebalancing for BTTB. In parallel with BTTB restructuring, BTTB and BTRC will work together to establish cost-based rates and a plan to transition to those rates. The transition would require carrying out a benchmarking tariff study which will provide: (a) a tariff proposal by comparing it to other operators in the region, that run their business efficiently; and (b) an action plan with a monthly change in tariffs to rebalance tariffs in a couple of years. This will also provide BTRC with the required analysis to support implementation of cost-based pricing for unbundled network elements. Examining options for rationalization of labor force. A restructured BTTB will likely need to employ fewer than its current labor force of 22,000 staff. As part of the restructuring process, an investigation should be made into a proposed new organizational structure and reduction plan. This reduction plan will need to be negotiated with the union, as well as any potential donors who might provide financing to implement it. Public relations. Because of the sensitivity of the stakeholder community, it is critical that MOPT manage public relations very closely throughout the restructuring planning period. MOPT, BTTB and union officials will be exposed to the experience of telecommunications companies that were restructured in other countries. Development of a business plan. The restructuring of BTTB will require that it develops a corporate business plan to guide its operations after restructuring. Development of aperformance contract for BTTB. In order to ensure that the restructuring of BTTB actually results in improved performance, support will be provided to develop a performance contract for BTTB. Project funds will also be used to carry out annual performance audits. Such a contract would provide incentives to BTTB to improve performance. In the event that BTTB does not fulfill its performance commitments, BTTB could, for example, lose its exclusivity to provide certain services, earlier than planned. Other support as may be needed. (ii) Strengthening MOPT's Policy Function: Technical assistance support for consultancy and training programs will be provided in order to strengthen MOPT's capacity to carryout its policy functions. This will include: a Policy review and formulation; re-examination of Bangladesh's WTO commitments and preparation of a new telecommunications offer; and establishment of processes and procedures for policy monitoring and evaluation: Consultancy support will be provided to review and revise the National Telecommunications Policy of 1998, with a view to take stock of achievements made under the current policy and formulate a new policy to accelerate the pace of telecom infrastructure development and service provision, support the ICT policy of GOB and

37 further private sector participation in the sector. Further, GOB S telecommunications offer to the WTO will be reviewed and a new offer be prepared. Finally, technical assistance support will also be utilized for institutionalizing processes and procedures for policy monitoring and evaluation within MOPT. Universal Access Strategy: Consultant support will be provided to the MOPT to develop a universal access strategy for ICT services. Recommendations will be made to deliberate a strategy that (i) identifies a universal basket of services regardless of income, geography or disability; (ii) pursues network coverage and access simultaneously, in a manner that includes a role for all operators; (iii) recommends necessary legal and regulatory arrangements to ensure quality of service, enhance affordability and grow demand; and (iv) develops a funding strategy. In-house Policy Advisor: Consultant support will be provided to MOPT to hire an in house policy advisor to provide policy advise to the Ministry on all issues. Other Studies: Consultant support will be provided to carry out a number of policy studies on a as needed basis on issues such as convergence, market structure and competition. Professional Development: This will include, inter alia, the following: technical cooperation arrangements with relevant policy agencies in other countries, information sharing and formal and informal contacts, and advice; seminar and courses offered by private firms, universities and associations; study tours and training for senior policy officials; and the organization of seminarslworkshops in Bangladesh. Hardware and Software: Support will be provided to procure hardware and software, including computers and office equipment so that MOPT can establish a local area network for purposes of information sharing and dissemination. Website Development: Support will be provided to MOPT to develop a website so that it is able disseminate information and carry out public consultations online. (iii) Strengthening Project Management Capacity: Limited support will be provided for consultancy services to strengthen MOPT and BTRC s capacity to manage and implement the project. This will include procuring Project Management Consultant services to assist the MOPT in managing the project and handling the various implementation arrangements during the life of the project. Project Component 2 - US$7.11 million B. BTRC COMPONENT The objective of this second component is to strengthen BTRC s capacity to effectively regulate a multi-operator environment and ensure a level playing for all operators. Support under this component includes, inter alia, the following: (i) Strengthening Regulatory Capacity: This includes, inter alia, the following: e e Targfs and Pricing: Technical assistance will be provided to BTRC to establish the necessary tariff and pricing regime to ensure effective competition in the sector. Technical Standardization, quality of service and carrier monitoring: Support will be provided to BTRC to establish technical standardization processes, quality of service standards for all

38 licensed operators and carrier monitoring processes and procedures. Licensing New Operators: Within the framework of BTRC's licensing regime, consultant support will be provided to BTRC to license new operators for a number of services, including new cellular operators as appropriate. Other Regulatory Issues: Consultant support will be provided on an "as needed" basis to address other regulatory issues that may arise during the project period, including WTO compliance, implementation of interconnection regime, development of a pro-competitive license for BTTB, among others. Office Equipment and Vehicles: Funding will be provided for the procurement of office equipment, including computers and software to facilitate BTRC in its day to day functioning as well as procurement of vehicles. Professional Development and Training: This will include, inter alia, the following: technical cooperation arrangements with relevant regulatory agencies in other countries, information sharing and formal and informal contacts, and advice; seminar and courses offered by firms, universities and associations; study tours and training for BTRC officials; and the organization of seminars/workshops in Bangladesh. (ii) Strengthening Spectrum Management: This includes the following: Spectrum Management: Consultant support will be provided for strengthening BTRC's spectrum management function, specifically to (i) assist in reviewing and rationalizing spectrum use in Bangladesh including development of a spectrum allocation plan and a database of spectrum use; (ii) develop a spectrum pricing policy; and (iii) train BTRC staff in addressing spectrum management and monitoring issues. Spectrum Management and Monitoring System (SMMS): Funding will be provided for the procurement of a Spectrum Management and Monitoring System so that BTRC can effectively discharge its statutory duties. Support for SMMS Implementation: Consultants will support BTRC in (i) assessing the spectrum management and monitoring needs, (ii) reviewing and revising the specifications for equipment to be procured, (iii) preparation of bidding documents; (iv) assisting in technical evaluation of bids and contracting; and (iv) supervision of installing and commission of the equipment. They will also assist in designing an arrangement to involve private sector in providing operation and maintenance support for the systems. (iii) Strengthening Project Implementation: Funding will be provided to procure the services of a local project implementation specialist who will assist BTRC in project management and implementation, and financial management

39 Annex 3: Estimated Project Costs BANG LADESH : Telecommunications Technical Assistance Project Proiect Component COMPONENT 1 - MOPT (US$ million) a1 BTTB Restructuring Corporate Strategy and Implementation of BTTB Restructuring Other Consultancy Support b) Strengtening MOPT's Policy Functions Telecoms Policy Review and Preparation of WTO offer Universal Access Other Studies (covergence, market structure) Computer Hardware, Software and Network Professional Development (TrainingBtudy Visits) Policv Advisor Local Foreign Total TWebsite develooment I 0.ool 11 1 Office Equipment c) Strengtening MOPT's Project Management Project Management Consultants TOTAL FOR MOPT COMPONENT COMPONENT 2 - BTRC a) BTRC Component Tariff and Pricing TOTAL BASE COST Physical Contingencies Price Contingencies TOTAL PROJECT COST

40 Method and Approach Annex 4 BANGLADESH: Telecommunications Technical Assistance Project Fiscal Impact of Sector Reform 1. The fiscal impact analysis measures BTTB s annual contribution to the national treasury before and after the restructuring. Historically, BTTB has produced a significant revenue surplus (cash revenues less cash expenditures) that is transferred to the treasury, which in turn funds BTTB s annual investment requirements. To fully measure the impact, the analysis not only considers the revenue surplus but also all the other transfers BTTB, as a limited company, it will be obligated to make to the treasury. In addition to the standard revenue surplus and investment flows, the analysis includes the following: VAT. Corporate Tax - 45%. Import Duties and levies - average of 15% (ranging from %) 9 Municipal taxes (estimate not available at this time.). MOPT/BTRC fees (8% of gross service revenues) * Other transfers (employee taxes, etc.) (10% of employee salaries and wages) 2. The analysis also goes beyond the restructuring of BTTB. The restructuring of BTTB and the on-going sector reforms (regulation, tariffs, interconnection, competition, licensing, etc.) will greatly influence the size, shape and direction of the sector in the next few years. Because of all the changes that are taking place simultaneously in the sector, an estimate of the fiscal impact of BTTB s restructuring factors in all of these other elements. A financial and operational model of the sector reform and the assumptions used are provided in the project files. Direct and Immediate Cash Flow Impact 3. The conversion of BTTB to a limited company will have an immediate cash flow impact on the treasury. Currently, BTTB bank accounts are government accounts and thus it does not take possession of its cash collections. Local cash receipts are collected at various local banks and post offices and most international settlements are directly deposited in the Central Bank accounts both domestically and in foreign banks. Essentially the government controls all of BTTB s cash receipts (approximately US $700,000 per day) and uses these funds to manage the overall government s daily cash requirements. Once BTTB is restructured, it will set up its own bank accounts and take full control of its cash flow. The direct and immediate impact on the government is that it will have to manage its daily cash needs without BTTB s daily cash. Rather than provide daily cash infusions to the government, BTTB will make the standard transfers (e.g. corporate tax, VAT) at the standard times (monthly, quarterly, or annually). Key Findings 4. As described above, the government will experience an immediate cash flow impact as a result of the restructure process, but the overall magnitude of the contribution may not be as severely impacted. The following table demonstrates that the treasury can potentially gain more (net cash), year-over-year from BTTB as a limited company. The net amount that i s actually transferred to the treasury depends to a great extent on the level of investment made by BTTB and how this is funded. It is also important to note that beginning in 2003 the mobile operators begin to provide more to the national treasury than BTTB, even though it is assumed the mobile operators have been granted a tax holiday through In the High Growth scenario,

41 BTTB catches up to the mobile operators, in terms of contributions to the treasury, in the year Telecom Sector - Transfers/Funds Flow to the National Treasurv- HIGH GROWTH Scenario Taka, 000, A 1. VAT Revenue Surplus 9, Investment (4,400) 4. Net Surdus Corporate Tax /o ~ DutiedOther 7. MOPT/BTRC 5. As a limited company, BTTB will pay the standard taxes and transfers as demonstrated above, and will fund its capital projects through its own budget constraints rather than through the govemment s Annual Development Budget. The government as a 100% owner of BTTB will have to decide on the level of capital it will contribute (or can afford) for BTTB s expansion program. Based on the results of the 10-year financial planning model and assumptions used, the net revenue surplus now being contributed by BTTB to the national treasury will be more than offset by the collection of the standard taxes and duties paid by a limited company

42 Annex 5: Financial Summary BANGLADESH: Telecommunications Technical Assistance Project Years Ending IMPLEMENTATION PERIOD I Year1 I Year2 I Year3 I Year4 I Year5 I Year6 I Year7 I Total Financing Required Project Costs Investment Costs Recurrent Costs Total Project Costs Total Financing O O O 7146 Financing IBRDllDA Government Central Provincial Co-financiers User FeeslBeneficiaries Other Total Project Financing Main assumptions:

43 Procurement Annex 6(A): Procurement Arrangements BANGLADESH: Telecommunications Technical Assistance Project 1. The total value of the project is US$l 1.11 million, of which the IDA Credit will finance USS9.12 million. Procurement under the project will involve goods, training and consultancy assignments. 2. All Goods financed under the Credit will follow procedures outlined in the Bank s Guidelines for Procurement under IBRD Loans and IDA Credits, published in January 1995, and revised in January Consulting services and training will be hired in accordance with the Bank s Guidelines: Selection and Employment of Consultants by World Bank Borrowers, published in January 1997, and revised in September 1997, January 1999 and May Procurement of goods and services will follow the Bank s approvedstandard documents. Goods (US$5.10 million) 3. The project supports the procurement of the spectrum management and monitoring system under BTRC component which will be procured through ICB procedures. All other goods to be financed under the credit is expected to involve small contracts, with estimated cost less than US$lOO,OOO per contract (most contracts value less than US$20,000), which include: computers, printers, scanner, office equipment, photocopiers, vehicles, etc. Because of the small contracts, procurement through national competitive bidding may not be efficient, but in the event, the borrower may, however, follow National Competitive Bidding for contracts valued less than US$lOO,OOO with the provision of paragraph 15. (i) International Competitive Bidding (ICB): Contracts for the purchases of Goods and Equipment valued at $100,000 or more would be procured through ICB procedures in accordance with Bank Procurement Guidelines, January 1995, revised January and August 1996, September 1997 and January The spectrum management and monitoring system under BTRC component estimated to cost $5.0million would be procured through ICB. (ii) National Competitive Bidding (NCB): As per the provision of paragraph 15 of this Annex 6. (iii) National Shopping (NS): Given the nature of procurement, goods (excluding computer hardware, software and local area network), estimated to cost less than $20,000 equivalent per contract, and hardware, software and local area network estimated to cost less than $40,000, up to an aggregate amount not to exceed $90,000 equivalent, may be procured through prudent shopping procedures by soliciting price quotations. (iv) Direct Contracting (DC): Computer software, trade journals, books and magazines, with individual cost less than US$2,000 equivalent up to aggregate limit of USSlO,OOO, may be procured following DC. Consultant Services and Training (US$6.01 million): 4. Consultancy services will be contracted following procedures in accordance with the Bank s Consultant Guidelines as mentioned in para 2 above. Consultants services estimated to cost more than $200,000 per contract must be advertised in the national newspapers and in Development Business, before preparing the shortlist. The shortlist may be comprised entirely of national consultants for

44 contracts estimated at less than $100,000. However, if foreign firms have expressed interest, they shall not be excluded from consideration. 5. Quality and cost-based selection (QCBS). It is envisaged that most of the consultant services packages under the MOPT and BTRC components will be procured through quality- and cost-based selection. The aggregate cost is estimated to be about $5.14 million (with contingencies). 6. Consultant qualifications (CQ). Only MOPT website development contract is envisaged to follow the CQ method and estimated to cost less than S10,OOO. 7. Individual Consultants (IC). Services for assignments for which teams of personnel are not required and the experience and qualifications of the individual are important, will be procured in accordance with Section V of the Consultants Guidelines. Individuals will be selected on the basis of their qualifications for the assignment. Contracts for specialist include MOPT's Policy Advisor and BTRC's Project Implementation specialist. The aggregate cost is estimated to be about $0.33 million. 8. MOPT/BTRC's staff cost will be borne by the Government for the project management team estimated to be about $0.35 million. 9. Training, workshop and seminars ($0.18 million equivalent, including contingencies). MOPT and BTRC will submit an annual training plan to the Bank for its review and clearance. Training, workshops, and seminars for MOPT and BTRC staff will be at selected institutions and universities. This training program is subject to the Bank's clearance on course content, course fee, and number and details of staff to be deputed. The Bank will review annually the progress in implementing each yearly training plan, with adjustments made as needed. Use of Standard Documents 10. For ICB procurement of goods, the use of IDA's Standard Bidding Documents (SBD) is mandatory. For NCB procurement, MOPTIBTRC will use the SBDs for Goods approved by IDA. For selection of consulting firms, the Bank's Standard Request for Proposals (RFP) including standard contract form will be used. The Bank's Standard Bid Evaluation Report for goods and Sample Form of Evaluation for consultants' services will be followed for submission of evaluation reports to IDA. Basically all goods and services will be procured using Bangladesh-specific Bank's Model Standard Bidding Documents and RFPs. Specific procurement arrangements are summarized in Tables A and A1, and are briefly described below. Procurement and Selection Planning 1 1. MOPT and BTRC has prepared a draft Procurement Plan for all the identified goods and Selection Plan for services under the project and include in the PIP and TAPP. Prior to issuance of any invitation for bids for procurement of goods and selection of services, the proposed Plan shall be furnished to IDA for its review and concurrence, in accordance with the provisions of paragraph 1 of Appendix 1 to the respective Guidelines. Procurement of goods and selection of all consultants will be undertaken in accordance with Plans concurred by IDA and with the provision of said paragraph 1 of Appendix 1 of the respective Guidelines. Procurement of all packages will follow arrangements outlined in accordance with the project's procurement plan. -40-

45 /COMPONENT 1 - MOPT No. of Proc. Cost in Process Activity Activity Activity Packages Method US$ Start Start End a) BTTB Restructuring Consultancy 1.1 Corporate Strategy and Implementation of BTTB Restructuring cl QCBS 1,830,000 07/01/03 02/13/04 02/25/05 Consultancy 1.2 Other Consultancy Support c2 QCBS 250,000 03/03/04 01/03/ Sub- Total 2,080,000 b) Strengthening MOPT s Policy Function Consultancy 2.1 Telecommunications Policy Review and Preparation of WTO offer c3 QCBS Consultancy 2.2 Universal Access c4 QCBS Consultancy 2.3 Other Studies (convergence, market structure and others) c5 QCBS Goods 2.4 Computer Hardware, Software and Network gl NS Training 2.5 Professional Development (TrainingIStudy Visits) Training Consultancy 2.6 Policy Advisor c6 IC Consultancy 2.7 Website development c7 CQ Goods 2.8 Office Equipment g2 NS Sub-Total I 260,000 07/01/03 200,000 07/01/04 625, IO4 40, , ,000 01/02/04 10,000 07/01/03 10, ,495, / / /05 1 1/07/03 11/18/ /04 09/29/03 12/02/ /04 12/27/ /05 03/05/ /23/ Project Management Team - Budgetary support from GOB 75, /03 350,000 07/ /04/ /25/ /07 Sub- Total COMPONENT 2 - BTRC Consultancy 4.1 Tariff and Pricing Consultancy 4.2 Technical Standardization, QOS and Performance Monitoring Consultancy 4.3 Spectrum Management Consultancy 4.4 Licensing New Operators Consultancy 4.5 Other Regulatory Issues Goods 4.6 Office Equipment Training 4.7 Professional Development (TrainingiStudy Visits) Consultancy 4.8 Project Implementation Specialist Goods 4.9 Spectrum Management and Monitoring System (SMMS) c9 c10 cll c12 c13 g3 Training c14 g4 QCBS QCBS QCBS QCBS QCBS NS IC ICB I 250,000 08/01/03 300,000 01/05/04 350,000 08/01/03 250,000 08/02/04 500, ,000 1Ol ,000 10/01/03 36,000 06/02/03 5,000, IO /14/ /10/04 12/03/03 11/04/03 08/01/03 09/22/04 1 Oil 8/04 12/24/04 06/12/06 06/27/07 12/30/0! 06/26/07 12/2OIOi 12/31/

46 Prior Review of Procurement Decisions by the Bank [Refer Table B] 12. Goods: All ICB packages, irrespective of value, will be subject to prior review by the Bank. Since the contracts sizes are small and shopping is the preferred method, IDA will carry out prior review of the first two contracts for shopping under MOPT and BTRC. Review will include: request for quotations, evaluation of quotations and the purchase order. If NCB is used, one contract will be subject to prior review under MOPT and BTRC. 13. Consultants Services: IDA S prior review will be required for consultants services contracts estimated to cost US$lOO,OOO equivalent or more for firms and US$50,000 equivalent or more for individuals. TORS for all contracts. Post Review 14. For compliance with the Bank s procurement procedures, IDA will carry out sample post review of contracts that are below its prior review threshold. Such post review of contracts below the thresholds will be carried out as the Bank deemed appropriate. Acceptability of NCB Provisions, 15. All NCB contracts shall be awarded in accordance with the provisions of Paragraphs 3.3 and 3.4 of the Guidelines for Procurement under IBRD Loans and IDA Credits published by the Bank and revised in January 1999 [the Guidelines]. In this regard, in order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section I of the Procurement Guidelines: (i) standard bidding documents approved by the Association shall be used; (ii) invitations to bids shall be advertised in at least one widely circulated national daily newspaper and bidding documents shall be made available to prospective bidders, at least 28 days prior to the deadline for the submission of bids; (iii) bids shall not be invited on the basis of percentage premium or discount over the estimated cost; (iv) bidding documents shall be made available, by mail or in person, to all who are willing to pay the required fee; (v) foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders; (vi) qualification criteria (in case pre-qualifications were not carried out) shall be stated in the bidding documents, and if a registration process is required, a foreign firm determined to be the lowest evaluated bidder shall be given reasonable opportunity of registering, without any let or hindrance; (vii) bidders may deliver bids, at their option, either in person or by courier service or by mail;

47 (viii) all bidders shall provide bid security as indicated in the bidding documents. A bidder's bid security shall apply only to a specific bid; (ix) bids shall be opened in public in one place immediately, but no later than one hour, after the deadline for submission of bids; (x) evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed with the Association; (xi) bid shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association; (xii) split award or lottery in award of contracts shall not be carried out. When two or more bidders quote the same lowest price, an investigation shall be made to determine any evidence of collusion, following which (A) if collusion is determined, the parties involved shall be disqualified and the award shall then be made to the next lowest evaluated and qualified bidder and (B) if no evidence of collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence of the Association; (xiii)contracts shall be awarded to the lowest evaluated bidders within the initial period of bid validity so that extensions are not necessary. Extension of bid validity may be sought only under exceptional circumstances; (xiv)extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than eight weeks and (B) for all subsequent requests for extensions irrespective of the period; (xv) negotiations shall not be allowed with the lowest evaluated or any other bidders; (xvi) re-bidding shall not be carried out without the Association's prior concurrence; and (xvii) all contractors or suppliers shall provide performance security as indicated in the contract documents. A contractor's or a supplier's performance security shall apply to a specific contract under which it was furnished. Review of Procurement Performance 16. IDA will monitor the compliance with the requirements of Bank's different procurement methods and performance standards on a continuous basis. As part of the project's planned mid-term review, a comprehensive assessment of procurement performance will also be carried out. Based on the review, in consultant with the government, IDA may revise the prior review threshold including the procurement and selection methods. Procurement Reporting 17. Procurement information will be collected and recorded as follows: (a) prompt reporting of contract award information by the project management units within MOPT and BTRC for their respective components; and

48 (b) comprehensive quarterly reports prepared indicating: revised cost estimates for individual contracts and total cost; revised timings of procurement actions including advertising, bidding, contract award, and completion time for individual contracts; and compliance report by the borrower within three months of the Loan signing date. Procurement Management Capacity 18. Procurement Issues. The Country Procurement Assessment Report (CPAR), broadly accepted by the Government in February 2001, stated poor procurement as a generic problem in Bangladesh. The CPAR identified a series of factors accounting for procurement problems in the country that, among others, include absence of procurement law, poor advertisement, poor bidding documents, multiple evaluation committees, award of contract through lottery, negotiations, lack of professional competence, corrupt practices, political influence and pressure from special interest groups and collective bargaining agencies. The CPAR recommended for procurement reform with a series of action and the Government has received a Technical Assistance credit in the amount of US$4.5 million equivalent for the Public Procurement Reform Project (PPRP). 19. Capacity Review and Risk Assessment. An assessment was carried out to determine the institutional procurement management capacity of the Implementing Agencies (IAs), MOPT and BTRC. Both the IAs have limited experience implementing donor funded projects, with no experience in the implementation of World Bank financed projects. It is critical to build capacity within MOPT and BTRC. Given the current assignment of staff in both the agencies, it is assessed that the capacity at the present time will not be sufficient to implement the project and should be enhanced. The assessment was carried out with a view to: (i) evaluate the capability of the IAs and of the adequacy of procurement systems in place to administer Bank-financed procurement; (ii) assess the risks that may negatively affect the ability of the IAs to carry out the procurement process; and (iii) develop an action plan to be implemented as part of the project to address deficiencies. The assessment included organization aspects, skills of staff and suitability of rules and regulations applicable to the agencies. The inexperience of MOPT and BTRC in implementation of World Bank financed projects, coupled with the findings of the Country Procurement Assessment Report (CPAR), would constitute a high procurement risk, in the absence of mitigation actions proposed below. 20. To mitigate the high risk the following action plan with completion dates is proposed: I Actions Proposed Responsibility Proposed Completion Dateistatus CAPACITY ENHANCEMENT: 1. Establishment of the Project Management Team (PMT) comprising of at least one person with MOPT, BTRC By Appraisal/ MOPT/BTRC procurement knowledge have confirmed appointment of respective PMTS. 2. Establishment of a Project Management Consultant MOPT By Project (PMC) comprising of at least one procurement expert Effectiveness with exnerience in international nrocurement. 3. Project Implementation Specialist (PIS), to have BTRC By Project I I -44-

49 experience in project management, implementation and urocurement. PROCUREMENT TRAINING 4. Procurement training will be provided by Bank staff (Resident MissiodHQ), including project launch workshop, during supervision and under the Public Procurement Reform Project (PPRP). 5. Procurement training will be provided by PMC to the project team and technical engineers within each implementing agency. ENHANCED PLANNING AND CONTROLLING MECHANISMS 6. Procurement plan to be agreed upon during appraisal and an updated procurement plan will be required for each new fiscal year before disbursements can be initiated. 7. RFPs for procurement actions during the first year will be prepared for Packages 1.1 ; 3.1 ; and 4.8. Selection of consultants for packages 3.1 and 4.8 should be completed. TORS for packages 2.1; 2.7; 4.1; 4.3 and 4.10 and specifications for package 2.4 should be completed. 8. Procurement supervision will be conducted every six months and the procurement plan will be monitored on an on-going basis. 9. A PIP will be developed in collaboration with the MOPT and BTRC and disseminated to all the project team members after clearance by the Bank as a condition of negotiation. These manuals will contain a section on procurement which will cover at least the following issues: roles and responsibilities of parties involved in the procurement process, all agreed procurement procedures applicable to the Project, including clarifications on NCB and shopping procedures, agreed requirements and procedures for procurement planning and execution of the Bank 'MC, PIS MOPT, BTRC AOPT, BTRC Bank dopt, BTRC Effectiveness During Project Processing, Project Launch, Supervision mission and under PPRP. During project implementation. Agreement on Procurement Plan (PP) will be reached during negotiations. PP will be monitored and updated by MOPT, BTRC and PMC on a quarterly basis during project imdementation. By effectiveness During [mplementation Completed prior to Negotiations -45-

50 --"~ " --.- I... contracts with a time bound implementation plan, procurement audit and review system (internally within the organization of the units, or by the Bank), 0 standard documents, TORS, 0 procedures on recording and resolution of complaint, and procurement reporting system. 10. Format for the procurement report (as part of the PIP as developed by World Bank Office, Dhaka and well understood prior to the Credit negotiation). This report should include at least the following areas: procurement plan vs. actual, procurement problems, reasons for the procurement delays, procurement complaint database and its resolutions, and a check list of any preparations required by each implementing agency to respond to the Bank's regular supervision. The sample format has been provided. 11. Cases of collusion and other fraudulent and corrupt practices will be reported and investigated by the Borrower and the Bank and remedial actions will I be taken. " l._l. -.^l-." I_- Negotiations. Implementation. Proposed Procurement Arrangements - Thresholds and Frequency of Supervision 21. The project elements, their estimated costs, and proposed methods of procurement are summarized in Table A. Thresholds are given in Table B. Figures in parenthesis are the respective amounts to be financed by the Bank. -46-

51 Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) 2. Goods 3. Services 4. Training Total (4.50) (0) (9) (0) (4.59) (0) (0) (4.39) (0) (4.39) (0) (0) (0.14) (0) (0.14) (4.50) (0) (4.62) (0) (9.12) I/ Figures in parentheses are the amounts to be financed by the IDA Credit. All costs include contingencies. */ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. -47-

52 Table AI : Consultant Selection Arrangements (optional) (US$ million equivalent) I\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Credit

53 Prior review thresholds (Table 6) Table 8: Thresholds for Procurement Methods and Prior Review I. Works 2. Goods $100,000 and above ICB Prior review (USS5.0) Less than US$lOO,OOO NCB First contract irrespective of value and all contracts US$30,000 equivalent or more Less than US$20,000 and me contract of US$40,000 for Computer Hardware, Software and LAN NS First two contracts US$O.OS). Specifications, evaluation of quotations and purchase orderldraft contract, rest post review. 5. Services Less than USS2,OOO DC USS100,OOO or above I QCBS (fiitls)* Post Review Prior Review (USS5.5) 1. Miscellaneous 5. Miscellaneous 5. Miscellaneous US$50,000 or above (individuals) IC Prior Review (US$0.33) Total value of contracts subject to prior review: US$ 10.88million Overall Procurement Risk Assessment: High Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-reviewlaudits) *Short list and TORS for all consultant contracts as well as all individuals, irrespective of dollar amount are subject to prior review. 1, Thresholds generally differ by countly and project. Consult Assessment of Agency s Capacity to Implement Procurement and contact the Regional Procurement Adviser for guidance

54 Annex 6(B): Financial Management and Disbursement Arrangements BANGLADESH: Telecommunications Technical Assistance Project Financial Management 1. Summary of the Financial Management Assessment 1.1 An assessment of the financial management capacity of the implementing agencies was carried out during the preparation mission and finalized during the appraisal. The assessment and the agreed action plan to enhance the capacity and mitigate the weaknesses identified are summarized below. Ministry of Posts and Telecommunications (MOPT) 1.2 Two Chief Accounts Officers (CAO) representing the Controller General of Accounts (CGA) of the Ministry of Finance render accounting services to the ministry and its departments. CAO (Posts Offices) looks after the financial and accounting needs of the ministry and its Post Office Department. CAO (T&T) releases any GOB fund for Bangladesh Telephone & Telegraph Board (BTTB) and compiles and consolidates the total income and expenditure of BTTB as recorded in various BTTB offices and some special bank accounts. Both the CAOs are accountable to the Secretary MOPT who is responsible to the Parliament as the Principal Accounting Officer of the Ministry. During Bank s project preparation mission s discussion with the MOPT, it was agreed that the CAO (T&T) would be the designated office to release the GOB fund of the project. Since it was assessed that the project accounting function could not be performed under an internal arrangement of CAO, MOPT has included in its TAPP a need to recruit an accountant for the project. IDA observed that the level of accountant proposed in the TAPP was not appropriate to attract the required skill to perform the project accounting function adequately and recommended that MOPT make appropriate revision to its TAPP proposal during its review process by the Planning Commission so that an Accounts Officer could be hired for the project. Bangladesh Telecommunication Regulatorv Commission (BTRC) 1.3 Books and Records: BTRC is maintaining manual registers and ledgers and producing the financial statements using MS Excel worksheets. It has just completed the first year of operation and its ledgers and registers for financial activities, accounting documentation for transactions and internal control measures need to be improved. BTRC is considering introduction of a computerized accounting system for efficiently recording, analyzing and reporting its transactions. BTRC is awaiting the budgetary approval of the cost of computerization along with the MIS system, which have been included in the budget estimate for FY Auditing: BTRC is required to prepare its annual accounts and financial statements within 60 days from the end of a fiscal year and within the next 60 days get these audited by a firm of Chartered Accountants and submit such audited statements to MOPT for their presentation in the parliament. BTRC submitted its first audited financial statements for the period from January 3 1 to June 30,2002 to MOPT well within the prescribed time limit. BTRC being a statutory public body also comes under the purview of audit by the Comptroller and Auditor General (C&AG) but no such audit has been taken up as yet. 1.5 Basis of Accounting: BTRC maintains cash basis of accounting in accordance with the practice of the Government of Bangladesh. However, BTRC is empowered by the Telecom Act 2001 to determine subject to the Government s approval, its own accounting method that would accurately and

55 properly reflect the financial position of BTRC. BTRC plans to opt for Accrual Basis of Accounting that would comply with the International Accounting Standards. Various revenues of BTRC that are presently recognized on collection basis would be advisable to be recognized on accrual basis to keep track of accounts receivables, for efficient budgeting and effective performance measurement. 1.6 Staffing and Capacity: Finance and Accounting Unit of BTRC presently has three core accounting personnel in the positions of Deputy Director, Assistant Director and Accountant reporting to the Director, Administration and Accounts. BTRC has recently requested the government approval for additional manpower that includes one Assistant Director (Finance and Revenue) and a cashier. The recruitment to these proposed positions will strengthen the financial management and internal control environment. All the existing personnel have the adequate knowledge to carry on the day-to-day affairs but need the guidance and advice from a qualified accountant with adequate experience in setting up and smoothly operating an appropriate Financial Management System. The key position of Director, Administration and Accounts was recently filled by an official with experience in administration. BTRC needs to have the services of a qualified accountant with adequate and relevant experience so that financial management system with well defined rules and procedures, adequate documentation and internal control measures for transactions and an efficient accounting and reporting system is be quickly established and sustained in BTRC. As agreed during appraisal, the Project Management Consultant (PMC) will have in its team, a financial management expert with professional accounting qualifications and adequate experience to look after the project s accounting needs in both MOPT and BTRC and also to strengthen the financial management capacity of BTRC. The PMC will define the financial management needs of BTRC and design and implement a computerized accounting system. It will also provide adequate training to all financial management staff to transfer skills and knowledge to sustain an adequate system in BTRC. The scope of work and the qualification requirement would be adequately reflected in the revised terms of reference for the PMC. 1.7 BTRC Fund: BTRC is required to maintain a fund that would comprise of government grants, grants from a statutory body or other local or foreign organization, loans raised by BTRC, charges and fees for services rendered by BTRC and monies received from any other source. Salaries and allowances of commissioners and staff of BTRC and its other expenditures would be met from this Fund. Any surplus amount in the fund, after meeting all the approved expenditures of BTRC must be deposited with the government exchequer. Application fee, license fee, renewal fee, transfer fee, levy, royalty, revenue sharing and various other charges are recognized as revenue of the BTRC when the chequeslpay-orders are received in accounting unit from the respective regulating department once or twice a week (not daily). The accounting unit does not have the copies of the Demand Notes and does not carry out any cross check of the amounts received with the tariff rates or demand notes. No money receipts are issued to the operators or service providers but receipts are acknowledged on copies of their forwarding letters. Chequedpay-orders received are recorded in the registers by the receiving departments but the amounts deposited to the bank are not reconciled with the registers. Hiring of an Assistant Director (Finance and Revenue) and a cashier when the proposed positions are approved would address the above stated deficiencies. 1.8 Budgetary Control: Every year, BTRC is required to submit to the government its annual budget estimate for the next fiscal year specifying the amount required from the government and other source of finance to meet its revenue and capital expenditures. Before the commencement of a fiscal year, the government would accord its approval to the commission s budget with or without revisions to the estimates. Budget for FY2003 was approved with Tk. 910 million as its income and Tk.16.2 million as the expenses, leaving a net surplus of Tk million. BTRC did not ask for any government grant for its operation and it can invest its fund in any project with the government s approval