INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized RESTRICTED Report No. PU - 57a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT OF THE EMPRESA NACIONAL DE TELECOMUNICACIONES COLOMBIA March 10, 1971 Public Utilities Projects Department

2 Currency Equivalents Measures Equivalents Currency Unit Peso khz 5 kilohertz US$1.00 = Col$18.50 mhz = megahertz US$1 million = Col$18,500,000 1 kilcueter (kin) = statute Col$1.00 US$0.05 mile Col$1 million = US$54,054 Fiscal Year Calendar year L15T OF ABBREVIATIONS, AC)NMS AND DEFINITIONS IN THE REPORT CAR - Corporacion Autonoma Regional de la Sabana de Bogota y de los Valles de Ubate y Chiquinquira. Carrier - A system of providing a number of circuits (channels) through one transmission mode. Chanel - One circuit of a carrier systen carrying speech or telegraph signals. FNA - Fondo Nacional de Ahorro HF - High Frequency (3,000-30,000 khz) INTELSAT - International Telecumunications Satellite Corporation itec - Instituto Tecnologico de Electronica y Comunicaciones LINCCY4PEX - An electronic unit to overcome same of the inherent disabilities of providing telephone service using HF Microwave - Radio system working at frequencies above 300 mhz but normally applied to systems working at frequencies above 1,000 mhz Multiplex - The equipment to provide many telecommunication channels through one transmission mode. PIANEACION - Departamento Nacional de Planeacion STD - Subscriber Trunk Dialling Telex - Teleprinter Exchange Service VHF - Very High Frequency mhz

3 COLOMBIA EMPRESA NACIONAL DE TELECCFUNICACIONES (TELECCM) APPRAISAL OF THE SECOND TELECyRJUNICATIONS, PROJECT TABLE OF CONTENTS ~~-- ~~~Page No STM4ARY AND CONCLUSIONS i 1. INTRODUCTION 1 2. THE ECONCMY AND THE SECTOR 2 The Economic Background 2 The Telecommunication Sector 2 3. THE BORROWER 4 Organization and Management 4 Recruitment and Training 4 Accounting and Audit 4 Existing Telecommunication Facilities 5 Tariffs 6 Past Financial Performance 6 Present Financial Position 7 4. THE PROGRAM AND THE PROJECT Program 10 Other Investment 10 The Project 10 Cost of the Project 11 Amount of Proposed Bank Loan 12 Procurement 12 Disbursement 13 Project Execution JUSTIFICATION 14 Demand 14 Least-Cost Solution 15 Internal Financial Rate of Return FINANCING PLAN AND FINANCIAL OUTLOOK 16 Financing Plan 16 Future Operating Results 18 Forecast Financial Position RECOMMENDATIONS 20 This report is based on the findings of a Bank mission consisting of Messrs. A. X. Minton, J. G. Davis and J. Balkind who visited Colombia in June 1970 and a subsequent mission consisting of the same members and Mr. P. Bassole from July 26 to August 12, 1970.

4 LIST OF AiTNEXES 1. Organization Chart 2. Existing Telecommunications Facilities 3. Estimated Subscribers' Development to Long Distance & International Traffic Statistics Tariffs 6. Actual and Forecast Income Statements (including notes) 7. Actual and Forecast Balance Sheets (including notes) 8. Actual and Forecast Sources and Uses of Funds Statements Sensitivity Analysis of Cash Flow and Financial Rate of Return 10. Formula for Computation of Financial Rate of Return 11. The Project 12. Estimated Schedule of Disbursements of the Proposed IBRD Loan 13. Internal Financial Rate of Return Analysis Program 15. Construction Schedules Maps 1. Colombia Main Microwave Network (Geographical)- IBRD Colombia Main VHF Radio NIetwork after Redeployment - IBRD-3191

5 COI.CMBIA EMPRESA NALCIONAL DE TELECCIUNICACIONES (TELECCM) APPRAISAL OF THE S3COND TELECaOIVMUNICATIONS PROJECT SUMMARY AND CONCLUSIONS i. This report covers the appraisal of a project which forms about 83% of the Telecommunications Expansion Program of Empresa Nacional de Telecomunicaciones Colombia (TELECOM). A Bank loan of US$15 million is proposed. ii. The project costing US$32 million equivalent will provide for an additional 42,000 local service lines in areas of Colombia where little or no local service exists and for the expansion of the long distance network to alleviate present congestion and cover estimated demand until The estimated Intenaal Financial Return on the project would be about 29%. iii. All items in the project to be financed by the Bank would be imported and procured through international competitive bidding. A small amount of long distance equipment and some telex equipment would be prooured from existing suppliers for reasons of standardization, and cable and local network materials would be from domestic manufacturers; these items are outside Bank financing. iv. The proposed loan is the second lending operation in the Colombian telecommunications sector. The first, Loan 499-CO, was made in 1967 to provide the basic long distance network, some local service, and to improve international service. Owing to delays in building construction and late deliveries of equipment, the closing date of the loan has been postponed one year to December 31, The full amount of the loan which was for US$16 million has now been committed. The project is expected to be satisfactorily ccmpleted and the loan fully disbursed by the new closing date. V. After initial weaknesses TELECOM's organization is showing rapid improvement and the entity is capable of carrying out the proposed program. vi. TELECOM's financial position is satisfactory. TELECOM will provide from its internal cash generation about 36% of its approved investment requirements during the period 1971 through The annual rate of return on net fixed assets in operation during that period would be satisfactory. vii. The proposed project is a suitable basis for a loan of US$15 million, for a term of 20 years including a grace period of four years.

6 COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) APPRAISAL OF THE SECOND TELECOMMUNICATIONS PROJECT 1 INTRODUCTION 1.01 The Government of Colombia has requested Bank assistance in financing the program of expansion to be carried out by Empresa Nacional de Telecomunicaciones (TELECOM). The main object of the program is to provide local telephone service in some areas of Colombia where service is limited or non-existent, and to expand long distance communication facilities. The cost of the program is estimated at about US$39.5 million equivalent The proposed project, which foims about 83% of the program, provides for new local networks and the extension of long distance facilities, additional telex and miscellaneous equipment. The cost of the project is estimated at US$32.4 million equivalent, the foreign exchange content would be US$18.2 million of which the proposed Bank loan would be US$15.0 million An application for the loan together with TELECOM's expansion plan was received in April During June 1970 an appraisal mission comprising Messrs. A. M. Minton, J. G. Davis, J. Balkind visited Colombia to evaluate the Project. The mission together with Mr. P. Bassole subsequently visited Colombia again in July-August 1970 to complete the appraisal The telecommunication project would be the second in Colombia. The first one, financed by Loan 499-CO (US$16 million) and signed in June 1967, provided for the establishment ol a modern long distance network and for the expansion and improvement of local and international telephone, telegraph, and telex services. Owing to delays in building construction and late equipment deliveries there has been some delay in the original construction timetable and in the disbursement of the loan. The closing date of the loan has been postponed from December 31, 1970 to December 31, The full amount of the loan has been committed and both disbursement and construction are expected to be completed by the new closing date. The loan now proposed will enable TELECOM, to maintain continuity of development for which procurement action has to be initiated in early TELECO1g's management showed considerable weakness in the early stages of the project under Loan 499-CO but in the past year with the experience gained and with the aid of local and foreign consultants it has shown rapid progress.

7 The Economic Background 2. THE ECONOMY AND THE SECTOR 2.01 Colombia is a country of about 22 million people distributed in a number of distinct regions defined principally by mountain ranges. In the north and west, high mountain chains, in some places reaching heights of 5,000 meters, isolate the densely populated districts of the central region from the coast; the south eastern portion of the country is sparse:ly populated and extends into the Amazon jungle area. Half the population is urban, living in the centers of more than 10,000 people. Nearly a quarter live in the four leading cities of Bogota (2.1 million), Medellin (1 million), Cali (1 million), and Barranquilla (0.7 million), all of which are importarnt manufacturing centers. Population is growing very rapidly (3.3%) and urban population is growing 60-70% faster than the national average. Per capita income, at US$300, is still relatively low but in recent years has shown accelerating growth in the face of a national economic performance over the past decade which has been somewhat better than expected. The growth of GNP ifhich rose from around 5% in the early 1960's to over 7% by the end of the decade has been broadly based. Non-traditional exports (i.e. agricultural products other than coffee, plus manufacturing) have shown growth rates roughly three times that of the GNP. The encouraging growth of commodity production, internal trade, and non-traditional exports has been heavily dependent on the government's large and effective program of infrastructure investment, much of which has been directed towards tying together economic activities carried on in relatively self-contained regions. National integration, for example, has been a major objective in the Bank's own support for the road transport, electricity, and telecommunicationsectors in recent years The provision of adequate telecommunication services is an obvious requirement for an expanding economy, which requires a large volume of rapid, reliable communications to operate effectively. In comparison with transport and power, the telecommunication sector is relatively undeveloped, in the sense that it will require a period of relatively heavy "catching-up" investment, and of institution-building, over the next few years. The Telecommunication Sector 2.03 The telecommunication sector is under the control of the Ministry of Communications. Investment in the sector is coordinatsd within the national economic development plan by the National Planning Department (PLANiEACION). The responsibility for providing telecommunication services in Colombia is divided among many entities. Although the Government-owned TELECO[ exclusively provides domestic telegraphy, telex and long distance telephone services together with international services, no less than 60 entities, including TELECOM, are providing local telephone service. At the end of 1969, TELECOM had 21,000 local telephones in operation; this represented about 3% of the total for the country. Under the terms of its license TELECOM is allowed to operate local services and does so, with the approval of the Ministry of Communications, in areas where the municipality is unable to give service and requests TELECOM to provide the facilities.

8 2.04 At the present time Colombia has about 600,000 local telephone lines. Over 90% are automatic and one-third are located in Bogota. National long distance connections are provided over about 3,900 circuits of which one-half are operated automatically. International services are conducted over direct links by satellite, HF and VHF radio. A countrywide telegraph service is provided through 1,424 public offices, and a modern telex network provides service for about 2,500 subscribers. Details of existing facilities together with planned expansion targets to 1975 are given in Annexes 2 and The major problem of the telecommunication sector in Colombia is the fragmentation of the local telephone service. While a few large municipalities, which have created separate telephone entities, operate efficiently and give good service there are many others which oring to the small scale of operations cannot operate their services efficiently, let alone develop them. The proliferation of small entities results in the duplication of planning and in the complication of the technical integration and interconnection of the sector. Without adequate technical and financial backing operations are not effective. Furthenmore, the purchase of costly imported plant and equipment in small quantities results in higher prices and consequently, greater demand on the country's foreign exchange resources. If progress is therefore to be made in the sector further fragmentation must be prevented and action should be directed to achieving a reasonable degree of consolidation The ideal solution for the problems of the sector, which must be a long term objective, would be the consolidation of the many local operating entities into a single national telecommunication body. Present indications are that over the short period any sectoral rationalization will mainly be brought about by TELECOM since the large financially viable local operating entities are reluctant to merge with the smaller entities; furthermore with local and regional political influences still very strong any form of merger through legislation would in all probability be resisted On the assumption that sectoral integration will only be achieved through the purchase of the smaller local operating entities, it is estimated that between US$30 and 35 million would be required as compensation. TELECOM has included US$2.2 million in the program for such acquisitions. More recently, however, the Government, in approving increases in TELECOM's long distance telephone tariffs, specified that a part of the expected additional revenue (estimated at about US$3 million for the four years 1971 through 1974) should be set aside and used exclusively for local expansion including the purchase of local entities. TELECOM will also probably use a part of the remaining additional funds arising out of the tariff increase, estimated at about US$10 million, to acquire local entities. It would therefore appear that a significant start in sectoral reorganization will be seen during the next few years.

9 THE BORROWER Organization and Management 3.01 TELECOM is an autonomous entity which was established in It is governed by a Board of Directors comprising four members and four alternates. The Minister of Comnunications is ex-oficio Chadrman of the Board. The President of the Republic appoints all members of the Board and also the president of TELECOM, who is the entity's chief executive officer responsible for day-to-day operations. TELECOM's organization is divided into four divisions: Engineering, Operations, Financial, and Industrial Relations, each of which is headed by a vice-president who reports directly to the president. An organization chart is given in Annex Until recently TELECOM's organization and administration was weak in both technical and financial services but it is now showing rapid improvement. In 1968, TELECOM engaged financial consultants to improve general accounting, financial control, inventories, purchasing, credit collection and data processing. The first phase, partly financed by Loan 499-CO, is progressing satisfactorily and will be completed at the end of TELECOM proposes to continue with a second phase and the proposed loan provides for the financing of the necessary consulting services (see para. 4.02, ii). In 1970 TELECOM engaged technical consultants to improve the organization of its oporations division. This work, which is being financed by TELECOM, is still in its early stages. Recruitment and Training 3.03 TELECOMI has no difficulty in recruiting professional staff who come mainly from the universities. Technical and administrative staff are obtained chiefly from the Technical Institute of Electronics and Communications (ITEC) in Bogota. ITEC is a UNDP assisted vocational training institute for electronics and communications. Its courses on telecommunications, given by an international team of instructors, are made available to all entities dealing with telecommunications, including railways and meteorological services TELECOM's technical and operational staff are sent to ITEC for basic and refresher courses. The facilities are adequate to meet TELECOM's needs for the forthcoming expansion program. In addition, supervisory staff are sent abroad for training under arrangements made with suppliers and under bilateral assistance. Accounting and Audit 3.05 A number of serious accounting deficiencies were brought out in the audit of the 1967 accounts, the first to be submitted to independent audit. A subsequent in-depth investigation was carried out at the Bank's request under the direction of the auditors and was satisfactorily completed in May The 1968 and 1969 accounts have been audited and found correct.

10 The existing auditing arrangements which are satisfactory conform with the undertaking in loan 499-CO. Assurances have been obtained that the accounts lill continue to be audited by an independent auditor acceptable to the Bank. Existing Telecmmunication Facilities 3.07 A brief description of TELECOM's facilities at the end of 1969 is given below. Additional information is provided in Annex 2 and Maps 1 and 2. (a) Local Service As of December 31, 1969 TELECOM provided local exchange facilities in 373 tor-ans and smaller localities utilizing 13 automatic and 360 manual telephone exchanges with total capacities of 15,825 and 6,000 lines respectively. (b) Long Distance Service The domestic long distance service comprised of:- (i) Modern microwave systems (1,200 channel capacity) between the principal regional centers of Bogota, Cali, Medellin, Pereira and Bucaramanga (see Map 1). The number of currently installed channels on each of these routes is sufficient to meet traffic until early (ii) VHF routes linking other important centers. Many of these routes are congested, in particular the Medellin/ Barranquilla, Barranquilla/Cartagena, Bucaramanga/Cucuta links urgently require additional capacity. (iii) Open wire lines and HF connections operating between small localities. The service is poor and requires upgrading with modern systems. (c) Long Distance Switching At the end of 1969 TELECOM had 35 automatic long distance switching exchanges in operation. Orders have been placed under Loan 499-CO for a further 10 automatic and 80 manual exchanges, which will be installed by the end of (d) Telex and Telegraph Service TELECOM's fairly well developed domestic telex network, which was established in 1954, is of modern design, with dialling for both local and long distance calls. At the end of 1969 the 2,310 telex subscribers had access to 650 national and 45 international circuits through 39 automatic exchanges.

11 - 6 - The present total telex exchange capacity is 2,550 lines. TELECOM also operates an extensive domestic telegraph service through 1,424 public offices, many of which are located in small villages. 40% of the service is operated with teleprinters, the remainder by hand key. (e) International Service Tariffs International telephone, telegraph and telex services are provided through an earth satellite station inaugurated in I'arch 1970 or by means of HF radio. The satellite system provides high quality service through direct links k27 circuits in all) to Argentine, Brazil, Chile, Panama, Mexico, USA, West Germany and Spain. The HF radio stations which are located near Bogota have direct circuits to various cities in Europe, North and South America. The service via HF facilities has recently been improved by additional technical equipment Details of TELECOM's principal tariffs are given in Annex 5. Telephone installation fees, monthly rentals, and call charges are reasonable. In addition to a guarantee deposit of US$42 equivalent, new local subscribers are required to pay an investment deposit which varies between US$27 and US$64 equivalent per line. Investment deposits were introduced in 1969 to help finance the urgently needed local development. Both deposits are refundable when service is terminated. TELECOM's telex charges are reasonable Domestic tariffs are set by the Board of TELECOM subject to the approval of the Minister of Communications. Tariffs for international telephone, telex, and telegraph traffic and the related participations are established in agreements between TELECOM and foreign entities. The equivalent Colombian peso charges for international traffic, which are settled in dollars or gold francs are at present being reviewed bi-monthly and revised to take into account currency changes. This arrangement is satisfactory. Past Financial Performance 3.10 Statements of sources and application of funds for the period are given in Annex 8. During that period it is estimated that TELECOM will have increased its gross plant in operation from about Col$3 6 6 million to Col$911 million. 35% of newly constructed works will have been financed from internal sources, 39% from suppliers' credits, and 26% from IBRD Loan 499-CO TELECOM's audited income statements for the years 1967 through 1969 with estimated figures for 1970 and relative notes are given in Annex 6. Between 1967 and 1969 TELECOM's overall revenues increased by

12 - 7-76% to Co1$497 (US$26.9) million; part of the additional revenue arising from a 13% telephone tariff increase in August During the same period, mainly due to successive wage awards and higher social charges, operating expenses increased by 61% to Col$426 (US$23.0) million. Despite a slight improvement, the operating ratio was still poor, at 86, in 1969, reflecting in part the operation of the heavily staffed telegraph service taken over in 1965 at Government request Loan 499-C0 requires TELECOM to limit the net annual increases in staff during the present program to a maximum of 5% of the number of employees at the beginning of each year. This provision, which was satisfactorily complied with, will, with the agreement of TELECOM, be continued for the construction period of the new program Loan 499-CO requires TELECOM to achieve an annual rate of return of at least 9% on the net value of fixed assets in operation calculated on the current peso equivalent of the dollar value of the assets with a 10. rate of depreciation (see Annex 10). During the period 1967 through 1969 the annual average value of the Colombian peso to the dollar declined from 14.5 in 1967 to 17.3 in The tariff increase of August 1968 was implemented too late to prevent the annual rate of return falling slightly below 9% in The rates of return for 1967 and 1969 slightly exceeded 13% and 10% respectively TELECOM's debt service coverage by internal cash generation ranged between 1.9 times and 1.5 times during the past four years. has Present Financial Position 3.15 TELECOM's audited balance sheets for the years 1967 through 1969 with estimated figures for 1970 and relative notes are given in Annex 7. TELECOM's financial position as of December 31, 1969, was generally satisfactory. Current ratio was 1.1:1, cash position was adequate. Net assets, valued at historical cost, totalled Col$838 (US$45) million and consisted of net fixed assets in service Col$499 million, other fixed assets (mainly work in progress) Col$259 million non-current assets and investments Col$ 6 1 million and net current assets of Col$19 million. For rate making purposes TELECOM is required to value its net assets in service at their dollar value (see Annex 10). On this basis net fixed assets in service as of December 31, 1969, would have been Col$718 million, with a corresponding increase in the total equity figure.

13 3.16 TELECOM's capitalization as of December 31, 1969, was as follows: Col$ Col$ (million) (million) Equity and surplus Provisions Pensions 36.9 Other Subscribers' deposits 12.9 Long-term debt:- Bank loans 38.9 Suppliers' credit IBRD Loan 4 99-CO Fondo Nacional de Ahorro h Debt/equity ratio was 52/48. Salient features of the capitalization are given below Under a 1968 law dealing with severance pay, public entities such as TELECOM were required to pay to the Fondo Nacional de Ahorro (FNA), the new acdministering authority for severance pay, an assessed liability for the past service of their employees. As of December 31, 1969 TELECOM had a liability to FNA for employees severance pay totalling Col$123.7 million. TELECOM has been allowed by ministerial arrangement to retain the funds together with the contributions for 1969, 1970, and 1971 and an interest charge of 9% per annum until December 31, 1971 after which it must repay tne sum then due (estimated at Col$194 million) by seven equal annual instalments TELECOM has a non-contributory pension scheme for its employees. In the past TELECOM has adopted the practice of charging to operational expenses only the actual payments for pension allowances rather than an annual charge related to the salaries of the employees, covering a provision for their future retirement allowances. It has now been agreed that TELECOM will have an actuarialvaluation made of its pension liabilities by June 30, 1972 following which satisfactory arrangements will be made to provide for the ascertained liability. In the meantime a sum of Col$36.9 million has been provisionally set aside to meet the liability as at December 31, Provisions for future pensions will be retained within TELECOM and used for internal investment until such time as they are required.

14 At the end of 1969 TELECCM's current receivables totalled Col$127.0 million, equivalent to about four months revenue. In an effort to improve this position, TELECCM is following the consultants' recommendations and is accelerating billing; where there are direct contacts with the subscribers, collection procedures are being improved. However, the bulk of unpaid accounts relates to the Government, official bodies and local connecting entities, and Government action is required In 1969, the Government, with the concurrence of the Bank, agreed to settle its old arrears with TELECCM in four instalments terminating in January This arrangement is being carried out, however, there has been delay in the settlement of current accounts by a few Government departments. As of December 31, 1970 the National Post Office owed TELECOM an estimated Col$31 (US$1.7) million for services rendered in district offices operated jointly by the two entities during the three-year period 1968 through The Government agreed during negotiations that the arrears of the Post Office would be settled in accordance with arrangements satisfactory to the Bank and that future bills of the Post Office and other Government agencies would be maintained on a current basis A number of national connecting entities have not been promptly transferring to TELECOM the sums collected on the latter's behalf and in two extreme cases TELECOM had to set up its own collection organization in the areas concerned. During negotiations the Government agreed to use its best efforts to ensure that telephone operating entities make punctual payment of their debts to TELECOM.

15 THE PROGRAM AND THE PROJECT 4.01 In addition to the completion of the remaining works of the program, which includes construction financed by Loan 499-Co and some complementary items (see Annex 14), TELECCK has drawn up a further program of expansion for execution during the four-year period 1971 through Program 4.02 The new program, the total estimated cost of which is Col$731.6 (US$39.5) million, provides for:- (i) the expansion of the local telephone service, the provision of additional long distance facilities, and the extension of the telex network (see para for details); (ii) the Improvement to budgeting, costing and plant accounting through the employment of accounting consultants; (i;i) the acquisition in 1974 of about 8,000 lines being provided in various localities on the plain, north of Bogota. The regional development authority for the area, Corporacion Autonoma de la Sabana de Bogota (CAR), in accordance with its statutes, will carry out the construction works and then transfer the plant, at cost, to TELECUM for operation; (iv) the commencement of construction in 1974 of a microwave link between Colombia and Ecuador, and a national data transmission network. Other Investhment 4.03 During the period 1971 through 1974 TELECOM also expects:- (i) to purchase some small local systems from operating entities, which, because of financial difficulties, wish to sell their undertakings; (ii) (iii) to increase investment in INTELSAT as required for continuing participation; and to further develop its staff housing scheme under which loans for housing are made available to the staff at low rates of interest. The Project 4.04 The project for Bank financing comprises items 4.02 (i) and (ii) in TEIECOM's program of expansion. The full details of the project and the annual expenditure are given in Annex 11. A brief outline of the project is set out below. *Includes Co147.9 (us$0.4) million incurred in 1970.

16 (i) Local systems (a) the installation of about 42,000 lines of local exchange equipment, cable networks and subscribers' plant; (ii) Logdistance network (a) the construction of new microwave links on the Medellin/ Barranquilla/Cartagena and Bucaramanga/Cucuta/San Cristobal routes, presently served by VHF systems (see map 1); the expansion of the Bogota/La Cruz route by the addition of a microwave radio frequency channel; the establishment of 16 new VHF routes presently served by open wire lines (see map 2); the provision of about 620 supplementary voice frequency channels on the existing principal microwave and VHF routes; (b) the replacement of existing maritime radio plant at Buenaventura and Barranquilla with modern equipment, the installation of carrier equipment on open wire lines to give an additional 1,000 channels and of technical equipment on HF routes to improve transmission quality and facilities-, (c) the installation of three new trunk switching exchanges at Bogota, Cali and Medellin and the provision of toll ticketing facilities at Bucaramanga, Barrancabermeja, Bogota, Buenaventura, Cali, Cucuta, Ibague, l4anizales, liedellin and Pereira. (iii) Telex network The provision of 1,000 additional lines in the Bogota telex exchange and 1,000 new teleprinters. Cost of the Project 4.05 The costs of the project, totalling Col$599.1 (US$32.4) million are sunmarized below. % of total Col$ million US$ million Expend- Local Foreign Total Local Foreign Total iturfe Local telephone service l0.o4 31 Long distance netwfork Transmission equipment Switching equipment Telex o c Buildings 74.o0-74.oO 4.0o Sub-total 194F i Accounting consultants Contingencies:- for design changes for price changes , Total o7 lh

17 o6 The cost estimates are reasonable and adequate and are based on recent experience in Colombia. The costs of local and long distance switching plant, microwave and other radio links, and toll ticketing equipment have been estimated having regard to the prices included in recent contracts signed by the larger local operating entities and TELECCK with suppliers As telecormunication equipment costs are showing a downward trend, the contingency provision on foreign supplied equipment has been restricted to 3% to cover unforeseen design and engineering modifications. The local costs of the project have been based on current prices with a 3% contingency for design and engineering modifications and an annual 10% contingency for wage and price escalation; the latter is in line with the average price increases for labor and materials of the type to be used in the project. Amount of proposed Bazk loan 4.08 A loan of US$15 million is proposed for the financing of the items, all to be procured through international competitive bidding, listed below: Procurement Local systems US$ million exchang equipment 5.30 telephone sets Long distance network microwave links 2.23 multiplex, VHF & other equipment trunk exchanges 1.08 toll ticketing equipment Accounting Consultants 0.30 Contingencies 0.44 Total Items financed by the Bank loan will be procured by international competitive bidding. The additional radio channel on the existing Bogota/ La Cruz microwave route and the additional Lincompex and telex equipment are being procured from existing suppliers for standardization reasons; the cost of these items which is in line with interrational prices will be financed through suppliers' credit.

18 Certain goods such as cable ducts, poles, fittings which are manufactured locally will be procured by local bidding. Cables will be procured from the domestic manufacturers. These items are included in local currency costs and are outside Bank financing. Disbursement 4.11 The proposed Bank loan would be disbursed against CIF costs of imported equipment and the foreign costs of the consultants. Estimates of disbursements have been made according to the construction schedule and are shown in Annex Any unused balance of the loan should, after consultation with the Bank, be made available for the purchase of additional goods similar to those already procured under the loan. Project Execution 4.13 The construction schedule for the main items of the project are shown in Annex 15. No assistance from technical consultants will be required. Construction of the project will be carried out as follows:- (i) New microwave links, trunk switching plant, toll ticketing equipment, the large and meditum sized local exchanges, telex exchange extensions and the maritime radio plant will be installed by the suppliers with the help of TELECCI's staff. (ii) Additional microwave channel, multiplex equipment, HF equipment, construction of new VHF routes and redeployment of VHF radio equipment, carrier equipment on overhead lines, installation of small local exchanges, local cable works, subscribers telephone and telex plant will be installed by TELECCM since it already has experience in this work. (iii) Buildings, routes and ductwork will be constructed by local contractors under TELECOM t s supervision.

19 JUSTIFICATIONi 5.01 The project aims at meeting the demand for local exchange and long distance facilities in TELECOM's area of operations. It provides for the development of local services by expanding present exchanges and extending service to new areas, and the expansion of long distance and telex facilities. The components of the project are balanced and accord with correct development priorities in the sector. The project would make an important contribution to the economic development of Colombia by increasing the efficiency of operations in administrative, industrial and commercial activities. Demand (i) Local Telephone Service 5.o2 Of the 42,000 lines to be installed under the project about 24,000 lines have been allocated to some of the areas where TELECCI4 is already providing local service. The remaining 18,000 lines are to be installed in towns where there is no local service TELECCH had about 21,000 connected lines at the end of Since then it has carried out further local expansion and has also purchased t-he local networks of the North Santander Telephone Company, bringing the total number of connected lines to about 31,400. Unsatisfied waiting applications are about 3,500. In planning an increase of 24,000 lines up to the end of 1974, TELECCEI is providing for an annual growth rate of 12.3%; this is in line with the average growth rate of the automatic connected lines for the whole country (13%) TELECOIIs plans for the extension of its local systems to new areas of service have been guided by the population and economic importance of the areas concerned. NJew; telephone exchanges are being provided in about 200 localities having populations of between 5,000 and 30,000 with a total population of over two million. The capacities of exchanges for the new localities have been based on TELECQCIEs experience in towns of similar population and economic background in the country. Out of the 109 centers listed in Annex 3 the present density is, with the exceptions of 12 localities, higher than one telephone line per hundred of the population, without taking into account the planned expansion. The capacity planned by TELECQI for the new exchanges totals 18,000 lines, which will provide a density of less than one per hundred of population. Planned expansion is therefore conservative. (ii) Long Distance Service 5.05 Long distance traffic has been increasing at the rate of 25% per annum. This high rate of growth is expected to continue during the period of the program in part due to the high growth of local telephone

20 installations throughout the country and to the expected increase in subscriber dialling of long distance calls following the introduction of toll ticketing. The number of circuits has been worked out on a route-by-route examination of traffic trends. (iii) Telex 5.o6 The telex service is used mainly by large coamercial and industrial firms. The number of telex subscribers has been increasing at the rate of 8-9% per annum. International telex service has recently Improved with the additional facilities offered by the earth satellite station and this would stimulate the demand for telex facilities. In providing an additional 1,000 lines the project allows for an annual growrth of 10% in subscribers over the period Least-Cost Solution 5.07 TELECCMVs local exchange program consists of a large number of separate small works covering the conversion to automatic working of existing manual exchanges, the expansion of capacity in a large number of existing exchanges and the provision of automatic exchanges in new localities. The choice of automatic working for providing local service and for handling long distance telephone traffic provides a better service and represents the least-cost solution. For the expansion and extension of local exchanges, the least-cost solution depends entirely on correct ergineering design of the exchange systems. TELECcM is handling these satisfactorily. Internal Financial Rate of Return 5.o8 The internal financial rate of return on the project is estimated to be 29% (see Annex 13) at current tariffs. This gives a minimum measure of the project's substantial benefits to transportation and industry by way of increased efficiency. The rate of return was determined by equalizing the present values of expenditures and the incremental operating cash flows attributable to the project.

21 FINANCIqG PLAN AND FMIACCTA OUTLOOK Financing Plan 6.01 The capital investment and additional capital requirements for the four-year period and the sources from which they would be met are summarized below. Forecast statements of sources and application of funds are given in Annex 8. Requirements Col$ US$ % - millions) Program " (balance) Local networks - purchase INTELSAT investment Employees' housing scheme Provision for exchange depreciation Increase in working capital Sources Total requirements l, Internal Cash generation 1,2h0.2 Less:- debt uncommitted funds Pension and severance pay funds Collection of past due accounts Subscribers' deposits Borrowings: - IBRD - Loan 499-CO (balance) proposed loan C.A.R. - local loan Suppliers and other financing Total sources 1, In estimating the requirements for the construction works, provision has been made for price escalation in the local costs of the program (para. 4.07); escalation of operating costs during the period of the program has also been covered (para. 6.12). The foreign costs of the program and of debt service have been based on the rate of exchange as at

22 the time of appraisal (Col$18.5=U3$l), and no account has been taken in those figures of exchange depreciation, which since 1968, has been about 5-6% per annum. However, the financing plan includes a reasonable provision of Col$67 million as cover for any additional payments of debt service and foreign equipment should exchange depreciation continue at the present annual rate of 5-6/o A brief analysis of the sensitivity of TRIECCH's cash flcw to currency variation is given in Annex The recent tariff increases are expected to provide TELECOM with not less than Col$245 (US$13) million over and above that required from internal cash generation for the approved requirements of the four-year period 1971 through Since the decision to increase tariffs was only taken in December 1970 plans for the utilization of the new funds have not been finalized, nevertheless it is known that TELECC4 will now be able to acquire sooner than expected several of the larger local operating entities at present in financial difficulties and requesting take-over. To ensure that no interference is suffered by the Bank-financed project, detailed procedural arrangements for the take-over of local entities, including adequate consultation with the Bank, were agreed during negotiations. It was furthermore agreed that TELECOM would obtain the approval of the Bank before undertaking any capital expenditure additional to that included in the program if such additional capital expenditure during any one year would exceed Us$50O,0OO0 or 5 of the previous year's capital expenditure, whichever is the greater In November 1970, after consulting with the Bank, TELECOI agreed to purchase, at a cost of US$1.2 million the local networks of the Departmental entity of Norte Santander. Under the agreement TELECCM will repay the amount due to the entity and to suppliers (US$0.9 million) over the five-year period TELECOIM has agreed to take over the CAR network in 1974 at cost (see para. 4.02, iii). The terms of the purchase provide for TELECOM to take up from CAR a five-year 12% local currency loan of US$3.2 million equivalent for the cost of outside network and to assume the liability for the suppliers' credits on the exchange equipment estimated at US$1.5 million equivalent. 6.o6 TELECOM is arranging US$2.9 million by way of suppliers' credits towards the cost of the supplementary Bogota/La Cruz microwave channel, Lincompex HF equiprment and telex plant included in the program (see para. 4.04, (ii a & b and (iii)). A further US$ 3.2 million of suppliers' credit, most of which has already been contracted, will be usedi to finance the remaining works of the program (see para and Annex 14) Execution of a microwave link between Colombia and Ecuador and the national data transmission network (see para. 4.02, iv) is expected to

23 cormmence in As no detailed studies are yet available for these items they have not been considered at this time for Bank financing; however it has been assumed that TELECCI will arrange financing for US$1.8 million of the cost. Delay in the execution of this work would not interfere with the Bank-financed project The financing plan takes into account an estimated US$3.5 million equivalent from subscribers' deposits and an estimated US$4.6 million equivalent which would become available for internal investment from severance pay and pension funds (see paras and 3.18) and from the settlement of past due receivables Suppliers' credits have been included in the forecast at 8% per annum repayable over five years, these being the current terms obtainable by TEL3CoMI at the time of the appraisal. Future Operating Results 6.10 Forecast income statements to 1975 are given in Annex 6. Forecast operating results for the period of the program are summarized as follows: I (in millions of Col$)---- Total Operating Revenues , Total Operating Ecpenses ,058.3 Net Income Operating Ratio Rate of Return 18.8% 17.6% 18.8%o 19.9% 6.11 It is estimated that with the new tariffs and the introduction of the additional facilities which TELE'CQH is at present installing and those which will come into operation before the end of the program the overall revenue should more than double between 1970 and Telephone revenues which should increase by about 37% in 1971 are expected to show an average annual increase of 20-25% over the three remaining years of the program. With the increase in telephone facilities domestic telegraph revenue is expected to remain relatively static or even decline; provision has however been made for an annual 8% increase in international telegraph revenue. Telex revenue, which has been growing annually at between 20% and 24% durirg the past three years is forecast to show a 17% average annual increase It is envisaged that operating expenses (excluding depreciation) will show an overall annuial increase of about 20e. This would cover the cost of the annual wiage awards, (an increase of about 16% per annum during the last three years), higher social charges, additional staff requirements and other operating expenses arising out of expanded operations.

24 With a much higher total revenue TELECOM's operating ratio is expected to improve to about 75 in After 1971 a slight annual deterioration of the ratio to 78 in 1974 is anticipated, this being mainly due to the costs of additional operational staff required for the expansion of the networks The forecast of TELECCli s future performance as given in para has been drawn up using the rate of exchange as of August 1970 (Col$18.5=US$l). On this basis TELECCM is expected to have an average annual rate of return of about 18.8% during the period of the program. This would be highly satisfactory. However, a more realistic evaluation of TELECOM's performance for the period of the program should take into account possible currency depreciation (see para. 6.02); and a further calculation has therefore been made by following the rate of return formula, based on the dollar value of the assets, prescribed for Loan 499-co (see Annex 10), and, as agreed during negotiations, to be continued for the proposed loan. On this basis, assuming a 5.3% exchange depreciation, the rate of return would average about 15.1% per annum. A sensitivity analysis of TELECOMI s rate of return to currency variations using the covenant formula is given in Annex 9. Under Loan 499-Co TELECOM is required to have a rate of return of 9% per annum. However, this rate would be insufficient to generate the funds necessary for the new program and it was agreed during negotiations that a rate covenant of 11% per annum from 1971 would be required. Forecast Financial Position 6.15 Forecast balance sheets as of December 31, 1970 through 1975 and related notes are given in Annex 7. TELECCM's financial position is expected to remain satisfactory during the period of the program. Net plant in service should increase from Col$ 6 67 million in 1970 to Col$1,352 million in 197k. At the end of the program, debt/equity ratio would be 37/63. Cash position should be very satisfactory Under Loan 499-co TELECOM is required to obtain the approval of the Bank before undertaking any long-term debt unless its debt service in any future year is covered 1.7 times by the net revenues of the preceding fiscal year or a later 12-month period prior to the incurrence of the debt. TELECCVils debt service has been considerably increased by recent local and long distance expansion, the earth satellite station and the new severance pay requirements (para. 3.18) and the entity has repeatedly had to consult with the Bank under the covenant. A reduction of the debt service covenant requirement to 1.5 times, which would provide adequate safeguard, would reduce frequent requests for Bank approval for the incurrence of new debt. This change was agreed during negotiations.

25 RECGIMETDATIONS 7.01 During loan negotiations agreement was reached on the following principal points:- a) annual increases in personnel will continue to be restricted (para. 3.12); b) an actuarial valuation of TELECOMts liability for employees' pensions will be carried out and satisfactory arrangements made to meet the ascertained liability (para. 3.18); c) the rate of return will continue to be computed on the average value of net fixed assets in operation calculated on the current Colombian peso equivalent of the dollar value of the assets with a 4W rate of depreciation (para. 6.14); d) tariffs wiu be maintained at such a level which will provide an annual rate of return of at least eleven percent (11%) on the average net value of fixed assets in operation (para. 6.14); e) approval of the Bank will be sought before undertaking new debt if the maximum annual future debt service is not covered 1.5 times by net revenues of a 12-month period prior to the incurrence of new debt (para. 6.16); f) the approval of the Bank will be obtained during the execution of the program before any additional major capital expenditure or investment is incurred (para. 6.03); g) satisfactory arrangements will be made for the settlement of receivables due fram the Government and its agencies (para. 3.20); h) the Government will use its best efforts to insure that telephone operating entities shall make due and punctual payment of their debts to TELECOM (para. 3.21) The proposed project forms a suitable basis for a Bank loan of US$15 million for the term of 20 years including a four-year grace period. March 10, 1971

26 ANNEX 1 COLOMBIA ORGANIZATION OF EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) BOARD OF DIRECTORS PLUBLIC RELATIONS PRESIDENT LE GA L A DVI SOR DEPARTMENT GENERAL S ~~~~~~~ADMINISTRATIVE GENERAL SECRETARY l PLANNING OFFICE FIN LINDUSTRIAL RELATIONS ENGINEERING OPERATIONS 0 VICE-PRESIDENT VICE - PRESIDENT VICE-PRESIDENT VICE-PRESIDENT ACCOUNTING ADMINISTRATION OERATIONS ENING FINANCIAL INSPECTION INSTALLATIONS TELEGRAPH q TREASURY l q TRAINING ] PROCUREMENT ] COMMERCIAL ] SUPPLIES SOCIAL AFFAIRS MAINTENANCE CREDIT AND CREDIT AND COLLECTION ] SYSTEMATIZATION ~STANDARDS OF SERVICE AND ~PROMOTIONS WORKSHOPS BO GOTA BU CARAMAN GA CAR L IBAGUE MANIZALES MEDELLIN IBRD

27 ANNEX 2 Page 1 of 4 pages COLOMBIA EIPRESA NACIONAL DE TELECOYiUNICACIONES (TELECOM) Existing Telecommunications Facilities A. EMPRESA NAACTONAL DE TELECOMUNICACIONES (TELECOM) At the end of 1969 TELECOM facilities consisted of: 1. Local Service Automatic exchanges in service 13 Manual exchanges in service Capacity of exchanges: 360 automatic 15,825 manual 6,000 Total line capacity 21,825 Connecte direct exchange lines: 2. Long distance service automatic 15,034 manual 5,700 Total connected lines 20,734 The main long distance routes in Colombi are shown in maps IBRD 3142 and Links between Bogota and the regional centers are micrawave and from the regional centers a VHF network and open wire lines connect zone, group and local centers. As of December 31, 1969 a total of 3,870 long distance circuits connected 35 automatic exchanges and numerous small manual exchanges. About 1,000 circuits were microwave; 1,100 VHF and the remainder open wire; 2,100 circuits were operated automatically. The total number of circuit-kilometers was about 450,000. The microwave network had a length of 950 km and works were in progress to extend this by 640 km. 3. International service Prior to Harch 1970, all ±nternational traffic was handled by HF or VHF radio routes. Direct links have nowz been established via satellite to Argentine, Brazil, Chile, Panama, Mexico, USA, Germany and Spain.

28 ANNEX 2 Page 2 of 4 pages The present international connections are as follows: HF or VHF Radio Satellite Country Telephony Telegraphy Telephony Telegraphy Argentine Brazil Chile F.R. Germany Ecuador Mexico Panama Spain USA Venezuela Peru 4-4. Telex and Telegraph As of December 31, 1969, TvLMC01. had in operation 39 telex exchanges (regional centers 5, zone centers 31, and local centers 3) having a total capacity of 2,550 lines with access to 650 national long distance and 45 international telex channels. At the end of 1969 telegraph service was offered through 1,424 public offices, where 586 teleprinters were in operation. B. Local exchange facilities in the whole of Colombia 1. At the end of 1969, sixty-one operating entities (including TELECOM) were providing a total of 563,850 telephone lines, one-third of which were in Bogota. These entities are listed below. Empresa de Telefonos de Bogota Empresas Publicas de Medellin Empresas Municipales de Cali Empresa Municipal de Telefonos - Barranquilla Empresa Municipal de Telefoncs - Bucaramanga Empresas Publicas de Manizales Empresas Publicas de Pereira Compania Telefonica de Cartagena S.A. Empresa de Telefonos Dptales. Norte/Santander* Empresas Publicas Municipales - Palmira Empresas Publicas de Armenia Empresa Departamental de Telefonos Boyaca Empresas Publicas Municipales de Ibague Telefonica Municipal de Santa Marta Empresa Nacional de Telecomunicaciones Compania Telefonica del Huila S.A. *This company was purchased by TELECOMi as of January 1, 1971.

29 ANN1EX 2 Page 3 of 4 pages Empresas Municipales de Cartago Empresas Municipales de Girardot Empresa Dptal. de Telefonos de Narino Telefonica Municipal de Popayan Empresa Municipal de Telefonos Barrancabermeja Empresas Municipales de Buga Empresas Municipales de Tulua Empresas Departmentales de Antioquia Empresas Municipales de Calarca Planta Telefonica Departamental - Meta Empresa Telefonica de Bolivar Empresa Municipal de Telefonos de Armero Telefonica Municipal de Caicedonia Empresa Telefonica de Fusagasuga Empresa Municipal de Telefonos de Ipiales Empresa Municipal de Telefonos de Rio Sucio Compania Telefonica de San Gil S.A. Empresa Municipal de Telefonos del Socorro Empresas Publicas Municipales - Sta. Rosa Cabal Telefonica Municipal de Yarumal Bmpresas Publicas Municipales de Sevilla Telefonica Municipal - Espinal Telefonica Municipal de Zarzal Empresas Publicas Municipales de Honda Empresa Municipal de Telefonos de la Dorada Eapresa Telefonica Municipal de Salamina Empresa Municipal de Telefonos - Garzon Planta Telefonica de Valledupar Telefonica municipal de Aguadas Plaita Telefonica de Cienaga Telafonica Municipal de Mariquita Telelonica Municipal de Zipaquira Telefonica Municipal de Jerico Telefsnica Municipal de Florencia Telefonica Municipal de Chia Empresa Municipal de Telefonos de Riohacha Telefoaica Municipal de Roldanillo Telefonica IMunicipal de El Cerrito Empresa Municipal de Telefonos de Fundacion Telefonica Municipal de Cajica Telefonica Municipal de Guacari Telefoni4a Municipal de Tumaco Telefonica Municipal de Urrao Telefonica Municipal de Ginebra Telefonict Municipal de Yotoco 2. Annex 3 gi%es the details of telephone lines in each of the towns together with the related urban population and telephone density. A projection of these figures for 1975 is also given based on current plans.

30 ANNEX 2 Page 4 of 4 pages 3. At the end of 1969 the distribution of automatic exchanges according to size was as follows: Number of lines Number of centers Number of lines over 5,000 lines 11 L to 5,000 " 15 42, to 1, , to 500 " 36 13,450 0 to 100 " 24 1,6g0 Total The annual increase in connected automatic telephone lines and annual telephone density for the whole of the country from 1965 to 1969 is shown below: Number of Increase per Telephone Year lines year - Density , , , , , Although in the past two years the growth of connected lines has been hampered by the lack of new facilities, statistics provided by local operating entities to PIANEACION show that demand is still growing. Local operating entities expect to have one million automatic lines connected by the end of This signifies a growth rate of about 13% per annum. November 16, 1970

31 ANNEX I Page 1 of 3 pages COLCMBIA E'IPRESA iacional DE TELEOCIUNICACIONES (TELECCM) National Automatic Telephone Service Estimated Subscribers' Development to 1975 Number of Sub- Telephone Center Urban Population scriber Lines Density* ff 1. Bogota 2,1148,3873,105, , , Medellin 967,825 1,450, , , Cali 898,000 1,359,030 64, , Barranquilla 662, ,970 30,500 48, Bucaramanga 297, ,860 15,600 25, Manizales 260, ,960 15,500 25, Pereira 189, ,270 11,050 17, Cartagena 281, ,400 9,000 15, o6 9. Palmira 137, ,670 7,050 10, Armenia 168, ,370 6,000 11, Cucuta 194, ,330 5,800 10, Ibague 172, ,880 5,000 10, Santa Plarta 124, ,710 5,000 10, Girardot 101, ,760 5,000 7, Neiva 104, ,370 4,000 6, Cartago 69,527 90,230 3,900 5, Popayan 73,701 96,640 2,800 4, Pasto 100, ,430 2,800 4, Barrancabenreja 82, ,170 2,100 3, Buga 86, ,320 2,000 3, Tulua 73,152 98,870 2,000 3, L 22. Tunja 50,131 64,500 2,000 3, Villavicencio 65, ,510 1,500 3, Buenaventura 91, ,000 1,300 3, Sogamoso 49,777 73,000 1,250 2, M4onteria 106, ,330 1,000 4, Calarca 38,974 52,630 1,500 2, Fusagasuga 25,518 36,530 1,000 1, Riosucio 13,257 16,050 1,000 1, Ipiales 30,443 41,570 1,000 1, Duitama 54, ,950 1,000 2, San Gil 23,281 30,460 1,000 1, *Telephone Density - Number of lines (not telephones which is sometimes higher) per hundred population. Source: Planeacion.

32 AhMX 3 Page 2 of 3 pages Number of Sub- Telephone Center Urban Population scriber Lines DensitYw Caicedonia 19,186 23,220 1,000 1, Santa Rosa de Cabal 43,860 64, , Sevilla 31,645 38, , Espinal 31,931 47, l4o La Dorada 32,688 42,45o 700 1, Honda 21,662 23, San Andres 16,018 26, , Facatativa 24,436 29, , Garzon 15,872 22, Valledupar 79, , , Zipaquira 28,213 36, , Gcana 31,923 40, , Pamplona 30,166 36, , Chiquinquira 20,564 25, Quibdo 27,060 38, , Cienaga 61,622 83, , Florencia 23,822 33, Sincelejo 57,645 79, , magangue 32,694 40, Cerete 15,194 20, Chinchina 21,157 29,,440 1,000 1, Socorro 14,504 15,510 1,000 1, Axmero 21, ,210 1,000 1, Yarumal 20,236 25, , Zarzal 24,797 36, , Salamina 17,821 23, , Bolivar 11,280 13, , Pitalito 16,410 26, Mariquita 11,386 13) Andes 13,354 16, Aguadas 12,103 13s Jerico 9, , Chia 7,493 10, Riohacha 15,142 20, Sonson 20, , , Puerto Boyaca 10,895 13,010 4oo Cerrito 17, , Santander 14,195 20, *Telephone Density - Number of lines (not telephones which is sometimes higher) per hundred population. Source: Planeacion

33 ANNEX 3- Page 3 of 3 pages Number of Sub- Telephone Center Urban Population scriber Lines Density* Fundacion 18,848 26, Maicao 12,086 16, Guacari 8,428 15, Cajica 3,781 5, Corozal 76. Lorica 17,990 15,139 24,120 18, Tumaco 32,610 44, Mompos 11,726 12, Paipa 80. Pradera 4,332 14,158 6, , Florida 18,019 26, Ubate 7,542 9, Roldanillo 11,966 16, Leticia 5,335 7, Urrao 8,507 9, Neira 8,981 10, Bolivar 4,326 5, Garagoa 4,098 5, Istaina 4,603 5, Candelaria 7,958 12, Nelgar 5,247 8, Trujillo 7,671 8, Guateque 5,965 7, Ginebra 3,758 4, Belen 2,564 3, Boavita 2,203 2, El Cocuy 98. Miraflores 2,830 3,626 2,790 4, Moniquira 5,712 6, Ramiriqui 1,676 2, Sta. Rosa de V. 4,414 5, Soata 4,956 5, Bugalagrande 8,079 11, o Yotoco 2,084 3, Restrepo 5,919 7, o Riofrio 1,713 1, San Pedro 1,798 2, Andalucia 7,658 10, Darien 8,548 12, *Telephone Density - Number of lines (not telephones which is sometines Source: Planeacion. February 25, 1971 higher) per hundred population.

34 ANNEX 4 COLOMBIA EXPRESA NACI5NAL DE TELECOMUNICACIOKES (TELECOM) Long Dnstance and Tnterntional Traffic Statisti-c Table I - Telephone Traffic National International Manual ncrease Increase in Automatic Increase Increase in Manual Increase Increase in per year respect to per year respect to per year respect to Years Minutes 1965 % ImpuLses % % Minutes % ,134,3B6 _ - 75,312, , ,981, a.a 158,927, , ,602, ,953, , ,765, ,635, , ,504, c,7y5,6o , , Table II - Telegraph Traffic National International Increase Increase in Increase Increase in Increace Increase in per year respect to per year respect to per year respect to Years Words _1965 -Lit Mesages j % Words ,112, ,723, ,192 0.: o.8 9,480, ,937, , ,2l7, ,701,226 7.I 17.r7 387,433 -: ,925, ,061, ,297 G ,923, y Tatle III - Telex Traffic Nationa International Increase Increase in Increase Increase in per year respect to per year respect tc leers Impulses % 1965 minutes, ,184, , ,349, , ,931, , ,443, , ,237, , ource: Ministry af Co-einn-eation- November 16, 1970

35 ANNEX 5 Page 1 of 2 pages COLORIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) Tarrifs The undermentioned were the principal tariffs of TELECOM as of February 1,1971. Telephone - Local service Col$ (a) Subscribers' deposit (refundable) (i) Guarantee 800 (ii) Investment - automatic service 1,000-1,200 - manual, semi-auto (b) Installation fees 350 (c) Monthly rental - business 35 - residential 25 (d) Calls 10 per three minutes Telephone - Long distance service (a) Calls - manual and semi-automatic: - up to 40 kms 800 per minute (minimum call.3 mins) - 41 to 80 kras 1.70 "I "V - 81 to 150 kms 3.00 i t -151 to 220 kms 4.00 " " -221 to 300 kams 4.50 " " over 300 Ims 6.oo (b) Calls - automatic - up to 40 kms.750 per minute - 41 to 80 kms 1.50 It - 81 to 150 kms 2.50 " -151 to 220 Ioas 3.00 " " -221 to 300 kms 3.75 " " over 300 hms 5.00 " " Telephone - International - minimum charge of three minutes with a minute charge for each minute or fraction of a minute in excess. - the following were the charges per minute to the countries stated. Col$ Col$ Spain USA (N.Y.) Brazil Australia Argentina Mexico 47.38

36 ANNEX 5 Page 2 of 2 pages Telegraph (a) Domestic (b) between two cities within the same city International 200 per word 100 per word Col$ Col$ Spain USA 8.52 Brazil Australia Argentina Mexico 5.50 Telex (a) Domestic CO1$ Local - three minutes.90 Between adjacent regions 3.70 per minute Between non-adjacent regions 4.50 " (b) International - the following were the charges per word to the countries stated:- - minimum charge of three minutes with a minute charge for each minute or fraction of a minute in excess - the folloving were the charges per minute to the countries stated:- Col$ Col$ Spain USA Brazil Australia Argentina Mexico February 25, 1971

37 COLOMBIA EMPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) Statement of Actual Income ( )arid Forecast Income ( ) (in millions of Colombian pesos) A c t u a I1 --- F o r e c a s t Year ending December REVENUE Telephorne , ,268.5 Telegraph Telex L Other Total Operating RLevenue , l , ,591.5 EXPENSES Wages, social benefits, etc ,011.0 Other operating expenses o Depreciation { Total Operating Expenses , ,249.2 NET INCOME - before interest oll0'i Less:- Interest ,.4 _ - Interest charged to constr _8 _ :1 Other income (non-operatirng) NET INCOME FOR YEAR ,1 Operating ratios Average net plant *n service] , , ,478S.1 1,685.3 Rate of returns 13. 1% 8.7% 10.2% 11.7% % 18.8% 19,% 20.5'% Ratio R of total operating expenses to total operating revenue. The average net plant in service and rate of return have been calculated on the basis of the Loan 499-co formula (see Annex 10). Currency changes from 1967 through 1969 have a a _been taken into account, however for the period 1970 through 1975 tne currency parity of Col$18.5=US$1 has been assumod, this being the rate of exchange at the time of the O appraisal. February 25, 1971

38 COLOMBIA hmpresa NACIONAL DE TELECOMUNICACIONES (TELECOM) STATEMENT OF ACTUAL OPERATING REVENUE ( ) AND FORECAST OPERATING REVENUE ( ) (in millions of Colombian pesos) A CT U AL F OPBE C A S T Year ending December 31: C F TELEPHONE National Urban Installation Fees Rental , ,9 6,3 10, Interurban and Urban Calls o.o , ,274.0 Less: Participations ,003.0 International Outgoing 12, S8.o Less: Participations o o o Incoming (net) , Lease of E.Satellite Channels - - 8, Other telephone revenue , TELFGRAPH TOTAL 205, , ,268.5 National International Outgoing ,o Less: Participations o o Incoming (net) , o 36.o TELEX TOTAL o o National o International Outgoing o ,o o Less: Participations , o.o o o Incoming (net) - 4,8-6,S o 41.0 Rents 7' Other telex revenue 0.1 _ _ TOTAL o 61.o OTHER REVENUE ,o TOTAL OPERATING REVENUJE lio.4 497L , , , , o February 25, 1971a

39 ANNEX 6 Page 3 of 4 pages 1. Operating Revenue COLOMBIA EMPRESA NACIOINAL DE TELECOMUNICACIONES (TELECOM) (i) Telephone revenue Notes on the Income Statements (a) Installation fees have been forecast on the basis of the estimated number of telephones to be installed by TELECOM during each year. (b) Rental and Urban calls have been forecast on the basis of the estimated average number of telephones in operation during each year. (c) National and international call revenue estimates allow for the following annual increases: National 21% 37% 20% 25% 25% 20% International 100% 35% 30% 28% 30% 30% National long distance call charges were increased between 15.7% and 19.7% as from January 1, The additional revenue arising out of these changes is reflected in the projections of national call reve.nue. The high increase in 1970 international call revenue reflects the introduction of the earth satellite station. (d) Lease of earth satellite channels relates to the contract signed between TELECOM and ENTEL of Ecuador. (ii) Telegraph revenue (a) Since national telegraph traffic decreased in 1967 and 1968 and only showed an increased of 0.9% in 1969 (see Annex 3), no provision has been made in the projections for any increase in national telegraph revenues. (b) International telegraph revenues have been assumed to increase at an average annual rate of 8% after 1970.

40 ANNEX 6 Page 4 f 4 pages (iii) Telex revenue National and international telex revenue estimates allow for the following annual increases: h 1975 National 10% 15% 10% 10% 10% 10% International 36% 36% 20% 22% 20% 20% (iv) Other Revenue This item includes income from services to the National Post Office, rents, directory income, sales, etc. 2. Operating Expenses (i) Wages, social benefits, etc. The forecasts provide for an annual 16% increase in wages with related increased social charges, the cost of additional staff for TELECOM's expanded operations and higher provisions for pension liabilities. (ii) Other operating expenses have been reviewed on an individual basis. (iii) Depreciation has been calculated at an average rate of about 5$ on annual gross fixed assets in operation. This is in line with TELECOM's present depreciation rates as charged in its accounts. 3. Interest For the purpose of calculating the Financial Rate of Return under the Loan Agreement, a rate of 47% is used (see Annex 10). In 1971 the interest charged to construction relates to loan 499-CO. After 1971 all interest will be charged against income. February 25, 1971

41 tf,..1.1 KIE D TELE COYR!-U I,s! - 1 -F!, r,i;; F-d~~~~~~~~~~~~~~~~~~~~~- A 7 u B C t.id 3 l :r-m l,t, - 15 J7 c ±2_ ' 'rosr Tfa,ib SJ>4. 5tv4. 7 '7 4,4 9 1, ,24.4 l3r- r;p1 1 32''1 7t]0r -r6.5 11;. <. tl.-:, I t E. t il.'.c. T77 2sD1.8 ; n7j(,/ 5b0.3 1,351.9 l,5hs. 4L,i 3,,; ',, yz,, 1 ),157I., 1 - c -, ,02, :..4 *ZC,T I1,CC. G.2< ~. I t3t33..,t '' 6,.t _ uc..6? t.1Ž. Lt/.JY. },;L' 1.5 :.3 1,'325. tl:. r r.13e,'t' J. o r,, 4; L.. P-h 1 ~ '8' I *P 296._ (r. :....to >- rrenivatl. )-, ve l.j 13i.. 4.L or,'.3l,. '.1.,.,. K II ', O 4O, v 4 S Tot or-. 13 I 36.' 'I 24;. (a I[ 40.L0o : u9 nt3 I-aLIIIF.e ' " 3ll'/.3 11y.5.l'-, ,. 323,' or t0' ' c 1 ct lu.r-n -. o 3_ 1.'3 _z 6 _ 7q.4 _ q4., I, 6.TAT rr 4s5, ,4. : , ,338 LIABILlI=C Iq '2y t4,1. i 33'i i 781.) 2.3c. 1,232.3 M 9t ome2,ir. cc 4'3.t b.. in , Y 7-23.m 1,?32.1 1, !3linS 1 ci CI ' o es>z ott rcvolovis _ cnr 6.'373 i 47o. 51. D o ub's cdpl-itp e' To-p-t.erm dobt:- B-ok I ). 38., 46.4 : ,5 0.9 Suppliers' -rsdol r ( 111.' i4.0 11G i v 1 ln22z _ C.h.F IBRD yo-Co S.5 i5.5 13o. 'o.9r3. 372, J TBRDT p-p-d.lot, ,5 21' FtitreI.,r, - _ - _ - _ 10.0 Fondo Na;i-ll de 1-1,. 1^3. 1> l , 83._ SS.3 :00 3l.or.c-ter) lilt 5. ^J 3 R 4<5.r3 498,9 537.i 3L,.: o-1 L!,,L4, t 'L.T] 2,11121.:. 1,, >.t Eq, fiti: '4:, 45:5i o'' S.:4o2 5 o 4.:- 43:47 38:62 37:6h 30:70 Curreno..t 33ati.l:l : L.4:1 1c7: 7.2:1 <.3:1 1/.r--r-.I 3.r. 64 ba Its cese<ve. 2elIa,, 12

42 ANNEX 7 Page 2 of h pages COLOMBIA 2MPRESA NACIONAL DE TELECOMUNICACIONES (TELECOM) Notes on the Balance Sheets 1. Fixed Assets ti) Depreciation reserve in 1968 was adjusted by TELECOM to correct for previous over-depreciation- (ii) lwork-in-progress as of December 31, 1970 through 1975 has been assumed to be equal to 50% of the sum total of the work in progress brought forward plus the gross capital construction for the year. (iii) Provision for increased construction materials in store transit has been made in 1971 and and in 2. Other Assets The analysis of this item for the period 1969 through 1975 is given below: = (Col$ =illioi7t (i) Investments (ii) Local network development fund (iii) Accounts Receivable 38.44* (iv) Employees' housing loans (v) Deferred charges Total (i) No change has been forecast for investments. (ii) TELECOM is required to set aside for the purpose of developing local networks, a part (equivalent to the net revenues arising from a 6% increase in the charges for manual and semi-automatic calls) of the additional revenues arising from the January 1, 1971 tariff increase. Given the time required to value, take over, and absorb local networks, and having regard to TELECOM' s current plans for the development of local networks which will be financed from its other resources, it has been assumed in the projections that until 1974 the fund will be allowed to accumulate. * After deduction of Bad Debts reserve Col$5.0 million.

43 ANNEX 7 Page 3 of 4 pages (iii) Accounts receivables, which are non-current, are owed by the Government and National Post Office; settlement of these debts will be made by instalments in accordance with an agreed timetable terminating in December 31, (iv) Employees housing loans are expected to increase as follows: (Coolillion) (v) Deferred charges are to be written off by Current Assets (i) Accounts receivable projections assume that TELECOM will show a reasonable improvement in its outstanding receivables taking into account increased revenue. (ii) Other current assets consist of inventories, advances and prepaid charges. (a) Only a small increase in operating inventories has been forecast during the period of the program. TELECOM is at present reviewing its stores operations and following the implementation of the consultants' recoimmendations economies in stock levels are to be expected. (b) Advances and prepaid charges have been increased to cover downpayments for equipment which will occur during the construction program. (iii) Current liabilities have been increased to take into account TELECOM's additional activities. 4. Equity Equity figures were adjusted in the 1968 and 1969 accounts for reclassifications and corrections, which mainly arose out of the audit of the 1967 accounts (see para. 3.05). 5. Provisions The 1967 provisions of Col$65.3 million consisted of Col$25.9 million for self-insurance and Col$39.4 for severance pay. The selfinsurance provision was closed in 1968 following rearrangement of insurance cover to meet the requirements of the Loan 499-CO. Severance pay provision was transferred to long-term debt in 1968 when TELECOM's liability for severance pay was assessed. Other provisions in 1968, 1969 and 1970 relate to loss of e;change. 6. Subscribers' deposits The estimates take into account the income from guarantee and investment deposits (see Tariffs in Annex 5) received from new local subscribers.

44 ANNEX 7 Page 4 of 4 pages COLOIflBIA S21P.XSA 'ACIOliAL DE T LUCxIUAICAQIQhES (TZLECcu) Long Term Debts to Suppliers as of December 31, 1969 Contract No. Name of S pplier Col0 Col$ Foreign Currency 3288 Cia. Ericsson Ltda t " " If it if Held Cia. Ltda Intercambio Colombo Japones Mitsui / h48 " " " " 1.1 2h48/2 " " " " Radio Cer.tro (Autophon A.G. de Soleure Suiza) " Siemens Colombiana S.A It it ii it " o f it n " t General Telephone Cia. Intnl I.T.T. Space Cozmilunications 38.1 Bonds Inversiones Sudamericana S.A. Caracas 5.0 Local Currenc 110.y(US$61n Intendencia Nat. de S. Andres 0.7 Total November 17, 1970

45 ANNEX 8 COLOMBIA EMPRESA EACIONAL DE TELECOMUNICACIONES (TELECOM) Statement of Sources snd Asplication of Ftnds kon millions of Colombian poesos) Actual Pore.ac Year enditg December SOURCES OF FN IDS Internsl ceol g-neration Net income before interest Depreciation 48.i ?9.o Total internal cash goneratio- 86, lo o o i52.5 Don-tion- and ctn,ribotioss ' Subscribers' depo-it ' C Borrowins: - Bank lonsn Suppliers' credi-c o.5 16.i I.3 io6.5 Local loan - C.A I IBRD Loan 499-_C 5.5 So.: BRD proposed loa Future loan Total borrowings L ? T ncreane (decrenso) in provionn/reserves (8.2) 31.>) r T1OTAL SIJRCES OF FUNDS _ 81.1 APPLTCATiCN OF EUIXDE Capital contructio C Progrca ,, Frogma Local retw. rka - purch-se _ - _ o IPTELSPT inc-t-nt ,9 2,9 Future progra-- 7- _ T1tal conctraction s Pthrr Invotnento (4.6) (2.5, (29.0) Debt -or1oce - amortioatior. Bon bonn Suppli-r' crelit 'ocal boo - _.t.y IERD Lans 499-Co IBRD proposed loan Fonda Nacioaal do Ahdoro l wz. y 4.1~ _ Dobt sorvi -c - on-erest Bark loan e ) ' Suppliors' cr-dita Lo^elloen-7.5_Y. P IBSD Loan 499-co IBPD proosned loo Fordo Naciconl di Ahorro =9.g :+t9 77, J +.9+ F51.2 T,oal debt norvoce ' 77, 3S < 17~5D657.3 In-rease ( iecoeane) in: - Cash (15.1) c1.c 6- Othlr o-c-rt -tonla cod lai4llioie ,) L ) mi r4. ' S 92r.3 TOTAL APPLICATION D? FJNDS ~ , '85 1 Debt so-vice torerage ? ,9 o Net after oapitliled int-ront + Inclusive o' -apitalized iote-est Febr-ary 25, 1971

46 ANNEX 9 Page 1 of 2 pages COLC3BIA EMPRESA NACIONAL DE TELECOMUNICACIXTES (TELECCM) Sensitivity of Cash Flow and Financial Rate of Return To Currency Variations 1. Over the past three years the average annual rate of exchange of the Co'ombian peso to the dollar has declined from Col$14.5 in 1967 to Col$17.3 in Exchange depreciation in 1969 was about 5.3%. In August 1970, the rate of exchange was Col$18.5. The following analysis shows the sensitivity of TELECGI's cash flow and financial rate of return to variations in exchange rates, on the basis of the Loan 499-CO rate of return formula (see Annex 10). 2. Cash Flow TEIECaL's cash flow for the program will be mainly sensitive to currency variations through the amounts required for foreign debt service, and to a lesser degree through down payments to suppliers. The table below shows TELECOI's foreign debt service for the period 1971 through 1974, as included in the forecasts i.e. using a rate of exchange, Col$18.5=US$1, and on the basis of rates of exchange which allow for an exchange depreciation of 5.3% per annum. Foreign Foreign Rl/Exchange Foreign Debt R/Exchange Debt with 5.3 p.a. Debt Service Col$18.5 Service Depreciation Service Year US* US$1 Col$ m Col$ = US$1 Col$ m h o Total Total The figures show that should the rate of exchange of the peso to the dollar continue to depreciate over the period of the program at the same rate as in 1969, additional requirements for debt service would amount to about Col$54 million. Down payments to suppliers would require a further Col$3 million. The additional Col$67 million provision in the financial plan would be sufficient to cover up to about a 6% annual exchange depreciation.

47 ANIE X 9 Page 2 of 2 pages 3. Rate of Return TELEC4 's financial performance is measured by the ratio of net income, before interest, to average net assets in service, the value of fixed assets and depreciation being calculated on a dollar basis and converted at the current peso equivalent (see Annex 10). The tables below show TELEC0IUs estinated depreciation, net asset values and rates of return for the period 1971 through 1974 on the basis of a rate of exchange, Col$18.5 =US$1, and on the basis of rates of exchange which allmw for an exchange depreciation of 5.3%, per annumn (i) Depreciation Rate of exchange Col$=US$ Depreciation Co01 million Rate of exchange Col$=US$ Depreciation Col$ million (ii) Iet Assets in Service Rate of exchange Col$-US$ Net assets Col$ million , , ,478.1 Rate of exchange Col$=US$ Net assets Col$ million 1, , , ,881.8 (iii) Rate of Return Rate of exchange Col$=US$ Rate of return 18.8%o 17.6% 18.8p 19.9% Rate of exchange Co1$=JS$ Rate of return 16.9% 14.6% 14.5%o 14-3Ho The figures shao that shlould exchange depreciation continue at the same rate as in 1969, TEICOM's rate of return would average about 15.1% per annum for the period of the program as compared with the average of 18.8%O calculated in the forecasts. February 25, 1971

48 COLOMBIA EMPRESA MACIONAL DE TEIECOMNUNICACIONES (TELECOM) Formula for Cbmputation of Financial Rate of Return ANNEX The rate of return will be computed annually by relating the Empresa's net operating income for the year in question to the average value of the net fixed assets in operation. 2. For the purpose of this computation: (a) The valuation of gross fixed assets in operation and of accumulated depreciation will be determined as explained in paragraph 3 below. (b) The "net fixed assets in operation" means the gross value of the fixed assets in operation less the accumulated depreciation thereon. The "average value" of the net fixed assets in operation will be determined by adding the value of the net fixed assets in operation at the beginning of the year to the value of the net fixed assets in operation at the end of the year and dividing the total by two. (c) The "net operating income" shall be determined by subtracting from total operating revenues all operating and administrative expenses, including taxes (if any) and adequate provisions for maintenance; provision for depreciation should be included at a notional hog rate on the dollar value of fixed assets in operation, converted into pesos at the average exchange rate during the year. 3. For purposes of computing future values of net fixed assets in operation as basis for our rate commitments, the dollar value of gross fixed assets in operation and the depreciation reserve will be recorded in memorandum accounts which will be made up as follows: (a) to the agreed value of gross fixed assets as at December 31, 1969 will be added each year a sum representing the annual amount of new plant commissioned translated into dollars at the average exchange rate during the year, subject to a deduction of an amount for retirement of assets during the year; (b) to the agreed dollar value of depreciation reserve will be added each year a sum representing the annual provision for depreciation calculated at 41a of the dollar value of the average gross fixed assets in operation; appropriate adjustment will be made to reflect retirement of assets during the year. 4. For purposes of the rate covenant the dollar value of the net fixed assets in operation will be averaged and converted to pesos at the average exchange rate during the year. November 30, 1970

49 ANEX 11 Page 1 of 4 pages C01BIA E4PRESA NACIONIAL DE TEEECOTNWICACIONES (TELEC04)- The Project A. Local Services 1. TF,ECQI plans to install 42,000 local automatic lines during the period of the project automatic exchanges, each having capacities of more than 200 lines, and totalling 22,750 lines, are to be installed in the following localities according to the timetable mentioned: (a) 1972 Malaga Cerete San Martin Velez Planetarica Tocaima Sahagun Villeta El Guamo Lorica Neira Chaparral Sabanalarga (b) 1973 Cunday Purificacion Ataco Ortega Cienaga de Oro Fresno Natagaima Venadillo Ayapel Cajamarca Cucuta (c) 1974 San Antero Tierralta Ocana Iliomil Pueblo NTuevo Pamplona Chinu N-ionte Libano 3. In addition, between 1972 and 1974, ELCQI proposes to install 54 automatic exchanges of capacities up to 200 lines, and 186 automatic exchanges of capacities up to 50 lines, in 240 small localities where the population ranges from 5,000 to 30,000 inhabitants. The total number of lines covering these areas would be 19, The project includes the purchase of 43,000 telephone sets and PBX equipment. - B. Long Distance Service 1. The long distance routes which are included in the project are shown in the maps 1 and 2. At present Barranquilla is the only regional center not linked to the capital, Bogota, by a microwave route. The

50 AmNES 11 Page 2 of 4 pages project fills this gap by extending the present microwave system from Iviedellin to Barranquilla. Other new microwave links are Medellin/Cartagena and Bucaramanga/Cucuta/San Cristobal. The latter will provide additional facilitigs for connecting the national networks of Colombia and Venezuela. The others will also provide for television transmission between Barranquilla/ Cartagena and iiedellin/bogota. 2. The project provides for the installation of a supplementary microwave radio frequency channel on the present Bogata-La Cruz route which is congested. 3. The number of voice frequency circuits to be provided by the installation of additional multiplex equipment on the main routes is shown below: No. of Circuits Route Additional Bogata-Barranquilla Bogota-Cali Bogota-Bucaramanga Bogota-Pereira Cali-Bucaramanga Cali-Barranquilla I4iedellin-Pereira Nedellin-Barranquilla Barranquilla-Cartagena Bogota-IMIedellin Bucaramanga-Cucuta Total 876 l, These circuits represent only the extensions on the microwave routes. The additional number of circuits required up to 1974 shows an annual increase of 20% per year. This takes into account higher efficiency of utilization through larger blocks of circuits. 4. A number of HF routes will be equipped with technical equipment (LIl\ICOMPEX) to improve transmission quality. This equipment will be purchased from the supplier of the original equipment and will be financed by suppliers' credit. 5. Extensions to the V-F network have been planned in the undermentioned routes. Santa Marta-Maicao Bucaramanga-Velez Santa Marta-Cienaga 1 Iariouita-Armero Valledupar-Codazzi lariquita-dorada Sincelejo-Corozal liariquita-honda Bucaramanga-Malaga Mariquita-Libano Bucaramanga- San Gil Cali-Buga San Gil-Socorro Cucuta-Tibu Cali-Buenaventura Cucuta-Arauca

51 ANMEX 11 Page 3 of 4 pages The equipment will be provided by new purchases and plant withdrawn from present VHF routes which are to be equipped with microwave system. 6. Some minor routes having open wire lines will be equipped with an additional 1,068 channels of carrier equipment. This will replace obsolete plant and generally improve service in the small localities concerned. 7. To provide for the large increase in automatie traffic three new automatic trunk exchanges will be constructed in Bogota, Medellin and Cali for handling outgoing traffic. The existing exchanges will deal with all manual and automatic incoming traffic. 8. Under agreement with the local operating entities TELECOM will introduce toll ticketing equipment for about 450,000 subscribers in the cities of Bogota, Medellin, Cali, Pereira, Bucaramanga, Buenaventura, Cucuta, Manizales, Ibague and Barrncabermeja. At present subscribers dialled trunk calls are registered on the same meter together with the local calls; this arrangement is not widely accepted by Colombian subscribers and has held back the use of the Subscribers Trunk Dialling (STD) service. Toll ticketing will automatically provide a print of the long distance calls made by a subscriber and will remedy present difficulties. TELECCM already has one such installation on order for Barranquilla under Loan 4;99-co. C. Telex Service TELECCM will increase its telex facilities throughout the country by 1,000 lines and purchase an additional 1,000 new teleprinters. D. Maritime Radio The present equipment in the two maritime radio stations of Buenaventura and Barranquilla is obsolete and does not comply with the international agreements. T3LECOM proposes to purchase modern equipment comprising six transmitters and six receivers for single side band operation together with the related aerials, switchboard, accessories and power supply equipment. E. Consultants TELECOM intends to seek the aid of consultants to recommend and assist in the implementing improvements of its budgeting, costing and plant accounting. A sum of US$300,000 has been included in the project for this purpose.

52 COLOMBIA E5PRESA NACIONAL LE TELECOMUNICAIOI'IES (TELECom) Telecsnnication ll-lrc3eat _ (in millions ot Col ) To t1al C ost s _ Foeign Foreign ITEMS LTocal Foreign Total Local Fore-gn Total Local Foreign Totel Local Foreign ltotal Local Foreign Total Local Bank Others Total A. LOCAL SYSTEMS 1. Exchanges _ i * 2. Exteenal plant = Subs-ribe- plan, 2.12 _ O L i5, * 73 6Z B. LONG DISTANCF NETWORK 1. Microwave _ o t '74 2. Multiplex equiprent _ , VHF & O.H. carrier New tr-nk exchanges il ? Toll ticketing equipment _ - - 3,04 3.o ' C. Maritime radio _ o o ,81 1.el o8 * 7. Other equipment ] _ 0.0* , T x C. TELEX (37 3 TO a D. BUILDINGS 1. Local systems _ C _ Lonkg distance network, Y _ (.35 _ /-9 - (.90 L _ oo E. CONSULTANTS I C ) F. CONTINGENCIES 1. for designf changes _ 0, tl 2. for price changes _, _ T; b TOTAL' - _ _ *Items not financed by Bank loan. January 18, 1971

53 ANNEX 12 COLaIBIA EMPRESA NACIONIAL DE TELECOWMUICACIONES (TELECOM) Estimated Schedule of Disbursements of Proposed IBRD Loan -.. am. Cumulative Disbursement Fiscal Year kparter at end of quarter (Us$;000) 1971/72 September 30, December 31, March 31, June 30, , /73 September 30, ,950 December 31, ,200 March 31, ,550 June 30, , /74 September 30, ,250 December 31, ,600 March 31, ,050 June 30, , /75 September 30, ,950 December 31, ,1400 March 31, ,700 June 30, ,000 February 25, 1971

54 ANNEX 13 COMMIBIA EIPRESA NACIONAL DE TELECCIUNICACIONES (TEIZXCN) Internal Financial Rate of Return of the Project 1. The table below presents the cash flow of the investment for 20 years (the estimated life of the project) on the basis of 1970 prices. Operating revenues and expenses for the project commence in (1) (2) (3) (4) Attributable Total Cash Capital Cash Operating Outlay Attributable Year No. Expenditure Expenses -(1)+(Q Revenue (in millions of Col$) , The calculation shows that the increased revenue from the new investment would yield a rate of return of about 29% using 1970 prices. 3. A sensitivity analysis of the internal financial rate of return to four different assumptions is given below:- Test 1: The construction period is extended 251 (five years instead of four), the construction cost is increased 15l%, the increased cost being allocated over the construction period. Benefits are also delayed by the same duration as the construction. The rate of return falls to about 26%. Test 2: A 5% decrease in benefits is assumed. The rate of return falls to 23%. Test 3: A 5,O increase in benefits would raise the rate of return to 34%. The rate of return is increased to 34%. Test 4: Exchange rate is assumed to fall by 5.3% per annum (the rate of 1969) for the construction period. The rate of return falls to 27%. I/ Includes Col$8.0 million for larnd purchased in December February 25, 1971

55 ANNEX 14 COLCMBIA E1-IPR2SA NACIONAL DE TELECCUNICACIONES (TELECCM) Program A. Outstanding Works as at July 30, Bank financed project (Loan 499-CO) T-1$.~ 71ilioilT Local and long distance facilities Complementary works (i) Lines and cables (ii) Switching (iii) Transmission (iv) Telex and telegraph (v) Buildings and civil works (vi) Electrical plant and air conditioning (vii) Furniture and fittings (viii) Iiiscellaneous Earth satellite station (balance) Valle (local exchange) project _ B. Additions to Program since July Norte Santander local network - purchase TOTAL FebruarY 25, 1971

56 COLOMBIA TELECOMMUNICATION DEVELOPMENT PROGRAM CONSTRUCTION SCHEDULE OF THE LONG DISTANCE AND LOCAL NETWORKS FOR TRAN SM I SSI(ON MARITIME RADIO DESIGN JF MAMJ J A S O N D J FM AMJJ AS ON DJ F MA MJ J ASO ND J FMA MJ AS ON DJ F MA M J J AS ON D F~~~~~~~~~~~~~~~~I ;IIl AWARD OF CONTRACTS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~JRD542R D~~~~~~~~~~~~~~~~ IIE 1111 IzI CONSTRUCTION I B