/ .)a

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 12788-JO

STAFi- APPRAISAL REPL"'T

THE BASHEMITE KINGDOM OF JORDAN

TELECOMMUNICATIONS PROJECT

MAY 4, 1994

Industry and Energy Operations DivisionCountry Department IIMiddle East and North Africa Region

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

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CURRENCY AND EOUIVALENT UNITSAs of January 1994

Currency Unit - Jordanian Dinar (JD)US$1.00 = JD 0.699JD 1.00 = US$1.43

FISCAL YE.^ R

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

BITS Swedish Board for Investment and IFC International Finance CorporationTechnical Support

ECO Expanded Cofinancing Operation JD Jordanian Dinar

EIB European Investment Bank JPR Jordanian Paging Radio

EXIM Japan Export Import Bank LSP Letter of Sector Policy

FRR Financial Rate of Return MOPC Ministry of Posts and Communications

GDP Gross Domestic Proauct ODA Overseas Development Agency (UnitedKingdom)

IBRD Intemational Bank for Reconstruction RSS Royal Scientif4c Societyand Development

TCC Jordan TeLcommunications Corporation

ICB International Competitive Bidding TOR Terms of Reference

FOR OFFICIAL USE ONLY

CONTENTS

xe No.

Loan, ECO Guarante and Project Summary ................................ iv

L Ihe Teleconunicaions Sector ...... . .............................. 1A. Introduction ............................................... I

Rationale for Bank Involvement .1................................ B. Sector Performnace . ..................................... 2

Demand for Services ...................................... 2Supply of Services ...................................... 2Access to Service ...................................... 3Usage of Service ...................................... 3Performance of Existing Networks ...................... 3...... 3

C. Seor Orgmzadon ........................... 4Exising Legal Framework ............................ ; 4SectorPolicy ........................... 4Existing Regulatory Framework ............................ 4Sector Restumtuing ........................... 5

H. Sector Restructuring Stategy ............................ SA. Prepaing and Promulgating a New Telecommunications Law ............... .5

Teleco mmnicationsPolicy Division ............................. 5Sector Reuation .................... ... 6

B. Commercialization, Corporatization and Privatization of TCC .............. . 6C. Promoting Competition and private Provision of Services .......... ... . 7D. Interim Arrangenents .......................................... 7

m. theTelecommunicationsCorporation(TCC) ............................... 9A. Mission, Authority and Control .................................. 9B. Organizaton and Management .................................. 10

Business Process Re-engineeing..................... . 10Mobilization ................................... 11

C. Institutional and Information Infrastructure ............ ................ ItFinancial and Accountng System .............................. 11Hunman Resources Management .............. ................. 13

D. Extend Auditing .......................................... 14

This report is basee on the findings of the January/February appraisal mission comprising MobammadMustafa (Task Manager), Silvano Monti (Engineer), R. Basu (Financial Analyst), Farida Mazhar(Pinancial Officer), J. Horsfall (Consultant), Antoun Moussa (Sr. Informatics Specialist) and Eloy Vida(Sr. Engineer). The peer reviewers were Deane Jordan (Sr. Economist) and Ashoka Mody (PrincipalEconomist). The Department Director is Ram Chopra and the Division Chief is Barbara KafLa

Ithas asicteddsd ob onandmsbyb ody in the perfmmeeof dh*l m ~hsontmemanot&ambdwosewboeWrdB&nkmd__t I

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PMNQ.IV. IhePro3ect ............................... 14

A. Project Objectives .............................. 14B. Project Description ............................... 14

Sector Restructuring Component .............................. 14C. Project Cost and Financing Plan .............................. 16

Project Cost .............................. 16Project Financing Plan ............................... 17ECO Cofnancing ......... .......................... 17Rationale for and Benefits of the Proposeu ECO ......... ............. 17Potential Role of the IFC ...................... ... 18

D. Procurement and Disbursements . .... 19Proctremen and Paciig .............. ..... 19Disbu ents .............. ..... 20

E. Project Mangemnt lmplementadon and Supervision .................... 20Project Magement and Implementaion ................... 20Projec Supersion and Reporting ................... 22

V. FinancialandEconomicAnalysis ..... .............. ... 23A. Financia Anaysis ...................... 23

Financial Position ....................... 23Tarifi ....................... 25Projected Financi Performance ...................... 27Financial Covenats ...................... 27

B. Economic Analysis ...................... 28Benefits ... ......................................... 28Rewn on Investment ................................ 29Environmental and Heth Aspet ............................. 29

C. Project Risks ............................... 29

VI. Agreements Reached Durng Negodations ............................... 30

Text Tables

Table 2.1 - Sector Policy - Action PlanTable 4.1 - Estimated Investment Program and Project CostsTable 4.2 - Project Financing PlanTable 4.3 - Procurement ArrangementsTable 4.4 - DSScheduleTable 4.5 - Performance IndicatorsTable 5.1 - Historical Financial Indicators

Annexes

Annex 1.1 - Demand for Telephone ServicesAnnex 1.2 - Access to TelephonesAnnex 1.3 - Exisdng Telephone Switching Equipment TechnologyAnnex 2.1 - Letter of Sector PolicyAnnex 2.2 - Terms of Refrence for Sector Restruuing TAAnnex 3.1 - Orgnization Chart of TCCAnnex 4.1 - Switching ProgramAnnex 4.2 - Description of Banlr Financed ComponentsAnnex 4.3 - The Management of the National Telecommunications ProgramAnnex 4.4 - Technical Assistance Needs for Project Management and SupervisionAtmex 4.5 - Implementation PlanAnnex 4.6 - Bank Supervision PlanAnnex 4.7 - Disbursement ForecastAnnex 5.1 - Historical Financial Statements

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LOAN, ECO GUARANTEE AND PROJECT SUJMMARY

Borrowerl Jordan Telecommunications Corporation (ICC)

Beneildary: Jordan Telecommunications Corporation

Gua_antor: The Hashamite Kingdom of Jordan

Amount: Loan: US$20.0 million equivalentECO Guarantee: US$50.0 million

Terms: Loan: 20 years, including five years of grace, at the Bank's standard variableinterest rate

Project Objectva: The objectives of the project are to improve the efficiency oftelecommunications services in Jordan by: (a) developing a market-orientedsector policy and a transparent reggulatory famework; (b) commercializing,corporatizing, and subsequently privatizing TCC's ownership andmnanagement; (c) ercouraging private investment in the sector; and (d)enhancing service quality, expanding network capacity and increasingcoverage.

PrJoect BenefIts: Tle project is expected to have economy-wide benefits. It will help *omotei-nvest ts in the sector; generate new employment opporunities; improveTCC's efficiency; and enhance service quality, expand network capacity andincrease geographical coverage. The number of users and connections wildouble in access from 286,812 installed lines, in 1993, to a minimum of540,000 lines in 2001. For businesses, improved telecommunications serviceswill help enhance productivity. The financial rate of return for the project,based on incremental cash flows, has been calculated at 22 percent. Thoeconomic rate of return is estimated to be about 24 percent.

Puroject Risk: Sector restructuring touches on several critical issues which have social andpolitical dimensions. Parties interested in these issues include theGovernment, the Parliament, senior management and employees of TCC, thecustomers and the public at large. The Government has, throughout theproject preparation, manifested strong commitment to the restructuringprogram. To ensure the support of the other groups, during projectpreparation, several steps were taken: (a) in the process of developing thesector policy, the Council of Ministers, the Steering Committee, the privatesector, the Association of Engineers and TCC managers have worked closelyand debated Issues in workshops that were held for this purpose; (b) TCC'ssenior management has also been very active in the development of therestructring program; (c) in order to ensure the ownership of its middlemanagement, TCC has established working groups to serve as *changeagents" to help explain to staff the

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objecdves, expected outcome and benefits of the reform process. Durinproject implementaton, similar workshops and problem solving sessios willbe organized; and (d) a public awareness campaign will be carried out as apart of Phase II of sector restructuring to obtain the support of the customersand the public at large. There is also the poteial risk of a delay in theenactment of the draft Telecommunications Law. Several inerim sectrrestructuring measures, however, have been taken already or will be put inplace by loan effectiveness.

Wbile tie Govenment of Jordan and TCC ha-e a good record ia projectimplementaton, the investment component of the project is large and requiresstrong project management to avoid any potential delays due to procurementand insufficient institutional capacity. To minimize this risk, TCC has alreadyprepared and issued all bid documents, developed a detailed implementionplan, and established a comprehensive project management organization.During implementation, in addition to the regular supervision missions whichwill monitor progress against agreed perfc-mance indicators, the Bank willhold anmual reirews and a comprehensive mid-term review with all theconcerned pardes. These measures are expected to minimize the risk ofimplementation delays for the physical component.

Project Cests:

:ND - 1.431)S -- 31 n50 1 US$ low03m Local Focaign Toni Local F~~xeign Total

U. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~tuL 11 i1h W-f Fkin- c lIAE trn 14,

-qitdahg 1,800 28,811 30,611 2,574 41,200 43,774*TlihalnMi8n 2,9CK 16,986 19,886 4,147 24,920 28,437-Lieb Pblu 39,129 30,490 69,619 55,955 43,600 99,5S-BWkf?.g 7,826 - 7,826 11,191 - 11,191

Due Cmot Sl.6S 76.2S7 127.942 73.S67 109.G90 182

Phydo"a Cootligeacl. 5,166 3,814 8,980 7,3S7 5,454 12,841Pie CSauiwale. 5,928 S,690 11,618 8,477 8,137 16,614

Subl4w 1.9 9-504 209"9 IS.86 13.S91 2D245

TSbalc Aadeance (Gant)'* Ot a - 2,937 2,937 - 4,200 4,240- uctota¶aouln - 4,196 4,196 - 6,000 6,000

Sub4totl - z723 102 1200 D

Toa e cos t 62.749 92.924 ISS.673 P9.731 132881 222.612

I. Totdl hedma PIa 719 1J74 21423 1102O+M) IW

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Project WlPandeg:

(US$ million)

Local oreign -I-OtU

Inteal cash genrson 90 - 90World Bank 20 20EIB - 30 30Japan Exim Bank - 23 23U.K. ODA - 6 6Swedish BITS - 4 4Commercial, with ECO guarantee - S0 50

Total 90 133 223

Famaed ProjectCompletion Date: 03/31199

asimatedDisbursement Schedule:

Estimated Disbursements

(UJSS)

Bnk: IVY 1995 1990 1997 1?93 1999Annua 2,345000 12,225,00 3,730,000 1,300,000 40,00Cumulatve 2,345,000 14,570,000 18,300,000 19,600,000 20,000,000

Economic Pateof Retum: 24 percent

Map: No. DBRD 25725

I

TIE TELECOMMUNICATIONS SECTOR

A. Introduction

1. A well-functioning telecommunications system iS crucial to Jordan's economic developmentThis is particularly the case in the dominant services sector which accounted for about 56 perceat ofGDP in 1992. Increasing economic activity In Jordan, namely in the information-inensive servicessector, is generating a strong and growing demand for better and more varied telecommunicationsservices. However, the dominant operator in the telecommunications sector, TCC, has not been ableto meet market expectations.

2. he perfownance of the eleom tns sector is weak and can be characterized asfollows: (a) te level of demand satifacdon Is low. The tota of 286,812 connected lines account foronly 77 percent of the existing demand for basic telephone services. Demand satisfaction is expectedto deteriorate further to a low of 55 percent in 1997, when new connections would be instlled underthe proposed project. In addition to the demand for basic services, there is a growing demand forother services, including data transmission networks, private satellite networks and mobile celluiarservices; (b) quality of servie Is not sadsfactory. Successful call completion rate is stiU low at about40 percent (compared to 65-75 percent in developed countries) because of bottlenecks resulting fromthe long overdue network expanslon. Reliability of outside plant, with an average of 89 faults per100 lines per year, is a major concern (a reasonable target would be 10); (c) tarfs for Inernaionalservices are higher than cost while tarlffs for local servces are lower than cost. This imbalance leadsto excessive reliance on revenues from international serwilces. Such continued reliance wouldjeopardize TCC's financial viability when the sector is opened to competition. The imbalance hasalso resulted in providing subsidies (about 15 percent) for the provision of local senrices. (Under theproject, the technical assistance (TA) program for sector restucturing will include a study to reviewthe level and structure of TCC tariffs and identify changes needed to enable TCC to generatesaisfactory earnings with low risk profle. TCC is expected to continue to enjoy strong financiviability as illustrated in Schedule D to the Memorandum and Recommendations of the President).

3. The major constraints on sector development are: (a) hIadequate sector struc-re andorgan fadon. There is only one entity, TCC, which dominates policy-making, regulation andoperations. This has prevented private participation, competition and economic pricing in the sector;and (b) lackt of corporate autonomy of SC has impeded the implementation of commercialmanagement practices, provision of staff incentives, and adequate capital investments whether fromsef-generated revenues (much of which is transferred to the Govrwent) or from external sources.

4. The Government is determined to address the constraints that impede telsommunicationssector d.evelopment. With the assistance of the Bank, it has developed a comprehensive sectorstrategy which aims at modernizing and expanding services and at implementing a major sectorresructuring program to facilitate the desired expansion and open the sector to competition. TheGovernment has presented on May 2, 1994 a letter of sector policy containing this strategy (Annex2.1). One major element of this strategy is to privatize the operations of TCC. The straW ispresented in Chapter H of this report.

S. Rationale for Bank Involvement. The Bank's country strategy for Jordan emphasiz ize"la financial restructuring, cost recovery, commercialization and privatizLion of public enterprises to

improve resource allocation and reduce the burden on the budget. It also emphasizes addressing

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critical infrasucture needs as well as mobilzing financing on competitive terms. The proposedpro3ect Is consistent with this strategy and the Government has requested the Bak's tecical andfinancial support in realizing its comprehensive agenda for the sector (para 12). The project would:(a) support restructuring of a key sector (telecommunicaions); (b) support privatization of TCCwithin three yeas; and (c) help mobilize funds on compettive terms, from official as well ascommercial resources, to flnance the Investment program for expansion.

6. The project is also consistent with the Ba's telecommunications sector strategy outlined Inthe recent seminar to the Board. Ihis strategy calls for shifting the role of the goveaments fromownership and management to policy-making and rgulation, promoting efficiency and quality thwughcommercialization of operational activities and competitive provision of services, and using newfinanc4al instruments (such as guarantees).

B. Sector Performance

7. Demand for Services. The total estimated demand at the end of 1992 was for 374,092 mintelephone lines for a population of 3,663,000. The estimated demand includes the sum of linesconnected to automatic exchanges (276,812 excluding mobile service), lines connected to mamnalservice (10,000), the registered waiting list (77,280) and an esdmation of suppressed demand(10,000). The latter is defined as demand not expressed by custmers because they are in areas notyet served or areas without immediate expansion possibility. Annual growth of demand Is projectedto slow down gradually from an actual 9.5 percent in 1992 to 5 percent in 1998, reresenting anaverage annual rate of 8 percent over the 1992-1998 period. Under this scenario, projected demandfor main telephone lines in 1998 is expected to be about 593,000. Details of the demand forecast areprovided in Annex 1.1.

8. In addition to demand for basic services, there is a growing demand for value-added servicesto support commercial operations. Such services include data transmission networks, two-waysatellite-based services, and mobile cellular services.

9. Supply of Services. As of December 1992, TCC provided the following services:

(a) basic public switched telephone network comprising 286,812 main lines (10,000 aemanual, the rest are digital). Details of the existing switching equipment are provided inAnnex 1.3;

(b) analog mobile telephone service with 1,453 customers in the Amman area;

(c) nadonal and internatonal telex service with 2,301 telex lines;

(d) public pay phones totaling 172, mainly located in the Amman area; and

(e) private leased circuits totaling 635.

10. Other telecommunications services are provided by private companies, including the provisionaid maintenance of terminal equipment (telephone sets, telefax machines, private branch exchange)and a paging network licensed to on s operator (with about 1200 subscribers to date).

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11. To overcome the limitations (of firther expansion) of analog mobile telephone seices inAmman (currently operated by TCC), the Government (with IFC assistance) is in the process ofgranting a license to a private operator for a cellular network. This liceose should offer theopportunity to extend the mobile cellular telephone service to the whole country.

12. There is no dedicated packet switching network infrastructure in Jordan. The Government iscurrently studying the options of licensing the provision of such services to the private sector.

13. The level of demand satisfaction is low. Total connected lines (286,812) account for only77 percent of defmand for basic telephone services and the unmet demand was estimted to be at87,280 lines at the end of 1992. Demand satisfaction is expected to deteriorate further to a !ow of55 percent by 1997, when new connections would be installed under the proposed project,

14. Acem to Service. The telephone density is about 7.7 lines per 100 population, whichcompares well with countries of comparable GNP per capita in the region (Syria: 3.9, Morocco: 2,Tunisia: 4, Algeria: 3.4), but is considered low compared with other countries like UAE (21) and ECcountries (average about 45). The greater Amman area has a better access to telecommunicatiosservices compared to other parts of the country (about 63 percent of the lines serve the greaterAmman area, giving it a density of 12 lines per 100 population'). Some networks in the northernpart of Jordan (Dair Abi Said, Ajloon, Mafrao have densities as low as 2 or 3 lines per 100population (Annex 1.2).

15. Usage of Service. Eighty-one percent of the main telephone lines are currendy registered byTCC as serving residential premises and 19 percent serving commercial customers. In addition, anestimae of out-going traffic distribution during the peak hours is reportedly 90 perce for local, 6percent for national, and 4 percent for inational calls. The average traffic per line in Amman Istwice the average for the rest of the country. However, high usage by residential customers hasresulted in network congestion, thus limiting commercial international traffic and causing a substansum of potential revenue loss.

16. Performance of Existing Networks. The reliability of the switching and nsmissionfacilities is satisfactory. During March 1993, only one outage of service (in a remote line unit frabout three hours) due to transmission fault was reported. However, the saturation and congestion inthe exchange have resulted in low call-completion rates. The average call-compleion rate In thwhole coutry is only 40 percent; this rate tends to be higher outside Amman (close to 50 percent).Call-completion rates between 65 and 75 percent are standard in developed countries.

17. As in most developing countries, reliability of the outshid pa Is of concern. The repotdratio is 89 faults per 100 lines per year. A reasonable target would be 10. Coordination of faultclearance oreration is partially centralized. There is a need for an expansion of the existng operatoncoordination centers, and provision for databases and management tools to improve follow-upcapability.

Not an of do ehewnun ama is comide, to be uanm.

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C. secor organzton

18. Exdsdng Lgalp Frameoork. The legal framework for the telecommucatons sector Isprovided in the Telecommunications Law CIC Law) of 1971 (as amended in Janury 1993) andsome of the by-laws issued thereunder, and the Wireless Telegraphy Law of 1934 and its bylaws.The TCC Law retains TCC as the dominant player in the sector not only for providing services, butalso as the regulator.

19. Although TCC has, dejure, the status of a financially nd adminstradvely autonomous entity,as a result of by-laws legislated in 1989, TCC remains, defacto, a public sector entit with thecharacteristics of a ministerial deparment of le Government's central administration (para. 40).

20. The 1993 amendment to the Telecommunications Law empowered TCC to assign non-basictelecomtntitlons services to Jordanian enMties. 'Me assignment must be made by public tender andthe bidding companies must be wholly owned by Jordanians. The license graned to provide theservice must be for a limited period and is subject to the approval of the Council of Minister (COM).TCC has granted a privately owned company, the Jordanian Paging Radio establishmeat (JPR), alicense to provide paging services on a monopoly basis for 15 yesrs. The Government is currenlynegotiating with JPR to change the monopoly clause to facilitate the licensing of a second pagingoperator by the end of 1995. Terminal equipment to be connected to TCCs network is sold byprivate companies. TCC has recently, with assistance from IFC and in coordination with the Bank,invited Jordanian-owned companies to submit bids for a license to provide mobile ceUular services.Applications by private companies to provide other non-basic services, Including data trasmissio,pay phones and privaze networks are being considered.

21. Sector Polcy is formulated by TCC through its Chairman. There are nO tdecom-tionssff or or ional units at the Ministry of Posts and Communications (MOPC). The only linagpis the Minister of MOPC in his capacity as the Chairman of TCC's Board. Therefore, under a nowstucture, there is a need for expanding the role of the Ministry with respect to policy-making andbuilding an institutional capacity within MOPC by creadng a telecommunications policy divisio.

22. Existing Regulatory Framework. Tbe current law does not provide for a consiSttregulaory framework which clearly identifies responsibilites. The sector's regulatory functions areshared between COM, TCC and the Frequency Management Committee. TCC makes proposls toCOM for granting licenses to other companies to enable them to provide non-basic services, but thefinal decisions on licensing, TCC interconion charges, and lease of facilities res with COM.TCC provides the major adminisative role in radio 4quency management snd licensing, while thFrequency Management Committee presides over the .aocation and assignment of frequency.Presendy, TCC monitors the performance and tariffs of JRP. TCC will also regulate the mobilecellular operator yet to be licensed, untl a separate regulatory body is established as part of the sectrrestucturing under the proposed project.

23. The current regulatory arrangements raise a number of issues. First, there is a potentialconflict of interest since TCC is expected to pursue its own interests as an operatr In td sectuor andcannot be Imparti in regulating other operators. Second, there are no clearly defined rponsbitiesnor is there a separate regulaty body to monitor tariffs, promote competiion, enforceinterconnection policy, manage conflict resolution, allocate, manage and monitor radio frequency

speca%, approve standars and terminal equipment, and monitor performance of opators. Finally,COM and TCC are neither organized nor equipped to undertake this mportant nction, pardiulalyIn a muld-operator evironment, given the complexity of the Issues Involved. Ibe eistngregulatory arragements are already hindeing a timely response to sveral applicants for liens toprovide non-basic services. Therefor, thee is an urgent need to separate the seor rlatoryfucdotn ad make it independent frc,m all telecommunications operatoas, including TCC.

24. Sector Restructuring. The sector restructuring component of this project (para 64) wouldhelp the Goverament formulate and implement refoms that aim at removing the sector developmentconstraints and facilitate opening up new possibilities for privat sector pardcipaion. Reucg oftie sector will be implemented in two phases. The fus pha. which has been completed as a part ofthe project preparation, involved providing technical assistance CrA) to help the Government andTCC prepare proposals for: (a) a new sector policy; and O) a daft Telecommunications Law. As aresult of this work, the Government has recendy developed a new sector restructuring saegy. inthe second phase of the sector restrcturing component, the Govemment will implement this sectorrestuctring program as per a time-bound action plan as detaUed in the attachment to theGovernment's Letter of Sector Development Policy.

SECTOR RESTRUCTING S1RATEGY

25. As noted above, the Government of Jordan has developed a strateg for theteleconications sector with assistance from internationa and local consultas provided underUhase I of the sector restructuring component of the prposed project. The Governmt is stronglycommitted to the implementation of this strategy. As arculated in the letter of sector policy S)(Annex 2.1), the sector strategy consists of the following elements: (a) preparing and promulgat anew Telecommunications Law; (b) commercalizing, porazing and privatizing the operaons ofTCC; and (c) promoting competition and private provision of services.

A. Preparing and P g a New Te mca ons Law

26. Ihe prpos Telecommunications Law will provide the framework for active paticipation ofthe private sector in the development and the provision of all telecommunications services. The Lawwfll also provide the legal frmework for: (J) the definition of MOPC's roles and responsibiities, andthe establishment of a Telecommunicadons Policy Division at MOPC; and (i) the establishment of theRegulory Office and the definition of Its role and responsibilities. Durin t ia. eGovernment provided assurances that it would prepare and present the new Law to the Parliamentprior to loan effectiveness [para. 112 (b)J.

27. Tec ins P yolic Division. The Governmeat wil be advised by a newTelecommunicatons Policy Division to be established at MOPC on sector policy, which will beimplemented by the proposed Regulatory Office. Among other things, the Telec u aPolicy Division will advise on major new service types that should be itroduced; represent Jorn inItlnadonal fora, relaing to te nic ns; ad prote and support futher development oftelecommunications policy.

28. Sector Regulation. In order to allow competition to operate fairy, and to separae theGovernment's ownership interests in TCC from the need to regulate the teidc ations sector, a

transparent telecommunications regulaty framework, Independent fom all operators, will beestablished. 'here will be an autonomous telecommunications Regulatory Office with a ful-timeDrctor-eneral of Teleommunications and professional staff. Ihe Regulatory Office will have anindependent supervisory Regulatory Board which will be appoined by the Council of Minsters; theOffice will be established within two months following the enactment of the new Law. Tbe Boardwill oomprise membership of appropriate stature from business, legal, and academic life. It will bepossible to appeal Board decisions to an adminstative court The Government will review, with theBank, the proposed teleommunications regulations and procedures of the planned independentRegulatory Office by the end of June 1995, and issue the proposed regulations promptly thereafter,takiW the Bank's comments thereon into account [para. 111 (b)J.

29. The Regulatory Office will be responsible for the regulation of the teecommunications sectorin Jordan. Its regulatory functions will include: licensing telecommunications service providers;ensuring that the lisense holders adhere to the conditions of their licenses; establishing transparentcriteria for entry in telecommunications services; regulating prices where service providers havemonopoly power; enforcing iconnection to ensure the development of competitive and newservices; resolving inerconnection disputes; and setting technical standards. Ihe management of theradio spectrum will also be placed within the Regulatory Office.

B. CommercIalIzatIon, Corporatizatlon and Privatizaton of TCC

30. It is the Government's objective to transform TCC into a commercially run and fiulyautonomous company that can endure the expected competitive pressures, able to attract private equityinterest in its ownership, in line wlth the new proposed Law ara. 26). Durn n2gotialons theGovermnent gave assurances that it will incorporate TCC under the Company Law by the end of June1995 [par 111 (a)]. The new company will have a new board with appropriate membership, toenable it to provide leadership in injecting commercial discipline and practices in TCC's operations.The new company will be initially Government owned. However, within three years, theGovernment will seek private sector participation in TCC's ownership. The Governmeat wfll ccyout a study to develop a strategy and an action plan for the privatization of TCC as a part of Phase Eof the sector restructring program (Annex 2.2). The Government shall, by December 31, 1995,review with the Bank the findings and recommendations of the study. Thereafter, on the basis ofsuch recommendations and exchange of views, the Government shall carry out such action plan,taking into account the Bank's comments thereon [para. lll (c)].

31. In the interim period (i.e until private participation in TCC's equity is effected), theGovernment will divest some of TCC's operations by: (a) contracting out to private companies TCC'snon-core activities including direcories, construction and connection of customers; (b) converting theTeecommunications College from its current status as a department within TCC to an independenteducational institute, possibly with participation from TCC, other telecommunications operators andother intereted private parties; and (c) mobilizing private sector financing for TCC's investmentneeds.

32. The Government intends to create a level playing field for all participants in the sector. Thisobjective will entail several policy changes including: (a) moving the responsibility of licensing fortelecommunications equipment imports out of TCC; (b) subjecting all participants, including TCC tothe same import duties; and (c) subjecting all participants, including TCC, to corporate income taxes.

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33. To ensure TCC's long-term financial viability and to facilitate competi*'au, the Govenmentwiil make all efforts to ensure that TCC prices to end users and its interconnmton charges to otherservice providers reflect economic cost and efficiency. The Government increased local charges byabout 300 percent In 1993, thereby bringing the charges for local services closer to costs.Nevertheless, further restruturing and rebalancing of tariffs will be undertaken on the basis of a tariffstudy that will be carried out to determine the specific actions required. Durig neyafosassurances were obtained that TCC would, by March 31, 1995, review with the Bank therecommendations of the tariff study, and that it would implement a program to restructure/rebalancetariffs within two years starting June 1995, or in accordance with a schedule satisfactory to the Bankin the event that the study recommends a different implementation time (para. 111 (d)l. TCC tariffsare expected to be regulated using a price cap approach and will be enforced by the Regulatory Office(para. 29).

C. Promoting Competition and Private Provision of Services

34. The Regulatory Office will promote competition by developing and adopting transparentciteria and procedures for licensing operators, facilitating interconnection, enforcing cost-basedtariffs, and providing regulatory certainty to investors. Competition in the provision of alltelecommunications services will be allowed. Operators (with completely separate ownership interestfrom TCC and from each other) will be allowed to provide telecommunications services using thetechnology of their choice. The number of competitors and the timing of licensing will be determinedon the basis of the Sector Pol. y Divisions's recommendations, which will take into account marketand economic efficiency considerations.

D. Interim Arrangements

35. Pending enactment of the new law, several interim measures have been implemented. TheGovernment has already authorized TCC to: (i) establish its own procurement committee separatefrom the Government's central tendering committee; and (ii) recruit new staff on contract basis andwithout seeking the approval of the Civil Service. The Government has also established an interimregulatory office and a policy division within the MOPC. The Government is processing applicationsfrom private companies for licenses to provide telecommunications services: by the end of 1994,licenses will be issued for a private cellular operator; a second private paging operator; and a privatedata transmission operator. To ensure defacto corporatization of TCC, the Government providedassurances durig negatons that it wil issue new by-laws for TCC prior to loan effectiveness[para 111 (d)]. The by-laws have already been prepared. They will provide TCC autonomy in theareas of personnel (mcluding terms and conditions of the employment of the existing staff),procurement and finance (mcluding controlling its cash flow). TCC will upgrade its financialmanagement capabilities to handle the expected financial autonomy.

36. As stated in the Guarantee Agreement, the Government will implement its sector restructurigprogram in accordance with the LSP and its attached time-bound action plan shown in Table 2.1. Tosupport its efforts in implementing the sector restructuring strategy, the Government, with assistancefrom the Bank, has developed a technical assistance (TA) program. The program consist of fivedistinct but interdependent acivities: (i) legal; (ii) sector policy (iii) regulation; (iv) TCC managementand organization development; and (v) strateg and action plan for the privatization of TCC. Theterms of reference for the TA program are provided in Annex 2.2.

Table 2.1

Seto Poliy - Acton Plan

A. luance of new 0 Preen dna*LAWto LAw is expected to beTeJcommications Law Parliament paused by Parliament

BI Relocatn str * Esablish Poy Diisionl at * Prepar regatyaptabMdUlltlia MOPC a

* eblishierim stabl.ishlilabetRegulatory Off"c , Regtory Of 1/ _

C. n of * Pepa new By-ws, et. * Hir consua for * Ucense a cllular * Dcveop action pla on 0 finalize and agreTCC and promoting * Requeonsultamts' Phase H of opendor, a second pag Coege Privatization sate andprivate ctor pmposal to assist in restrucing operaor, a data * Register TCC under action planparcaion in prevision commerclizatIon (including (including tariffs tranmsion operator Company's Law uad * Fualize orgnizatiotnof sevies diversification of Colege) tudy) * Alow private networks register nw compay in strwte for TCC

* Request consultants' * Grant TCC autonomy Contmact out drctories so&c exchange 1J Devdop informationpropol to cary out triff by issuing TCC new * Take action on 0 luau nw liceB W for management syste foestudy by-aws eceivables TCC I/ TCC

* Appoint new Boomdof 0 Develophumn resoDirect o t sratg fw TCC

* Age acion p a * Impove or busintis and stat prosss In TCCmplmenation * mplant acton plan on

* Evalut TCC assa 21 cole.* Establh new accounting

"Sytem 2I

D. Pamotig competition in 0 Licene a swond paging * Alow competon inprvison of erie opert peviion of svic -

. Le Lkse a elllar number and tdmig wouldOpeRo be decided by thd Sblicq

* Allw establishing ft Division aNdtnetworks Reguator _______

/10 _uactions becarie out by June 95 or whin two M-n of passag of the LAw, Wbiccr is cdier. .2I To be compltd wihi two yesnor acc oding to a tim sehedule. Xsat to teW Bank.ai To bo cm_d w Juney 5 or 9S owithin nin e fu the appointme of Phau H onsua.

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mTHE TELECOMMUNICATIONS COItPORATION (T.C)

37. TCC is a Govenment-owned, aemi-zutonomous agency, directed and supervised by a ten-member Board of Directors, which has wide authority over TCC. The Board is chaired by theMinister of Posts and Communications and is dominated by reprs ves of the Gover_nmt TCCremas, defacto, a public sector entity with the characteistkc of a miisterial department of theGovemment's central administation. TCC's instittonal cararcs in tems of its mission,organization and management, insiutional and information ilfrastructure and its auditingarrangements are discussed below.

A. Mission, Authority and Control

38. TCC's overall mission is nominally defined in the TCC Law (1971). TCC is cumniyresponsible for developing, maintaining and operating the country's telecommunicatons infastructurefor the monopoly provision of basic telecommunications services, both domestic and interational. Inadditon, TCC performs some regulatory functions including licensing of new competitors (para. 18).

39. In Phase I of the project, consultants noted that TCCs corporate mission was neither wellunderstood nor useful in guiding its day-so-day operations. TCC's broad mission has not beentranslated into a specific set of objectives that can be measured at the divisional or individual level.During Phase I of the sector restructuring program, a framework for TCC's mission and objectiveswas developed and preliminary recommendations were made xarding the substance of its mission.In Phase U, the project will provide assistance to TCC management in finalizing Its statement ofobjectives and inplementing the actions necessary to realize these objectives by each TCC division.

40. TCC's current by-laws provide it with little commercial autonomy:

(a) Fiscally. TCC is tied to the central Government budget for both investments andopeating expenditures, with litfle authority to manage its own financial resources foroperational and development purposes. Currently, TCC's Board approves the budget andrecommends it to the Council of Ministers;

O) Administratiely TCC cannot freely manage its own staff resources; it must adhere tocivil service codes. The Board and management lack the authority to adjust salaries andother employment benefits in order to remsain competitive in a high-technology sector, toadjust staff categories to meet the corporation's obligations, to hire new competent staff,and to dismiss those who do not perform satisfactorily or who are redundant Onlyrecendy, as part of the interim arrangements (para. 35) the Government has allowedTCC to hire contract employees outside the Civil Service;

(c) Ilaprocrment TCC has been subject to the approval of the tender board of theMinistry of Civil Works for contracts covering installation and civil works, and to thetender board of the Ministry of Fhnce for contract covering equipment and consultantservices. The Government has recently established a specW tendering committee forTCC, chaired by TCC's Director General. 'he members of the special committee arefrom TCC's Board of Direcors; and

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(d) Conunercially. TCC relies on the Council of Ministers to approve network and serviceexpansion projects and to determine charges for services.

41. The Government has recognized the urgent need to provide TCC with an environment that ismore conducive to effective operation and management. As noted earlier, the Governme.nt has agreedto commercialize TCC in the near term, with a view to incorporating TCC under the Company's Lawby June 1995 and seeking private participation in TCC's ownership within three years. In the short-term, defacto corporatization will be achieved by loan effectiveness through the issuance of new TCCby-laws. In addition, the proposed new Telecommunications Law will provide the legal basis fbrpermanent autonomy and will encourage the development of a competitive market.

B. Organization and Management

42. TCC is currently organized on a functional basis. The functions include: Investment andCommercial Affairs, Administrative Affairs, Financial Affairs, the Governorate (regional operations),and Operations and Development. TCC's current organization chart is provided in Annex 3.1. Eachfunctional area is relatively autonomous. Linkages between departments are weak. As aconsequence, business processes are not effectively managed and there is a tendency to duplicateactivities at the expense of accuracy, efficiency and productivity. Poor linkages between departmentshave resulted in weakening a number of key operations: (i) international service and settlements; (ii)pricing; and (iii) corporate planning. Under the proposed project, these operations will bestrengthened.

43. The current structure of TCC retains the historical emphasis placed on construction andoperation of the technical infrastructure. This is reflected by the distribution of the work force. Over80 percent of staff work in operations and development - 20 percent in the central Operations andDevelopment and 60 percent in regional operations - and about 5 percent work in the DirectorGeneral's office and in the Investment Department. Although there is a strong Network PlanningDepartment, corporate planning fimction or capability is missing. Only about 11 percent of staffwork in the commercial and administration departments, comprising corporate planning/businessdevelopment, pricing, accounting, financial management (including billing and collection), and humanresources management. These areas need to be established or strengthened. There is also a seriousneed to establish an effective marketing/customer services department.

44. The current structure also includes a small number of non-core activities, such as theadministration of a Telecommunications College. The Phase rI studies will provide recommendationsregarding divestiture or third party management of non-core activities in which TCC has nocompetitive advantage.

45. The proposed project is designed to facilitate TCC's smooth transition to a commercialenterprise, and an increasingly competitive market through an innovative program of techicalassistance. The program will create an optimal design for a commercial enterprise through businessprocess re-engineering and by significantly upgrading management skills through mobilization andinvolvement of TCC's management and staff.

46. Business Process Re-engineering. Successful commercial enterprises are organized aroundbusiness processes which support their objectives. For TCC, the core business processes include: O(corporate planning; (ii) marketing and commercial operations; (iii) procurement; Civ) customer

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service; (v) network operations and maintenmce; and (vi) financial management and accti,ncluding billing and collection. Business processes cross many organizaional boundies and require

strong linkages betweea deparments and areas of speciized epetse. Through effective linhges,scarce professional resources and information can be shared rather than duplicated, thereby reducingthe opportnW for redundancy and errors. Under the project, consultanu will work with TCC toreview the organizational structure, design a new organization around the core business processes, re-engineer core business processes to achieve maximum efficiency, divest those funcdons at areidentified as non-core, and provide management training to support the organtion. Tbe analysiswill create a new process for a corporate plan, tariff setting procedures and guidelines, a newprocurement process, a marketing and customer service group and a process for developing marketngand customer service plans, and a finance and accouing process including a more efficient processfor billing and collecdon to support TCC's commitment to bring down receivables. The Informationand human resource requirements of the new processes will provide the basis for the informationsystem and the human resources development and management process.

47. MoblIzation. The new emphasis on commercial efficiency and on business process re-engineering and the functional interdependency that this brings will involve a significant adjusmentfor the TCC management and staff. he project is desiged to actively involve TCC staff in theprocess of change. Consulknts will guide TCC staff in analyzing the current situation, in settingobjectives that wUI guide the new ways of working, in identifying obstacles to overcome in achievingthose objectives, and in generating solutions to issues raised along the way. This approach, tesdextesively in the private sector, will increase the probability that TCC staff will success&llyimplement TCC's commercial strategy, because they will understand fully the issues they face, thesolutions they have generated and the on-going training and support that they will require to trdyanform their company. Extensive discussion during the Appraisal Mission resulted in TCCanagement's commitment to this process of change.

C. nslitutional and Inormation Infhstucture

48. Commercial organizations operating in a compe*tive market require a high level of efficiency.A key element in efficiency improvement is an adequate busiess proces-b30ased Inf o-Sntom. supported by appropriate computer and communications tednology, and an effective Human

49. FInanr al and Accounti System. TCC currentiy operates on a zero-base cash budget, asdo an other Government agencies. (Operating Wd investment expenditures are auhorized annuallythrough the Governmen budget and TCC's tet income is transferred daily to the Treasury). Since1981 TCC, at Its own initiative, has established a paralle system of commerci accounts which areindependeny audited. However, they are not used as a managment tool for pfmacemeasurement, planning or control. In the absence of a corporate treasury function, there is no cashmanagement even though TCC is a large cash generator, including foreign exchange. TCC willrequire an efficient and accurate financial accounting system to support commercial operations and toprepare for privatization.

SO. TCC does not have an effective Wormadon managem system to support financialmanagement and cost accounting. Such a system would enable managers to make better-Inrmeddecisions on service types, prices and other issues through accurate and timely reporting of the impact

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of sales on their fiacial objectives. An effective financial accounting system would also ensure thafinancial reports are prepared in a timely fashion for audit, shareholder and other legal requirements.

51. TCC does not have an admnhtatrw lnjomadon system that would enable mnagers tomonitor all personnel and administrative activities and provide the basis for corporate budgedng andfor bringing together all information required to recrit, evaluate and train persel.

52. TCC's operadons and comnwerdal managemt reporting is fragmented. Some departmezshave their own data bases and use manual or computerized systems, but there Is no formal structureor an ovrall corporate program to facilitate the flow of accurate information twrough theorganization. It is difficult to obtain upto-date and consistent infonnation on demand, includingchanges in demand linked to either internal factors, such as tariff adjustment, or to external factorssuch as an economic downurn or competitive substitution. The proliferation of different data baseshas meant that significant time is spent checkdng data for accuracy. In addition, owing to tie lack ofclear performance indicators and regular molitoring measures, it has been difficult for TCC to maketimely decisions. Successfil implementation of corporadzation, and ultimatelty of privatzon ofTCC wil depend on the existence of information to support decision-making at each level ofresponsibility and to create an integrated corporate information system to collect, process anddistribute information.

53. TCC does not have control over all the computer facilities it requires. It uses the computercenter at the Royal Sciendfic Society (RSS) for subscriber billing. Traffic data is read from thedigital switches and the tapes are sent to RSS, which processes the information and prepares a tapefor analysis at TCC. RSS also prepares the bitls for distribution. The billing system is thus totallyseparated from TCC's data processing system. TCC is cumeady trying to upgrade its computing anddata processing facilities to intgrate all fimctions. A contract has been signed to purchase a mainframe computer which will support the eventual development of an intated managementinfomatiDon system for TCC.

54. In Phase II, an extensive Management Information System project will be undertaken toidentify the complete information needs of the new organization, the sources and uses of information,the flows of information, and the technical infastructure required. Specifications will be maderegarding the hardware and software required to support the information system. The consultants wilwork closely with TCC. Early emphasis will be given to the development of an information systemthat will allow a dWggregation of costs to identify them by service and customer. A similar effortwill be made to disaggregate sources of revenue and to identify revenue by international, national andlocal service, as well as by customer type (i.e., commercial or residential). The integration of costand revenue analysis together with trend analysis and elasticities of demand will enable a rebaancingof tariffs which wiUl be essential to TCC's fuure commercial performance. The informationmanagement system will become the backbone of TCC in operating as a commercial endty; it wilenable the establishment, monitorin and reporting of performance indicators which will be usedprogressively to manage the business.

55. Products of Phase II analysis and design of the information system wil support the re-ngineered processes discused above. The Management Informaton System wiUl provide the

automation of TCC's financial accounting system, a more efficient billing and collection system andal management needs to measure their performance against established targets.

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56. Human Resources Management. As mentioned above, TCC is controlled by Civi Servicepolicies which require that It recruit employees from the Civil Service Pool and pay them at sandardrates. Levels of remuneration are relatively low compared to the private sector and prospects forcareer advancement limited. Apart from the commercial and management benefits of TCC assuminggreater control over its resources, including Its human resources, the network expansion compone ofthe project will require additional competent staff, as noted above, who will not be easy to attractunder the present regime and may also be impossible to hire if TCC is not freed from the CivilService restrictions it currently faces. To address this concern, the Govemment has recentlyauthorized TCC to hire contract workers outside Civil Service.

57. Size of the Workfbrce. As of December 31, 1992, TCC employed approximately 3,553 staffor about 13 staff per 1,000 main telephone lines, which compares favorably with thetelecommunications sectors in most developing countries. Efforts have been made to improve theproductivity of staff by restrcting the growth of personnel as the nework has slowly expanded. Itmay be necessary to increase the workforce by close to 40 percent by the year 2000, given thenetwork expansion planned and the 30 percent improvement in the productivity ratio ta willaccompany the investment program.2 This improvement in productivity would bring Jordan to thelevel of Australia or Singapore.

58. Skill Level and Composition. The workforce is relatively young with 65 percent of theworkforce under the age of 40, and 25 percent under the age of 30. As mentioned above (para. 43),60 percent of employees work in the field. The division of labor reflects the traditional emphasis onnetwork operations and on technical training, the level of which in TCC is relatively high. Bycontras, in the key management functions of finance and accounting, while the level of generaleducation and capability is relatively high, there are no fully qualified professional accountants. Inaddition, the role of Assistant Director General for Finance is for all practical purposes unfilled.ntially, there will likely be a mismatch between exisdng skills and required sldlls in some areas.Tis will be particularly evident in the new business mangement fields such as finance, marketing,information technology and customer service. The increased compuion of existing, as well asnew, finctions will also require additional skills for existing staff. Last, advances intelecomm~mications technology will require constant updating of technical staff in their workingmethods.

59. Iraining. As TCC is commercialized it wil require a human resources strategy and policieswhich can identify and atrct the individuals witb necessary skldls, compensate them according tomarket conditions, and deploy those individuals according to departnental requirements. For allstaff, it wll be essential to ensure that their skills are upgraded through training, and to controlquality through performance evaluation and out-placement where required. TCC intends to emphaizere-training of existing staff rather than out-placement.

60. In Phase II, consultants will work with TCC to review the requirements of the enteprise,assess the skllls, review the experience and potential of all professional staff, and develop a humanresources management system which will allow managers to select, task, reward and evaluate staffagainst objectives, and to identify training needs.

N4WCI*VWUW IspIaad at905 b*. .sip offtwmk4ou. haW beesdffmmd san wmpd adfi adoet9:10CO.

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D. Extemal Auditing

61. Since 1981, TCC's accounts have been audited annually by qualifled extemal auditors. Inprevious years, some delays have been experienced in the preparadon and audit of commercialaccounts. During negoations TCC gave assurances that it will provide the Bank with draft financialaccounts within four months of the end of each fiscal year and auditd financial accounts, indudingan audit report of the Special Account and Statements of Expenditure, within six months of the end ofeach fiscal year [para. 111 (1)].

IVTHE PROJECT

A. Project Objectives

62. The objectives of the project are to improve efficiency of telecommunication services inJordan by: (a) developing a market-oriented sector policy and a transparent regulatory framework; (b)commercializing, corporatizing, and subsequently privatizing TCC's ownership and management; (c)encouraging new investment and services in the sector; and (d) enhancing service quality, expandingnetwork capacity and increasing geographical coverage.

63. The project consists of two components: (i) the secor reasurig component, and (Hi) thephysical hwestnen component.

B. Project Description

64. Sector Restruchwing Component. Tbis component would help the Government formulateand implement reforms that would lead to further development of the sector and facilitate opening upnew possibilities for the private sector. Restructuring wi1l be implemented in two phases. The firstphase, which has been completed as a part of the project preparation, Involved providing techicalassistance (TA) to help the Goverment and TCC prepare proposals for a new sector policy and adraft Teleommuni Law. As a result of this work, the Government has recenty developed anew sector restructuring strategy which It wIll implement under the proposed project on the basis of atime-bound action plan during the second phase Cable 2.1). The Government has already developeda TA program, with Bank support, to help implement the strategy. The program consists of fivedistinct but interdependent activities: (i) legal changes to provide a robust legal foundation for thesector in line with the new sector policy; (Hi) a Sector Policy Division to be established at MOPC; (Oan independent Regulatory Office to be established and staffed with trained professionals; (iv)commercial management and organizational development of TCC; and (v) a stra and an actionplan for the privatization of TCC.

65. The cost of the TA program is estimatd at US$6 million. Overseas Development Agency(ODA) of the United Kingdom has agreed to finance the program on a grant basis. Terms ofreference (TOR) of the TA program have been discussed and agreed with the Government. 1gdignegotiations, assurances were received that the consultants for the TA Program wil be appointedprior to loan effecveness [para. 112 (a)]. Copies of the consultants' TOR are provided in Annex2.2, along with a proposed management structure for Implementng the TA program.

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66. The physieal component of the project Is the major part of TCC's Iestent Urowhich, in addition to the project, Includes onoing woks (para. 71). The investment program istailored to increase infrastructure capacity (in terms of switching and outside plant capacity) from320,000 to 600,000. ITis should allow the number of connected subscribers to expand from thepresent level of about 287,000 lines to between 540,000 - 570,000 lines, depending on the utilizationratio of exchanges (90 to 95 percent). This range corresponds to the level of expected demand In1997, with an average increase rate of 8 percent. In order to meet growth targets, expansion underthe investment program will significantly increase the number of new subscribers It connects eachyear. The expected build-up of this productive capacity from 15,000/20,000 to 60,000 per year willbe phased over the Implementation period of the project. By 1999, the number of subscribers isexpected to be between 520,000 to 540,000; by the year 2000 the infrastructure capacity wi1l be follyutilized.

67. The physical component represents a compiladon of several sub-projects comprising provisionand installation of local infrastructure for telephone service (switching equipment, associated power,transmission links, outside plant and buildings). Individual sub-projects are identified on the basis ofxchange service areas as follows: 11 projects in Greater Amman, 1 project in Madaba, 5 projects In

Irbid governorate, 3 projects in Zarqa governorate, 1 project in Balqa governorate, 1 project in Karakand Tafleh governorate. Each sub-project is associated with one main switching center but will servea variable number of distant sites due to the use of remote subscnber units in the planning of thenetwork. Each distant site accordingly needs specific transmission infrastructure to connect to themain switch, building, power and local outside plant network.

68. The physical component will comprise the following:

(a) 225,172 additional lines of switching equipment: these lines include the establishment of20 new main exchanges, 80 new remote subscriber units, the expansion of 1 existing mainexchange and 24 distant sites (a detailed list of the switching expansion program Is givenin Annex 4.1)

(b) microwave or optical fiber junctions to provide links between remote subscriber units andcorresponding main exchanges;

(c) associated local networks for the connection of subscribers;

(d) power and air conditioning equipments;

(e) buildings;

(t) specific Inital training for operation and maintenance of switching and transmissoequipments;

(g) formation of initial spare parts stock;

tb) consultant services for assistance in project management and supervision ofimplementation; and

O) computerized customer service, billing, collection and operational support systems.

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69. Ill ongo orksnclude the following sub-projects: Ma'an area project - upgrading ofInternational satellite transmission (1DR); Baqa 4 satellite dish - rural radio system; Maf*aq areaproject - new NISC (national and intenutional switch); computer systems; Tla El-Ali exchange area;expansion (13,000 lines) of Amman Fetex exchanges; and regional transmission project with thefollowing items: Amman - Damascus link, usage rights in submarine cables, Amman optical junctionnetwork, Southern optical fiber cable, Aqaba-Saini link, and Aqaba-Haqle link.

C. Project Cost and Finandog Plan

70. Project Cost. The total project cost, covering the physical component, the TA Program forthe technical sector restructuing component, and for project implementation (including cortingencies)is estimated at JD155.7 million (US$222.6 million) of which JD62.75 million represents local costand JD92.92 million equivalent foreign exchange (US$132.88 million). Switching and transmissioncosts include the necessary staff training, spares and documents. The present level of customs dutiesfor import of telecommunications equipment is around 100 percent, but this is expected to change(para. 32). TCC Is curnty exempt from these duties but wi be subject to taxes and duties as apart of the new policies implemented under the project. The investment progam financed by theproject, however, will continue to be exempt until its completion. Physical contingencies areevaluated at 5 percent of foreign costs and 10 percent of local costs (mosty civfl works). Pricecontigencies are based on the Index of Unit Value of Manufatured Exports (MUV) as published bythe Bank (October 1993). Local price condngencies reflect an estimated anmnal increase of 7 percentto 8.3 percent over the period. Price and physical contigencies total JD20.59 million (US$29.45million). Table 4.1 shows the estimated cost of the total investment, broken down by ongoing worksand project costs.

Table 4.1

Item Locad Foreign Ttl oa oramg To

-SWtcbli 1,800 28,811 30,611 2474 4120 43,774-Tranumnlun 2,900 16,9W6 19,886 4,147 24.920 28,437-ni Pluant 39,129 30,490 69,619 55,955 43,600 99,5S5-Buikding 726 - 7,826 11,191 - 11,191

Base od MM 127 73.S67 109,090 182J

Physkid caWlDingene 5,166 3,814 8,9S0 7,387 S,454 12,841Pri co Contingcis 5,92S 5690 11,618 8,477 8,137 16,614

Subota1, 9.0 2Q9S JLS6 .1L3IS 2M5

Tochnicsl Asuian (GChotra- enghoneing - 2,937 2,937 - 4,200 4,200- otor ruCong - 4,196 4,196 - 6,000 6,000

Subtal - 7.13 73 I

TOWal Prlct cost END GM S t 15576 73 1 132I881 2=1

m. Towa Iovesbuec Plan l&ft 2D 2J142310.23CJ5(1+n1) .=M

* Contin an not applied to TA mice burp -m vonam w be dnd and conanu appRoied by loan effeveness

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71. Project FInandug Plan. The project will be fianced by TCC's inteal resources, official andprivate commercial sources. Financing for the ongoing work bavo already been secred from the EuropeanInvesment Bank, Islamic Development Bank, France and the Govment. With regard to the proposedproject, TCC wHil fice the local cost fom Its internal cash geaIon (US$90 million). 7%e foreignexchang requirement for the Investment is expected to be fnanced In part through multilateral (EIB US$30million and IBRD - US$20 million) and bilateral (Japan EXIM - US$23 million) sources. the TA program(UJS$10 million) wil be finaced by grants from ODA (US$6 million) and BfTS (US$4 milion). The foreigexchange gap of US$50 million would be finced through commercid sources to be mobilized with thesupport of the Bank ECO guarantee. Table 4.2 shows the financing plan. During naWolm assuranceswere obtained that (i) TCC will ftinace all local costs of the project from its net revenue [para. 111 (O)J; and(ii) TCC and the Government will have secured firm commintmets for cofiancing prior to loan effectivenesspana. 112 (c)I

Table 4.2

Pxio P2ncn Pla(UJS S million)

Local Foregn Totalminten MEs gmenrtion 90 90World Bank -20 20SIB - 30 30Japan xim Dank - 23 23U.K. ODA - 6 6Sweden BlTS - 4 4ECO - SO SOTOW 90 133 223

The ECO Cofinancig

72. It is proposed that the financing gap of up to US$50 million be funded through a bond issuancesupported by an ECO Guarantee. Based on initial market sounding, the proposed ECO finacing would be inthe form of a foreign currency bond operation essentially targeted at the domestic capital market but alsooffered in the Eurobond market to allow for a broader distnbution. The ECO may also incorporate an equityfeature which would provide the investors with an option to coavt the bonds into shares, should TCC beprivatized at any point during the life of the bonds.

73. Rationale for and Benefits of the Proposed ECO. An ECO operation would provide TCC with avehicle for private sector involvement in its investment program in the form of private sector debt andpossibly through subsequent equity participation. More specifically, the advantages of the proposed ECOfinancing would be:

a) Accessibility to Captive Foreign Curre Funds. The ECO would help mobilize Jordanianforeign currency deposits held offshore by directng them back into the country for the purpose ofproductive investment in a priority sector;

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b) Mauhy. Although the Brady debt restructuring has been successtily concluded, the financiinstieutions have not yet resumed medium-term lending in foreign currency to the country.Currendy, the credit market for Jordan Is relatively short-term, ranging from up to 18 months to2 years. The ECO operation would help TCC extend the financing considerably beyond curentmarket terms, possibly up to 10 years;

c) Re-acceAs to the Fmancial Markets. The ECO would help to failitate Jordans re-access to thefinancial markets, following the Brady debt restructuring, thereby assting the counrAy todiversify its borrowing sources;

d) Cmetitie Financing Cost. Borrowing with ECO support is likely to be on fairly attractiveterms, reflecting not only the Bank's credit enhancement, but also the limited investment outletsavailable in foreign currency acceptable to local private investors;

e) Maret Fa . Since the borrowing entity would be TCC, the ECO would help etablish a trackrecord for the company in the market by exposing TCC to the rigors of market discipline, thereyfacil'ating its commercialization and privatization process;

t) awn= Fehikility. The operation would provide TCC with the flexibility of borrowing in USdollars, particularly since TCC's foreign currency earnings are essentially denominated in thatcufrrency;

g3 Debt-Equity Conversiol In the event that the equity option is incorporated within the structure,the ECO could pave the way for privatization by preparing an investor base. The equity option,if exercised, would also be a means of retiring the debt through an equity conversion, therebyallowing for the ECO Guarantee to fall away prior to maturity; and

h) Del&ngeno msc Cait Market The operation would help provide impetus to thedomestic capital market as well as help open up a foreign institutional investor base for thecountry. The involvement of foreign institutions, through the ECO, would also help in theransfer of tecnical expertise to the domestic institutions and the capital market in terms of thepricing of the issue, disclosure of informœion contained in the prospets and the 'due diligence'and credit process relating to issuers.

Potetial Role of the IJFC

74. Based on the progress made on the development of TCC's privatization strategy and actionplan, IFC could consider providing financing to TCC similar to its recent Investment in the HungaianTelecommunications Company. IFC's financing, which would require no Government guarante,may be in the form of convertible loans, preferred shares or any such instruments. This should helpnot only in meeting any emerging financing gap but also to strengthen its balance sheet, enhance itsmarket value, provide comfort to potential investors and facilitate the privatization of TCC. IFC'sinvestment would be tied to a put option to permit exit if privatization of TCC does not materializewithin an agreed time frame and conditions.

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D. Procurement and Disbursaents

Procrmet and Packagng

75. Procurement packages have been defined according to the type of equipment to be purchasedand/or instdlled in order to reduce the diversity of different technologies and to benefit from costreduction resulting from large quantities.

76. Ihe Bank will finance part of the cables for line plant construction. It will also finance theacquisiton of hardware and software applicadons for improvements in customer service efficiency@illing, collection and operation support systems). A detailed description of these items Is given inAnnex 4.2. Contracts to be financed from the proceeds of the Bank loan would be procured throughICB in accordance with the Bank's Procurement Guidelines. The training component of the customerservice irprovement package would be procured following the Bank's Guidelines for the Use ofConsultants. All contracts exceeding $100,000 would be subject to the Bank's prior review (expectedto cover 90 percent of total procurement financed by the Bank). Procurement for other componentswould "e in accordance with the cofinanciers' procedures. The project components, their estimatedcosts anu the procuremant arrangements are summarized in Table 4.3.

Table 4.3

neA e-(USS '000')

Pnjet Componet ICB Other Non-Bank TOal/b Financed

swtching 50,015 50,015

Tasmiasion 32,598 32,598

Cables 14,300 15,730 30,030(14,300) (14,300)

Poes 6,525 6,525

Line Pla Materials 6,750 6,750

Line Plat Wo ' 66,947 66,947

Cudtae Servies 6,185 600 6,785I_rov ent Plan (5,100) (600 (5,700)

Building 12,762 12,762

CoRata 10M2M0 10.20

ToWt 20,485 600 201,527 222,612(19,400) (600) C20,0003

Note: Fgurs in pamthem rpn the toXal amounts which wdl be tlnc by th¢ prvposed Bank loan.b/ Procred in accotdance widx Bank Guideines for te U&B of Consuhan.

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Disbuennt

77. The proposed Bank loan would be disbursed as shown in Table 4.4.

78. Withdrawal applications for contracts valued at more than US$100,000 would be fiAuydocumented and presented in English for disbursements. Disbunement for contracu valued atUS$100,000 or less would be made on the basis of statemens of expenditure. Documentation tosupport expenditures financed under the statements of expenditure or otherwise will be maitained inEnglish and made available for review by Bank supervision missions. Annual audits of the stamemeof expendiure will be prepared and submitted In English, by auditors acceptable to the Bank withn 6months of the end of each fiscal year [paras. 61 and 111 (I1. To faciliate disbursements, the Bank'ssbare of the project would be disbursed through a SpecW Account which would be opened in theCentral Bank of Jordan. The authorized allocaon for the Special Account would be US$250,000equivaent.

Tal 4.4

Dlsbursement Schdule

Cagory Amountofialoanaocatd USS S of w**ndWi to be £naned

1. Outde Pla Cables 14,300,000 100% of fo#WV oechag, 10O% ofloa _Mpde (eX-qooY cost).SO% of oc ezendxma

1. Cudomtw service. imprvemet Plan

2-a Technical asutAce, traiig 6000A0 100% aoffon eag, S% oflocal uipndituma

2-b (eipme (compte hudwae 4,500,000 100% offoe exchag, 100% ofNAd aftwa) la epedr (ez4ctory cola,

G0% of local exdia_

2-c Ualocated 600,000

TOWi 20,000.000

79. A schedule of disbursements, based on a projected loan effectiveness date of September1994, is given in Annex 4.7. Completion for Bank-financed componens will be March 31, 1999.The loan would be fully disbursed 6 months later by the closing date of Septer 30, 1999. Theproposed disbursement profile deviates from that of Bankwide sector average (6.5 years) because thefirst batch of cables, which represent the major project cost, will be procured early in the project.

E. Project Management, Implementation, and Supervision

Project Nment and Implementaton

80. There would be two executing agencies: MOPC will be responsible for the policy andregulatory frmework as well as privatization; TCC wil be responsible for its commercialization,co ation and the physical Investments. The project would help finance a TA program tostre n TCC's or ional, sffing and procedural arrangements which wil help facilitateImplementation of the physical component. Installation of the new facilities and construction of thenaetwor wfll be carried out by suppliers and contactors. Connection of customers to the netwrk

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will be carried out by TCC staff with assistance from contractors. TCC has prepared animplemenion plan which opdmizes the phasing of the installation of the new facilities and the rateof connection of new subscribers.

81. TCC does not have sufficient capacity and experience to mage and implement a majorproject as the one being proposed. Therefore, it has taken steps to strengthen its capacity byengaging consulting experts In the following areas:

(a) P o Ment-to assist TCC in reviewing the bid documents and in evaluation of bidproposals;

O) Project manaEMent - with the assitce of a project management information system toensure the implementation of the project on schedule and within budget, TCC has prepared anew organizaion structure to help mane the project with support from the consultants(Annex 4.3); and

(c) froI supervision - to support TCC in organizing work procedures related to the follow-upof the implementation and the quality control of specific tecal components.

Details of the main tasks to be covered are provided in Annex 4.4. The estimated cost of thistchnical assistance has been Included in the project total cost BITS of Sweden has agreed to fundthis technical assistance program.

82. Switching and transmission equipment will be installed by the respective suppliers.Construction of buildLgs and cable ducts will be carried out with local private contractors.Insitadon of cables, procured separately by TCC, will be installed by local contactors with thesupport of foreign suppliers. TCC is planning to carry out, with its own staff, part of the connectionof new subscribers. The rest will be contracted out to local firms. Overall project management,coordination and follow up of various contractors' involvement, as well as acceptance tests, will becarried out by TCC staff with the assistance of consultants.

83. In order to achieve the project objectives in a timely and costeffective manner, TCC hasprepared an implementation plan which outlines: O) the tasks to be carried out; (ii) interdependenciesbetween tasks of the project; (iii) the initial estimate of the project duration and time schedule; (iv)resources required during implementation such as staff (from TCC and contraors) and funds; and(v) a procurement schedule which reflects project implementation (Annex 4.5)-

84. Project implementation will not be complete until the new subscribers are connected and inoperation. Therefore, TCC capabilities in terms of installation of subscnber lines should be upgradedto handle the increased volume of construction orders. The project Includes, under the Bank'sfinancing a computerized operation support system, to allow for improved efficiency in the processingof service orders and managemeut of physical infrasucture in operation Cmventory of cable pairs andswitching access lines and numbers). Additional features of this operation support improvement planwould be to increase the productivity of Insullation and fault repair teams and to provide stadsticalanalysis of repetitive faults in the network in order to increase quality of service.

85. The sector restructuring component of the project wiUl be implemented in accordance with theaction plan in Table 2.1. A more detailed implementation plan will be developed by the consultants

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at the beginning of their assignment. The organization stuctre for the management of thiscomponent is shown in Annex 2.2, page 4.

86. Project Supervion and Report. Two missions would be needed each year for projectsupevision, except for the first two years where an additional mission would be appropriate. Overthe project execution period, this would amount to 13 missions requiring aroximately 80 staff-weeks. For the most pat, the missions would be staffed by the task manager, a financial analyst,telecommunications engineer and private sector development or informatics specialist

87. In addition to field work, 24 staff-weeks per year for the fiust 2 years, 17 staff-weeks peryear for the following two years and 16 staff-weeks for the last year are allocated for headquarters toreview progress, audit and consultants' reports, procurement actions, correspondence, contacts wihcofinancier and donors, etc. The total supervision effort is estmated at 174 staff weeks. Annex 4.6gives the detailed plan for the supervision missions.

88. In addition to supervision missions, the project will be monitored through quarterly progressreports to be submitted by MOPC and TCC to the Bank within 30 days after the end of each qer.The progress reports would review implementation based on the contractors' implementation plansand work program of the consultants for the technical assistance work. These reports would coverthe cumulative and the incremental progress achieved during the reporting period in: (i) the physicalprogress to the contractors' work plans; (ii) the technicd assistance work; (iii) the bidding process forall items to be procured under the project; (iv) Bank disbursements, and projected disbursement overthe next 6 months; (vi) fulfillment of the covenants and audits of accounts, and audit reporting; and(vii) actions taken for the resolution of issues raised by past supervision missions. A brief summaywoWd be added to the report explaining the reasons for any delays or shortcomings in any of theabove items and for actions taken to improve progress. The performance indicators shown in Table4.5 will be used by both the Bank and MOPC and TCC in monitoring implementation.

89. Durine nesotiatons. assurances were obtained that in addition to the quarterly progressreports, a mid-term review of all project activities would be conducted joindy by MOPC, TCC andthe Bank before September 1996 [para. 111 (k)]- To ftciitate this review, the Government willprepare a summary report covering all aspects of the project and submit it t the Bank by August1996, instead of the quarterly report preceding the joint review. The mid-term review will besupplemented by annual reviews.

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Table 4.5

P?formance Indiakos

1994 199S 1996 1997 1998 1999

I) lnrm in Ecabwp Cacity 13,000 40,000 10,000 74,000 64,000

2) Numbr of Connoctin of am Subsesibe 10,000 20,000 40,000 50,000 50,000 60,000

thBlitv Pf Service Tanfe3) Numbet of Fauwt pe Lin per Yew 0.8 0.7 0.7 0.6 0.5 0.4

4) Perengeof FaIts eced themu wo 50 SO 60 70 80 90day

5) Paente of Sucoedla Calls 40 45 50 55 60 65

6) Stff araced to Pajeca Mangemen 47 S0 51 21 16 167) Staff afoad to Pmcjct Supervin 10 37 50 54 35 29

S. FINANCIAL AND ECONOMIC ANALYSIS

A. Financial Analysis

Fnacal Posidon

90. TCC has been a profitable entity and an important foreign exchange earner for theGovernment. Selected historical financial indicators are shown in Table 5.1. The historical financialstatements are attached as Annex 5.1. Dur'ng the period 1983-1992, the organization has achieved asatisfactory rate of return of over 15 percent, except during the period 1987-89 when the economywent through a serious downturn. TCC has constandy maintained a high internal cash-generatingability. However, because all revenues are directly transferred to the Government and expendituresallocated out of annual budgets, TCC has not been able to create necessary reserves for investing inany expansion. As a result, all expansion has been financed through external borrowing and withoutany equity contribution from the Government (the debt to equity ratio has deteriorated from 0.5 in1984 to 7.7 in 1992). Even though TCC is a major foreign exchange earner for the country (aboutUS$35-40 million equivalent annually in 1991-92), because TCC is required to service its debtsthrough the Government and because of the shortage of foreign exchange in the country, TCC'sforeign exchange earnings were used by other sectors in the country. As a result, TCC continues tolapse on its debt servicing commitments (even though debt service coverage has always been over1.5) and has incurred additior -l interest charges and foreign exchange losses.

3 Even tough the fixed mt have not been mevalud Am* 1976, the grow fixed ass per averge conneated DELIs Iabout ID 900which is cow1ara to man developng tlewomumkctions m. Teefoe, in this case, dte te of rtu is to be condereda usfia tool for meamuing th enaty performance.

Table 5. 1

Historical Financial Indicators

______ ______ ______ ~Audited _ _ _

1983 196 1985 1966 1987 1988 1989 1990 1991 199

Term ebt t Tota CaRtallztlon ail. 27.33% 32.76% 35.24% 41.26% .45.40% .- 55.37% 70.87% 77.93% 76.14% 88.56%to Equfty ratio 0.38 0.49 0.54 0.70 0.63 1.24 2.43 3.53 3.9 7.74etron Net Fled Assets 40% 31% 17% 17% 14% 11% 7% 31% 42% _ 52%

piaaudi Xotls twroan CapletaEmploye 18% 15% 14% __ 12% 11 8 _ 5% 22% 9%36%ixService Coverage 22.44 4.75 5.43 2.9 2.4 1.85 .- 1.12 2.67 3.63 4.34uretRatio _________ 1.52 1.33 1.88 - 1.74 -1.75 1.78 1.88 I.9" 2.82 2.55

edseturuver ratio -- 61% . .51% 31% 32% -26% 27% 39% 54% 64% 71%__________ countsReced"ival C!mlpator IP . 8 IS0 241 228 263 247 248 224 248 230

Rude ~ ~ ___ 65% 61% 55% 53% _ 52% 41% 19% 57% 66% 73%

ouected D eL r 'OD ppulation 3.61 4.00 4.77 5.73 6.47 6.80 7.00 -7.2-7 _ 7.55 7.781000 Co __e_ed __I _ 35.44 30.66 25.35 20.41 19.90 16.60 15.72 14.45 13.55 13.08

A R* adas _ olprtl _ 0:00 0.00 .0.00 41.52 27.18 IS."8 288 3178 Z3 87 7.I02-Pntanecodt per Connected DEL 0.64 1.25 12.72 2.85 1.59 1.82 3.29 1.63 1.43 2.79

per Conneced DEL 297.58 304.33 300.45 254.80 221.54 224.01 291.50 373.90 403.61 ___ 408.17________ peratngCostsper Connedted DEL 203.86 118.20 135.09 120.95 105.82 132.56 236.95 161.92 236.41 110.57

-~~~~~Ad mto Gross Fixed Assets 21.817 -70,190 4,847 38.22 15,593 5.697 5.967 2.006 -.- .351Grossfined Asset per DEL 624.58 __749.21 1.143.59 947.92 1,021.99 1,004.15 968.17 924.88 869.13 821.71

&khcfdpe,fenmaace "ndcalmr (.1) OGs) __ __ __

evenne frim operatIo 2745 32,23 3.. -1 41,500 4218 46,461 642 8891 13t06 - 110,91OUJ8s 1 xp185 (excluding finncecbrLs) ___ - 9,568 12752665J 190 20,145 27,93 52.36 38" 34.3 30

sspar~~~Pu ______ 17,847 19,714 ~~~~~~~~ 21,625 21,800 22,035 IS.%$96 12,0 .jQ,40 6IX SoChar" ~ ~ ~ ___- - 283 - 1,152 1 143 _.32045 - i.t!27 5,252 7 67 9,493___6,8

a ?rovb aft., tax ___ _____ 7,4 1852 856 1798 13,714 ,8 ,636,397,8

ni lCash 0.,ra& 23,002 - ~ ~ . -7 2.9,462 30,35 24,519 6287 80,638 wrpconneced DEL 215 0,1 j!79- 113876 190392 7 !22100 3U79 255,356 271,73

~~umber of EIUpIOyS Aja3- .__ 3.3,7 .A?_" 3,442 3t47S _ 3436 3,5uomber of gEimply per 10DEL. 331 291 221 191 191 161 is 1413

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91. QpMaing inancial Perfomance. During the period 1983-87, operating profits rangedbetween JD17.6 and 20.5 mllion. In 1988-89, TCC, like most other corporations In Jordan, wasssverdy affected by economic difficuldties. With the large devaluation of the Jordanian Dinr, TCCincurred foreip exchange losses in 1989 of JD26.8 million and net profits declined to JD4.9 million.Since 1990, even though the entiy has coinued to incur foreign exchange losses due to currencydevaluation, the Impact has not been so severe. Since 1989 annual revenues increased from JD291per line to JD408 per line, comprising mostly revenues from iernational service. Net profis eanedin 1991 and 1992 were JD61.2 milion and JD74.4 million respectively. Even though there Is assntial demand for telecommunications services in Jordan, the network has reached its fullcapacity. 'Iis is evident from the company's performance between 1991 and 1992. Revenues haveincreased by less than 5 percent compared to 20 percent increases in 1988-1991. Because of severeunder-allocation in TCC's budget by the Government, the organization had taken a drastic cost-cutdngInitiative (operating costs per line decreased from JD236 in 1989 to JDI10 in 1992), and as a result,maintnance of the network has suffered. Other areas that have been affected are training expenses,allocadon for spares and transport. Although the cost-cuttng exercise has had a positive (thoughminor) impact on the proftability in the last three years, unless proper attention is provided to_datenae spares and training, the performance of the organization will start to suffer in the nearfture.

92. An analysis of the sources and usage of the TCC's funds indicate that though the entity has ahigh level of internal cash generation, the organization has had to resort to extemal borrowing. Theinefficency of cash management is highlighted by the fact that since 1986, additions to long-termdebts were more than the annual capital expenditure. This suggests that TCC used long-termborrowing, in addition to internal cash generadon, to fund the organization's operating requirements.Further analysis indicates that this was also the result of the substantial transfers to the Governmentwhich has been almost equal to total internal cash aeneration during the period 198489.

Taris

93. The tariff setting mechanism in the sector is not based on long-term tariff policies oreconomic costs of providing the service. This is primarily due to the monopolistic nature of thesectors operations - since TCC is the only provider of all telecommunications services, no real needwas perceived to tie costs and tariffs as long as the sector generated high returns. The tariff strctureindicates that international services (icluding accounting rates) are high compared to most countries,(e.g. a call from Jordan to USA is JD2 (US$2.85) per minute compared to only US$1.25 charged byAT&T to call Jordan). The downside of high tariffs are as follows: Q) inteaional cafriers nolonger find it economical to use Jordan as a ransit point; (ii) access to international services will berestricted; (iii) illegal 'call back' services are now being operated from Jordan at a considerablycheaper rate and adversely affect TCC's revenues; and (iv) TCC is heavily dependent on revenuesfhom iteaiornal services for its profitability. However, high intenaional rates have the followingadvantages: (j) since it is cheaper to call from outside Jordan, there is an imbalance in the incomingand outgoing calls, and as a resut, TCC receives substantial payments Cm foreign exchange) fromforcign adminstrators as international settlements (this is an important source of foreign exchange forTCC as well as the Government.); and (ii) high charges have restricted international calls.therebyreducing congestion in the network, which is already operating at a very high capacity utilization.

4 Aoounst a ta t atlkh s ighntAu caras. asnohwr hinwuio alt for &d" uin w. onaqdsAT&T pays abow 75 ota to TCC ot evay cU mna to h&n and vic* vam.

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94. Although tariffs for local services do not reflect cost, aer the tariff revision of 1993,preliminary analysis Indicates that local charges are sufficient to cover a substantial portion (about 70percent) of the associated cost (including depreciation and finance charges). With the Govemet'sInitiadves on deregulation and sector reform, it would be necessary for the domesdc network to befinancially self-susining. A 30 percent increase in local tariffs and 25 percent for log distance istargeted for the years 1995 and 1996. These proposed tariff adjustments are subject to the tariff sudywhich will be carried out as a part of Phase 11 of the sector restruchuing program. DuringfgQaiJons, assurances were obtained that the findings and recommendations of the study will bereviewed with the Bank by March 31, 1995, and that a plan to restructuretrebalance tariffs will becarried out within two years, strting June 30, 1995, or in accordance with a schedule satisfactory tothe Bank, in the event the study recommends a different implementation time [para. 111 (d)l.

95. Subsc.bers Receivables As of December 31, 1992, the subscriber receivables am ted toabout JD40 million which Is equivalent to about 160 dayss of revenues (excluding inationalsettlements). This is about twice what the optimal level should bed (as explained later, under curentconditions, receivables cannot be reduced below 60 days). High receivables have resulted from theorganization's inadequate billing and collections system. The system comprises many proceduralredundancies, involves numerous departments (and many sections) and a large number of staff. Theprocess is further complicated by different procedures established for AmmatL and for thegovernorate. The computer support for the billing and collection process is inadequate ara. 53).

96. Even though TCC has taken initiative to improve the receivables position, the measuresadopted offer only short-term remedies. No real emphasis on the process (from meter reading tocofle',tions) has been made. One of the first initiatives for TCC will be to change the billing cycle forlock services from a quarterly to monthly basis. In addition, free calls should be apportioned on amonthly basis instead of an annual basis. This would even out the distortions of billed amountsthroughout the year, thus making it easier for the customer to pay while allowing TCC to monitortraffic and revenues regularly.

97. Under the current system of accounting for receivables, it is unlikely that receivablescan be reduced to less than 60 days. This is because bills of one month (say December) are issued atthe earliest by the beginning of the next month (i.e. January), yet included in the books as receivablesfor December. Therefore, even before customers receive bills, 30 days of outstanding receivablesappear in the books. Customers are given 30 days to pay the bills, which in turn increases theoutstanding to 60 days. The only way to reduce the receivables below 60 days would be throughsophisticated on-line billing (as in the US) which allows bills to be generated on a daily basis todifferent customers (different billing cycles for different segment of subscribers), thus shortening theprocess. The level of sophistication to reduce receivables below 60 days cannot be achieved in TCCat the present time; even with the expected improvements in billing and collection efficiency,receivables are expected to be reduced to 75 days by the end of 1998 [para. 11(i)]. Dues fromMinistries and other arms of the Govenment amount to about 10 percent of annual revenues, and aresettled on an annual basis. This may be a botleneck in the effoits to reduce receivables. Phase Iconsultancy would: (0) study the entire billing and collections process; (ii) determine the procedural

s Days of Xrnwu - (toa esvaa - inational waat)(=bsaribm, rzceivabWe3S

' Por oow a i9onV developing countrms avs 60-90 days and developed couuia about 45 days.

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and instional redundancies that persi.t in the organization; (ii) make recommendation for changes;and (v) implement the requisite changes. A comprehensive study to recommend actions to reducereceivables wfll be carried out under Phase I of the TA program.

98. Intenaatiotai Soln=. o nal services form a substantial portion of TCCs reveDUZand intenational seements are its major source of foreign exchange. However, becuse of delaysand iaccuracies in preparing Invoices and the lack of continuous monitoring of settlements with theforegn administations, there is at least a 6-9 month dme lag in collections. As of December 1992,about JD40 million was outstanding to TCC from foreign administtions. This is equivalet to about21 months equivalent of annl international settlements. Phase U consultants for the billing andcolUions assignment wod evuaft the system and provide reommendations.

Projected Financi Performance

99. (a) Pofitabli. The projections show TCC with a healthy financial position and goodlevels of revenue per operating line. Total revenues and profits are expected to increasein real terms. These projections have taken into account potential revenue lossesresulting from opening up the sector to competition;

(b) Caital &L r. The debtlequity ratio is expected to improve from 4.84 in 1993 toabout 1.5 in 1996 and to less than I by 1998 and continue at the same level thereater.In addition, because TCC will be able to retain profits after tax and dividend, the netequit position of TCC will continue to increase.

(c) Assets and Liabilities. Ihe currently high rate of retr on fixed assets reflects 0) thehigh exchange fill ratio of about 90 percent; and (i) the need to revalue fixed assets.Tlhe current Gross Fixed Assets per connected line is about JD800 which increases toabout JD900 inl996 and then decreases to about J)800 per line after 1997. It isexpected that a revaluation of fixed assets would result in an increase in the figures.

Fonana Covenants

100. During ns=otiatiom, uassurances were obtained that TCC shall:

(a) reduce its outtanding subscriber receivables to 150 days by end of December, 1994; to120 days by end of December, 1996; and 75 days by end of December 1998, andthereafter [para. 111 (1)];

(O) earn an annud rate of rete of not less than 15 percent of the average current netvalue of its assets (para. 111 (e)];

(c) finance all local costs of the project from its net revenues [para. 111 O1)J;

(d) maintain a ratio of debt to equity of not more than 1.5, after December 31, 1995 [ara11 (g)I;

A? a ism 8 tot -apewag bm Ose. anet profit ph. lawte"et and adhe charge oe divided by aveNae SW soft

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(e) maintain a ratio of net revenues to debt senrice requirements of at least 1.5 [paras. 111(f)l; and

(M) before October 31 In each fiscal year, provide to the Bank the proposed captalexpenditure program for the succeeding five-year period, together with details of thefiacing plan prepared for such program [para 111 )1.

B. Eeonomic Analysis

101. The main objective of sector reform is to create market conditions which would allow theintroduction and exit of service providers based on the demand for such services. Experience showsat such a competitive market situation cannot be achieved under an environment controlled, to a

large extent, by a Government owned monopoly. In the case of Jordan vis-a-vis TCC, the goalwould be to establish TCC as a provider of services in a competitive market. Such an environmentcan only be created through seure and sound sector foundations such as an effective regulatorysystem (although in a competitive environment regulation becomes less important), proper licensingmechanisms, and a long-term sector policy. Additionally, for effectve competitive participation, the

market should provide the comfort (through availability of market information) for both the customerand the provider of services. Lstly, for an economy to benefit from sector reform, there should be astrong initiatve for the currendy dormant savings to be mobilized effectively through an activefincial market.

Benefits

102. The sector reform component of the project is expected to provide two main benefits: (i)Introducing competition and private sector participation; and (ii) resource mobilization - the ECOprogram would mobilize private sector finances from the local market which would otherwise beplaced in bank accounts or invested abroad.

103. In previous Bank-financed telecommunications projects worldwide, economic returns havebeen reatively high under conservative assumptions for consumer surplus and with no accol.it takenof extrnal benefits'. Moreover, project benefits have been distributed widely, with significant sharesbeing realized by rura and other low-income communities; if they are weighted for social objectives,rates of return would, therefore, exceed those calculated. This project is expected to realize a similarrate of return.

104. The proposed project is expected to have economy-wide benefits. It will help promoteinvestments in the sector; generate new employment opportunities; improve TCC's efficiency; andenhance service quality, expand network capacity and increase geographical coverage. lbe number ofusers and connections will double from 286,812 instlled lines, in 1993, to a minimum of 540,000lines in 2001. For businesses, improved telecommunications services will help enhance productivity,and the presence of a sound regulatory framework will help build investor confidence.

Retur on nvestment

8 boa T' Dedelpmet OWus, Note No. 6, Apfl 1991. Afica Technicl D_emeut

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105. The FRR for the proposed project based on incremental cash flows as a result of the projecthas been calculated at 22 percent; this is oomparable with other Bank financed telecommunicadosprojects. Te ERR is estimated to be about 24 percent. te project is expected to benefit theseonomy through job creation and higher economic activity, due to improved telecommunications.facites, which are difficult to quantify.

Iufoidntal and Health Aspects

106. Ihe proposed project is expected to have environmental benefits, as more efficient use ofteecolmunicalions will substitute for persons and documents transportation In addition, inprovedteecommunications services will facilitate extension of health services and emergency care, especiallyin rural areas.

107. The project is expected to have only minor adverse environmental or health effects and hasbeen rated as Environmental Category WB'. A possible source of potentially adverse environmentalefect Is the construction work involved (digging trenches, use of additional towers and sites) thatcould also damage for cultu and archeological sites. To address environmental concerns, TCC wiUltake the following actions:

M civil works for underground cables will be executed mainly in urban areas and willoften share the same location as other utilities;

(id) long-distance transmission cables will be laid along existing roads and avoid disruponof ecologically sensitive areas;

(ii) TCC's procedures will ensure that municipalities and concerned mhistries are consultedprior to the beginning of works and that cultural and archeological sites are preserved;

(IV) moderion or expansion of microwave trsmission capacity wil make use ofexisting sites and towers, whenever possible; and

(v) expansion of switching capacity will take place in existing buildings or in new buildingsto be constructed on land owned by TCC.

C. Project Risks

108. There are two possible areas of risk in this project: (a) implementation of the sectorretuctdng; and (b) timely project impleme on.

109. Sector restructuring touches on several critical issues which have social and politicaldimensions. Pardes interested in these issues include the Goverment, the Parliament, seniormanagemnt and employees of TCC, the customers and the public at large. The Government has,througout project preparation, nianifested strong commitment to the restructring program. Toensure the support of the other groups, the Government and TCC took several steps: (a) in theprocess of developing the sector policy, the Council of Ministers, the Steering Committee, the privatesector, the Association of Engineers and TCC managers worked closely and debated issues inworkshops that were held for this purpose; (b) TCC's senior management has been very active in thedevelopment of the restructuring program; (c) in order to ensure the ownership of its middle

-30-

management, TCC established working groups to serve as *change agents" to help explain to staff theobjecves, expected outcome and benefits of the reform process. During project implemenation,similar workshops and problem solving sessions will be organled; and (d) a public awarenesscampai will be carried out as a part of Phase 1 of sector restructring to obtain the support of thecustomers and public at large. There is also the potential risk of delays in the enactment of theTelecommunications Law. Several interim sector restructuring measures, however, have been takenalredy or will be put In place by loan effectiveness (para. 35).

110. While the Government of Jordan and TCC have a good record in project implementation, theinvestment component of the project is large and requires strong project management to avoidpotenial delays due to procurement or insufficient institudonal capacity. To minimize this risk, TCChas aready prepared and issued all bid documents, developed a detailed project implementation plan,and established a comprehensive project management organization. During implemention, inaddtidon to regular supervision missions, which will monitor progress against agreed performanceIndicators, the Bank will hold annual reviews and a comprehensive mid-term review with allconcerned parties. These measures are expected to minimize the risk of implementation delays for thephysical component.

6. AGREEMETS REACHED DURING NEGOTIATIONS

111. KeU Actions Ajreed During Negotiations. During negotiations, the Government and TCCgavo the following assurances:

a) TCC will be registered under the Company Law by June 30, 1995 (para. 30);

b) telecommunications regulations and procedures of the planned independent regulatoryoffice will be reviewed with the Bank by the end of June 1995 and issued promptlythereater (par 28);

c) an action plan for the privatization of TCC will be finalized by the end of 1995 andthereafter implemented, taking the Bank's comments thereon into account (para. 30);

d) the tariff study will be reviewed with the Bank by March 31, 1995 and a program torestructuretrebalance tariffs will be implemented within two years starting June 30, 1995,or, in accordance widt a schedule satisfactory to the Bank, In the event the studyrecommends a different implementation time (paras. 33 and 94);

e) TCC will earn an annual rate of return of not less than 15 percent on the average curennet value of its assets (para. 100);

fD TCC will maintin a ratio of net revenues to debt service requirements of at least 1.5(para. 100);

g) TCC will maintain a ratio of debt to equity of not more than 1.5, after December 31,1995 (para. 100);

h) TCC will fimance all local costs of the project from its net revenues (paras. 71 and 100);

-31-

) TCC w1il ensure that average outstanding subscriber receivables have been reduced to thefollowing days of revenue equivalent 150 days by the end of 1994, 120 days by the endof 1995, and 75 days by the end of 1998 and theeafer (paras. 07 and 100);

j) before Octobe 31 In each fiscal year, TCC will provide to the Bank the proposed capitalexpenditure program for the succing five year-period, together with deas of thefinning plan prepared for such program (par 100);

k) a mid-term review of aU project acdvities wfll be conducted jointly by MOPC, TCC andthe Bank before September 1996 (pua. 89); and

I) TCC will provide the Bank with draft finca accounts within fwr months of the end ofeach fiscal year and audited financial accounts, inluding an audit report of the SpecialAccount and Statement of Expenditue, within six months of the end of each fiscal year(paras. 61 and 78).

112. lhe Conditions for L Effiectiveness. It was agreed that the following actions will be takenbefore loan effetveness:

a) consultants for Phase II of the sector restructuring component will have been appointed(aa. 65);

b) the draft of the new Telecommunications Law will have been submitted to Parliament(pan. 26);

c) firm commitments for all required cofinancing will have been secured (para. 71); and

d) new by-laws to grm TCC autonomy will have been Issued (pan 35).

-32-ANNEX 1.1I

Demand for Telephone Services

Historical data (TCC)

Year Connected Total GrowthSubscribers Demand ratio

(1) (Atmual)

1986 156,802 243,657

1987 188,585 266,882 9.5

1988 210,796 287,440 7.7

1989 228,717 295,778 2.9

1990 244,042 317,495 7.3

1991 263,758 341,582 7.6

1992 276,812 374,092 9.5

Demand Forecasts (TCC)

1995 499,355 10.1

1997 564,470 6.3

1998 592,694 5.0

2000 656,270 5.2

2005 816,909 4.5

2010 979,218 3.7

(1) Not including mobile subscribers and manual service.

-,33-ANNEX1.2

Access to telephoies

r | Population Main Lines Main Lines per 100Area % % Population

1987 - 1991 1987 - 1991 1987 - 1991

Amman 41 40 63.3 62.6 10.9 12.1

Zarka 16 16 9.2 9.5 4.1 4.6

Itbid 9 12 8.2 9.1 6.3 5.8

Salt 4 4 3.0 2.9 4.9 5.3

Mafraq 4 4 1.8 1.5 3.3 3.1

Jarash 3 3 1.3 1.6 3.2 3.7

Dair Abi Said 4 4 0.9 1.0 1.7 2.2

Aqaba I 1 1.7 1.9 8.4 10.2

Madaba 3 3 2.9 2.5 6.3 6.4

Rest of the country 15 13 7.7 7.4 3.6 4.4

Total 100 100 100 100 7.1 7.7

-34-ANE .3

Existing Telephone Switching Equipment Technology(as of December 1992)

Number of Sites Number of Lines

Technology Local| Ranote Local Remote Total'T %F 150 5 27 71,206 11,500 82,706 25.87 DWs

F 100 7 98,395 98,395 30.78

E lOB 7 30 85,840 47,744 133,584 41.79 Dit

Pentex 5 5,000 5,000 1.56

MTS a/Neax6l

NSC E lOB 1 bf

ISC MT 20 1 d

Total 27 57 260,441 59,244 319,685 100.00 dI

FiOO and Pentex are analog technology switches,EIOB and F150 are digital switches with capacity to connect remote subscriber units.a/ Mobile subscriber switch (capacity 2,000 line units).b/ National Transit Center (digital).c/ Iuernational Transit Center (digitai).d/ 67% of equipments are digital.

-35-

ANNEX 2.1Page 1 of s

The Hashewite Kigdom of Jordan

National TelecommucAtions Project

Mr. Caio Koch-WeserVice PresidentWorld Bank1818 H Street, N.W.Washington, D.C. 20433U.S.A.

Subiect: Letr of Secr Policy

1. The Government of Jordan has recently deveoped and issued aTelecommunications Sector Statemen of Policy. A copy of the Statement and a time-bound action plan for implem on is provided in Attachment 1. The purposc of thisletter is to amplify on some of the elements of the teleomnications sector policY.

2. The Govement's broad oojectives in the teecouncatons sector are to: (i)develop the telecomnications infrastructure and provide the ncessazy environmentto mulate the development of more and better telecommications servce thatwould support the economic, soal and culural deveopment of Jordan; () encourageivestmet in the sector, form all sources (public, pdvate, local amd foreign), bydeveloping and adopting an enabling leogal fra iework; and (Iii) make it possible forcitizens to obtain telecommunications services at libir prices that reflect economic costand efficiency.

3. To achieve the objectives, the Government will undertake a sectorrestuctuing program which wil ivolve the followmg man actvites: (a) preprnand promulgating a new Telecommunications Law, (b) comMerali7igt corporafizingand pnvatizing the operations of the Telecommunications Corporation (TCC), and (c)promoting competition and private provision of evie.

PrenadInu and PrOMMIniD ak Me lcmmunIcatios La

4. A new Telecommunications Iaw will be prepared and preseated to theParliament for its passage. The Law will provide the framework fbr active participationof the private sector in the development and the provision of all tetecommunicationsservices. The Law will also provide the leogal fmework for: (i) the definition ofMOPC's power and duties and the stablishment of a TelecoMMIcStions PolicyDivson t MOPC; and (ii) the establshment of the Regsuatory Office and thedefinion of its powers and duties. The Bankes loan would not be declared effectiveuntil the Goverment preses the Law to the Parlimn

-36- ANNEX 2.1Page 2 of 3

S. TelecommunicatIons Policy Division The Govemment will be advised byMOPC on sector policy wbich wfll be implemented by a Regulatory Office (para 6). Anew division wil be established ithim MOPC for that purpose. Amongst other thigs,the Telecomnmications Policy Division will: advise on what major new serice typesshould be inde represet Jordan in internatonal fora relating totelecommunications; and promote and support the further developmen oftelecommunications policy.

6. Sector Reguladon. In order to allow competition to operate fairly, andseparate Govenmens iests in TCC from the need to regulate thetelecommunications sector, tsparen telommunications regulatory fameworkindependent from all opeaors wil be stablisW in the form of an autonomousReulatory Office with a 1l time chief cxewuve, the Drector-Geneal of theTelecounications, and proessonal staff The Regulatory Office will have anindependent supervisory Regulatoty Board which would be appointed by the CouncilOf Ministes and will be estlished wihn two mont from the Parliament'sendorsement of the new Law. The Board would comprs people of appropriatestatum from busies, legal and academic life. It wil be posible to appea Boarddeion to an admnistie court.

7. The Regulatozy Office would be responsible for the reglation of thetelecommunications sector in Jordan. Amon1 other isk, it woul license thosewho provide telecommunicatons services and ensure that they adher to te conditionof their licenses; establish transparent criteria for entry in telecommunications services;

regulate prices where senvice provider have monopoly power, enforce interconnectionto ensr the development of compttie and new sacces, and resolveintercnnection disput; and set technical standards. The managemen of the radiospectrum wil also be placed within the Regulatory Ofice and there wilt beinvolvement by uses' representatives.

8. It is te Governts objective to tamwfo TCC to a commercially run andfally autonomous company that can sustain the expected competitive pressures and isable to attract private equity interest in its ownahip, in line with the now proposedLaw (paa 4). TCC will therefr be incomporated under the Compn Law, withautonomy in respect of its financina includg retention of proft (beyond dividendpayments and taxes) and cotrol of the foeiga curcy which it generates (within thegenal Central Bank regulations on foregn cuency), investment, work-force, salariesand procuremet The new company will have a new board with appropriatemembership, to provide leadersbip in ivicWIT' commeci discipline and praces inTCCs operations. The nw company wil be inlly Sovenmet owned Howeer,witn three yes, the Govenmen wil seek pvat stor participation in TCCsowneship and represenation on the board. The Goverment will cany out a study todevelop a strategy and an action plan for the pxivatizaon of TCC. The Govrnmetshall, by December 31, 19953, revew with the Bnk the findings and recommendationsof the stdy. Thereafter, on the basis of sch recondations and exhange of views,

-37-ANNEX 2.1Page 3 of 5

the Government shall carry out such wtion plan, taki into account the Bancscommnts thereon.

S$. Meawhile, the Governmet vi increase private sctor participadon in TCCoperations by: (a) contating out TCCs non-core activities including directories,construcdon and comection of customers to private companies, (b) conveting thoTelecomuUnications College fom its unt stat as a departmet within TCC to anindependent educational instte, possibly with participation from TCC, othertelecommunications opeators and other iterestd privat parties, and (c) mobiizingprivate sector financing fbr TCCs iuvesunte needs.

10. The Government intends to create a level playin field fbr all participants in thesector. This objective w entail several policy changes including: (a) moving thereonsblibty of licensing for telecommuications equipmnt imports out of TCC; (b)subjectig all participants, including TCC lo the same import dutics; and (e) subjectigall participants including TCC, to coroat income tae

11. To ensure TCCs long-torm financia vability and faciitate competition, theGovernment wil make all effxu to ensur that TCC prices to end user and itsinterconnection charges to other service providers reflect economic cost and efficiecry.TCC tifft wfll therefore be reblanced and/or restructred. A taff study will becaried out to determine the specific actions required. Based on the outcome of thestudy and after consultation with the Bank, a phased program for tariffrebalancingrestrucuung will be implemented within two yeas from the end of thesudy. TCC tariffs will be gencraly regulated using a price cap approach and will beenforced by the Regulatory Office (para 6).

ZM9dnmComRItos a_ [Mb&g [&je

12. The Regulatory Office will promote competition by developing and adopting atransparent criteria and procedure for lioensing operatora, Scilitating interconnection,enforcing cost-based tariflf, and provide reglory cetainty to investors. Competitionin the provision of the telecommunications services will be allowed in basic services aswell as in value added srvica Operators (with completely separe ownersip interestfrom TCC and from each otier) will be asowed to provie telecommunicationsservices uSing the technology of their coice. The number of competitors and thetiming of licensig thm will be determid based on the remedatons of theSector Policy Division, based on market and economic efficency considerations.

13. Several acions will be taken in the inteim, while the new TelecommunicationsLaw is being processed. These intrim mesr shud practically mean a defkorcorpostzation of TCC (short of offidal registration as a compan), establishment of annerim reglatory body, the establinof a Tdemmunications Policy division at

MOPC and censing seveal new providers of services. Thes actions clude:

-38- ANNEX 2.1

Page 4 of 5

(a) the Goment and TCC will take all ncessy actions, including theprepartion and issuance of new by-laws for TCC, that would led to TCC'sautonomy In the areas of persomnel (jncuding tems and conditions of theemployment of the existng st, procuremnent and finance (mcludingcontrolling its cash low). TCC vwli upgade their financial managemntzcapabilites to bandle the expected financial atonomy. The new by-lawswvil be issued before this loan becomes effective.

(b) the Govement wil establish a regulatory capability to form an interimRegulatory Office, which would have an individual appointed to manage it,with suitable staff assigned to it (this would become the nucleus of theRegulatory Office - it would hicense new serces and servce providers andnow methods of providing edsng sevioes witin the consaints of theexsting Law);

(c) the Govenment would establsh a Telecommunications Policy Division atMOPC to wlh staff could be transfeffed from elsewhere in the CivilSevice and from TCC or recited from the prvate sector; and

(d) the Govranment wMi take steps to licen private companies (withcompletely sepamte ownership interest) to provide teonssenvic as follows: Oi a cellular privato operator will be licensed this year,(ii) preparatory work to license a second private pai operator witl becarried out; (ii) prepatory work to license a data trnmiion privateoperators wi be caried out.

14. The Govemment will implement this sector restructwing program as perhe atchd time-bound action plan hi addition to a mid-term review, progress in

impliementig the program wil be review periodically.

Sincerly Yours,

of 4

Sedor Poicy - Action Plan

1 .e,;.5P.~~~, ............ . *. ~.. .En*l9 '...*.*... .,

. B . * *..* .

D. Reallocatn sector Establish Policy Division akt 0 Ppare regulatoy.esponslbllitis 1MOPC jZues

* Esabisb intem * Etablsh idependenRegulatory Office Regulatowr Office 1J

C. Cmerializtion of * Prepare new By-laws, etc. 0 Hire conslltnts for 0 Licens a ecllu * Develop action plan on * Fnalize ad agreTCC and ptomoting * Request consultants Phase a of operat, a sond paging Cole prvatization segy andpiva sector proposals to assist in r structuring operator, a data * Register TCC under action planpartiiain in pvision i an (inchluig (including tadffi transmission operator COmpany's LAW and 0 Finaizc orgizion Lof srAvices diversificadon of Colege) studY) * Alow privat eworks register new company in strcue for TCC

* Request consultata' 0 Grnt TCC autonomy * Contact out directories tock exchange 11 * Develop informatonproposas to cary out tariff by isung TCC new 0 Take action on * Issue ew amcn for managent system frstudy by-laws rceivabls TCC 11 TCC

* Appoint nw Board of * DevelophumansceDhrets 1 straty for TCC

* Agree action pla on * Improve cor busintarfs and sa procese in TCC

pmentation 2! * Implement actio plan on* Evablate TCC assets I/ colege.* Establish new accounting

system I

D. Promoting cmpetion in * 1m a scoud paging * Allow competition inprovison of service operat provision of servics -

* Liens a sclular nwnber and timng wouldOperator b deded by the Poliy >

* Allow sablishing private Divisioand the oozndwors Regulao t

,/ Thes actions wil be carried out by June 95 or within two months of passage of the LAw" whiciever is earLe .Z/ To be competod within two yea or according to a tim sheodul, satisfactory to th Bank. .31 To be completed by June 9S or within nine monhs from the appointment of Phase 11 conslants. t

-40-ANNEX 2 .a

1 of 21

HASJEMT KINGDOM OF JORDAN

TELECOMMUNICATIONS SECTOR REFORM IMPLEMENTATION

TERMS OF REFERENCE

A. hatrodacwion

1. The overall policy framework for the Government of Jordan, its regulators, and for TCCwas developed in Phase 1 of the restructrig program which has now been completed.

2. Phase 1 produced recommendations on: (a) the structure of the sector policy office to becreatd in the Minst of Communications; (b) the structure of the independent regulatory body whichshould be created; (c) the framework for a new Telecommunications Act to govern the development ofthe sector, together with amendments to bye-laws governing TCC until such time as the new Act ispassed; and (d) preliminary options for the reorganization and rsstuatring of TCC to improve its effi-ciency, quality of service to customers, profitability and otherwise transform TCC into a commercialenterprise that can fulfil the objectives of the new sector.

3. In Phase 2 of the program, sector restructring must be implemented. Technical assistancerequired to support implementation in Phase 2 will be funded by a grant from the Overseas Develop-ment Agency (ODA) of the United Kingdom.

Overal Project Objectives

4. To restructure the telecomnunications sector in Jor.- n in keeping with the Satement ofSector Policy. To create the legal framework for the retwctng of the teleommunications sectorincluding the development of a sound interim arrangement, and the enactment of a New Telecomnmuni-cations Law to commrciaize the sector, to corporatize TCC and to prepare TCC for private sectorequity participation. To restnr the sector with minimm disruption to the customers and employ-ees of TCC. To maximize the success of implementation through involvement of mobilization of TCCstaff. To create the opportmity for training and re-skill of existing staff of TCC and other participantsin the sector. To transfer technology in al areas to the Jordanian clients.

Project Scope

5. Implementation of the sector restrutug requi four distinct but interdepende activi-ties. The Terms of Refrence for sector resrcur are thus separated into five areas:

*Leg changes to provide a firm legal foundation and robust sector policy and regulatory orga-nizations for the sector and for the customers, investors and service providers within it includ-ing the establishment of an interim arrangement as well as the finalization of a new Telecom-nmnications Act - to be executed between June 1, 1994 and January 31, 1995;

* sector policy division established to ensure that the sector will continue to be governed by theobjectives of the Government in keeping with its Statement of Sector Policy;

May 3, 1994

-41-

2 of 21

* independent regdatora office established and staffed with trained professionals, enablingregulations promulgated and processes put in place to ensure that compedtion and privatesector participation articulated in the objectives of the Statement of Sector Policy are adheredto - to be executed between September 94 and September 1996 (or two years from staring ofassignment);

* management and oreanizational development of TCC to transform TCC, and its staff, into anefficient and effective commercial enterprise capable of delivering increasing value te its own-ers, of absorbing its investment program efficiently and of meing competition in the sectoras it develops and to prepare TCC for privatization - to be executed between September 94and September 1996 (or two years from staring of assignment);

* a strategy and action plan for the privatizatLon of TCC.

6. Expertise required for each area differs. Separate Terms of Reference have been developedfor each area resulting in one overall sector restructuring project composed of five sub-projects. Theimplementation of the investment program comprises a separate project. The legal project will likely beawarded to a Jordanian firm located in Amman. A technical advisor has already been appointed to sup-port the investment program. Consultants responding to the remainder of these Terms of Referencemust be prepared to interface and co-operate with the appointed consultants in the legal and technicalareas.

7. The project must be treated as an integral whole and consultants are invited submit a proposalto cover the sector, regulatory, TCC transformation and TCC privatization assigmnents under one con-tract. Specialized areas beyond the consultants' expertise could be subcontracted, provided an overallproject and contract manager is clearly identified and joint commiment of all parties is clearly demon-strated. Notwithstanding the need for co-ordination between projects and the requirement for one over-afl project manager, the consultants must keep each project separate. In particular, consultant staffworking on TCC transformation must not work on either the Sector Policy or Regulatory assignments.The restructured sector is intended to be commercial which will end TCC's traditional role as operator,regulator and policy developer. While basic information may flow between the assignments through theOverall project manager and consultant team leader, the teams should be kept separate and distinct tothe extent possible.

Project Manaement

8. A model of the project structure is attached at Appendix I. This model identifies the Ministerof Communications as the ultimate client. He is supported by a Steering Committee composed of se-nior officials from the Government, TCC and the private sector. A Steering Committee, created tosupervise Phase One, could continue with some new members. The purpose of this committee will beto review quarterly status reports, to accept and resolve outstanding issues requing their interventionto facilitate project progress and implementation. In addition, the Steering Committee provides a forumfor the discussion and agreement of matters of national policy.

9. The day-to-day management of the project is delegated to an Overall Project Manager (OPM),to be appointed by the Council of Ministers, who will partner with the consultant overall team leader.The OPM will be supported by an Executive Committee composed of the team leaders, both Jordanianand consultant, from each project. The OPM could be drawn from either the government or from the

May 3. 1994

-42-ANNEX 2.2

3 of 21

private sector. The OPM, together with his consultant team leader counterpart, shal haveresponsibility for co-ordination of the work of all consultants working in the sector: Sector Policy,Reguatory, Legal and TCC, and shall ensure alignment of objectives and integration of activities.The OPM, together with the Minister of Communications, will be responsible for evaluation of consul-tant performance.

10. The OPM and the consultant team leader will design the agenda for the Steering Committee.The Jordanian OPM, who is a member of the Steering Committee, will attend and will act as rapporteurat Steering Comnmittee meetings.

MY 3. 1994

-43-

ANNEX 2.24 of 21

TELECOMMUNICAMONS SECTOR RESTRUCTURINGPROJECT MANAGENIENT

Amnister of Cowmmicarions wtaes kadpofthe restct=mingprocess- dfrect conten in keeping with Satement ofSectorPolucy- reies on Eectve ComnWttee to raise Steerng Gmittee composed ofist= reqwring resombfon nda to ewe CGwmes TCCondprhte sectorbuewton ofprojec srans _Afinist of reprw.s Steering Comnmttee wil- sed aAdce ofSteerfng Commttee in be creddbytheAMnrster of&swe of poigcy Conmouicatioa The Overailafect

A6 W w ct as rZporteW

1 hProjectManaer "ows"_ie projact to trwirm ICC

- maydkgate *Wdato-dayWth conmdant team .l to mgt. to senioofficprovWde d&O4-y crd on - mstmaintin ka rhp onforallprojectaste. Reces i ssues ofsuweal poS. intfies s - stact as rde molford&smtbtesrpworts, a&=&estde change

C* miteeIOl ,

Manager "ow te a

Sector~ ~ ~~~~~~~orn

stage 1 In stag Stageltewn

i stage 2temn1 I stage 2tewn secwravin ede

T A o~~~~~~~~~~~iewetrin.epg [sgSConultT TeamO Cansdtantlean2f v1thSt_atof

- obIiase stf- bn wprocegae sector Policy Wb Gro osdf- dipn nw orsation - proacwed nthstal IMZS -dfi U TCCselorJnV wad dx- reiNwor ~e - b*A1frtg - idsresqzwwd comuls S

- CMM PMV= to pass legilat - DGr may Ilegae a&ndhddtwpAmgaios in C to sWOroffidd We

-. st atpublicawawmod,ip mrpr caunp

-44-ANNEX- 2.2

5 of 21

A Sector Polky

Project Client

11. The Government of Jordan will be the client in this project. The consultants will be ultimate-ly accountable to the Minister of Communications. The consultants shall be accountable to the OverallProject Manager appointed by the Minister to oversee all work involved in the sector for day-to-daymanagement. The consultants will partner with the project manager he will appoint as responsible forthe establishment of a Sector Policy Division within the Ministry of Communications. The consultantteam leader will be appointed a member of the Executive Committee, chaired by the Overall ProjectMaager to ensure that sector policy division development is coordinated with all other streams ofwork. (The project management structure is described in detail in the Introduction).

Project Scope and Objectives

12. As smmized in the Statement of Sector Policy (SOSP), the consultants must establish theSector Policy Division in the Ministry of Communications. The Sector Policy Division will assist theMinister in making sure that the legal and regulatory arrangements for the sector provide a suitablefrAmework for the development of telecommunications to satisfy the Kingdom's needs. The SectorPolicy Division will have responsibility to set objectives which enable the Regulator and the operatorsto develop and implement detailed plans to supply telecommunications services to meet customer re-quiements cost effectively and profitably and in all other ways in keeping with the Statement of SectorPolicy.

13. In Phase Two, the sector policy capability must be finalized and implemented. The assignmentwill proceed in two stages. Stage 1 will involve review of the existing framework proposed for sectorpolicy management and finalization of the design of the organization and its responsibilities. Posts mustbe defined, staff selected, tasks and responsibilities of each member of staff identified, capabilitiesidentified, and new staff trained as required. Procedue and processes for implention and mange-ment of sector policy responsibilities must be developed, including a process for on-going policy devel-opment capable of responding to changes in the technology, market or competitive arena. Administra-tive, information management and human resources processes must be designed and agreed. Detailedplans to implement the new policies and procedures must be developed. Consultants working in thearea of Sector Policy wiUl coordinate closely with the legal and regulatory project teams. During Stage1 the Sector Policy Division staff will participate actively in any analysis and presentation. The burdenof responsibility will be carried by the consultants.

14. In am 2. the plans will be execued by the staff of the Sector r olicy Division with thesupport of the consultants. The burden of responsibility wil gradualy shift from the advisers to thestaff of the policy office during stage 2.

May 3. 1994

-45- ~~~~ANNE2X 2, 26 of 21

TasksStage 1

15. The consultants will partner with the Sector Policy Division Project Manager and with the ap-pointed staff. The consultants, in cooperation with the Sector Policy Division Project Manager willcreate teams to address specific tasks and to develop presentations and reports detailing fmdings andrecommendations for each task.

16. Main tasks to be undertaken in Stage 1 would include:

(a) Preparing a written description of a proposed policy regime. Roles and responsibilities of theSector Policy Division must be defined in the following areas: (i) setting objectives for thesector - public policy, commercial, competition and private sector participation; (ii) advis-ing on appointments of the Regulatory Office Board members and its Director General; (iii)acting as liaison with the regulatory staff; (iv) representing Jordan in international fora;and (v) facilitating legislative changes required, including the preparation of analytical anddescriptive materials which present the case for actions taken in accordance with the Govern-ment's Statement of Sector Policy. In cooperation with the appointed head of the Division,the consultants would review the organizational framework for the policy making functionproposed in Phase l, identify any improvements and finalize the structure. The consultantswould work closely with the legal consultants to ensure complete alignment of sector policyobjectives with existing and prospective laws and regulations;

(b) Defining parameters to govern regulations. The Sector Policy Division should be able toguide regulations in areas like: (i) universal service targets and the magnitude of the financialsubsidy required; (ii) quality and conditions of service targets and an indication of the typeof technical standards to which Jordanian service providers should adhere; (iii) objectives ofnetwork interconnection and of resale in promoting new services; (iv) number and kind ofcompetitors to be licensed by service area; (v) the objectives of competition in the sale ofterminal equipment; and (vi) the objectives of customer complaint management;

(c) Preparing a detailed implementation program for the establishment of the Sector Policy Divi-sion Particular attention will be given to the development of human resources, the establish-ment of procedures, the identification and development of training programs required and theimplementation of sector policy duties of particular imporne in the transition to the newsector strucure. Implementation should include an international bench marking program toexpose new policy staff to world class policy developments and policy development processes;

(d) Identifying and describing policy-making procedures, activities and information necessary forthe policy division to undertake its duties. The consultants would develop, in cooperationwith the staff of the policy division a clear roster of roles and responsibilides. Recommenda-tions must be made on the flow of information between the Sector Policy Division, the Regu-latory Agency and the operators to minimize duplication, errors and time taken in informa-tion management. Consideration should be given to the identification of prime sources ofinformation to which all other departnents come for information.

The consultants would develop in cooperation with the staff an Information ManagementSystem to support their activities. This system should support the economic modeling re-

May 3, 1994

-46- AEX 2.27 of 21

quired at sector policy level to assess the development of the sector and its impact: fiscal,macro-economic, commercial (for each entity in the sector), consumer; and should ensure theflow of adequate and accurate information between regulators, operators an the government.The system may not necessarily need to be fully automated but should be compatible with thesystems being developed in the Regulatory Agency and in TCC;

(e) Assisting the Regulatory Office, TCC and the legal consultants ih drafting TCC's new license(to be completed by December 31, 1994 or within 3 morths from sterting the assigmnent).

Stage 2 (8 months beginning 6 months into project)

17. Stage 2 will involve the roll-out of the plans developed in Stage 1. The main tasks to be under-taken in Stage 2 involve building of core capabilities and skills and establishing underlying proceduresto support these core capabilities. Many of the capabilides are shared by the Regulatory Office andtraining in Stage 2 may be combined. The consultants will design and provide training, both on-the-joband off-site in the following areas:

(a) Sector analysis. Capabilities must be developed to analyze the telecommunications andInformatcs sector , both domestically and internationally, including demand and capacityanalysis, business forecasting, competition analysis; and economic analysis;

(b) Regulatory policy analysis. Capabilities must be developed to enable review the effectivenessof regulations in implementing sector policy; (i) licensing of telecommunications networksficilities; (ii) network interconnection and revenue settlement arrangements; and (iii) otherregulatory issues;

(c) hntational standards and representation, as appropriate. The role of the Sector PolicyDivision will be decided in the course of Stage 1 of the project;

(d) Technology strategy. Capabilities must be developed to: (i) assess intemadonal developmentsin technology and technology strategy; and (ii) understand future technology requiements ofJordan;

(e) Administrave, human resource, legal and information systems. Capabilities must be devel-oped to: (i) develop and operate modem administradve systems; and (ii) establish and man-age effective human resources processes which enable recruitment based on the needs of theorganization, on evaluation against objectives and performance which can be measured, andon training an re-training to enable staff to fulfill their obligations.

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8 of 21

C. ReguI ion

Project Client

18. The Government of Jordan will be the client in this project. The consultants will be ultimate-ly accountable to the Minister of Communications. The consultants shall be accountable to the OverallProject Manager appointed by the Minister to oversee all work involved in the sector for day-to-daymanagement. The consultants will partner with the project manager he will appoint as responsible forthe establishment of a Sector Policy Division within the Ministry of Communications. The consultantteam leader will be appointed a member of the Executive Committee, chaired by the Overall ProjectManager to ensure that the regulatory issues are coordinated with all other streams of work. (The pro-ject management structure is described in detail in the Introduction).

Project Scope and Objectives

19. In Phase One, it was proposed that a Regulatory Office, independent of Government minis-tries, be established to implement policy for and to oversee the fair management and development ofthe restructured telecommuications sector. The Regulatory Office would be led by a Director Generalfor Telecommunications. He would be supported by and would be accountable to a part-time Regulato-ry Board which would be chaired by the Minister of Comnmnications and which would be responsiblefor overall regulatory policy and for taking major decisions, pursuant to the recommendations of itsstaff. The Board and the Director General would be appointed by the Council of Ministers. An outlineof the roles of the Regulatory Office Board and the Director General of Telecommunications are includ-ed at Appendix 1 to these Terms of Reference.

20. In Phase Two, the Regulatory Office proposed in Phase One must be finalized and establishedas an independent body. The Consultants will coordinate with the legal and sector policy teams toensure alignent of regulations.

21. Implementation of the regulatory function will be addressed in two stages: In StglI, theRegulatory Office will be established, processes will be designed for the promulgation of regulationsand for monitoring adherence to regulations. Draft regulations will be developed. At this stage, theburden of responsibility will be carried by the consultants. In Sa 2. the plans will be implementedby the staff of the regulatory body with the support of the consltants. Draft regulations will be moni-toring processes will be initiated. The burden of responsibility will gradually shift from the consultantsto the staff of the regulatory body and TCC during Stage 2.

TasksStage 1 (8 monts)

22. The consultants wi partner with the Regulatory Office Project Manager and with the mini-mumr staff in place to finalize the design of the Regulatory Office and to prepare a program to developthe regulatory capability, in agreement with sector policy. Attention to legal authority of the Office inthe interim period must be given. The Regulatory Office team must work closely with the legal consul-tants. The consultants, in cooperation with the Regulatory Office Project Manager will create teams toaddress specific tasks and to develop presentations and reports detailing findings and recommendationsfor each task.

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9 of 21

23. Main tasks to be undertaken in Stage 1 would include:

(a) Preparing a written description of a proposed regulatory regime. Roles and responsibil-ities of the Regulatory Office must be defined, and capabilities identified. In coopera-tion with the Regulatory Office Project Team, the consultants would identify the areasto be regulated and woud propose the organizational framework for the promulgationand management of regulations including recommendations on candidates to fill posts inthe Regulatory Office. Regulations nmust be promulgated in areas of, at a minimum: (i)pricing of services; (ii) quality and conditions of service including adherence to techni-cal standards; (iii) terms and conditions for network interconnection and resale andarbitration of disputes; (iv) provision of leased lines for resale; (v) approval of newnetwork facilities; (vi) sale of terminal equipment; and (vii) dealing with customercomplaints against operators that raise issues of principle;

(b) Drafting initial regulations in the areas described in (a) above to be reviewed by thelegal consultants and by the regulatory staff. The consultants would work closely withthe legal consultants to ensure complete alignment of sector policy objectives with newreguilaions with any existing law and regulation and with the new TelecommunicationsAct;

(c) Identifying and describing in detail the regulatory duties that correspond to the proposedregulatory regime. The consultants would use their technical expertise to identify thetasks involved in promulgating regulations for each area listed in (a) together with thetasks involved in monitoring and ensuring adherence to those regulations. Objectives byfunction would be developed together with measures of performance for each memberof the Regulatory Office staff;

(d) Identifying the procedures, activities, functions and information necessary for the Regu-latory Office to undertake its duties. The consultants would develop, in cooperationwith the staff of the Reguatory Office a clear roster of roles and responsibilites includ-ing individuals within each organization who will be responsible and accountable foreach activity. In addition, the consultants would develop, in cooperation with the staff,an Information Management System, which may include a model for the assessment ofthe impact of regulatory changes: fiscal, macro-economic, commercial (for each entityin the sector), consumer. The consultants would also provide advice and guidance onequipment, computers and software, required to ensure the flow of adequate and accu-rate infornation between regulators, policy division, operators and the government;

(e) Preparing a detailed implementation program for the establishment of the RegulatoryOffice. Particular attention will be given to the development of human resources, theestablishment of procedures, the identification and development of training programsrequired and the implementaton of regulatory duties of particular importance in thetransition to the new sector structure;

(f) Designing mobilizadon workshops and training programs for Stage 2;

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(g) Developing, in cooperation with the legal consultants and the Sector Policy Divsion,TCC's new license (to be completed by December 31, 1994 or within 3 months fromstarting the assigment).

Stage 2 - 9 months beginning 7 months after the beginning of the project

24. Stage 2 will involve the implementation of the plans developed in Stage 1. The main tasks tobe undertaken in Stage 2 involve building of core capabilities and skills and establishing underlyingprocedures to support Regulatory Office operations. The consultants will design and provide training,both on-the-job and off-site in the following areas:

(a) Sector Analysis. Capabilities must be developed in economic and policy analysis toassess on an on-going basis the telecommunications and informatics sector , both domes-tically and internationally; cost and management accountancy; general policy formul-tion and review skills; ai understanding of the international telecommunications regula-tory envircnment;

(b) Regulatory policy. Capabilities must be developed to enable development and draftingof regulations and to support: (i) licensing of teleommunications networks facilities;(ii) network interconnection and revenue settlement arrangements; and (iii) other regu-latory issues;

(e) Price, cost and financial analysis. Capabilities must be developed to: (i) monitor,analyze and approve (or reject) tariff proposals. Clear criteria must be developed onwhich to judge applications; (ii) review financial projections of service providers anddevelop a financial model to facilitate monitoring their performance and adherence toregulatory requirements, and (iii) develop methodologies and estimates of the costs ofproviding telecommunications services to judge the operators' adherence to regulatoryrequirements;

(d) Quality of service, investment programs, technical standards and terminal equipment.Capabilities must be developed to: (i) establish performance indicators by service leveland establish systems to monitor results on a continuous basis; (ii) assess TCC's invest-ment program in light of expected quality of service standards; and (iii) establish,monitor and enforce technical standards for networks;

(e) Administrative, legal and information systems. Capabilities must be developed to: (i)develop and operate modern admistrative systems for both externally oriented needs(e.g. processing of license applications, regulatory proceedings) and internal require-ments (e.g. personnel, finance, supplies); (ii) provide in-house legal advice and under-take legal actions in support of its operations; and (iii) establish and maintain informa-tion systems to support the operations of the regulatory body; and

(f) Regulation of the radio spectrum. This will cover: (i) the development of a computer-ized system for interference analysis and frequency assignment; (ii) development of atopographic data base and other documentation necessary to perform the spectrum man-agement functions; (iii) assistance in developing or updating enforcement procedues;

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(iv) providing on-the-job training for staff; and (v) providing other assistance neededto update and develop regulation on the use of the spectrum.

D. TCC Management and Organizational Development

Project Client

25. The management and Board of TCC will be the client in this project. The consultants will beaccountable to the Director General of TCC. The consultants will partner with the Director Generaland with the management of TCC and will participate as members of the Working Group which theDirector General will appoint to supervise and to provide day-to-day management of the project. Theconsultant team leader will advise the Director General of TCC and will suppore the Overall ProjectManager assigned by the Minister of Communications to coordinate all the project streams. The con-sultant team leader will be appointed a member of the Executive Committee. (Refer to Introduction ofthese Terms of Reference for project management structure.)

Project Scope and Objectives

26. The Government of Jordan intends to corporatize The Telecommunications Corporation (TCC)as part of its strategy to restructure the telecommunications sector. In Phase One (summary reportattached), a number of weaknesses in the TCC organization were identified which will hinder its abilityto operate effectively as a commercial enterprise. In Phase Two, these issues must be addressed andresolved to enable TCC to be established as an effective, autonomous commercial enterprise in the shortterm and sufficiently robust to meet competition in the longer term.

27. To support successful implementation of sector policy through commercialization of TCC,these terms of reference are designed to include a high level of TCC staff involvement. Phase 2 willproceed in two stages. Sage l: plans to restructure TCC should be finalized, efficient methods ofworking developed, sta.ff of TCC mobilized to understand, contribute to and support the change pro-posed, and some basic infrastructure built. Management training should be initiated and detailed plansdesigned to implement proposed changes developed in Stage 1. SIMg 2: plans developed in Stage 1should be implemented.

28. In Stage 1, consultants should include techniques in their work plans to train management tomobilize the organization. The work program must ensure that in-house know-how is used to identifyand overcome obstacles to change. The work plan should also provide the best possible opportunity forTCC staff to learn new skills that they will need to manage a commercial company. Mobilizationtechniques should include workshops, process flow analysis, group projects, and a comprehensive com-munication program which involves every level in the organization. Proposals should also include theidentification and design of professional training programs to ensure that staff have the skills necessaryto discharge their new responsibilities. hi stage I the burden of responsibility will be carried by theDirector General and the consultants.

29. In the Stage 2, the plans should be executed by the staff of TCC with the support of the con-sultants. The consultants for Stage 2 should be experienced operator personnel drawn from operators ofa relevant size and more advanced stage of development who will "partner" with TCC managers.

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Partners will be required for each key management position. These positons will be finalized in Stage1 but could include the following positions: Planning, Procurement, Network Operations, Marketngand Commercial Operations, Finance and Accountig, and Human Rsurces. Given the importanceof Maintenance, of Billing and Collection, and of Pricing, it may be necessary to appoint partners forthese functions. Partners should share responsibility with TCC managers for performance in the first 1to 2 years. They should act as coaches to their counterparts and support the communicadons through-out the organization of the new vision and procedures of the company. The burden of responsibilitywill gradually shift from the advisers to TCC during stage 2.

30. Each stage requires different skills. Stage 1 requires plmning and transformation skldls, andStage 2 requires operational and management skills. Stage 2 advisers could be line operators drawnfrom telecom nicatons operatons or from their in-house consulting services. A consortium of con-sulting firm and operator personnel could partner through the process provided one firm is clearlyidentfied as project manager.

Task

Stage 1 - 8 months

31. The main tasks to be undertake during stage 1 include:

(a) Mobilize TCC personnel to engage the organization in the management of change. Thismobilization could take the form of workshops. Change agents should be identified andassigned project responsibilities (projects are described in (c) below.) Change agentsshould be:

* respected by colleagues at the same level and by subordinates as well as by seniormanaers;

* successfil professionals with a positive career path;* committed to the objectives of the new organiation.

The plan for this mobilization would be developed in tandem with the diagnostic activitydescribed below in (b);

(b) Improve core business processes. Core business processes must be analyzed and re-engineered. Projects should be created to analyze each process, to identify objectives,obstacles to efficient operation and to develop improvements. TCC will actively partci-pate in these projects. Projects will need to produce, at a minimum:

(i) corporate planning process and framework corporate plan:* market and competitor analysis will be required to support this effort;* co-ordination with investment, financial and human resources planing

functions is required;(ii) procurement process and performance measures;(iii) network operations and maitenance process and performance measures;(iv) tariff setting process and new tariff schedule

* cost analysis will be required to support this effort* market analysis from (i) above will also be required;

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(v) billing and collection process and performance measures. Special attention nmstbe given to the reduction of receivables;

(vi) financial and management accounting process and system;(vii) customer service process and performance meaures;

The consultants should design and provide overall direction for the projects. TCC staffshould actively participate in the management and content of the projects. Project teamsshould include representatives from all functions who are responsible for the processunder review, are responsible for supporting that process indirectly or who are custom-ers of it. Information management personnel, who will be building an informationmanagement system, described under (d) below should be included in all projects;

(c) Finalize the basic organizational structure and Board composition proposed in Phase 1.Review the draft plan to ensure that the organization is designed to support effectivemanagement of core business processes which are required for commercial decision-making. Core and non-core activities should be identified and non-core activities con-sidered for divestment. New departments may be required to support marketig andcustomer services. Staff Mnubers and skills required to fulfill all jobs should be identi-fied. Job descriptions should be developed for all key functions. These job descrip-tions will be elaborated and performance objectives and measure designed in (d)below.

(d) Develop institutional infrastructure.

Information Management System: Information requirements of TCC must be identifiedand an information management system designed, detailing flows of information andthe underlying technology required to serve TCC's operational, commercial, financialand planning needs. The analysis and re-engineering of business processes detailedunder (c) should provide significant input. The consultants should be ready at the endof Stage 1 to specify and procure an integrated management information system.

Human Resources Management and Development: Human Resources requiremetsmust be identified including:* number and slkll profile of employees needed over the next 5-7 years and cover-

ing the period of the investment program,* assessment of availability within TCC or required staff;* plans to re-skill existing staff;* plans to recmit where re-traiing is not sufficient;* training programs developed which identify and address the skill requirements of

TCC during the transition period to a commercial entity and on an on-going basis.Emphasis must be placed on the re-training of TCC staff to enable the highestpossible ratio of retained staff:

- targets for staff to be trained by sldll area, including, but not limited to: account-mg and finance, information management, customer service,

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marketing, competitive analysis, technology strategy, pricing, networkoperations, maintenance

- peformance meaurement and evaluation system linking individualdwrtmental and corporate performance

- incenive system to reward excellence in service and the achievement of perfor-mance objectives;

(e) Develop a detailed plan for implementation of the new structre. Steps required toinstall all new processes must be detailed including the acquisition of trainers, or ofoverseas trining programs, the procurement of an information management system, thedevelopment of objectives by function;

(f) Prepare TCC for corpoatdzation. TCC is expected to be corporatized in early 1995.The consultants shall prepare all necessary do aon, in cooperation with the legalconsultants, to enable registration of TCC under the Company's Law immediately afterthe new Telecmmunicaons Act is passed. Documentation will include a Statement ofFinancial Affairs, Articles of Association, an underting on the treatnt of TCCpersonnel, the issuing of TCC's new license and any other materials specified by thelegal consultants and/or the reguatory consultants..

Stage 2 - beginnng 7 months into the project

32. In Stage 2, detailed action plans, delivered in stage 1, for implementing the sector resrcwill be executed with the support of experienced managers who would partner with TCC managers totransfer know-how and to provide support as discussion partners and as coaches. The partners wouldshare management responsibility and accountability in the first 1-1/2 years of implementation with TCCmanagers assuming full line responsibility and accountability thereafter. The partner program is expect-ed to last one year. Partners will be sought in every key management role.

33. The nmin tasks to be undertaken in Stage 2 include:

(a) Creation of operating departments according to the organization design. These will likely

include: Planning, Proument, Network Development, Network Operations, Marketingand Commercial Operations, Customer Service, Finance and Accounting, Human Re-sources, Administion. Attention will be given to the creation of new deparmetwhich may have been recommended in Stage 1;

(b) Implementation of objectives and measures of performance by department, function andposition. Objectives will be process sensitive to reflect the need for team work and forcross-functional cooperation;

(c) Stengteing of each departnmt, as identified in Stage 1, to enable efficient discharge ofits responsibilities;

(d) Establishing linkages between departments required for effective process magement;

(e) Eecuifng all business processes to refine, as reqed, and to ensure that all factors are inplace to ensure successful implementation

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(f) Establishment of an Information Management System identified in Stage 1. Each depart-ment will need to confirm its detailed requirements and its input responsibilities (data andtiming) for the Information System. Specific programs will need to be developed tosupport key activities such as tariff/price setting, financial accounting and reporting,product/service profitability. Hardware and software will need to be procured and in-stalled and training provided to implement the new technologies;

(g) Implemention of the human resources process, traimng progran and incentive system.

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E. Legal Changes Required

Project Client

34. The Government of Jordan will be the client in this project. The Consultants will be ac-countable to the Minister of Comnmnications through the Overall Project Manager. (Refer to the Intro-duction to these Terms of Reference for description of project management structure.)

Prject Scope and Objectves

35. To provide a firm legal foundation for a robust and competitive market for telecommunica-tions services and for a sector policy and reguatory regime to govern the sector in the interests ofcustomers, investors and service providers. This legal foundation will involve the passage of a newTeleommunications Act, Corporatization of TCC, the repeal of existing laws and the creation of aninterim arrangement to govern the period from today until the new Act is passed into law. Legal con-sultants' services should support this objective and should include all steps required to ensure passage ofthe new Act including, but not limited to:

(i) Definition and implementaton of an interim arrangement to provide TCC the autonomyit requires and to govern the sector in advance of passage of the Act. Definition oflegal authority of the regulator, including formal reporting arrangements and relation-ship to TCC Director and Board;

(ii) Finalization and passage of a new Teleconnmications Act accompanied by the repealof all relevant existing laws;

(iii) Preparation of all legal materials reqired for registation of TCC under the Company'sLaw.

(iv) Review of existing Jordanian laws to confirm that the new Act will not conflict withany other law, including the investment law. Amendments to existing law should bekept to a minimum. Should conflicts be identified that cannot be resolved within thespirit of the Telecommunications Act, approprate amendments to existing laws shouldbe suggested;

(v) Development and imple on, in cooperation with the Regulatory and Policy teams,of all enabling regulations, including the preparation and issuing of TCC's new license;

36. Legal consultants will also need to coordinate with the privatization strategy team (section F ofthis terms of reference) in the design and delivery of a public awareness and communication program toidentify and to address issues which may impede passage of the new law.

37. Stakeholders to be considered include the public, the Council of Ministers, the Parliament andthe staff of TCC. Sector policy consultants will design and administer the program in consultation withthe legal consultants.

38. In an earlier phase of work, consultants prepared an oudine for a new Telecommunications Actto reflect sector policy that includes: the establishment of a Sector Policy Division in the Ministry ofCommunications to continue to develop sector strategy; the establishment of an independent RegulatoryAgency to implement sector strategy; and the Corporatization of TCC, the predominant service provid-er. An interim arrangement to give TCC autonomy essential to the efficient management of its invest-ment program in the interim was also suggested.

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Tasks

39. In this phase of work the legislative agenda, designed above, must be implemented. An interimarrangement for TCC must be agreed and put into force, the Telecommumcations Act must befinalized and passed into law, enabling regulations adopted and preparation made for theCorporatization and privatization of TCC. To accomplish these objectives, the following tasks must beundertaken, at a minimum:

(i) The development and implementation of an interim arrangement to govern the telecom-munications sector and TCC until the new Telecommunications Act is passed. There areat least two steps to, defacto, commercialize TCC:

* change the TCC bye -laws recommended in the earlier phase of work; and/or* secure a decision of the Council of Ministers to give TCC autonomy over key

resources.

De facto commercialization will include separation of the regulatory fimnction and thelifting of current controls on TCC including: (i) Remove Civil Service restrictionsrelated to personnel matters (including existing TCC staff); (ii) TCC will have controlof its financing, including its foreign currency revenues (beyond dividend payments).TCC will be able to raise financing from private sources to fimance its investmentneeds; and (iii) TCC's Board would have the fnal authority to decide on allprocurement matters, subject to the Government's general policy, but not to theprocedures of the Central Tendering Committees.

The interim strategy must be assessed and agreed. The legal implications identifiedclearly, including the role of TCC in regulatory matters. The interim strategy mustsupport the objective of passage of the Telecommunications Act. The interim proposalselected must be packaged and presented to the Minister of Communications fordiscussion and agreement by the Council of Ministers. The process for enacting theinterim arrangement must be described. Legal consultants must inform the OverallProject Manager of concerns expected by key stakeholders in connection with enactmentof the interim arrangements so that communications strategies can be developedaccordingly.

(ii) Finalization of the Telecommunications Act and preparation for presentation to theParliament. The consultants will finalize the draft Telecommunications Act. They willwork closely with key government officials to finalize the Act, including members ofthe Council of Ministers and the Steering Committee. They will identify for the OverallProject Manager the need for any descriptive materials that should be used in communi-cating the purposes and benefits of the legislation to the legislature and to the people ofJordan. The Overall Project Manager will instruct the Sector Policy team to developthese materials. The new Act will be finalized by August 15, 1994 (or within 2 112months from starting of assignment) and is expected to be introduced into theParliament at the first opportunity. Attention should be paid to secunDg agreement forurgent consideation of the measure in the new session;

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(iii) Preparation of all legal materials required to register TCC under the Company's Law.The consultants will identify the required process and define all necessary steps tocorporatize TCC through registration of TCC under the Company's Law. Completepreparation should be made in advance of passage of the Telecommunications Act. Thelegal advisors will coordinate with TCC management to specify financial and manage-ment information required including a financial statement of affairs, valuation of itsassets, a decision regarding the treatment of its personnel, and recommendation of anew capital structure, etc. These materials would be developed by others but would berequested and assembled with assistance from the legal advisors. This activity will becompleted by January 1, 1995 (or within 7 months from starting of assignment).

(iv) Identification and completion of any additional legal steps required to establish theSector Policy Division and the Independent Regulatory Office (beyond the Telecommu-nications Act) and otherwise to ensure implementation of the Act. The consultantswould work closely with the Sector Policy Division and with the newly appointedregulatory staff. The consultants will identify and deal with any other laws andregulations requiring amendment to accommodate the objectives of the newTelecommunications Act and its regulations. This activity will be completed by January1, 1995 (or within 7 months from starting of assignment).

(") Facilitation of passage of the Telecommunications Act and the repeal of all existing lawsand bye laws governing the telecommunications sector once the new Act is passed.The legal consultants will establish a process to monitor the progress of the Act throughParliament, and will identify for the Overall Project Manager the information needs ofrelevant parties to promote early passage of the Act. The Overall Project Manager willarrange for these materials to be developed by the Sector Policy team.

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F. A Shategy for the Vativa Aon of TCC

Project aent

40. The Government of Jordan will be the client in this project. The consultants will be account-able to the Minister of Communications and the Steering Committee through the Overall ProjectManager. (Refer to the Introduction to these Terms of Reference for description of project managementstructure.)

Project Scope and Objective

41. The objective of the project is to assist the Government in developing a strategy for the privat-ization of TCC. The consultans will provide advice on financial and accounting issues, prepare a saesstaegy, including the necessary bid documents outline and a time-bound action plan and identify impli-catons of privatization (e.g., to TCC employees, national security, government, treasury, economy).

Tasks

42. To accomplish these objectives, the following minimal tasks should be carried out:

a) Financial and Accounting Tasks

(i) Audit the financial statements of TCC in accordance with generally accepted inter-national accounting principles.

(ii) Prepare valuation of TCC based on discounted cash flows of the company. Theforecasts should be accompanied by detailed assumptions incorporated in the fore-casts, including but not limited to:

* tariff structure by type of service, revenues and expenses by type of service(international, national long-distance and local), interest expenses, depreciationand amordzation schedules, operating and other taxes payable;

* changes in working capital (including receivable collection and payable paymentperiods);

* capital investment program (including estimated costs of acquisition and inktalla-tion of new lines);

* debt repayment program and a program for the payment of dividends and thenew capital structure; and

* program for payment of pension and severance obligations.

The forecast should also note assumptions regarding price inflation in Jordan andapplicable exchange rate levels. Both the audited financial statements and the cashflow forecasts will be included in the information package distributed to potentalpurchasers of the company.

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(iii) Undertake a review of the fixed asset inventory of TCC and prepare valuations ofthe assets based on the their fair market value (that is, the current replacement costof the assets less the estimate depreciation of the assets).

(iv) Make recommendations on capital structure (debt and equity structure, classes andvoting rig *s) which responds to the Government's policy on management controland foreign ownership and other considerations.

(v) Provide an analysis of the likely reactions of potential investors to the important as-pects of privadzation, including the market and fiancial structure.

(vi) Prepare sales/information memorandum to be distributed to potential investors.

(b) Sales Str,ateg Tasks

(i) Detmine and recommend the best strategy for the privatization of TCC includingthe marketing approach that would maximize the price obtained.

(ii) Prepare an outline for the documents for the Invitation to Bid.

(iii) Define the criteria for evaluation of the bids.

(iv) Identify the potential investors and the factors which would encourage the optimaloutcome for the Govermnent.

(v) Prepare a time-bound action plan for privatization.

(c) IM21ications of TCC Privatization Tasks

(,i) Identify the need for staff reorganization and the implications of privatization to atlstaff and define the pension and severance liabilities associated with the transaction.

(ii) Design a public awareness and communication program. Key issues to be addressedwill include the impact of the privatzation of TCC on:

* Consumers* Government Finance* TCC's Staff* National Security* Economy* Other areas

Stakeholders to be considered include the public, the Council of Ministers, theParliament, Ministry of Interior and the TCC staff.

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21 of 21

(d) Cootdinatlon 9f all Rat Efforts

Severad otber tas will be prepared as part of other pacags. These tak includecarlying out legal changes, preparadon of the Articles of Association for TCC,development and prepaation of regulatory arrmgement, TCC's license and tariff andsector policy. All these tasks will be takn in consideration in developing the Action Plnreferred to in paa (b) of this packg.

Consaitw's DeUverabks

43. Within 1 month of the assignment - A written work plan for the project recapittlating th.objectives of the assigmment, detailin the form and the contet of all reports to be developed includingthe Final Report.

44. Within 8 months of the start of the assignment - A written report, presening: (i) outputrelated to financial and accountig tasks; (ii) sales strategy includig, inter alia, an action plan for theiplementtion of the privazation program and the implications of the transaction to all stakeholders;(iii) potential investors (local an intermational), outline bid documents and evaluation criteria; and (iv)a public awareness program.

UV 3. 1994

ANNEX 3.1

TCC's Orsaniation Chart

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-68- ANNEX 4.21 of 2

Description of Bank Financed Components

l.CablesEstimated bill of quantities for the total proiect

To be partially financed by the Bank

Type Capaeity Length Type Capacity Length Type Capacity LengthPairs Km Pairs Km Pairs Km

Duct Cableha uried Cables Aerial Cables

Duct 0.4i. 10 3.0 Suried 0.4w 10 322.2 Aerial 0.4= 10 969.8

20 0.9 20 97.6 20 371.8

30 1.0 30 73.0 30 250

50 7.5 50 124.2 50 353.5

100 19.4 100 170.8 100 313.6

200 35.1 150 102.4 150 104.0

300 35.7 200 109.1 200 161.1

400 21.9 300 193.8 Aerial 0.5m 10 133.2

600 53.1 400 75.2 20 72.5

900 43.4 600 51.9 30 43.9

1200 25.6 Buried 0.5mn 10 19.0 50 97.0

1500 29.4 20 3.8 100 75.9

1800 21.8 30 2.0 150 27.4

2100 19.2 50 6.4 200 69.7

2400 12.6 100 16.3 Aerial 0.6. 10 46.4

2700 5.6 150 11.8 20 33.7

3000 15.0 200 29.4 30 15.7

Duct 0.5mm 10 7.2 300 28.9 50 31.8

100 2.5 400 10.6 100 37.4

300 15.4 600 41.6 150 16.7

400 1.3 Buried 0.6= 10 1.2 Aerial 0.9mm 10 6.5

600 8.6 20 1.9 20 11.9

900 15.7 30 0.9 30 7.7

1200 6.3 50 6.4 50 29.4

1500 0.6 100 11.2

1800 8.7 150 1.4 Aerial Subtotal 3280.6

Duct 0.6rn 1200 3.4 200 1.1

300 26.6 Tin C.abes

Duct Subtotal 419.9 400 9.6 Tip 0.5w 100 4.7

600 1.2 200 5.9

Buried 0.9Qn 10 0.9 300 10.7

20 26.5

30 0.7 Tip Subtotal 21.3

Buried Subtotal 1580.0

2 of 2Description of Bank Financed Components

2. Customer Service Improvement Plan

The project would provide TCC with assistance for:

(a) a team of experts in various tasks, such as system analysis, database management,telecommunication planning and operations, to complement the existing technical capacity of TCC inproviding support to the additional development of software applications and computer-based analysisto respond to the changing requirements of TCC during the implementation of the investmentprogram, in addition to the technical assistance provided under phase 2 of the sector restuctuingprogram. One major objective is to increase the rate of connection of new subscribers to more than50,000 per year in 1996 and to manage the corresponding workload effectively in terms ofcommercial and operational tasks;

(b) the provision of local and overseas short-term training and study tours for TCC staff in suchareas as planning and management of telecommunication networks, management of databases,commercial activities, bitling and collection;

(c) the provision of training for the utilization of new systems and compuerized procedures atTCC cental and local levels;

(d) the acquisition of software packages for priority operational and commercial managementareas of TCC, in addition to existing or planned in-house software developments. Priority packagesshould concern inegrated billing/collection/accouning and operation support systems (newapplications/allocation of equipment and cables/fault complaint/fault repairs);

(e) the acquisition of additional information technology hardware, software and technical support,based on a comprehensive master computerization plan. This would be complementary to the currentefforts for the development of an integrated telecommunication customer-based database, and wouldprovide on-line access to this database. Associated support would also be extended to the TCC officeslocated in the regions. This acquisition would include initial hardware investment and requiretsupplies, maintenance, user traiing and technical support; and

(t) the acquisition of adequate technical domentation and reference materials.

-70-

ANNEX 4.3Page 1 of 6

The Management of the National Telecommunications Development ProUram

1. Introduction. The National Telecommunications Development Program will be implementedduring 1994-1998. Some relatively small projects - the exchange areas of Tla Ali and Mafraq and theNational/International Switching Center will be started in 1994. The Implementation of the bulk ofthe Plan will start in 1995. For the management of the program TCC will establish a ProgramManagement Office, the PMO. This document is a brief description of the organization of the PMOand of the management methodology to be applied.

2. Oization.

General. The organization of the PMO will be chanzterized by a separation between programmanagement and project supervision. Project supervision deals with the day-to-day supervision of thequantity and quality of the works. TCC's responsibilides to arrange for permits and right-of-way willalso be handled at this level. Program management deals with the coordination and scheduling of theprogram as a whole, the financial control of the program, the reporting and information systems,contract and loan management and the resolution of claims and disputes.

The Prorm Ma= ge Level. The Secretariat is responsible for correspondence control, i.e.,maintaining a registry of incoming and outgoing letters. It keeps track of incoming letters whichreiire acton by the PMO. It also handles the usual secretarial functions.The Coordination, Scheduling and Reporting function is responsible for progress monitoring,evaluation of the impact of delays and possible changes of priorities. It is also responsible for theinformation system and the production of reports for use inside and outside TCC, coordinationmeeting reporters. It is also responsible to monitor the outside plant supply control, keep and updatesupply records.The Human Resources and Training function is responsible for planning the human resources neededfor operation and maintenance of the new facilities in terms of quantity and quality, it is responsiblefor the coordination of recruitment of new staff and training including the suppliers training. It isalso responsible for management of PMO's own human resources.The Technical Group handles all techiical matters except the day-to-day supervision of the works. Itsduties include the evaluation of proposals from the Project Managers, or the Contractors, related tothe technical specifications and contract variations, the definition of acceptance test procedures andacceptance criteria, commissioning procedures and other similar tasks the Group will act as Technicaladvisor to project Manager.From a management point of view, the Local Line Plant is the most complexioned tine-consumingnetwork component. The Local Line Plant Design Group deals with updating of design drawings,review of as-built drawings, evaluation and design changes caused by field variation and variations ofintent '.The group dealing with Financial Control and ContractLoan Management is responsible for allfinancial arrangements such as opening of letters of credit, initiating disbursements from loans and

'A fiedd varatio s a design cbange caused by unoreseen c _runs such as undergmund obstaces. A varkion of inhis a design change which affects the scope of the project n tms of capacity or geographical coverage.

-71-

ANNEX 4.3Page 2 of 6

also for approval of invoices, cost forecasting and management of contingency funds. In addition, thegroup handles all questions, claims and disputes related to the commercial conditions of contract.

The Project Supervision Level. In principle, there will be one Project Manager for each contract.However, two or more contracts of similar technological contents may be handled by a single PM.For a large contract like the local plant installation it may be most practical to have two PMs: one forthe north of Jordan and one for the central and southern parts. The precise allocation of duties willbe determined towards the end of the procurement process.The Project Manager, supported by field supervisors, is responsible for the day-to-day monitoring ofthe project. The focus is on quality, quantity and progress control. The PM will ensure that TCCfulfills its obligations concerning permits and right-of-way from the municipal authorities andarranging for the marking out of existing underground services. In order to facilitate these tasks, TCCwill appoint Liaison Officers in the Regions.

3. Scheduling . Coordination. and Follow up. These activities will take place on several levels. Thehighest level is the overall program schedule. The determinate components here are the backbonetransmission network and the Amman junction network. The implementation schedules for thesec*omponents will determine in what order and at which time the different exchange areas can beimplemented. The next level is the exchange area (or remote unit area) where the building,tranission, switching and local line plant components have to be coordinated so that the investmentsstart to generate revenue as soon as possible. The lowest level is represented by the ImplementationObjects. An implementation object is a part of the total works which when completed can be used forits purpose. In Annex 1, the allocation of implementation objects is shown for the local line plant.r.e LLP comprises three components the duct system, the primary network and the secondarynetworks. A duct object is a section of duct which when completed allows the pulling in of at leastone primary cable. A primary object is one primary cable and the associated cabinets. A secondaryobject is the secondary network in one cabinet area.Each implementation object will be the subject of a separate acceptance test. The payment terms statethat 10% of the total payment will be made upon the provisional acceptance test. It follows that theContractors must invoice against implementation objects. This is an important feature of the follow-upsystem, in particular as regards the local line plant for which payments are made on an as-built basis.Invoicing against implementation objects allows for detailed cost follow-up and cost forecasting.In practical terms, the overall time schedule and the schedules per exchange area can be combinedusing a commercially available software package like Microsoft Project or similar. To handle the vastamount of data on the lowest level (the implementation objects) it will be necessary to develop acustom application using DBase IV, FoxPro or a similar high-level data base program.In a network expansion program of this complexity, delays are almost unavoidable. It is an importanttask for the PMO to identify potential or real delays as early as possible and to take action aimed atminimizing their impact on the overall time schedule.

-72-

ANNE 4.3Page 3 of 6

4. &Suoort by Consultants. TCC is in the process of engaging a consuling firm to support the PMO.The firm will provide:

- A Senior Advisor to the Program Director

- An Expert to assist with scheduling, coordination and the information and reporting system

- An Expert to assist in the fields of contract and loan management and financial control.

The above are long-term positions. In addition, the consulting firm will provide short-term experts,mainly for support to the Technical Group.

5. General Considerations. Program management is concerned with the timely and efficientfuilfillment of obligations - those of the purchaser as well as those of the contractor. The three keyareas are:

- Progress- Quality-Cost

The objective of the PMO is to ensure that the project is completed on time, in accordance with thespecifications and within the project. budget. In order to achieve this objective, the projectmaement should be:

- decisive- constructive- progress-oriented- practcal

It must be decisive because it deals with a real-time process. The contractor have a huge workingforce in-country and equipmt is being shipped in. The concept of the -ticking clock" is usefid. Itdcks away towards the contractual completion date whether or not any progress is made. It does notstop while the PMO ponders on which decision to take.It must be constructive and avoid too heavy an emphasis on the control function of the PMO. APMO which in all cases sticks to the letter of the contract and, for example, rejects proposal from thecontractor on how to solve a particular problem without ever itself contriting to a solution has ineffect chosen the easy way out - in all probability to the detriment of the project. However, there arelIitations to the PMO's role in this respect. It must not lead to any weakening of the contractor'sresponsibilities.It must be progress-oriented because:

(a) Any delay attributable to the purchase wil most likely lead to claims from thecontractor.

(b) If the project is part of an oveall expansion plan delays coWd have could have asnowball effect on other projects included in the plan.

-73-

4.3Page 4 of 6

(c) The economic viability of the project is based upon a certain completion date afterwhich the project will start to generate revenues. A delay in a loan-financed projectwill have an adverse effect on the purchaser's financial position as he will have tomake interest payments and installments without access to the expected revenues.

(d) The purchaser's standing with the public will suffer.

It must be practical above all in the handling of unforeseen problems. Someone has said that "the keyto success is in the masterful administration of the unforeseen". To be practical means among otherthings that the PMO should be able to override its own procedures in emergencies. The procedureand other administrative structures of the PMO must not be so complicated that they become a strait-jacket with no room for ad hoc measures to resolve urgent problems.

The PMO should strive to achieve a certain degree of fairness in its dealings with the contractor. It isquite clear that the PMO's prime objective is to protect the Purchaser's interest. Nevertheless, thePMO would do well to study with an open mind such points and claims that are made by thecontor. If the contractor has a valid claim it is better to deal with it immediately because it willnot go away and as long as it is not resolved it will have negative impact on the rolations between thepurchaser and the contractor.

The implementation of a large network expansion projects is fraught with potential problems. Mostof them belong to one of four categories:

- delays- variations- ambiguities- priorities

There is an almost infinite number of causes for delay. In each instance must be clarified (a) whetherthere is in fact a delay, (b) whom, if anyone, of the parties is the cause of the delay, if a claim isjustified and, if so, what amount could be reasonable.

Most contracts contain provisions for additions, omissions and variations. In this paper we use theword "variation" to cover all changes to the project which occur after the contract signature. Thehandling and costing of variatons normally require a great deal of effort by the PMO.

By ambiguities, we understand contradictions between the several documents (tender, specificaton,general conditions of contract, etc.) which together make up the Contractor or unclear statements inany of them. Ambiguities mostly pertain to the scope of work (is this piece of work really includedin the contract?) or quality (what is the real meaning of this staement in the specification).

The re-allocation of priorities is often connected with delays. Delays -e.g. in the completion ofbuildings may force a review of priorities. Conversely, new priorities set up by the purchaser maylead to delays or at least to claims for deiay by the contractor.

-74-

A.NNEX 4.3Page 5 of 6

Manpower Allocation

De0nitionsTE Technical EngineerTS Technical StaffAM Administration ManagerAS Administration StaffFS Financial StaffCO Consultant

Program Management

Depatment TE TS AM AS FS coProgram Director 1 Secretariat 4Human Resources and Training 1 2Financial Control Contract/ 1 2 1 1Loan ManagementCoordination Scheduling etc. 1 1 1 I ITechnical Group 5Local Line Plant Design Group 10 21Total 18 21 2 9 2 3

Project Supervion

Project TE TSSwitching

PM 2 -Supervisors 10

TrnmissionPM 2 -Supervisors 6 6

O.S.P (Implementation)PM 3 -Supervisors* 9 18

Building** 4 4Total 36 28

2 2* Governorate Staff Support** Locaql Civil Engineering Consultant

-75-

ANNEXA4.Page 6 of 6

OWzaon Chart

recimcalEvaluation Specia Tend.:

aMP cmite

,~~ ~~ ~~~~~~~ RI SuplyC_

Human Resoum o d Tla Gtwp

f%M. co"LotatirLwLn

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-76-

ANNIRX 4A4Page 1 of 2

Technical Assistance needs for Project Managemein and Supervision

A. Proiect Magga=emn

The consultant wilI assist TCC in developing and starting a project managementinformation system. The detailed tasks include:

- definition of the project management team organizixT-n;

- Wainin of key staff on project management practices;

- definition and provision of project control system based on computzed tools andcovering tme schedule, costs and quality aspects;

- definition and setting-up of the project reportn system based on informaion gatheringtools (forms, reports) and clear reguar procedue (meetings, audits); and

- assistance to the Progr Management Office during s-up and the first two years ofoperation.

The timing of tasks will be as follows:

- initial phase: analysis of the project, definition of organization (functions andresponsibilities) and procedues, and training of key staff;

- start-up phase: detailed breakdown in tasks and detailed time schedule of the project,set-up of the infonnation gathering system; and

- implementation phase: assist the Project Management office to run the reporting systembased on weekly detiled information flows from the work teams and global auditing ofthe project on a trimester basis.

-77-

ANNEX4.4Page 2 of 2

B. Project Supervision

The following tasks will be carried out in relation to the technical components of theproject (switching, power and environment control, transirission, outside plant civil works andelectrical works, provision of materials, buildings).

- review of technical specifications and discussion of possible amendments with suppliers;

- approval of detailed time stcaedule and review of modificadons;

- definition, approval and implementadon of quality control procedures (factory, on siteduring execution and provisional acceptance tests);

- oranization of the monitoring of works advancement; and

- organization of cut-over procedures.

In addition, TCC will require from time to time limited assistance on specific items:

- review of general conditions of tender douments;

- analysis of the impact of new technologies on services provided to customers; and

- expert advice on some aspects of technical specifications.

Implementation Plan1994 1995 196 1997 1998 99

I1 Tub N Qt Q2 Q3 Q4 Ql Q2 Q3Q4Q Q2 Q3 Q4 Ql 02 Q3 QQ | Q2 Q3 QJ Q| Q2 |Q

I UuidlcaColm I -TENDERING

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2 lldCoamaalo 2 -TEN11D EVAlUATION _

42 Safi f Iam 2. fEnNowC PC

3 Dvl%C=wa 3. SIGNING OF CONTRACT

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54 hlMcomouaaa 4- Sah* PC - - -

UaiIICamlmcJaa 5- 24aza PC - -

8 " asCaeoa 6 TNr"q PC _ _

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145 Bi gCo_nuction 20. SoI PA - - -

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115 DaiwsgCmucwww*M 22- A~Iia PCa - - - *

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Page I of 4

Implementation Plan1994 _ t95 I _- 1997 _ 9951

ID T Now Ql Q2 Q3 Q4 Qs QQ Q3 Q I QiQI Q4 Ql Q2 Q3 Q4

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33 Lad I.U m 3. APPROVAL or (MU)

34 tIduB PbI 4 - CONTRACT NEOOTATIOS_

X Lad UNs pUr4 * - S*G5- OFCcOtMC

M a.ad LiIPIW .* C5AM INMM FOPCE

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49 d Ilhml_ 2- ta PC

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a9 LdUw PI 4iU Qd *PC

73Lad Lb. 11111 S.0 q1.1p PC

79 L 1d1Ln Vim 6MOMS IPC

33 LeIdLb.F m 7. 1da .PA

45 LaLinPm I-amwpC _ _

53 LCed Lb.Mi 2- AbIbPC

n7 UodaP 3. Sai _PC

6S L*dlbsMm 4.*_Ub_PC

la tdib. Mm S. Abu NPC

144 LAdiM.m 6- Soft PC

14 L-L1, 7.Sb _PA

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P7 LIU.Mbm _ 2.AWaPC

Ids b tJlimP 3-btWSi PC

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137 LadLUN F 7. I9 _S PA

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234 LOsW Lb Mml 3- C _ PC

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Page 2 of4 J

Implementation Plan_994 995 _99 3997 1998 _ = ._ 1919

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t9 57. MANUFACTURING

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65 3. To" PC

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96 SubciiS 3- SdaPC

84 swbcM.t 4.RPg 0 R PC

34) Lubibi 5. So PC

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840 SwImibiag ~2- 3*86 Sb PC

too Suiwbia 3. JuubPC

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825 SO.&A -Dr b 8P

90Suii* 6- Aidua PA

108 subdat 7. lAi Sb PA

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Page 3of 4 k

Implementation Plan1994 1- - t996 I? - 19 1997

ID rTs Nun Qt Q2 I Q3 Q4 Ql Q 3 I Q4 Ql Q2 Q3 2 Q4 Ql Q2 Q3 Q li Q 02

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I Tamamim 2 -TENDER EVALUATION

4 7rmnamiita 3- APPROVAL OF (7E)

7 T_Amnaaaa 4- CONTRACT NEGOTIATION

a Tiaa 5-SIGNING OF CONTRACT a

9 T.ua_son 6-COMING INTO FORCE

10 Tn,m.aioa 7. -IANUFACTURiNG

it TrMautsim 8 TRANSPORTATION

2 T,hisas 9 -INSTALLATION A _ESTG _

Tmaaalioa 1- . AbdmaPC

43 Ti_mmuop 2- En N PC_

51 T_emhaic 3- Abu AU*& PC

55 Twa*nuic 4- S$bob PC

47 Tionmis t iam PC __

59 ?T..W.la 6. Tmq PC

63 Tnmmim 7-RnbedPC

67 Twimiulo. 8.t Un Qui PC

70 Tmam,ueaa 9- Iwydeb PC _O

74 Tr_amasio W Abu New PC

£5 Tm_ummm I- AM PC

124 Taismans 2- DaCi Ab Sad PC

128 Tmamizioa 3- Da Abi Said PA _

116 Tru_mum 4- Ajia PC _

120 rTmmemn s. Ajian PA

t9 Tsudiaa 6. Aloon PA

101 Trmaaao 1- ibid Sb PC -

105 rmwina 2- Itbid Sb PA

log Temmlsaa -JarasbPC

112 TAMmbsion 4-a PA _ _

93 rTsmumei lZvqaS PC _ a

I1I Trsosmion 2- R ufdtb PC

97 Tr"asnift 3- Zaq Sh PA

136 Tammnism 4- ?mafA PC _

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Page 4of 4 Ii

-82- ANEX46Page 1 of 2

BANK SUPERVISION PLAN

Missions

Approximate Activ:ties Skills StaffDates Weeks

09/94 - review establishement ef interim arrangements. TN/Policy 8- review legal work including status of TCC Financecomercialization and draft PMI/ISTelecoaunications Act. Telecom.- status of revision of TCC by-laws.- mobilization of consultants and counterpartsfor sector restructuring.- review objectives and measures of performance.- agree on TOR for computerized operation supportsystem.- review lmplementation of project m_ngementorganization and procedures, progress onprocurement for components financed by the Bank,overall implementation schedule.

12/94 - review status of consultants progress toward TIVPolicy 3TCC corporatization.- review re-design of core business processes atTCC.- status of legal changes.- status of implementation of sector policy unitw_ _ ithin NOPC and of independent regulator.

03/95 - review TCC incorporation. TN/Policy 8- review TCC license. Finance- review TCC privatization strategy. PM0INIS- revine new regulations. Telecom.* review training program.- status of organizational and business processdevelopment of TCC.- review tendering of operation support system.- review project management effectiveness.- mobilization of main contractors and suppliers.- preparation for connect ion of new subscribers.

06/95 - review effectiveness of training program. TN/Policy 3- status of licensing new services to privatecap nies.

09/95 - review comnuication plan at TCC. TN/Policy 8- detailed review of progress on all contracts Finaneand overall project status. P10/HIS- final review of performanee against objectives Telecom.in sector and regutatory assigrments.

03/96 general review and folLow-up on previous TN/Policy 8missions. Finance- status of organization and procedures for PMIN/ISconnection of new subscribers. Telecom.- final review of TCC project performance againstobjectives, establish new targets.

06/96 - status of implementation of independent TN/Polf.y 3Regulatory Office and of Sector Policy Unit. -

09/96 - mid term review of implementation of the TN/Policy 8project. Finanse- messures of success against targets. PM0/NIS- review preparation of TCC privatization. Telecem-

12/96 - status of organizational chrnges. TN/Policy 3

-83- am 4.6Page 2 of 2

Nissions (contined)

Approximate Activities SkiLLs StaffDates Weeks

03/97 - status of cable supply contract (financed by TIP.l icythe Bank), overall status of project and Financemobilization of TCC to connect new subscribers. PSD/IS

__________ _____________________________________ Telecom.

09/97 - review readiness for the privatization. TN/Policy- generat review and follow-up of previous Finrncemissions PSDI/IS- review performances of TCC and other operators. Telecom.- review progress toward sector policyobJectives. . -

03/98 - general review and follow-up of previous ";4/Policy 6missions Finacem

___ ___ __ _ _ __ ___ __ ___ __ ___ __ ___ __ ___ __ ___ __ Te lecm .

09/98 - Preparatfin of PCi TNPl ficy 6

Telecom.

TOTAL =0

Forecast of Project Supervision

Staff-Weeks in Fiscal Year

Specialist FY95 FY96 FY97 FY96 FY99 TOTAL

Task Manager/PoLicy 16 13 13 13 10 65

Finance 8 8 7 6 4 33

Telecommwnications 10 10 8 6 4 38

Private Sector Dev./ 10 10 8 6 4 38Management InformationSystem

Field 22 19 19 14 6 80

Headquarters 22 22 17 17 16 94

TOTAL 44 41 36 31 22 174

-84-

ANNIIXE.4.7

Disbursement Forecast

Bank Fiscal Sector Profile Semester Cumulvd %Year/Semester (a) Amouwt USS Amount USS

FY9S-I 0 0 0 o

FY9S-U 3 2,345,000 2,345,000 12

FY96-1 10 5,500,000 7,845,000 39

FY96-Il 18 6,725,000 14,570,000 73

FY97-I 30 2,430,000 17,000,000 85

FY97-H 42 1,300,000 18,300,000 91

FY98-I S4 900,000 19,200,000 96

FY989-1 66 400,000 19,600,000 98

FY99-I 78 200,000 19,800,000 99

FY99-Hl 86 200,000 20,000,000 100

94

98

100

(a) From Standard Dbiocsensit ProfHes, August 1993, poffle for teeonmicatons sector for allreios

Historical FinancW Statements

r Xrdbano ~~~~~~14.2631 t7,3451 19,5S0 20,0451 19,0071 20,708 32,4901 47,C8 S7,4421 63t43roks . 4*3183 ----- ig4]313 4,39 4--- Mld 3,8551 --- '33 2,4771 2-- 126 2----l 2J

blesnatbsl bl _~~~~~~~~ 2.608- 1,6411 -2,520 4,051 5,2231 -7,413 1--2,276 20,6 0 - -2.2611 - -229301L*ri^s . .~~~~ ~ 5S7 633 '68 7S --- 497 485 S Su 5SulX

. 263 491 38 39 416 610 E04 80 49 1952 V'g'

I_die '-- lAbhu{flk ''- _ . . _ D _ ...........44 25 -ff . ,

1 (w 94 1,303 26 1 885 237 2 n733 S8 5,173 5.27368Ptber Re"_ sa= ;,531 1743 1 1 361

lessEbldrbdRs _ _ 130 67S--SW"I ~~~~~~~~~~~~~~~5001 Soo Soo 2500 1( 2J

Irial &bides -- - I 3,966- ~~~~~~4,614 41 5,702- ~6,380-iX9 6,8 B1 6 - 7249 7,983 8,S8. 227 ~~~4133 4 486 -4 8EX S2 13 1_:. :

bn - - 5~~~~~~~~~~~64 - 727 7 21,018 1,177 -- 3S 2,3a2.922 -2,126 3,110lebc - 3aq ~~~ ~~~~~~~~~~~~423 -78 2 6 1,033 1,000 86 lOO _ 004

IFud - -- 172 187 ~ ~ ~~~~~~~~~~~-W 298 9 2 231- Igo3 2IReF_ y 112 22a ~~~~~~~~~ ~~~~~~~~~~21E 244 ---- 41 - s2 M 2S2 2s247

F~~~~~~~~~~~~~~~~7 13 .82 17 --- s67)Oq,|b,g& I o 3S2 340 -- TVs 321 364 -4---- 48-T5 634

scc . . a a a c o 24sI~~~~~~0 91 280 136 1-- 31o*alb - r a a 237~~~~~~~~~~0 292 291 ,1 -- 2U2 ... ........ ..... ss.W

. .a o -- ~~~~~o 66 - 95 0 84 - 3 lu103

1,105 8 4 5 2191 - -7-4 --- 7- -- 3MsI,

an Amwtfti 32ss-s395 53.m7 25781 S.389,- T 1 4t 12,47°3.- W 12 4s l,W> E!!! LOU. M206- 68 l30s 250 s 13l 61 12 l 2=1 9217 1.8 0

huarca huton"tti;&nfs 283 ~~~~~~~~~~~~1,1521 1,1431 3,2841 4,1271 5,2S21 7,1671 7 7431 6,9931 6.48N7 1f

Abstgts o"^~ . 283 1,l21 ll431 3,841 4,1271 ;2S21 7 167 -7 7431 6,931 < 6,49

Historical Fin, cial Statements

______ _____ ______ _____ ______ _____ ______ _____ _ 196 196 196 19 6 196 196 1969 19 1 99 A ndlIed 1I M

Balance Shea n JD W)J _ _

s Fled Aub S,5 , 173, 9 194,393 192,675 202 213,W 219,93 221 9382Decami rled leinwdien 129t361 16 224 21,466 2S35 31,845 38743 7, 428 55,336 . 60.0916811

F Asts 4 lled As403 63,132 128080 683 S 166937 16456 161847 SS 171Weak In i~~~~~~~~~~~3i74 -B.7f 1--3 .1 21 4 2

~~II I~~ 4565'49secmtlftr 1 DeFabsu-on 55213 , -75 404 A12S 32, 19.9S

1n a',45k6 3788 3 92S3,11 ______,733 3,6M 3.726 4,042 41& Bank 1,145 1,842 1.712 2,436 32 159 1.61 2,077

_kcb ReCea 14,085 16681 27 4 29 36,180 37 50,600 1 8De s Pswr" for Bad Debts IS% . 375 1,;m 2 we 5 80 6 6,0 7,30D 7,0 0Assets ~ ~~~pAe -- Bii,25M74 D__3__CWrt tA#e bt A s reeibable 13,710 1586 2,4 2,J 0380 31,45 4,O 4S1 7 3 00

. .. 1, 19 1909curenimt Asset s 208 14 138 S 69 762 24 2 993 3.169 co

rdal s X X . *4n 19,104 5 29j246 ; .3S,6|~~~30.02 32,6 "I a 3 47,4 S7,113957WTda Assd -. 10%024,81W6 166,618 192.98M 219,61 -25C,80 25B,6S 263,99 I274

G_ibly 7 .~~~~~~~~~~ 53,068 70,632 8640 97,811 103,045 109,7SIT t06,08 -68 053 50568 5673yew Year 17,564 1 2 20,2 1 6 17, 13,71_ _4,889 _42.663 61 2397

E§* ec_b Profhb _ 17,S64 36,126 S6,608 75,124 93,032 106.748 111 637 1530 215,539 74,382wkhdrait. - 0 20.358 -- 4S,-197 64,890 86 326 110 416 149,667 171.5 937 1

litlDd . - 70,632 - 8~~~ ~ ~~~~~6g *1 103,045 10971 1603<603 5S8 5.3 2 S2Wterm debs . ... 41;547 53. 14 90,7M 142,645 136 353 129,662 130'90S

LTD LTD p 44 206 -- 1,05 1236 42, 51,329 7001

41,333 35l 200peofLTD 61. 3,6911 7,3,5 7 7 6 3,"771 :16 5 14 15.237 14.906cco Pillde S~~~~~~~~~~~,599 3,149 ,8 4,789 2 977 5.79 S953 8.318 s,89 9'57

CncRetesenm 1,833 4.652 3,5SO 2 146 4- W6 '45 5 .S9 '2f PiiW - ~ 304 -_2761 4_ _31_ S32 684 480 461 597 _ 708

r SubsD_b I,oes~~~~~~~~~~~~~~.( 1,166 1,379 1,556 1,74 1,873 _ 2,2 2,207 2,418 2,852Sbdrlib reserve ~~~ ~~~~~650 ---- ---- 33 35 395 360 -3S616S C 811~~~~~~~~~~~~~gl 730- -694 762 8801 907 950 1,025 ~1,437f 1.3;21.

r iablutIII 13,024 14280 1666 192, 2190 258, 2799 263,1 2

o fl0Wv

IBRD 25725

JORDANTELECOMMUNICATIONS PROJECT

TELECOMMUNICATIONS CORPORATION OF JORDAN (TCC)PRIMARY EXCHANGES

O Primary Exchanges Under Projed Roads o Selected Towns

- Other Primary Exchanges | Railroads 6 National Capital

-'- Rivers Occupied Territories

LEBANON .' ,

6 / .\SYPAN~~ f-.'~~*" ~ ARAB-

( ! REPUBUC IRAQ\' ,' L ake < tiaj /l

Tiberias Irbid

| tv~~~~rd g^Ramtha

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tiq~ a\ nZ eateaoo df_

36~ ~ ~ ~ ~ ~~~~~~~~~~~r

/.' . 3 XSea > iz f> o~~~~~~~~~~~~~ 25 50 MibsSAUDI

s(K<6a6runeh / A ARABIAPRI19I|Karam |\

ISRAEL ,- )-!Tafileh Kf } / \ ~~~~~~~~~Greater

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t {1 wJRa'san .~~~~~~~~~~~~wo 3s- 300r E3 Russef

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APRIL 1994