FOR OFFICIAL USE ONLY

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT EL SALVADOR ADMINISTRACIONACIONAL DE TELECOMUNICACIONES (ANTEL) THIRD TELECOMMUNICATIONS PROJECT March 3, 1978 Report No ES Energy, Water and Telecommunications Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS US$1 = = US$0.40 l,000,000 = US$400,000 FISCAL YEAR January 1 to December 31 LIST OF ABBREVIATIONS AND ACRONYMS USED IN THE REPORT CARRIER - a system of providing a number of circuits over one radio link, coaxial cable, or a pair of wires CHANNEL - one circuit of a carrier system carrying speech or telegraph signals HF/UHF/VHF - high frequency radio up to 30MHz; ultra high frequency radio beyond 300 MHz; very high frequency radio between MHz NHz - Megahertz MICROWAVE - radio system working at frequencies above 300 MHz but normally applied to systems working at frequencies above 1,000 MHz MULTIPLEX - part of the equipment in a carrier system - see above ANTEL - Administraci6n Nacional de Telecomunicaciones -- an autonomous government-owned public corporation responsible for all public services in the telecommunications sector TELEX - telegraph exchange service for subscribers TOLL TICKETING - method of charging long distance calls by recording particulars of each call made applying the relevant tariff

3 FOR OFFICIAL USE ONLY EL SALVADOR ADMINISTRATION NACIONAL DE TELECOMMUNICACIONES (ANTEL) THIRD TELECOMMUNICATIONS PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. BACKGROUND... 1 II. THE TELECOMMUNICATIONS SECTOR... 2 Background and Organization Access to Service Telephone Service Usage Quality of Telephone Service Institutional Deficiencies Sector Objectives The Bank's Role III. THE BORROWER Organization... 8 Auditing... 9 Accounting... 9 Insurance Tariffs... 9 Staff and Training Staff Training Existing Telecommunications Facilities Local Services Long Distance Services Telex and Telegraph Facilities International Facilities Annex 3.01: Organization Chart - Chart No. WB Annex 3.02: Staff Details Annex 3.03: International Telephone Statistics Annex 3.04: Basic Data as of December 31, 1976 and as of December 31, Annex 3.05: Exchange Capacity and Connected Lines as of December 31, 1976 and Forecast ( ) This report is based on information obtained from ANTEL and from the findings of the mission composed of Messrs. M. DeLima, R. Saunders and M. Sergo which visited El Salvador in June/July This document has a restrictedistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 Table of Contents (Cont'd) Page No. IV. DEMAND AND MARKET ASPECTS V. THE PROGRAM AND PROJECT The Program The Project Project Cost Contingencies Items for Bank Financing Project Implementation Procurement Disbursements O.. 24 Annex 5.01: Investment Program ( ) Annex 5.02: Physical Project ( ) Annex 5.03: Schedule of Construction - Chart No. WB Annex 5.04: Schedule of Disbursements VI. FINANCES Past Financial Performance and Present Position Accounts Receivable * Financing Plan Future Financial Performance Annex 6.01: Income Statement Annex 6.02: Balance Sheet Annex 6.03: Sources and Applications of Funds Annex 6.04: Government Accounts Annex 6.05: Performance Indicators VII. ECONOMIC ANALYSIS Efficiency in Development Distribution of Benefits Least Cost Solution Return on Investment Annex 7.01: Return on Investment VIII. AGREEMENTS REACHED AND RECOMMENDATIONS Annex 8.01: Related Documents and Data Available in Project File Map IBRD

5 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) APPRAISAL OF THE THIRD TELECOMMUNICATIONS PROJECT I. BACKGROUND 1.01 The Government of El Salvador has requested World Bank assistance in financing the five-year telecommunications development program prepared by the Administracion Nacional de Telecomunicaciones (ANTEL). The proposed Borrower and Beneficiary of the loan would be ANTEL The Bank has been continuously associated with the telecommunications sector in El Salvador since In October 1963, the Bank approved a US$9.5 million loan (358-ES) to ANTEL to help finance a project designed to increase local telephone exchange capacity and to provide stable long distance facilities. The project was satisfactorily completed in December This preceded the setting up of the project performance audit system. Following discussions by three Bank missions in 1969 and 1970, ANTEL strengthened its financial organization, negotiated settlements with suppliers for rescheduling payments to them, prepared a program of expansion in 1970 and in 1971 revised it. In April 1972 the Bank approved a US$9.5 million loan (811-ES) to finance a project to extend local and long distance services and to improve technical project preparation. The project has been completed on December 31, two years behind schedule This report is based on information obtained from ANTEL and from the findings of the mission composed of Messrs. M. DeLima, R. Saunders and M. Sergo which visited El Salvador in June/July 1977.

6 -2- EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) THIRD TELECOMMUNICATIONS PROJECT II. THE TELECOMMUNICATIONS SECTOR Background and Organization 2.01 El Salvador with an area of 21,000 square kilometers, is the smallest and most densely populated of the five Central American countries. Its population totals some four million people or about 190 per square kilometer. San Salvador is the administrative and commercial center and contains about 17 percent of the total population. The 1975 gross national product per capita was estimated at US$450, although in rural areas where 60 percent of the population lives, it is only US$200 per capita Future economic expansion basically depends on the country's capacity to increase agricultural output and manufactured exports, which require in addition to direct investments in those sectors, substantially higher public fixed investment in social and economic infrastructure Administracion Nacional de Telecomunicaciones (ANTEL) is responsible for all public services in the telecommunications sector. ANTEL, which is an autonomous government-owned pub:lic corporation permits private users to obtain licenses from the government on an annual basis to operate point-to-point telecommunications services only when ANTEL is unable to provide those services Conductores Electricos de Centro America (CONELCA), a private enterprise, manufactures electrical and telephone cables in San Salvador. CONELCA is currently able to meet ANTEL's total cable needs and is also able to export cables to other Central American countries. Access to Service 2.05 El Salvador's telephone density of 1.39 per 100 population is lower than most other neighboring countries (Panama ; Costa Rica ; Mexico ; Nicaragua ). Existing telephone service is concentrated in the San Salvador area although even there telephone density is only 5.40 per 100 population (San Jose ; Mexico City ; Bogota ; Santo Domingo - 8.9). Telephone density for the rest of the country is approximately 0.41 per 100 population. As of April 1977 there were 52,063 paying subscribers in El Salvador distributed geographically as follows:

7 -3 - No. of Paying Percent of Percent of Subscribers Subscribers Population San Salvador and nearby Pueblos 38, Government 1/ 2,453 5 Rest of Country 11, Total 52, For purposes of government administration, El Salvador is divided t 1 ito 14 departments, consisting of 259 municipalities gnd 2,022 cantons. All departments and all but three municipalities have some telephone access. Of the 2,022 cantons, 865 have a population more than 1,000 and of these, 201 have population greater than 2,000. Only 17 cantons (including nine with population over 2,000) currently have telephone access In order to acquire a telephone, a potential subscriber must register on an official waiting list. Waiting times for telephone applicants in San Salvador range up to three years depending on exchange area. Telephone Service Usage 2.08 Telephone subscribers in El Salvador are categorized according to three tariff classes (business, commercial and government; professionals-- doctors, lawyers, engineers; and residential), with business subscribers paying the highest monthly rental fees and residential subscribers paying the lowest. This tariff-related classification scheme has led to a relatively large number of telephones which are technically located in the residential portion of premises, but which in fact are used primarily for business purposes. The official distribution of subscribers according to tariff categories as of April 1977 was as follows: Distribution of Automatic Exchange Subscribers Percent business Percent Total and pro- resi- perfessional dential centage San Salvador and nearby Pueblos Government Rest of country Total / Government subscribers are not broken down geographically.

8 With regard to the actual usage of telephones, traffic generated by telephones assigned to the business and professional tariff classes officially accounts for almost 60 percent of total pulses. This understates business-related usage since calls originating in other telephones for business and professions are not included in the above. In addition, the impact of business-related usage on the system is, however, much larger, because not only are a significant number of telephones which are categorized as residential used for business purposes a major proportion of the time, but also, business and government calls originate during the mid-morning and midafternoon traffic peaks, thereby exerting most of the pressure on system capacity, and this largely determines system costs. With regard to international traffic, over 70 percent of all calls are generated by subscribers officially categorized as business, government or professional. z.10 The pattern of national long distance telephone traffic generally reflects the dominance of San Salvador as the center of the national economy. In some small communities, 70 percent of all long distance calls are directed to San Salvador. In the largest towns the proportion varies between 35 percent and 45 percent. Quality of Telephone Service 2.11 Lack of timely investment and proper planning in the past have caused the telephone network to exhibit a number of deficiencies which have led to poor service. As a result, in addition to a large unsatisfied demand, there is significant congestion in some exchange areas on long distance networks, and in some small outlying exchanges, the long distance congestion leads also to poor local service. Test checks made for the first five months of 1977 show that while during peak hours, the local service in San Salvador is reasonably satisfactory, the long distance service is congested. Similar checks made for the three next largest towns also reveal congestion. Waiting times for long distance services at public call offices in several towns outside of San Salvador are about one to two hours, and where such towns are served by manual exchanges, the waiting time varies up to several hours. In addition existing local service in those manual exchange areas is unsatisfactory since (a) the service is provided largely on open wires prone to faults, and (b) numerous areas share a single long distance line. Institutional Deficiencies 2.12 The major problems for the expansion and improvement of the telecommunications sector in El Salvador have been the lack of continuous planning activities, shortage of technical staff, and insufficient investment. With Bank assistance, ANTEL retained technical consultants fpr planning and ANTEL has now considerably strengthened its planning organization. ANTEL has recruited technical personnel, has set up a local training center for low and medium level technicians and has recruited and sent several engineers to the University of Michigan for specialized telecommunications training. ANTEL has been developing the telecommunicationsector without government support, or significant local borrowing for capital expansion. Expansion has thus been

9 - 5 - tied to ANTEL's capacity to generate funds from internal sources, or to borrow externally.- For the period , ANTEL's annual investment will be about US$15 million. ANTEL has planned to finance about 62 percent of the program by internally generated funds. External borrowing will have to cover the balance of the expansion program. Sector Objectives 2.13 The Bank's participation through two projects, since January 1963, has already enabled ANTEL to: (a) establish a modern long distance network with associated long distance exchanges to link together the principal areas of the country, and to provide a nationwide high quality subscriber dialing network covering nearly all automatic exchanges in the country. In 1963, long distance service, which is an essential requirement for government, industry and commerce, consisted of only a few unreliable radio circuits between the main towns in the country operated on a manual basis and subject to considerable delays. In the first project, reliable and high quality microwave radio communication equipment was provided for the first time, and additional microwave radio and multiplex equipment was installed in the second project. At the end of 1976, El Salvador had a reliable long distance network with a total of 1,600 circuits, largely removing congestion. Additionally subscribers automatic long distance dialing was introduced between nearly all the automatic exchange areas; (b) expand local telephone services in San Salvador and other towns in the country. ANTEL's local exchange network in 1963 comprised a total of about 16,000 lines (7,000 of which were automatic) of exchange equipment, with about 14,000 connections. At the end of 1976, ANTEL operated about 68,300 exchange lines with about 54,700 mostly automatic connections--an increase of nearly 300 percent in connected subscribers. Additionally, ANTEL improved the quality of service, and reduced congestion which is now insignificant except on some long distance network; and (c) establish an institutional framework for development and create a financial base for future expansion. In 1963, ANTEL had few qualified staff, and undertook works on an ad-hoc basis executed through turn-key contracts. ANTEL had no technical and financial planning or control, and the accounting routines were unsatisfactory. At the end of 1976, ANTEL had improved considerably in these areas, and the financial position has become sound. ANTEL is now able to handle its expansion program smoothly and is systematically making steady progress In the next 10 to 15 years, ANTEL would extend local services and high quality long distance circuits using latest available techniques, and would concentrate attention in providing basic telecommunication facilities

10 -6- to rural areas in the country, which are currently poorly served. ANTEL's management would have to carry heavier responsibilities, to function more effectively and to manage efficiently a more complex network. ANTEL would have to formulate projects and to review the need for telecommunication facilities development on priorities designed to meet the requirements of administration, social services and economic efficiency as well as expected demand and traffic growth ANTEL proposes to accomplish the sector objectives under the project by: (a) significantly developing local networks in San Salvador, the capital, and in small towns to meet part of the demand for local connections, and opening of public call telephones to meet needs of low income urban areas; (b) improving the quality of service; (c) upgrading and expanding the long distance network to handle the additional traffic generated over the network (including rural call offices); (d) expanding access to telephone service in rural areas by expansion of small exchanges, conversion of public call offices to exchanges and opening of new public call offices in communities now without telephone facilities. This would constitute the first phase in the progressive extension of services to rural areas in the country; (e) institution building, particularly in the area of enhancing ANTEL's planning capabilities; and (f) improving management and accounting procedures Quantitatively, the number of public call offices in El Salvador outside the capital San Salvador will increase from 158 to over 650. About 200 of the additional call offices would be installed in rural communities, and would provide telephone access for the first time to about an additional 400,000 1/ people. In addition to this increase, about 320 call offices would be installed to meet the needs of the low income urban areas. Subscribers with individual connections will increase from 58,000 in 1978 to over 93,000 in Changes in selected parameters, reflecting expected changes in telephone service are shown below: 1/ This is arrived at by multiplying the 200 new public call offices to be opened in cantons now without service by the minimum population of 2,000 in the smallest of these cantons. Since the cantons are small in geographic area, all the population can be expected to have access to service.

11 Telephones per 100 population El Salvador San Salvador Rest of Country 1/ Telephone Availability 2/ El Salvador San Salvador Rest of Country Unsatisfied Demand El Salvador 28,900 27,300 14,800 San Salvador 22,700 19,800 12,300 Rest of Country 6,200 7,500 2,500 1/ These data basically reflect individual subscriber telephones and do not give weight to increased access in rural areas through public call offices. 2/ Telephone availability is defined as the ratio of subscribers to subscribers plus excess demand. The Bank's Role 2.17 The Bank's role in the two previous loans is outlined in paragraph The Bank's role in the third project would be to assist ANTEL to attain the objectives set out in paragraph While ANTEL has made considerable progress in organization, planning and financial areas, ANTEL has yet to develop in-house capabilities for planning and expansion of telecommunications facilities, to identify projects for a balanced development, to improve service quality, to set up reliable data collection systems and to improve and refine demand forecasting methods. Additionally, ANTEL is making a major effort for the first time to provide long distance facilities to rural areas. Finally, ANTEL has to introduce further improvements in its management and accounting procedures to enable it to efficiently manage the considerable additional assets being created under this project. The Bank would assist in continuing ANTEL's institution building by association in the financing of the project.

12 - 8 - III. THE BORROWER 3.01 Created by Act 370 of August 27, 1963, ANTEL, the proposed Borrower, is an autonomous Government-owned public corporation responsible for all domestic and international telecommunications services in El Salvador. ANTEL has the right to plan, acquire, construct and operate all telecommunications facilities; to propose tariffs and other charges for its services; and to introduce the tariffs after obtaining the approval of the Ministry of Economy. Organization 3.02 ANTEL is administered by a five-member Board of Directors, each with a tenure of four years. The President of the Republic appoints ANTEL's president who also functions as the president of that Board. The Minister of Economy, and of Interior, each nominate one director; and operating banks, and industrial and commercial associations in El Salvador, each nominate one director. ANTEL's day-to-day business is managed by the president of the Board, and by a general manager who also functions as the secretary of the Board of Directors. An organization chart is set out at Annex By and large ANTEL's organizational set up is similar to that existing in similar organizations in other countries, and is satisfactory Under Bank Loan 811-ES, ANTEL retained the services of TAI, Inc. of USA as consultants to prepare short-term ( ) and long-term ( ) telecommunications development plans for El Salvador. ANTEL also seconded junior staff to work with, and to be trained by, the consultants. The shortterm plan has been completed, and ANTEL has prepared a project for Bank financing utilizing the consultants' report. The consultants have also prepared the long-term plan in draft form but would finalize it after the consultants obtain ANTEL's comments on the draft report During the last three years, ANTEL has steadily strengthened its planning group which was set up at the time of an earlier appraisal. Though the planning group consisting of the staff seconded to the consultants (see para. 3.03) is now capable of handling much of the engineering planning work, it needs to be further strengthened and made to function effectively in several areas. ANTEL has, therefore, decided to utilize the services of International Telecommunication Union (ITU) experts, currently working in the region, to assist ANTEL in strengthening the planning group and offering technical assistance as required. At the end of the project, ANTEL's planning group, after gaining additional experience with the assistance of ITU experts, is expected to function effectively and independently ANTEL's senior engineering (other than planning) and financial staff have now gained sufficient experience in project management, are wellqualified, and are capable of managing the present operations as well as the considerably expanded operations resulting from the installation of additional assets during the project period.

13 -9- Auditing 3.06 ANTEL's accounts are subject to both internal and external audits. Internal audit is exercised by the Court of Accounts, a government institution, and external audit is done annually by independent commercial auditors. These arrangements have in general functioned well. However, some changes in the information sent to the Bank by the external auditors in addition to the audit report would be desirable. These changes have been discussed with the auditors, who have declared they have no problem in presenting the information in the way the Bank requires. The auditing covenant for Loan 811-ES should be continued under the new loan. Accounting 3.07 The actual chart of accounts has become inadequate as it does not permit a systematic adaptation to ANTEL's growing needs due to larger volume of operations. Furthermore, it does not permit proper allocation of costs to cost centers and services for tariff and profitability studies ANTEL plans to introduce a new accounting system as from end of 1978 and retained a local consulting firm, Prodasa, which will design the system in cooperation with ITU consultants. The new system will provide more accurate information on categories of costs and their distribution on cost centers and services. The change of system has become feasible through the introduction of new computer (IBM 370), which has the capacity to absorb the extra work involved. Insurance 3.09 ANTEL has an insurance coverage of million against fire, strikes, civil war, earthquakes, etc., with the Hanover Insurance Company, San Salvador. The assets covered are buildings and equipment in the most important exchanges: Central Roma, San Miguelito, Central Centro and the administrative building in San Salvador. Even so, the amount insured is under replacement cost for these larger exchanges and with reference to Section 4.03 in the Loan Agreement for Loan 811-ES, ANTEL was asked to review insured values periodically. The remaining centers are distributed widely over a large geographical area and the maximum loss in one place is limited, so it can be accepted that ANTEL in those cases acts as its own insurer. Tariffs 3.10 ANTEL's present tariffs, with exception of the connection charges which recently were raised from 1200 to 9400, have not been changed since The monthly rentals and the monthly number of free calls for each category are:

14 Number of Monthly Rental in Category Free Calls Automatic Manual I. Commercial and government II. Professionals - doctors, lawyers, engineers III. Residential Calls beyond the free allowance are charged at the rate of e0.05 per pulse. While the level of tariffs is adequate, the tariff structure has several deficiencies. Manual long distance rates, for example, are lower than the automatic rate, although the operating cost of manual service is higher. Furthermore, the high fixed monthly charge with an excessive number of free calls has contributed to congestion in San Salvador and has disturbed traffic patterns At the time of negotiations of Loan 811-ES, ANTEL agreed to change the tariff structure. After several studies and reviews, ANTEL implemented a revised tariff structure. In addition to the elimination of free calls the former three subscribers' categories were reduced to two. Subscribers pay according to their actual telephone usage. These changes are expected to raise local revenues by about ten percent and eliminate some of the deficiencies in the old tariff structure The revised tariff structure does not contain rates for peak and off-peak periods on long distance calls. Considering the high usage by business subscribers during peak hours causing congestion in the network, ANTEL should study the feasibility of introducing such rates. During negotiations, assurances were obtained that ANTEL will complete the study by December 1979, and review the results of the study with the Bank. Staff and Training Staff 3.13 At the end of December 1976, ANTEL's staff totalled about 3,500 of which about 2,200 were employed for telephone operations, and the balance were used in telegraph and telex operations. ANTEL operated about 66,000 telephones, and the employee ratio works out to 33 per thousand telephones. The staff number is considered reasonable keeping in view that ANTEL operates (a) long distance facilities in remote areas using an extensive open-wire system, and (b) about 260 small capacity manual exchanges which require a minimum level of staffing independent of the number of working subscribers on those boards. During the project period, ANTEL expects to recruit 450 additional staff for telephone operations, of which 30 would comprise engineers and 420 line and switching maintenance technicians, operators and other support personnel. At

15 the end of the project when ANTEL would operate about 110,000 telephones, the staff ratio would drop to 28 per thousand telephones, which is an improvement. Annex 3.02 gives details of the number of employees in each department for the years 1976 to 1982, the staff pay scales as of December 31, 1976, and service conditions. The pay scales are generally attractive and the requisite quality of staff can be recruited. Turnover of staff is reported tu be negligible. Training 3.14 Line and switching maintenance personnel, operators, clerical and semi-skilled staff are trained in San Salvador at a regional training center (INCATEL) administered by ANTEL. That center was set up by ANTEL with ITU assistance to meet the training needs of personnel in telecommunications organizations in Costa Rica, Nicaragua, Honduras, Guatemala, and El Salvador. Senior engineers are trained at equipment suppliers' headquarters or factories, and at various institutions in Europe and in Mexico. ANTEL has recently recruited 12 people and sent them for five-year engineering training in various telecommunications disciplines. Those people would return about the completion time of the project and would augment ANTEL's maintenance operation capacity in all telecommunications branches. INCATEL has currently a capacity to train about 130 personnel per year. ANTEL has already proposed an expansion of INCATEL's training facilities for completion by end 1978 after which the training center would meet ANTEL's needs for trained personnel required to operate and maintain equipment installed under the project. Existing Telecommunications Facilities 3.15 Comparison of the telephone density in El Salvador as of January 1, 1976, with Costa Rica, Panama, Mexico and Nicaragua may be seen in paragraph Annex 3.03 sets out international telephone statistics. The existing exchange and long distance network in El Salvador is shown in the Map. Basic network data are set out in Annex A brief description of ANTEL's facilities as of December 31, 1976, is given below. Local Services 3.16 ANTEL was responsible for 42 local automatic, and 259 (most of these have less than ten lines each) manual exchanges largely in rural and semi-urban areas, with a total capacity of 68,270 lines and 54,722 connected lines, of which 98 percent were connected to automatic exchanges. The unfilled demand was about 29,000. Annex 3.05 sets out data on exchange capacity and the number of connected lines at the end of Long Distance Services 3.17 Long distance services (see map) are provided by microwave radio, coaxial cables, VHF radio, open-wire carrier systems, and open-wire physical lines. Facilities for subscriber dialing of long distance calls are available to nearly all subscribers on the automatic exchange network; for the others long distance service is provided on a semi-automatic, or fully manual basis.

16 Telex and Telegraph Facilities 3.18 San Salvador is connected by telex and fixed point-to-point teleprinter circuits to 15 traffic group centers, using voice frequency telegraphs over microwave and carrier systems. About another 150 telegraph offices in the country are connected by open-wire lines to these group centers. A telex system with 400 lines capacity with 342 subscribers is installed in San Salvador. International Facilities 3.19 El Salvador has good international telecommunications facilities to countries in Central and South America, USA and Europe. El Salvador is connected through a high capacity microwave system to provide a total of 196 stable high quality circuits to Guatemala, Tegucigalpa (Honduras), Managua (Nicaragua) and San Jose (Costa Rica), with extension links to Mexico from Guatemala, and to Panama from San Jose. For places in the USA, international telephone traffic is routed direct via satellite circuits through an earth station commissioned with 24 circuits in June 1977, and over the regional network to Mexico and thence tfo Florida on microwave links. Traffic to countries in South America is routed through the USA. Traffic to Europe is transmitted through Spain on satellite circuits currently routed through Nicaragua, but will be routed later through its own earth station when it is fully operational with 168 circuits in International direct dialing service is available to the Central American countries, to the USA and to several countries in Europe. Toll ticketing equipment is installed at San Salvador to record international calls.

17 ANNEX 3.01 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) organization chart B3oard of Oir.ctors resident l Eulsicaetions m t G a a OnGger HoMag Mn.r ~~~~~~~~~ I Legal Managereaton LJOI An innca s f C- 13 * S tal * Cables * Transrnisson * Transport Cromiuter * Trtining * TranatnissIon * CabiCs 0 StOres Center * Coordination * Pro-ra * Povver * Reg.on.I 0 ACCOU..tif" * Soci. * Civil Works SSItching Sot ices * Treasur Seroices Statistics * TraffIc 0 W WorkshoPs 0 Comrertil * Svv tching * Clvil Works * Supplies * Organization * Training Mettlods * Coordination World Bank

18 ANNEX 3.02 Page 1 of 2 pages EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Staff Details Number of Staff 1. The breakdown of staff employed at the end of December 1976, and the proposed staff distribution year wise through December 31, 1982, is set out below: Staff Number Year Wise Category a) Top Management b) Commercial c) Accounting d) Engineering e) Maintenance 1,115 1,264 1,344 1,398 1,454 1,512 1,572 f) Telegraph Operation g) Telephone Operation ,006 1,046 1,088 1,132 h) Medical i) Administration Pay Scales Total 3,484 3,822 3,985 4,117 4,253 4,395 4, The number of staff as of December 31, 1976 in each pay range is as follows: (month) No. of staff % of all staff a) up to b) , c) d) 751-1, e) 1,001-1, f) 1,501-2, g) over 2, , %

19 ANNEX 3.02 Page 2 of 2 pages Leave 3. Annual leave with full pay 23 days Administrative staff 15 days Operations and Maintenance staff Casual leave with full pay 5 days Medical 15 days per year Pension 4. The compulsory age for retirement is 60 years. Staff are entitled to pension benefits after completing 40 years of service. Rate of pension is 82.5% of the average of the five years pay immediately prior to retirement date. Insurance 5. Each employee is insured for 15,000 by ANTEL at its cost. ANTEL pays 419,000 per year for this benefit. Promotions 6. Promotions are based on qualifications ability and seniority in service of the employees eligible for such posts. September 1977

20 -16- EL SALVADOR ANNEX 3.03 ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) International Telephone Statistics POPULA- GROSS NATIONAL TELEPHONES - JANUARY 1975 TION 1/ PRODUCT NATIONAL PRINCIPAL CITIES REST OF COUNTRY Per Capita Per Av. Annual Per- Per- COUNTRY 1/l/75 Per Growth Total 100 Growth Rate Automa- Total Per centage Total Per centage Capita Rate Number Popu- ( ) tization Number 100 of Nat'l Number 100 of Nat'l (000's) us$ ( ) (000's) lation % % (000's) Pop. % (000's) Pop. % AFRICA East Africa 39, c Egypt, Arab Rep. 36, n.a o Ethiopia 27,495 go Morocco 16, Nigeria 69, ll Rhodesia 6, South Africa 24,914 1, , , Sudan 18, o Tunisia 5, Zambia 4, l.o 57.3 AMERICA Argentina 25,225 1, , , Brazil 106, o 2, , Canada 22,661 5, , , o , Colombia 23, , Costa Rica 1, El Salvador (1/1/76) 4, Mexico 58, , , Trinidad & Tobago 1,060 1, o us 212,013 6, , , , Venezuela 11,918 1, ASIIA China, Rep. 15, go India 582, , o Indonesia 123, Iran 33, Iraq 10, o Israel 3,408 3, Japan 110,626 3, , , , Malaysia 11, n.e. n.a. n.a. n.a. n.a. n.a. Nepal 3/ 12, n.a. n.a. n.a. n.a. n.a. n.a. n.a. Pakistan g/ 69, n.a. n.a. n.a. n.a. n.a. n.a. Philippines 40, o Singapore 2,237 1, Syria 3/ 7, o Thailand 41, o o EUROPE France 52,742 4,54o , o 4, , Germany, Fed. Rep. 62,040 5,320 4.o 18, , , Sweden 8,178 5, , , , Switzerland 6,375 6, , , , Turkey 39, UK 56,102 3,o , , , USSR 253,323 2, , , , Yugoslavia 21,243 1,060 6.o 1, OCEANIA Australia 13,337 4, , , , New Zealand 3,106 3, , , / Population at January 1, 1975 derived from the "Total Telephones" and "Telephones per 100 Population" appearing in AT&T's publication, World Telephones (January 1, 1975). 2/ Telephone and population statistics for Nepal and lakistan are not available in AT&T's World Telephones (January 1, 1975). These figures shown are estimates derived from infcrmation available from reports in the Bank. 3/ Telephone and population statistics for Syria is noct available in AT&T's World Telephones (January 1, 1975). The figures shown are derived from STE's Statistical Abstract of Telecommunications, Sources: - Telephone statistics: World Telephones by AT&T (1975). - GNP statistics: World Bank Atlas 1975.

21 ANNEX 3.04 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Basic Data as of December 31, 1976 and as of December 31, 1982 Plant and facilities in service as of end December Local Service a. Number of local exchanges b. Total number of local automatic exchanges c. Total installed capacity of automatic exchanges 65, ,500 d. Total number of automatic exchange connections 53,160 92,000 e. Total number of manual exchanges / f. Total capacity of manual exchanges 3,130 1,825 g. Total number of manual exchange connection 1,562 1,534 h. Total capacity of local exchanges 68, ,325 i. Total number of connections 54,722 93,534 j. Percentage of automatic lines Long Distance Service a. Number of interurban exchanges 4 4 b. Total number of long distance circuits 5,200 7,600 c. Total terminations on interurban exchanges 1,650 3,870 d. Public call offices 518 1,169 Telegraph and Telex Services a. Number of telegraph offices b. Number of telex exchanges 1 2 c. Total capacity of telex exchanges 400 2,000 d. Total number of telex subscribers 342 1,300 1/ Reduction in number of manual exchanges will be brought about by transferring the few subscribers on existing manual exchanges, to adjacent manual and automatic exchanges.

22 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Exchange Capacity and Connected Lines As of December 31, 1976 and Forecast ( ) End Year Exchange Capacity Connected Lines Manual Auto Total Manual Auto Total %,Fill ,130 65,140 68,270 1,562 53,160 54, Forecast ,130 69,300 72,430 1,562 54,500 56, ,130 69,300 72,430 1,562 56,000 57, ,130 77,000 80,130 1,562 63,000 64, ,825 97,300 99,125 1,534 71,000 72, , , ,325 1,534 81,000 82, , , ,325 1,534 92,000 93, X 0 August 1977

23 IV. DEMAND AND MARKET ASPECTS 4.01 Given the large unsatisfied demand for telephones in urban areas, the relative lack of telephone penetration into rural areas, and the inadequate quality (paragraph 2.11) of both local and long distance service, it is impossible to accurately forecast the demand for telecommunications services in El Salvador. Current and historic traffic totals, and the inadequately maintained waiting lists, are of limited assistance since they provide little indication of the rapidity with which the demand for telephone service will grow as the quality of service improves, and access to service is broadened Nevertheless, ANTEL, with the assistance of consultants (TAI of the US), has estimated that the demand for individual telephone connections through 1982 will increase as follows: Connected Unsatisfied Total Subscribers Demand Demand 1976: San Salvador metropolitan area 43,800 22,700 66,500 Rest of country 10,900 6,200 17,100 Total 54,700 28,900 83, : San Salvador metropolitan area 46,200 19,800 66,000 Rest of country , Total 57,600 27,300 84, : San Salvador metropolitan area 70,200 12,300 82,500 Rest of country 23, ,800 Total 93,500 14, , While the mission considers these estimates, which are based on the old tariff structure to be reasonable, they may considerably underestimate actual demand based on the new telephone tariffs which were approved in The new tariff structure has lower monthly minimum charge for a telephone. Thus, telephone service is cheaper for those who generate less than 180 to 320 traffic pulses per month (depending on subscriber classification). This lower basic rate could stimulate some additional demand for telephone service ANTEL proposes to review the demand projections including the requirements of public call offices in low income urban areas identified by an urban study financed by UNDP in the course of the next two years. ANTEL's current plan is to initiate during the project period advance works for commissioning about 10,000 lines of additional equipment in the two years, 1983 and 1984, following the construction period of the project. This additional capacity will be augmented further if the above review of demand forecasts points to such a need.

24 V. THE PROGRAM AND PROJECT The Program 5.01 ANTEL has drawn up al five-year ( ) telecommunications development program which comprises t.he following main items: (a) ongoing works comprising the installation of earth satellite station phase 2, and routine minor works; (b) the project for Bank. financing (see paragraph 5.03); and (c) preinvestment for extension equipment of: (1) central telex system; (2) international telephone exchange; and (3) local and long distance telephone networks. The earth satellite station is expected to be installed by end 1978; and contracts signed for the extension equipment by end 1980 for installation to be completed progressively from the first semester of 1983 to the end of The estimated cost of the program is about V189 million (US$75.7 million equivalent). Annual program costs from 1978 through 1982 are set out at Annex The Project 5.03 The objectives of the project are outlined at paragraph The project proposed for Bank financing is a self-contained part of ANTEL's program, provides for a balanced and integrated development of facilities and would be carried out between 1978 and It comprises mainly the installation of the following: (a) a total of about 41,000 local automatic exchange equipment lines (about 24,500 lines would be installed in San Salvador) with associated cables and subscribers plant and the connection of about 36,000 additional subscribers; and about 320 public call offices -160 to be located in sites being developed by Fundacion Salvadorena de Desarrollo y Vivienda Minima (FSVM) under the Prior Urban Projects, and about 160 in communities. (b) two long distance automatic exchanges with a total of about 2,200 terminations; (c) about 250 km of coaxial cables on 11 routes with the associated coaxial cable transmission equipment;

25 (d) microwave radio equipment on 12 routes; UHF radio equipment on eight routes; and multiplex equipment to provide about 2,400 additional long distance circuits; (e) 300 VF telegraph channels; and 600 teleprinters at subscribers' premises; (f) about 200 long distance public call offices to provide services in municipalities, and in rural areas having more than 2,000 inhabitants, currently without any service; and (g) buildings to house the equipment. Project Cost 5.04 The total cost of the project is estimated at about 0129 million (US$51.6 million equivalent) including a foreign exchange expenditure of about US$35.7 million equivalent. The cost of the project shown in detail in Annex 5.01 is summarized as follows:

26 (million) US$ (million) Local Foreign Total Local Foreign Total Local Facilities Exchange equipment Cables Subscribers' Plant Subtotal Long Distance Facilities Transmission equipment Switching equipment Subtotal Telex and Telegraph Facilities Telegraph equipment Teleprinters Subtotal Rural Services /1 Land and Buildings Base Cost Contingencies Physical contingencies Price contingencies (16%) Total Expected Cost of Project /1 Represents costs of providing links from the communities to the long distance network. Costs of additional facilities needed to handle this traffic within the rest of the network are included under long distance facilities costs The project costs reflect estimated December 1976 prices based on ANTEL's experience with contracts relating to ongoing works, and those recently completed under Loan 811-ES, with adjustments to bring them up to date. The project estimates are reasonable. ANTEL is exempt from payment of customs duties on imported goods. Contingencies 5.06 Price contingencies for project costs amount to 16% of total base and physical costs. They result from the year-by-year estimated local cost increases of: %; %; and 1980 through % annually; and year-by-year estimated foreign costs increases of: 1978 through % annually. The foreign cost increases are applied to the contract date since all contracts in this sector are made on a fixed-price basis and are likely

27 to be signed by ANTEL proposes to purchase with its own funds equipment from L. M. Ericsson at a total of US$5.4 million on the basis of Ericsson's quoted fixed prices, hence no price contingency has been provided for this purchase. The annual percentage cost increases assumed above are consistent with Bank guidelines Except for variations in quantities which could occur in building and civil works for which a physical contingency amounting to 5% of local costs have been provided, no other physical contingencies are considered necessary. Provision of local and long distance exchange lines, telephones, microwave radio equipment and multiplex terminal channels proposed to be procured and installed under the project are based on detailed forecasts of equipment quantities and detailed engineering. In view of this, the proposed quantities of equipment are not expected to change significantly, and according to experience any unexpected increases of equipment on some routes are compensated by corresponding unexpected decreases on other routes. In the case of cable networks, the dispersion of these networks throughout the country permits flexibility and adjustments, to make provision of physical contingencies unnecessary. Items for Bank Financing 5.08 Of the project's foreign cost of US$35.7 million, the Bank would finance US$23 million and ANTEL's own resources would provide the balance of US$12.7 million in foreign costs and all (US$15.9 million) local costs. The items to be financed by the Bank are as follows: US$ million Local Facilities 8.1 Exchange Equipment 7.5 Subscriber's Plant 0.6 Long Distance Facilities 11.3 Transmission Equipment 7.3 Switching Equipment 1.5 Rural Services 2.5 Telex and Telegraph Facilities Telegraph Equipment 0.5 Contingencies 3.1 Total 23.0

28 Procurement 5.09 All goods to be obtained under the project for Bank financing would be procured through international competitive bidding in accordance with the Bank's guidelines. ANTEL proposes to obtain with its own funds (a) imported goods estimated to cost about US$5.4 million (see para. 5.06) which comprise additions to equipment earlier obtained by ANTEL with its own resources through negotiations with the existing suppliers for standardization purposes, and (b) other imported goods like cables, telephones and teleprinters estimated to cost a total of about US$7.3 million would be procured through international competitive bids. Reasonable quotations have been received by ANTEL for the additions to equipment at (a) above and contracts are being drawn up. Goods such as cable ducts and external plant which are manufactured locally and which would be financed through ANTEL's own resources would be procured through local competitive bids El Salvador is a member of the Central American Common Market and, in accordance with the agreement of Fiscal Incentive for Industrial Development, ANTEL is obliged to give suppliers from member countries a preference of 50% of the import duties applying to suppliers from non-member countries. Suppliers from Central American. countries would be allowed, in accordance with current Bank policies, a preference in bid evaluation of 15% of the CIF price, or 50% of the import duties, whichever is lower. None of the goods to be financed by the Bank loan are currently manufactured in El Salvador or the Central American Common Market countries. ANTEL however expects that telephones for which an allocation of US$0.6 million exists in the loan are likely to be manufactured in Costa Rica by the time bids are called, and has requested the Bank to provide for bid preference for Central American countries' suppliers. Project Implementation 5.11 The proposed schedule for the execution of the project is set out in Annexes 5.02 and The proposed schedule is realistic. ANTEL's staff would prepare engineering designs and bid documents for long distance transmission equipment and rural service equipment, VF telegraph equipment, cables, telephone instruments, and later carry out bid evaluation and prepare contracts with suppliers. ANTEL, however, does not have the capacity to prepare bid documents for switching equipment and proposes to utilize the services of regional ITU experts to prepare the bid documents, and later to evaluate bids and prepare contracts for equipment. ANTEL would lay and commission all distribution cables and would supervise construction of cable ducts by local contractors. All installation would be carried out by ANTEL's technical staff, except in case of new and sophisticated type of switching equipment where ANTEL's staff would assist the contractors' staffs. ANTEL would carry out the acceptance testing of all installed equipment. ANTEL's management is sufficiently experienced and is capalble of managing the above work satisfactorily. The project is expected to be completed by December 31, 1982.

29 Disbursements 5.12 Estimate of loan disbursements is set out in Annex Disbursements would be made for 100 percent of foreign expenditures including, where necessary, installation costs, for goods specified under the loan. Because the project as designed does not meet all of the estimated demand for service, any unused balance of the loan should be used to finance additional equipment similar to that already procured under the loan, after agreement with the Bank. The closing date of the loan would be December 31, The project offers limited risk, the principal one being the possibility of delay in a few works due to unforeseen circumstances. In telecommunications projects, which comprise a large number of works, delay in the completion of a few works does not generally prevent the use of other newly created assets. A sensitivity analysis contemplating a ten percent increase in capital expenditures and operating costs, a ten percent decrease in revenues, a two-year delay in program completion is given in Annex 7.01.

30 il AL lt ANNEX 5.01 A1HISiTRAQ NACIO8Ak-t TELCCO9IWNICACIONES (antel) Ieotelk Fn Ue ( ) 2. PROJECT E Total L.. L ai TO t.l Loca 4ma t1e-ac Totl Lal N in Totorion Total rru 'Pl -r as -r'ras A. Local Fr iiitins Equip.n.t - Ne (S5S.) , ,166 3, , ,990 Eqtipsnt - Aditioa. (S.S.) 1,004 1,004 3,514 1,256 2,009 6, ,005 2, ,511 4,018 12,557 Equlp-tn - Nos (R..t of Co-nte) ,892 5, ,262 3, , ,253 2,103 4,205 12,616 Eqip..nt - Addition. (R.C.) ,2S' , , ,360 4,080 Cablns ,030 1, ,550 2,400 1,296 5,640 3,000 1,200 6,000 3, ,330 10,250 4,120 20,550 Tel phons - Sb...cib-.s ,225 1, ,350 1, ,550 1, ,545 4, ,200 Toleph..a - C.11 Officc Sabtotl 1,504 1,960 5,904 5,306 6,741 22,159 5,516 5,271 18,694 5,093 2,688 11,814 4,915 1,253 8,047 21,834 17,913 66, L-8 Dlstacts Parllitiss Zecoarot RIdlo ,500 1, , , ,290 1,752 2,160 7,150 UHINYOl R-i-- d _ Coclial Cable , , , ,745 Co.ial Cable Termin-l , , ,481 4,258 Maltiplsa , ,200 3, ,400 6,900 Phl.c Coda Madalatior OGpn-Wino Carrier Soi-rhisg ,540 4,620 Orbicrai ,522 3,092 9,253 3,372 3,847 12, ,199 3, ,127 5,552 a,989 28,025 C. ToIngraph cad Talec Fccillico Talegraph _ ,510 Taispritter D 1O 296 3, , Shbtotal ,568 4, ,145 5,590 D. Land nd Bcildina 1,265-1,265 1,065-1, _ - -_ - 2,530-2,530 E. Cral S-icrnr ,150 3, , , ,500 7,190 Bonn Cost 2,269 1,960 7,169 7,958 10,195 33,446 9,564 11,836 39,154 6,184 5,002 18,689 5,108 2,554 11,493 31,083 31, ,951 F. Conliogecie Physical Price 16% , , ,347 7,964 4,187 18,432 II. R0N-PROJECT Trial '2,437 2,069 7,610 9,213 11,447 37,831 11,982 13,511 45,760 S,456 5,744 22,816 7,598 2,965 15,005 39,686 35, A. Onoing and Minar W-rko 10,054-14, Z ,054-15,054 d. Cnceal Trier ,195 C. Inin-ntiin-l Erchange ,590 4, ,792 5,329 D. Cral S-rvice , ,787 E. Pit-r Pnnara,- ( ) ,029 3,144 5,470 4,089 17,694 6,043 5,918 20,858 7 Foumut Pro3ra- ( ) ,000 1,200 4,050 1,000 1,200 4,000 LnSg DI-t-e F-ariliti.ee 8... Cre- 14,054-14, ,881 3,048 9,502 7,153 7,197 25,147 23,588 10,246 49,203 H. Creuingenina ,186 3,870 3,465 1,168 6, B2 I. Total on-pro-ort 14,686-14, _ ,787 4,234 13,372 10,618 8,365 31,533 28,685 12,600 60,185 J. TrIal Proort 2, , f , , ,744_ 22, , , K. Totsl Pr-grao ,295 9,498 11_ a36,188 18, _1/ ANTEL hb. coda tnatalv- plans f-r 6,400 tn-ti -hibang Iinee. Tha res-t f th progr-m till be plinnsd in the par-d. Arg.st 1977

31 - 27-2ANNEX 5.02 Page 1 of 6 pages EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Physical Project ( ) Bank Financed Items Marked * A. Local Facilities San Salvador New Exchanges Lines In-Service Date * 1. Centro III 2,800 September 1981 * 2. Colonia Jiboa 1,000 September 1981 * 3. Roma III 1,000 December 1980 * 4. San Bartolo 1,000 December 1980 * 5. San Miguelito III 3,600 December 1980 Subtotal 9,400 Extensions 1. Roma II 2,000 July ,000 March San Miguelito II 2,000 July ,000 March Santa Tecla 1,000 July 1979 * 1,700 September Soyapango 2,400 July 1979 Subtotal 15,100 Total 24,500 Rest of the Country New Exchanges * 1. Candelaria de la Frontera 200 September 1981 * 2. Ciudad Arce 100 December 1980 * 3. Ciudad Barrios 200 December Comalapa 300 June 1979 * 5. Costa del Sol 800 December 1980 * 6. El Cuco 300 September 1981 * 7. Jayaque 300 December 1980 * 8. Jocoro 200 September 1981 * 9. La Palma 200 December 1980

32 ANNEX 5.02 Page 2 of 6 pages New Exchanges Lines In-Service Date *10. Mercedes Umafia 200 September 1981 *11. San Martin 400 December 1980 *12. San Rafael 200 December 1980 *13. Sitio del Nifio 200 December 1980 Subtotal 3,600 Extensions * 1. Acajutla 1,100 December Aguilares 300 June 1981 * 3. Ahuachapan 1,200 December Apopa 400 June Armenia 100 June Atiquizaya 100 June Berlin 100 June Chalatenango 200 June Chalchuapa 100 March Chinameca 200 June Coatepeque 100 June Cojutepeque 200 June Ilobasco 100 March Jiquilisco 100 June Juayua 200 June Jucuapa 100 June La Uni6n 200 June Metapan 300 June Opico 100 June Puerto el Triunfo 100 June San Francisco Gotera 100 June San Julian 100 June San Miguel 1,000 March 1980 * 1,000 September San Vicente 400 March Santa Ana 1,000 March 1980 * 1,000 September Santa Rosa de Lima 100 June 1981 *27. Sensuntepeque 500 December 1980 *28. Sonsonate 1,000 December Suchitoto 200 June 1981 *30. Usulutan 1,000 December Zacatecoluca 200 June 1981 Subtotal 12,900 Total 16,500 Grand Total 41,000

33 ANNEX 5.02 Page 3 of 6 pages Notes 1. New systems would be obtained through international bids for Santa Tecla (1,700 lines); Acajutla (1,100 lines); San Miguel (1,000); Santa Ana (1,000 lines); Sensuntepeque (500 lines); Sonsonate (1,000); Ahuachapan (1,200 lines); and Usulutan (1,000 lines) -- a total of 8,500 lines. 2. ANTEL would recover the existing exchanges at Sensuntepeque (200 lines); Ahuachapan (600 lines) -- a total of 800 lines. 3. Comalapa new exchange would be financed by ANTEL's own funds. 4. The extension equipment at Roma (6,000 lines), San Miguelito (4,000 lines); Santa Tecla (1,000 lines); and Soyapango (2,400 lines) would be obtained through negotiations with suppliers of existing equipment, and financed with ANTEL's own funds. B. Tandem Exchanges Terminals In-Service Date * 1. Roma 1,700 December 1980 * 2. Sonsonate 500 December 1980 Total 2,200 C. Coaxial Cable Lengths (Km.) In-Service Date * 1. San Salvador - Aeropuerto Cuscatlan 39 December 1979 * 2. San Salvador - Apopa 18 December 1980 * 3. Ahuachapan - Santa Ana (Line Amplifiers Only) December 1980 * 4. Jayaque - San Salvador 27 December 1980 * 5. Apopa - Opico - Quezaltepeque 23 December 1980 * 6. Jiquilisco - Puerto El Triunfo - Usulutan 18 December 1980 * 7. Mercedes Umania - Jucuapa - Chinameca 21 December 1980 * 8. Jocoro - Santa Rosa de Lima 14 December 1980 * 9. Aguilares - Apopa 13 December 1980 *10. Sonsonate - San Julian - Armenia 32 December 1980 *11. Sonsonate - Juayua - Ahuachapan 45 December 1980 Total 250 D. Microwave Radio Channel Capacity In-Service Date * 1. Santa Ana - Faro - Pefias del Norte - San Jacinto - San Salvador 960 March 1980 * 2. Faro - Metapan 300 December 1980

34 ANNEX 5.02 Page 4 of 6 pages Microwave Radio Channel Capacity In-Service Date * 3. La Palma - Penias del Norte 300 December 1980 * 4. Pefias del Norte - Chalatenango 300 December 1980 * 5. Peinas del Norte - Cerro Grande 300 March 1980 * 6. Cerro Cacahuatique - Cerro Grande 300 March 1980 * 7. Cerro Cacahuatique - San Miguel 300 March 1980 * 8. Conchagua - San Miguel 300 December 1980 * 9. Conchagua - La Uni6n 300 December 1980 *10. Conchagua - Usulutan 300 December 1980 *11. Zacatecoluca - Usulutan 300 December 1980 *12. Los Naranjos - Costa del Sol 300 December 1980 E. UHF Radio Equipped Channel Capacity In-Service Date * 1. Ciudad Arce - Pichacho 60/24 December 1980 * 2. San Martin - Cerro San Jacinto 60/36 March 1980 * 3. Candelaria de la Frontera - El Faro 60/24 December 1980 * 4. San Fafael - Cerro Pefias del Norte 60/36 December 1980 * 5. Suchitoto - Cerro Pefias del Norte 60/24 December 1980 * 6. Ilobasco - Las Pavas 60/48 December 1980 * 7. Ciudad Barrios - Cerro Cacahuatique 60/48 December 1980 * 8. El Cuco - Cerro Conchagua 60/24 December 1980 F. PCM Equipment * 1. Coatepeque - Santa Ana 30 December 1980 * 2. Sitio del Nifio - Santa Tecla 30 December 1980 * 3. Berlin - Santiago de Maria 30 December 1980 G. Open-Wire Carrier Systems Channels In-Service Date H. Multiplex Equipment 3 36 December December December December 1980 * 1. San Salvador - Acajutla 48 December 1980 * 2. San Salvador - Ahuachapan 24 December 1980 * 3. San Salvador - Apopa 108 December 1980 * 4. San Salvador - Chalatenango 48 December 1980 * 5. San Salvador - Chalchuapa 24 December 1980 * 6. San Salvador - Chinameca 24 December 1980 * 7. San Salvador - Ciudad Arce 24 December 1980

35 ANNEX 5.02 Page 5 of 6 pages Multiplex Equipment Channels In-Service Date * 8. San Salvador - Cojutepeque 96 December 1980 * 9. San Salvador - Costa del Sol 84 December 1979 *10. San Salvador - Cuscatlan 48 December 1979 *11. San Salvador - Jayaque 36 December 1979 *12. San Salvador - La Libertad 12 December 1979 *13. San Salvador - La Uni6n 24 December 1979 *14. San Salvador - San Martin 48 December 1979 *15. San Salvador - San Miguel 108 December 1979 *16. San Salvador - San Vicente 48 December 1979 *17. San Salvador - Santa Ana 228 December 1979 *18. San Salvador - Stgo. de Maria 36 December 1980 *19. San Salvador - Sonsonate 108 December 1979 *20. San Salvador - Suchitoto 36 December 1979 *21. San Salvador - Usulutan 24 December 1979 *22. San Salvador - Zacatecoluca 36 December 1979 *23. San Miguel - Chinameca 36 December 1980 *24. San Miguel - La Uni6n 36 December 1980 *25. San Miguel - Mercedes Umafia 24 December 1980 *26. San Miguel - San Francisco Gotera 36 December 1980 *27. San Miguel - Santa Ana 48 December 1980 *28. San Miguel - Sta. Rosa de Lima 36 December 1980 *29. San Miguel - Sonsonate 36 December 1980 *30. Santa Ana - Acajutla 12 December 1980 *31. Santa Ana - Ahuachapan 24 December 1980 *32. Santa Ana - Atiquizaya 36 December 1980 *33. Santa Ana - Chalchuapa 12 December 1980 *34. Santa Ana - Coatepeque 36 December 1980 *35. Santa Ana - Metapan 24 December 1980 *36. Santa Ana - Sonsonate 36 December 1980 *37. Chalchuapa - Candelaria de la Frontera 24 December 1980 *38. Sonsonate - Acajutla 60 December 1980 *39. Sonsonate - Juayua 36 December 1980 *40. Usulutan - Jiquilisco 24 December 1980 *41. Usulutan - La Uni6n 12 December 1980 *42. Usulutan - Puerto El Triunfo 12 December 1980 *43. Usulutan - Zacatecoluca 12 December 1980 *44. Apopa - Quezaltenango 24 December 1980 *45. Apopa - Sitio del Niiio 36 December 1980 *46. Cojutepeque - Ilobasco 36 December 1980 *47. Cojutepeque - San Rafael 24 December 1980 *48. Cojutepeque - Sensuntepeque 36 December 1980 *49. La Uni6n - El Cuco 48 December 1980 *50. La Uni6n - Santa Rosa de Lima 12 December 1980 *51. San Vicente - Zacatecoluca 12 December 1980 *52. San Vicente - Santiago de Maria 12 December 1980 *53. Berlin - Santiago de Maria 36 December 1980

36 ANNEX 5.02 Page 6 of 6 pages Multiplex Equipment Channels In-Service Date *54. Chalatenango - La Palma 36 December 1980 *55. Ciudad Barrios - San Francisco Gotera 24 December 1980 *56. Chinameca - Jucuapa 36 December 1980 Total 2,256 I. Telephones (T) and Coin Boxes (C) Telephones 1. 10,000 (Nos) December ,000 (Nos) December 1979 * 3. 12,000 (Nos) December 1980 * 4. 8,000 (Nos) December 1981 Coin Boxes (Nos) September (Nos) September (Nos) September (Nos) March 1981 J. Teleprinters (Nos) December (Nos) December (Nos) June 1981 K. Buildings 1. Roma III December San Bartolo December Colonia Jiboa September Ciudad Arce December Jayaque December San Martin December Comalapa June San Rafael (Chalatenango) December La Palma December Sitio del Nifio December Costa del Sol December Candelaria de la Frontera September El Cuco September Ciudad Barrios December Jocoro September Mercedes Umafia September 1980 L. VFT Equipment * Channels December 1980 M. Cables 1. Inter office (San Salvador) August-Dec Distribution (San Salvador) March 1980/March Distribution (San Salvador) March September Distribution (Rest of the Country) March March Distribution (Rest of the Country) March December 1980

37 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) SCHEDULE OF CONSTRUCTION QUARTERS 1st 12dI3rd 4th 1 rd4th di 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1 rd4th 1 LOCAL EXCHANGES (NEW) BIDDING AND EVALUATION CONTRACT DELIVERY AND COMMISSIONING 3 2 LOCAL EXCHANGES (ADDITIONS) QUOTATION CONTRACT DELIVERY AND COMMISSIONING LONG DISTANCE EXCHANGES BIDDING AND EVALUATION CONTRACT I DELIVERY AND COMMISSIONING TELEPHONES (T) / COIN BOXES (C) BIDDING AND EVALUATION CONTRACT _ (T) r 5 SUPPLY AND INSTALLATION ~~~~~~~~50 (C)V (C) 50 (C) 8000 )T) SUPPLY AND INSTALLATION 50 (C) A (T) (T)I 5 BUILDINGS DESIGN CONSTRUCTION 6 MICROWAVE UHF/VHF RADIO/VFT BIDDING AND EVALUATION CONTRACT DELIVERY AND INSTALLATION - A 7 MULTIPLEX BIDDING CONTRACT DELIVERY AND EVALUATION AND INSTALLATION 8 COAXIAL CABLE AND EQUIPMENT BIDDING AND EVALUATION CONTRACT m A DELIVERY AND INSTALLATION 9 PCM EQUIPMENT BIDDING AND EVALUATION CONTRACT DELIVERY AND INSTALLATION 10 RURAL LINES BIDDING AND EVALUATION CONTRACT DELIVERY AND INSTALLATION World Bank

38 ANNEX 5.04 EL SALVADOR ADMINISTRACION NACIONAL DE TELCOMUNICACIONES (ANTEL) Schedule of Disbursements It is assumed that the loan would be approved by Bank in February IBRD Fiscal Year and Semester Cumulative Disbursements at End of Semester (US$ Thousands) 1979 December 31, June 30, , December 31, ,900 June 30, , December 31, ,200 June 30, , December 31, ,500 June 30, ,000 September 1977

39 VI. FINANCES Past Financial Performance and Present Position 6.01 Over the period of the last construction program ANTEL's financial performance has been satisfactory both in terms of rate of return and in internal cash generation. At the end of 1976 ANTEL had a solid cash position and a satisfactory debt/equity ratio for further expansion The financial statements for as presented by ANTEL are found in Annexes 6.01, 6.02 and Due to lack of coordination between the Financial, Planning and Technical Departments, plant under construction, when finished, has not been promptly transferred to plant in service e.g. some major works reported as finished in 1974 in the progress reports to the Bank are still included in plant under construction. This has led to reduced depreciation and net plant in operation in ANTEL's financial statements, and as a consequence the rate of return shown on these statements has been overstated. Nevertheless, taking into account the adjustments necessary to correct these deficiencies, ANTEL has met the 10% rate of return target as set out in Loan 811-ES. ANTEL agreed that plant under construction in future will be transferred to assets in operation on a more systematic and consistent basis Summaries of ANTEL's financial performance for are presented in paragraphs 6.04 and These have been adjusted for the incomplete transfers of plant under construction ANTEL's adjusted income statement for FY74/76 are summarized below: Years ending December 31: Millions of Operating revenues Operating costs Operating income Operating ratio (%) Rate of return (%) ANTEL's tariff level has been constant since The 59% increase noted in 1976 operating revenues as compared with 1974 has been caused by higher traffic volume billed. However, operating costs increased at a still higher rate, causing the operating ratio to increase from 61% to 71%; and the rate of return decreased from 25% to 21%. The main reason for the increased operating expenses was higher labor costs, especially in 1976, when a 40% salary increase was granted.

40 ANTEL's-adjusted financial position as at December 31, 1976, is summarized below: Mlillions of Total fixed assets 90.5 Accounts receivables 12.4 Other current assets 22.4 Total Assets Equity 78.5 Long-term debt, excluding current portion 33.2 Current liabilities, including current portion of long-term debt 13.6 Total Liabilities Debt/equity ratio 32/68 Current ratio 2.5 Other current assets include a cash balance of about US$6.5 million. Most of those funds are currently lent to other state entities on short-term through the Central Bank, producing a return of about 8% The fixed assets are stated at historic cost. About half of existing net fixed assets were installed in 1972 or earlier. The inflation in El Salvador before 1972 has been negligible. During the period , however, the accumulated inflation has been about 60% according to the official cost of living index. Even if cost reductions through advances in technology, economies of scale and increased productivity during the same period are considered, book values of fixed assets may be low. Even so, the rate of return on revalued net: assets should be well in excess of the minimum 10% covenanted in the Loan Agreement for 811-ES. Accounts Receivable 6.08 Receivables (excluding governmental accounts) as at December 31, 1976, was equivalent to about 65 days' billing, consisting of days to issue the bills and about 30 days for payment. A new computer, IBM 370/115, replaced the old one, IBM 1401, as from July As a result, bills are expected to be issued within days as from This should reduce accounts receivable to about 50 days' billing, which can be considered very satisfactory Government's accounts receivable amounted to a total of V2.5 million (US$1 million) at the end of 1976 (see Annex 6.04). This is equivalent to about 16 months' of billing to the Government. The present situation

41 is very much the same. The Supreme Court and four ministries account for 80% of the total dues. While many of the ministries and autonomous institutions pay their bills within a reasonable time, others do not. This situation has been brought about because bills to the Government for telephone service were settled against the Government's equity contribution as part of the process of confirming ANTEL's status as an autonomous agency. By 1973 the Government's contribution had been fully settled, but some government agencies only very slowly accepted the obligation to make payments to ANTEL thereafter. A small amount (V197,000) from 1973 is still under discussion as whether it is to be settled against the Government's equity contribution or not. During negotiations assurances were obtained that: (a) by September 30, 1978, ANTEL will collect 1.4 million (US$560,000), which have been earmarked by the Government as partial payment of past due bills; (b) ANTEL and the Government will, by September 30, 1978, determine the exact balance of past due bills (other than those paid in accordance with (a) above) as well as ways to settle said balance; and (c) before June 30, 1979, the final settlement of said balance will be achieved (including payments to be made thereunder). Financing Plan 6.10 ANTEL's projected funds flow statement for the period is shown in Annex A summary of the requirements for capital construction and the sources from which they would be met is given below:

42 Million e Million US$ % Requirements of Funds Proposed project Other capital outlays Total Capital Outlays Increase in working capital Total Requirements of Funds Sources of Funds Internal cash generation Less: debt service Net internal cash generation Borrowings: CABEI IBRD 811-ES Proposed IBRD loan Total Net Sources of Funds ANTEL's net internal cash generation is expected to cover 65% of the total capital outlays The remaining 35% will be financed by a CABEI loan of US$5.1 million, unused part of Loan 811-ES, US$2.2 million, and the proposed Bank loan, US$23.0 million. The proposed loan is assumed to have a term of 20 years, including a grace period of five years and carry an interest of 7.5%. Future Financial Performance 6.11 Projected financial statements for and comments are given in Annexes 6.01, 6.02 and A summary is given below: Years ending December 31: Operating income in millions e Operating ratio (%) Rate of return (%) Debt/equity ratio 31/69 30/70 35/65 38/62 35/65 32/68 Current ratio Debt service coverage

43 The projected results are satisfactory. It should be observed, however, that the projected rate of return is not based on revalued assets (see para. 6.07). Even with assets and depreciations suitably revalued, the rate of return is expected to surpass the 10% rate of return covenant in Loan 811-ES. This covenant should be continued and a proper rate base should be established. During negotiations, assurances were obtained from ANTEL that: (a) a revaluation study will be made and that complementary information will be supplied with the financial statements as from December 31, 1980, giving values for fixed assets and depreciations suitably revalued as from 1972 onwards; (b) a rate of return of at least 15% on the book value of net assets will be maintained until the revaluation study is completed; and (c) thereafter, a rate of return of at least 10% on suitably revalued assets in accordance with previous return covenant Projected balance sheets as of 1977 through 1982 (Annex 6.02) indicate that ANTEL's financial position will remain sound. At the end of 1982, the debt/equity ratio would be 32/68, thus leaving a margin for further borrowing. The high initial cash balance of about US$6.2 million in 1977 is expected to be reduced to about US$3.5 million under the current investment program. ANTEL is likely, however, to increase the second phase of the investment program if a review of demand after the introduction of the new tariff structure confirms current forecasts (see para. 4.04). Under these circumstances ANTEL will use the projected cash balance for increased capital outlays in Although an increase in the development program may be justified, the financial viability of ANTEL should be assured. During negotiations assurances were obtained from ANTEL that any additional work to the investment program, exceeding US$1.5 million in any one fiscal year, will be undertaken only after the Bank is afforded an opportunity to comment on such additional investments Debt service coverage by internal cash generation over the period would be not less than 3.3 in any fiscal year. As under Loan 811-Es, ANTEL was asked not to incur long-term debt without the Bank's prior approval, unless the preceding 12 months' internal cash generation would cover maximum future debt service at least 1.5 times. During negotiations assurances to this effect were obtained Indicators which will help monitor ANTEL's performance are given in Annex 6.05.

44 _ 40 - ANNEX 6.01 Page'l of 3 pages EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Income Statement (Thousands of Colones) Actual Forecast Years ending December 31: Telephone: Installation charges 1,184 1,234 2, ,900 3,300 4,200 4,600 Rentals 9,429 10,352 12,072 12,600 5,100 5,700 6,500 7,400 8,400 Metered traffic 2,962 3,294 4,961 5,500 15,500 17,400 19,600 22,400 25,400 International 12,281 16,948 23,187 24,100 27,400 33,300 40,400 48,400 58,200 Miscellaneous 2,811 2,899 4,088 5,100 5,300 6,000 6,700 7,700 8,700 Telex telegraph and cable 3,939 5,215 7,800 9,400 11,100 13,300 15,500 18,000 Total Operating revenues 32,606 38,919 51,915 55,600 63,600 76,400 89, , ,300 Salaries and wages 7,143 8,869 12,954 15,500 17,700 20,100 22,700 25,700 29,200 Depreciationl/ 3,137 3,075 3,318 6,300 7,600 8,700 10,600 12,900 14,700 Other Operating Costs: Operation & Administration 3,184 4,134 6,927 7,600 8,400 9,200 10,200 11,200 12,300 Maintenance 1,575 2,549 4,150 4,800 5,700 6,800 7,900 9,200 10,400 COMTELCA 4,058 5,776 7,399 5,000 5,900 7,200 8,900 10,700 12,'900 Rental of channels ,100 3,600 4,400 6,000 7,600 8,600 Total Operating Cost 19,097 24,401 34,748 42,300 48,900 56,400 66,300 77,300 88,100 Operating income 13,509 14,516 17,167 13,300 14,700 20,000 23,500 28,300 35,200 Less: net hospital cost (54) ,000 1,200 1,400 1,600 Net interest Ci (2) 1,900 3,100 3,500 5,700 6,400 6,600 Adj: from prior periods (1,497) 28C 1, Net Profit ,34C 15,348 10,600 10,700 15,500 16,600 20,500 27,000 Average Net Plant in Operationl/37,139 39,746 41,612 86,500 97, , , , ,000 Rate of Return (%)I/ Operating Ratio (%)I/ / ANTEL has not transferred finished works in progress to plant in operation, which has led to lower depreciations and average net plant for years Adjusting for this error would give: March 1, Operating income 12,700 13,400 14,900 Average net plant in operation 50,600 56,500 70,900 Rate of return (%) Operating ratio (%)

45 ANNEX 6.01 Page 2 of 3 pages Notes and Assumptions on Financial Statements A. Income Statements 1. Installation charges have been calculated at the actual tariff of 0400 per connection times the number of new subscribers connected per year. Charges for transfers of connections are expected to decrease to about 100,000 per year as more telephones are connected. 2. Rentals in 1977 are based on existing tariffs and include a number of free calls. As from 1978 the revised tariff structure is expected to be put in force, eliminating free calls. The new tariff structure is expected to produce a 10% increase in local revenues as from A proportion of 60% residential subscribers and 40% commercial subscribers has been assumed for the whole projection period. 3. Metered traffic includes all automatic local and long distance calls. The revenues have been calculated at the current rate of per pulse. The average number of pulses per subscriber is assumed to remain constant as from International telephone revenues are expected to increase 14% in 1977, partly due to better facilities available from the earth satellite station, which was inaugurated at the end of June As from 1978 onwards, the increase is projected to be about 20% per year. An increase in demand of 30% - 35% per year is projected by COMTELCA and TAI in two different traffic studies, but the lower growth rate assumed in the forecast takes into account limitations in projected facilities within the COMTELCA network. 5. Miscellaneous revenues include: rentals of lines, repairs, telephone books, fines and manual long distance calls etc. These revenues are expected to increase in proportion to total number of subscribers.. 6. Telex, Telegraph and Cable. Telex revenues are projected to increase from about 02 million in 1976 to about 12 million in 1982 based on a study by COMTELCA from Telegraph and cable revenues are expected to remain practically constant during the period. 7. Salaries and Wages. The increase in number of staff is expected to be 10% in 1977, 4% in 1978 and 3.3% per year thereafter. The wage increase for 1977 was 5% and a 10% yearly wage increase has been projected from 1978 onwards. 8. Depreciation has been calculated at an average annual rate of 5% over gross fixed assets in operation.

46 ANNEX 6.01 Page 3 of 3 pages 9. Operation and administration (excluding wages and depreciations) are expected to increase 10% per year. 10. Maintenance costs (excluding wages) are expected to increase in proportion to average fixed assets. 11. COMTELCA costs (excluding wages) are projected to increase in proportion to the traffic within the COMTELCA network. 12. Rental of channels includes rents for satellite channels. Cost increases have been projected according to expected increase in international traffic. 13. Net hospital cost is expected to increase in proportion to total wages. 14. Net Interest. No income from interest and no capitalization of interest has been projected.

47 ANNEX 6.02 Page 1 of 2 pages EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Balance Sheet (Thousands of Colones) Actual Forecast Years ending December 31: Gross plant in service 62,116 68,980 72, , , , , , ,700 Less: depreciation 24,128 27,477 31,166 37,500 45,100 53,800 64,400 77,300 92,000 Net plant in service 37,988 41,503 41,721 89, , , , , ,700 Plant under construction 22,257 44,156 53,877 24,300 22,300 38,100 46,100 36,100 46,500 Total Fixed Assetsl/ 60,245 85,659 95, , , , , , ,200 Cash and banks 11,464 16,729 16,223 15,600 16,600 19,300 16,600 14,900 8,700 Accounts receivable 6,055 6,894 9,358 7,700 8,800 10,600 12,500 14,700 17,100 Current government account 2,056 2,784 2,971 3,000 1,200 1,400 1,700 2,000 2,400 Inventories 1,287 3,123 3,805 4,400 5,100 6,000 7,400 8,600 9,800 Other current assets 1, , ,000 Total Current Assets 22,239 34,777 31,200 32,300 38,000 39,100 41,100 39,000 Total Assets 82, , , , , , , , ,200 Net profit current years 14,387 13,340 15,348 10,600 10,700 15,500 16,600 20,500 27,000 Retained earnings 40,593 54,980 68,320 83,700 94, , , , ,600 Total Equity 54,980 68,320 83,668 94, , , , , ,600 Long-term debt: IBRD 358-ES 14,413 12,938 11,375 9,700 8,000 6,200 4,200 2,200 - IBRD 811-ES 4,360 14,978 18,093 22,300 21,300 20,200 19,100 17,800 16,400 Proposed IBRD loan ,800 43,100 51,300 54,400 CABEI 4,525 4,212 3,600 6,300 12,900 13,700 12,100 10,600 9,100 Total Long-term Debt 23,298 32,127 33,068 38,300 42,400 59,900 78,500 81,900 79,900 Current portion of long-term debt 2,303 2,089 2,176 3,200 3,300 4,400 4,600 4,800 8,200 Current liabilities 1,903 13,310 11,463 9,000 9,900 10,900 12,000 13,200 14,500 Total Liabilities 82, , , , , , , , ,200 Debt/Equity Ratio 32/68 33/67 30/70 31/69 30/70 35/65 38/62 35/65 32/68 Current Ratio / Transferring work in progress to plant in service on a proper basis would give: Gross plant in service 77,900 91, ,100 Less: depreciation 25,900 30,400 36,300 Plant under construction 6,500 21,900 9,700 Total Fixed Assets 58,500 82,800 90,500 February 28, 1978

48 ANNEX 6.02 Page 2 of 2 pages B. Balance Sheets 1. Fixed assets are based on ANTEL's construction program. 2. Plant under construction is assumed to equal the year's capital outlays, which is equal to assuming that each individual work is put in operation on an average one and a half year after the capital outlay was made. 3. Accounts receivable are expected to equal about 50 days' billing. 4. Government account is expected to decrease to about half a year's billing in 1978 and be kept on that level afterwards. 5. Inventories are expected to increase in proportion to total average fixed assets. 6. Other current assets, prepayments, transitory items etc., are expected to decrease during 1977 and thereafter increase 0100,000 per year. 7. The equity consists of retained earnings from prior years and the net profit of current year. 8. Long-term debt. In addition to the proposed Bank loan of US$25 million, ANTEL will take up a loan of US$4.3 million from CABEI for the financing of current works outside the project.

49 ANNEX 6.03 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Sources and ApplicatCions of Funds (Thousands of Colones Actual Forecast Total Years ending December 31: Net incoae before interest 15,059 14,140 15,347 12,500 13,800 19,000 22,300 26,900 33, ,100 Depreciation 245 3,349 3,689 6,300 7,600 8,700 10,600 12,900 14,700 60,800 Total Internal Cash Generation 15,304 17,489 19,036 18,800 21,400 27,700 32,900 39,800 48, ,900 Borrowing: IBRD 811-ES 3,803 10,618 3,115 5, ,600 Proposed IBRD loan ,600 23,300 8,200 6,200 57,500 CABEI ,100 7,300 2, ,700 Total Sources 19,107 28,107 22,151 27, ,00264,00 Construction: Project ,600 37,800 45,800 22,800 15, ,000 Other capital outlays 8,437 28,763 13,628 24,300 14, ,300 31,500 84,400 Total Construction 8,437 28,763 13,628 24,300 22,300 38,100 46,100 36,100 46, ,400 Amortization: IBRD 358-ES 1,325 1,400 1,475 1,500 1,600 1,700 1,800 1,900 2,000 10,500 IBRD 811-ES ,000 1,000 1,100 1,200 1,300 6,100 CABEI , ,500 6,300 Total Amortization 1,939 2,003 2,087 2,600 3,200 3,300 4,400 4,600 4,800 22,900 Interest: IBRD 358-ES ,700 IBRD 811-ES , ,700 1,600 1,500 1,400 1,400 8,500 Proposed IBRD loan ,100 2,500 3,600 4,100 11,700 CABEI ,300 1, ,300 Total Interest 1,400 2,474 1, ,700 6,400 6,600 27,200 Less: Interest received Capitalized interest Interest charged to income ,100 3,500 5,700 6, T) 7,200 Total Debt Service 3,339 4,477 4,052 4,500 6,300 6,800 10,100 11,000 11,400 50,100 Variation in non-cash working capital 1,969 (8,724) 6,943 (700) (700) 2,000 2,700 2,600 2,800 8,700 Total Applications ,657 28, , ,200 Cash surplus (deficit) 6,089 5,265 (506) (600) 1,000 2,700 (2,700) (1,700) (6,200) (7,500) Cash at beginning of year 5,375 11,464 16,729 16,200 15,600 16,600 19,300 16,600 14,900 16,200 Cash at end of year 11,464 16,729 16,223 15,600 16,600 19,300 16,600 14,900 8,700 8,700 Debt Service Coverage February 28, 1978

50 ANNEX 6.04 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Government Accounts Resume of Government accounts from 1973 through 1976 in thousands of colones: Year Billed Paid Pending Central Government: , , , , , ,581 3,185 2,396 Autonomous Institutions: Total ,329 3, Pending balances per year since 1973 for most important accounts in thousands of colones: Supreme Ministry Ministry Ministry Ministry Year Court of Finance of Defense of Security of Education Total Total ,959 August 5, 1977

51 - 4/ - ANNEX 6.05 EL SALVADOR ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Performance Indicators 1. A set of indicators which would assist in monitoring ANTEL's performance during the project period has been established. ANTEL will be asked to report on the actual as well as projected/budgeted achievements related to the performance indicators. Performance Indicators Year ending December 31: a) Exchange equipment lines 72,000 80,000 99, , ,000 b) Telephone connections made 1,500 7,000 8,000 10,000 11,000 c) Employees (nos) 4,000 4,100 4,250 4,400 4,550 d) Gross revenue ( million) e) Rate of return on book values(%) on revalued values(%) f) Operation ratio (%) g) Debt service coverage (times) h) Current ratio i) Debt/equity ratio 30/70 35/65 38/62 35/65 32/68 September 30, 1977

52 VII. ECONOMIC ANALYSIS 7.01 The economic analysis relates primarily to ANTEL's investment program of which the Bank project is an integral part. Efficiency in Development 7.02 Economic expansion iln El Salvador depends primarily on the country's capacity to increase agricultural output and manufacturing exports. As output in these two sectors increases, communications needs grow, and as El Salvador becomes increasingly developed, the least cost means of communication for an increasing proportion of the population is some form of telecommunications In El Salvador, telephones and telex are primarily used as intermediate inputs in the production of goods and services. 1/ The investment program, by increasing rural access, expanding system capacity, and upgrading the quality of local and long distance telecommunications services will (a) help reduce the number of subscribers waiting for telephones; (b) reduce wastage of time caused by having to make repeated call attempts during peak business hours; (c) reduce wastage of resources consumed by higher cost means of communication; (d) reduce losses of production and marketing efficiency resulting from lack of communications; and (e) facilitate improvement of transport and delivery service in both urban and rural areas. Furthermore, to the extent that a more efficient and wider access to telephone service for Government and business results in the substitution of telephone communication for face-to-face communication, the growth of transport costs, energy costs, and vehicle traffic will be slowed. Distribution of Benefits 7.04 There are both efficiency and equity aspects to the distribution of benefits from the proposed telecommunications program. Given the significant unsatisfied demand for telephone service in El Salvador (para. 4.02), the recent doubling of individual subscriber connection charges from US$80 to US$160 was a positive step toward attempting to assure that in serviced areas individual telephone connections will be rationed in such a way that at the margin those subscribers who are willing to pay the highest prices for telephones (and therefore who presumably will incur the most benefits from having a telephone) can get a telephone within at least two years of application. In most instances, in both urban and rural areas, it is thought that these new subscribers will be business or government, or managers of business and government who will use their residential telephones partially in connection with their employment With regard to the equity aspects of the program, an attempt is being made to assure significantly increased communication access to lower 1/ During the first five moniths of 1977 approximately 56 percent of all national and over 70 percesnt of all international telephone traffic was generated by business, professional or governmental subscribers. The network is designed, however, for peak daytime traffic periods during which business related traffic is even more dominating.

53 income population by extending service to the three municipalities and approximately 190 currently unserved cantons with populations greater than 2,000, by increasing the number of long distance links to 200 additional small communities in rural areas, and by increasing the number of public call offices in San Salvador. In total, approximately 400,000 rural dwellers (almost ten percent of El Salvador's population) will benefit through more convenient access to telephones. With this increased access of rural pouplation to telephone communication through public call offices, a more equitable distribution of the benefits of telephone service in El Salvador will be achieved. This is not only because the telephone access of the lower income rural population will be significantly increased, but also because, with the existing and proposed tariff structures, this increased rural access will be financially subsidized by the generally higher-income urban subscribers. Least Cost Solution 7.06 As outlined in Chapter IV, there is a significant excess demand for telecommunications services which the planned development program will be unable to totally eliminate. Given this, the least cost solution for the implementation of the program depends on (a) having made the correct technical and economic decisions when the networks were planned in the early 1960's, and the plans revised in 1977, and (b) following the optimum path in the design, dimensioning and timing of the many installations which comprise continuing system expansion. Given the existing network, the dimensioning and timing of the works under the existing program, of which the Bank project is an integral part, are based on engineering studies designed to determine the least cost means for improving service to existing subscribers, and meeting new demand in priority areas. Return on Investment 7.07 The internal rate of return, defined as the discounted rate which equalizes the stream of expected revenues (in 1977 prices) attributable to the program with capital and operating costs (at 1977 price levels) is 16 percent (Annex 7.01). This is, however, a significant understatement of total program benefits since it is based only on the current observed willingness of subscribers to pay ANTEL for telecommunications services. Thus, it does not include the consumer surplus which subscribers and other callers receive An estimate of some portion of this consumer surplus can be made, however, by taking into account the fact that consumers in El Salvador have in the past demonstrated that they are willing to pay significantly higher prices for telecommunications services than they are currently being asked to pay. With a portion of consumer surplus estimated by tabulating the prices in real terms which existing consumers actually paid when they acquired telephone service, and assuming that new consumers are similar to the average existing consumer, the rate of return on the program is 36 percent. Alternatively, assuming that new and existing consumers will in the future be willing to pay in real terms the same price that existing consumers are paying in 1977, the rate of return ranges between 31 percent and 33 percent (Annex 7.01).

54 These rates of return are still significant underestimates of program benefits, however, since they do not include a complete estimate of consumer surplus, an estimate of the value of time saved through a reduction in the proportion of unsuccessful call attempts, and benefits incurred by receivers of calls, by existing subscribers when new subscribers join the system, and by those who benefit indirectly through the better administration of regional development, health, transport, and agricultural programs, and increased urban and regional business and government efficiency Benefits are also underestimated because, while the costs included in calculating the internal rate of return are those for extending and upgrading the network and providing facilities in the newly served rural areas now, the full benefits are not included because they available capacity of various components of equipment will only be fully utilized when additional investment is made in the future. Thus, the costs incurred during the period will generate additional. untabulated benefits during the period following 1982.

55 - 51- AINEX 7.01 Page 1 of 3 pages EL SALVADOR ADUIINISTRACION NACIONAL DE TELECOMUNICACIONES (A1'TEL) Return on Investment 1. Benefit Period. The benefit period of the program extends from 1979 to 2000, when on average the equipment provided under the program is expected to have substantially completed its useful life. 2. Capital Expenditures. Pre-investments for the program are excluded. All price contingencies have been deducted from the estimated total capital expenditures for the program. Capital expenditures do not include expected price increases of foreign costs of 7.5% per annum during and 7% during in addition to projected increases in local expenditures of 9% per year in and 8% per year in Operating costs and revenues have been deflated with expected local price increases of 9% per annum in and 8% per annum in to bring them to constant 1977 price levels and to make them comparable with capital expenditures. As from 1984, incremental operating costs and revenues are assumed to remain constant in real terms. Incremental revenues assigned to the program are primarily based on expected additional telephone and telex subscribers and traffic brought about by the program. Incremental operational costs exclude depreciation and interest and are based on additional assets and traffic generated under the program. 4. Net Benefits. A summary of the program's cost and benefit streams at 1977 price levels is as follows: Capital Operating Net Year Expenditures Costs Revenues Benefits (In millions of ) (22.7) (28.3) (30.7) (9.7) The internal rate of return for the net benefit stream is 16%.

56 ANNEX 7.01 Page 2 of 3 pages 5. Sensitivity Analysis. A sensitivity analysis was performed with the following results: Rate of Return 10% increase in capital expenditures 14% 10% increase in operating costs 15% 10% decrease in revenues 13% Two years' delay in program completion 12% Combination of all factors above 7% 6. Estimates of partial consumer surplus. The 16% rate of return is a significant underestimate of total program benefits since it is based only on the observed willingness of subscribers to pay current ANTEL tariffs for telecommunication services. In the past, however, consumers in El Salvador have been asked to pay higher prices for telecommunication services and have demonstrated a willingness to do so. Thus, a partial estimate of the consumer surplus can be made by tabulating the prices in real terms which existing consumers actually demonstrated a willingness to pay at the time when they acquired telephone service, and by assuming that new consumers will be similar to the average existing consumer. Given the existing investment program, the assumption that new telephone subscribers will have similar characteristics to existing ones is considered by the mission to be reasonable. 7. With one recent exception 1/ telecommunications tariffs have not changed since Over the period, however, domestic consumer price inflation of approximately 80% has taken place. 2/ As a result, connected subscribers in 1964 were demonstrating in real terms that they were willing to pay at least 80% more for a lower quality and more limited access telephone service than current subscribers are being asked to pay. To estimate the prices in real terms which existing telephone subscribers demonstrated a willingness to pay during the period between 1964 and 1977, the average price paid in real terms, and the quantity of services supplied represents a point on the telecommunication supply curve at the end of each year. They do not represent a point on any of the demand curves which existed in the past since even at the higher historic real tariff levels significant excess demand (waiting lists and traffic congestion) existed at each past point in time. Given the historic real price-quantity tabulations, a "weighted average price" paid by existing consumers when they entered the network was calculated. Thus if it is assumed that new subscribers also would be willing to pay (in terms of 1977 prices) what present subscribers have in the past on average demonstrated a willingness to pay, the quantifiable rate of return on the program is 36%. 1/ In September 1976 telephone connection charges were doubled from US$80 to US$160. 2/ The national consumer price index in El Salvador increased from in 1964 to approximately as of Mlay 1977.

57 ANNEX 7.01 Page 3 of 3 pages 8. A second estimate of consumer surplus can be made by assuming that existing and future subscribers will be willing to pay in real terms the same prices in the future that existing subscribers are domonstrating a willingness to pay today. Given this assumption the quantifiable economic rate of return on the program is between 31 and 33 percent depending on whether or not the entry price for new subscribers is taken as that existing when they enter the waiting list, or as that which they pay when they first receive service. 9. These estimates do not explicitly take into account the fact that new subscribers will be receiving a better quality of service (less traffic congestion and noise) and a better quantity of service (a much larger number of connected subscribers who can be contacted by telephone) than did existing subscribers when they joined the network. September 30, 1977

58 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 During loan negotiations, agreement was reached on the following principal points: (a) ANTEL will complete a feasibility study of peak and offpeak rates by December 31, 1979, and review the study with the Bank (para. 3.12); (b) By September 30, 1978, ANTEL will collect 01.4 million as partial payment by the Government of past due bills and the balance will be settled before June 30, 1979 (para. 6.09); (c) a revaluation study will be made and complementary information will be supplied with the financial statements as from December 31, 1980 g:iving values for fixed assets and depreciation suitably revalued. Tariffs will be maintained to achieve a rate of return of at least 15 percent on book values until the revaluation study is completed and thereafter ten percent on suitably revalued assets (para. 6.12); (d) ANTEL will not undertake additional works to the investment program exceeding US$1.5 million equivalent in any one fiscal year without obtaining Bank's comments on the additional investment (para. 6.13); and (e) ANTEL would not incur long-term debt without the Bank's prior approval unless the preceding 12 months' internal cash generation covers maximum future debt service at least 1.5 times (para. 6.14) The proposed project constitutes a suitable basis for a Bank loan of US$23 million.

59 EL SALVADOR ANNEX 8.01 ADMINISTRACION NACIONAL DE TELECOMUNICACIONES (ANTEL) Related Documents and Data Available in Project File A. General Reports and Studies on the Sector or Subsector Al - Census of the Country A2 - Ley de la Administracion Nacional de Telecomunicaciones - September 1963 B. General Reports and Studies Relating to the Project B1 - Interim Report Prepared for Administracion Nacional de Telecomunicaciones (ANTEL) by TAI Inc. - The Consultants (2 vols.) C. Selected Working Papers Cl - C2 - Statistical Data of Automatic Exchanges as of December 31, 1976 Project Cost Basis C3 - Disbursements - itemwise C4 - C5 - Internal Rate of Return Calculations Municipalities Without Long-Distance Services D. Other Information Used in the Report Dl - D2 - D3 - Specification of Government's Accounts as per December 31, 1976 Plan for New Accounting System "Sistema Integrado de Informacion, Plan Tentativo".

60

61 W~~~ 4ALA6*A/A 4N 'K A.6 W AMJLM A~ PAA ~~ IflK ~~..< AANAAAPA TA SAAAM Ak.AAAAE AMA A~~~~~~~~~~~~~~~~~A[. M, ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~ AA~~~~~~~~~! :~~~~:.,jsv ~ ~ ~ ~ ~~~~~~~~ ~ ~ ~ ~ ~~ APATAT A A~~~~~~~~~~~~~~~~~~~~~'' QA--- e~~~~~la '' r~ IL- SMEAA A9VLLd 11- N ;, - At AMA - LA 7,A~~P ~ '2Q1Ž.I 11 A 2-S. ~~~~~~~~z wl~~~w,;~~~~~i;;t-w~~~~~~~e ~~~~~~ M. p, j,v V", P3 -~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~pa L -p ' P I.CmNW.,6 ~ ~ ~ E- ACAAAAZAAA -AD.A A -- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~l -~~~~~~~~ AAAAAAAAJP AJE M*...A'A ALLL LTM AL..... MAM...A..AN IBD A, MT A AAAP A,L L L A ML M\.. 3 ~LA ~A AL4T LP L~~~~~~~~~~~~~~~~~ S~~~~~~~~~ ,. 4. AAAA AM~~~~~~~~~~~~~~~~~~~~~~~~... Nb~~~~~ S.- A~~~~~~~~~~~~ViAN~~~4 pa MAP [4 PAAMT A ja~~~~~~~~~~~,