Ex-Post Monitoring of Japanese ODA Loan Project

Zimbabwe
Mashonaland Manicaland Digitalization Project (II)External Monitoring Consultant: Katsumi Matsuyama, Nakamoto&Associates Co., Ltd.
1. Project Description

Project Location

Switching Station (Harare)

1.1 Project Objective
The project aims to fulfill the increasing demand for telecommunications by developing
telecommunication facilities including switchboards, transmission facilities and out-station facilities
in the Mashonaland Provinces including the capital Harare and Manicaland to install an additional
128,800 lines (excluding suburbs), thereby contributing to the improvement of the living andinvestment environments of the region.

1.2 Outline of the Loan Agreement
Approved Amount / Disbursed

11,451 million yen / 1,745 million yen

AmountLoan Agreement Signing Date /July 1996 / October 2001

Final Disbursement Date
Ex-post Evaluation

2006

Executing Agency

TelOne Pvt. Ltd.(TelOne)

Main Contractor-

Main Consultant

Nippon Information Technology Consulting Co., Ltd.
(Japan)9-1

1.3 Background and Reason of Ex-post Monitoring
Zimbabwe's existing facilities such as analogue switchboards were decrepit, and could not fulfill
the rapidly growing telephone demand. Especially in central regions of Zimbabwe’s economy such
as Mashonaland and Manicaland which include the capital, Harare, there was concern over the
shortage of telecommunication facilities that could be a bottleneck for business activities andconstitute an obstacle to everyday life. In addition, shortage of subscriber cables created problems in
the effective utilization of the telecommunication system as a whole, making it difficult to satisfy thetight demand for telephone services. In order to improve this situation, this project follows theinstallation of telecommunications facilities by Japanese ODA Loan, “Telecommunication
Expansion Project (ZI-P3)”, and implemented the installation of switchboards, switchboards,
transmission facilities and out-station facilities in the Mashonaland Provinces including the capital
Harare and Manicaland.
However, due to a series of problems related to the implementation process, the project wascanceled. Of the planned installation of 125,800 subscriber cables, only 38,300 cables (excluding
long-distance) were installed in Mashonaland; and in Manicaland, neither the replacement of theswitchboards nor the installation of subscriber cables was implemented. In Zimbabwe, there is aproblem of communication failure due to capacity shortage and aging of subscribed cables; the effectof the installation of switchboards only is believed to be limited.
This project was planned to be managed by Post & Telecommunication Corporation (PTC), but
PTC was split and incorporated in July 2000 and the telecommunication service division was
succeeded by TelOne (Pvt) Ltd. (TelOne).At the time of ex-post evaluation (2006), the governmentof Zimbabwe owned all shares of TelOne, but it had been decided by the Cabinet that TelOne will beprivatized. Shares after privatization were planned as, Zimbabwe holding 70% of the share and theremaining 30% by a private entity. However, the specifics of the privatization had not been decided,
and the future of TelOne was unclear. In addition, TelOne was continually in a deficit due to thecountry's economic downturn, and there were concerns over the procurement of spare parts andsecuring of budget necessary for personnel training.
Therefore, this project was selected for ex-post monitoring and reviewed under each criterion withthe findings from the field survey and other research activities with a final conclusion being drawn.

2. Outline of the Monitoring Study
2.1 External Monitoring Consultant
Katsumi Matsuyama (Nakamoto & Associates Co., Ltd.)9-2

2.2 Duration of Monitoring Study
Duration of the Study: September 2012 – June 2013
Duration of the Field Study: November 24, 2012 – December 5, 2012

3. Monitoring Results
3.1 Effectiveness3.1.1 Quantitative Effects
3.1.1.1 Operation and Effect Indicators(1) Installation of Switchboards
Switchboards installed by this project were only a part the switchboards operating in Mashonalandand Manicaland. In the region, there are older switchboards still operating, and there has been
installation of subscriber cables. From 2002, year following the completion of the project, to present,
TelOne is implementing the gradual replacement of operating outdated switchboards to switchboards
made by Chinese manufacturer, Huawei. The replacement is taking time due to the limited budget
provided by the government of Zimbabwe. In addition, switchboards installed by this project areclassified as outdated, and is targeted for replacement. Regarding the number of subscriber cables,
according to the interview with TelOne, currently there is a total capacity of 400,000 lines forswitchboards and subscriber cables in Mashonaland and Manicaland. Capacities of the switchboards
installed by this project, which are a part of the 400,000 lines, have decreased its capacity to 60% of
its original capacity due to the lack of spare parts. The number of subscriber cables only forswitchboards installed by this project could not be obtained.
On the contrary, ex-post evaluation report reported the number of subscriber cables as a total of
38,300 cables. From the fact that the difference in the number of subscriber cable is nearly 10 times
between the number of subscriber cables reported in the ex-post evaluation and the findings of thisstudy, and from the finding from an interview result that the older switchboards were in operation at
the time of ex-post evaluation, it can be assumed that the ex-post evaluation's report pertained only
to the switchboards installed by this project. Therefore, the comparison is not possible, since thedefinition for the number of subscriber cables seems to differ. However, according to the interview
with TelOne, the capacity of switchboards and subscriber cables have increased as a result of thereplacement of switchboards to Huawei switchboards and the additional installation of subscriber
cables.
Table 1 shows the utilization rate of switchboards in Mashonaland and Manicaland. Utilization
rate from 2006 to 2011 is approximately 70% in Mashonaland and 50% in Manicaland; there issurplus in capacity.

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Table 1. Switchboard Utilization Rate
2006

2007

2008

2009

(Unit: %)
2011

2010

M ashonaland

79

81

78

73

71

69

M anicaland

51

51

51

50

48

47

Source: TelOne(2) Subscriber Cables
Subscriber cables were not installed through this project. However, according to the interview
with TelOne, there is no waiting list for phone lines which is caused by shortages of subscriber
cables in Mashonaland or Manicaland in 2012. According to statistics from Postal and
Telecommunications Regulatory Authority of Zimbabwe (POTRAZ), the total number of subscriber
cables in Zimbabwe was 346,211 in June of 2012. From the fact that the capacity of installedswitchboards and subscriber cables is 400,000, it can be assumed that the service is rendered without
any waiting list. The reason for the discrepancy from the ex-post evaluation report could not be
obtained by this survey.

(3) Landline Telephone Penetration Rate
Landline telephone penetration rate in Mashonaland slightly increased in 2008, where it peaked at
7.9%, and have declined thereafter. Manicaland was leveled at 6% until 2008, and then declined.
According to the interview with TelOne, outflow of customers due to the spread of mobile phones is
the reason for the decline in landline telephone penetration rate after 2009.

Table 2. Landline Telephone Penetration Rate
2006

2007

2008

2009

(Unit: %)
2011

2010

M ashonaland

7.1

7.9

7.9

7.3

7.4

6.9

M anicaland

6.6

6.6

6.6

6.5

6.2

6.1

Source: TelOne

Mobile phone penetration rate is shown in Table 3. According to statistics obtained from POTRAZ,
numbers of subscribership to the three largest mobile operators are: Econet 6.4 million, NetOne(100% subsidiary of TelOne) 2.5 million, and TelCell: 2 million. As can be seen in Table 3, thepenetration rate, which was 7% in 2006, has increased nine times to 61% after 5 years in 2011.

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Table 3. Mobile Phone Penetration Rate
2006

2007

2008

2009

2011

Penetration Rate
(%)

6.78

9.82

13.29

31.99

61.25

Subscribers(1,000 people)

849

1,225

1,654

3,991

7,700

Source: Ministry of Internal Affairs and Communications(4) Rate of Failures Fixed by the End of the Next Working Day
Rate of failures fixed by the end of the next working day in 2011 was 91% in Matabeleland and
88% in Mashonaland; the numbers have been maintained at high levels since 2009. The reason therate of failures fixed by the end of the next working day does not reach 100%, can be accounted to
failures such as lightning in which restoration by the next day is difficult. Pinpointing the accident
location is difficult in such cases, and arriving at the accident scene is time consuming. Such failures
are preventing the further rise of the rate.

Table 4. Rate of Failures Fixed by the End of the Next Working Day
2007

2008

2009

(Unit: %)
2011

2010

M ashonaland

52

89

91

93

91

M anicaland

62

87

90

89

88

Source: TelOne

3.1.1.2 Results of Calculations of Internal Rates of Return (IRR)
This project was terminated in the initial stage of its implementation and its cost and benefits arelimited. Therefore, calculation of the internal rate of return will not be performed.

3.1.2 Qualitative Effects
See impact.

From the above indicators, the effectiveness of this project is satisfactory as the rate of failures
fixed by the end of the next working day is maintained at a high level. Furthermore, there is ample
telephone circuit and reserve in the capacity of switchboards from switchboard replacement andsubscriber cable installation implemented by the Zimbabwe government. In addition, the number ofpeople on the waiting list is currently zero, and quantitative effects were confirmed over the
problems of insufficient switchboards and subscriber cables indicated at the time of ex-post
evaluation. However, due to the spread of mobile phone, landline phone users have decreased, and as

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a result, utilization rate and of switchboards and landline telephone penetration rate has decreased.
This trend is expected to continue in the future.

3.2 Impact
3.2.1 Intended Impacts
3.2.1.1 Customer Satisfaction of TelOne’s Communication Status
Data, such as customer surveys to ascertain the satisfaction of the communication status were notavailable. However, in an interview with the residents of Harare, there were no problems detected in
the usage of landline telephone. The fault rates, shown in Table 5, are considerably low, and no
problem can be seen. According to the interview with TelOne customer service department, since
TelOne has engaged in the replacement and installation of subscriber cables, there is no significant
problem. Typical complaints to the call center are due to unusual circumstances such as call failurescaused by lightning or nearby construction work. Fault rate is very low. From the interview withresidents and the fact that the fault is caused not by the failure of facilities but by external events, it
can be concluded that the call quality has greatly improved from the time of ex-post evaluation.

Table 5. Fault Rate
2007

2008

2009

(Unit: %)
2011

2010

M ashonaland

0.38

0.42

0.39

0.41

0.42

M anicaland

0.33

0.45

0.38

0.4

0.39

Source: TelOne

3.2.2. Other Impacts
3.2.2.1 Environmental Impact
According to the interview with TelOne, there are no environmental impacts caused by this projectsince the time of ex-post evaluation

3.2.2.2 Resettlement and Land Acquisition
According to the interview with TelOne, there are no resettlement or land acquisitions since theex-post evaluation.

From the above, during this ex-post monitoring, impact of improvement in the telecommunication
environment could be seen compared to the time of ex-post evaluation. In addition, communication
failure rate has been maintained at a low level, and there are almost no complaints over call quality.

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3.3 Sustainability
3.3.1 Structural Aspects of Operation and MaintenanceAt the time of ex-post evaluation, TelOne's privatization was decided by the Cabinet. However,
the government of Zimbabwe continues to hold all shares of TelOne. According to the interview with
TelOne, there is no plan of privatization in the future. There is no change in the status ofshareholders or the organizational structure of TelOne from the time of the ex-post evaluation.
Considering the innovation and the rapid spread of mobile phones, TelOne does not have an
optimistic outlook of the landline telephone sector. However, TelOne is planning to expand its ISDN
business focusing on services to companies that use landline telephones. Also, NetOne, the second
largest mobile phone company in the country, is a 100% subsidiary of TelOne. Expansion of new
business apart from landline telephone has become an urgent management issue.
Operation and maintenance of facilities in Mashonaland and Manicaland is conducted by the Central
Management and Operations Center (CMOC) in the Customer Service Division under theCommercial Department of TelOne. Problems of staff shortage and outflow of engineers indicated at
the time of ex-post evaluation have been resolved. Although information on the number of staff were
not available, according to the interviews, there is approximately 105 exchange facilities with morethan one engineer at each facility; and so, there is no problem of staff shortage. Engineers regularly
receive training at TelOne's training center, and new engineers are recruited constantly to fill vacant
positions. Application form for job seekers is available on the company website.

3.3.2 Technical Aspects of Operation and Maintenance
TelOne has a training center in Harare, where technical training is offered to its employees. The
center is also the country's only training institution where acquisition of a variety of national
qualifications related to communication is possible. Staff shortage, anticipated at the time of
ex-post evaluation, has not occurred. According to the interview with TelOne, technical skills of
individual workers, in addition to maintenance manuals, are shared at the working site, and there
are currently no problem with the necessary technical skills for operation and maintenance.
However, there is a need for TelOne to upgrade its training contents in order to expand its businessto ISDN. Currently, TelOne is searching for a partner that can provide the knowledge of thistechnology.

3.3.3 Financial Aspects of Operation and MaintenanceAt the time of ex-post evaluation, operating profit ratio was 4.1%. Currently, consolidated
operating profit ratio, including NetOne, is 2%, and have worsened since the time of ex-post
evaluation. In 2011, Revenue was 150 million US dollars (13.5 billion yen / 16% decrease fromprevious year), total comprehensive income was 3 million US dollars (260 million yen / 50%

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decrease from previous year), and balance in equity was insolvency of 160 million US dollars.
Operating loss was 30 million dollars. The main reasons for the loss are decrease in revenue due tothe expansion of the mobile telephone market, constant appropriation of bad debt loss, and increases
in personnel expenses resulting from the inflation from the switching of national currency in 2009.
Loss for a single fiscal year has decreased by 20 billion yen from the time of ex-post evaluation, but
this is due to the fact that temporary factors such as inflation and currency devaluation were notpresent in 2010. Although TelOne has an insolvency of 160 million US dollars, 150 million US
dollars which amounts to 90% is ODA loan from the Japanese government. 40 million US dollars isa loan from African Development Bank.
It is very unlikely that TelOne will suspend its business. TelOne is a state-owned enterprise, and isengaging in an investment negotiation from a foreign company. Its subsidiary is NetOne (established1996), which is the second largest mobile phone company in Zimbabwe. However, the company's
operating funds are insufficient, and obsolete switchboards cannot be replaced immediately.
Furthermore, according to the interview with TelOne, although landline telephone business iscurrently dominated by TelOne, a foreign telecommunications company is planning to move into
Zimbabwe within the next few years. The company has begun preparations for constructing cablefacilities. Since cooperation between the foreign telecommunications company and TelOne’s
landline phone business cannot be expected, there is concern over the worsening of the financial
status of TelOne from price competition.

Switching board: empty slots can be seen

Fan is used to substitute for cooling system

3.3.4 Current Status of Operation and Maintenance
The CMOC, visited during this study, acts as the central management center for all the switchingstations. Switchboards installed by this project are also operated and maintained, according to themaintenance manual, by the CMOC, and the switchboards are properly operated. Regarding thestatus of operation and maintenance, the equipment is showing significant signs of deterioration

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compared to the time of ex-post evaluation due to lack of spare parts. Switchboards installed by thisproject have already become obsolete. Fujitsu, which is the vendor of the parts, closed its Zimbabwe
office in 2004. The local manufacturer of spare parts has also stopped its operation. Spare parts havebeen lacking since 2005, and the usage rate of the switchboards is declining. In addition to the lackof spare parts, from the rapid innovation of information technology, the switchboards have become
obsolete. TelOne is planning on replacing the switchboards to those made by Huawei as soon as
budget is secured.

From the above, problems with organizational structure and technical capacity, which wereindicated in the ex-post evaluation report, could not be seen. However, financial situation has
continued to be insolvent, and this has led to an obstruction to the company's operations, such as its
inability to promptly replace obsolete switchboards. In addition, the entry of the private company has
been scheduled in the near future, and the current monopoly of the telephone business by TelOne
will cease. It is likely that the financial situation of TelOne will worsen. Although the existing
facilities are managed properly, the equipment is dilapidated due to the lack of replacement parts.
However, for the budget is insufficient to replace the existing switchboards.

4. Conclusion, Lessons Learned and Recommendations
4.1 Conclusion
According to the interview with TelOne, overall capacities of the switchboards and subscriber
cables have increased since the time of ex-post evaluation. TelOne has engaged in the replacement ofcables and additional construction of cable facilities, and there is no significant problem with the callquality. However, the operation of facilities installed by this project is unsatisfactory due to aging
and lack of spare parts. Concerning impact, communication environment has improved in theregions where the facilities were constructed by this project, leading to the reinforcement of thecapacity. However, the project's contribution to the living environment and the improvement ininvestment condition in the country is unclear.
In financial terms, TelOne is in a deficit, and this has resulted in the obstruction of some of thecompany's operations such as its inability to promptly replace obsolete switchboards. In addition,
foreign telecommunications company is planned to enter Zimbabwe in a few years, therefore
TelOne's financial situation is expected to worsen. On the other hand, concerning the structural andtechnical aspects of operation and maintenance, there is sufficient number of staff, andcommunication of technical knowledge is effectively done through seminars and utilization oftraining centers; no problem could be seen in this respect Concerning the outflow of engineers, there
are cases where the engineers move to the rapidly-growing mobile phone industry, but TelOne
recruits new engineers in such cases and there is no problem. The effect of the spread of mobile

9-9phone on this project is prominent. Mobile phone is spreading rapidly. Between 2006 and 2011, thepenetration rate has risen nine times to 61%. On the other hand, comparing the values landline phone
penetration rate for 2006 and 2011, decrease can be seen in all of the regions targeted by this project.
Zimbabwe's telecommunication demand is changing, and the penetration rate of the landline phone
is not expected to increase dramatically in the near future.

4.2 Recommendations
None.

4.3 Lessons Learned
None.

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Comparison of the Original and Actual Scope of the Project
Item
Original
1. Outputs
1) Installation of switchboards
128,800 lines in total·Local switchboards
125,800 lines·Long-distance switchboard
3,000 lines
2) Installation of subscriber 131,364 pairs in total
cables3) Installation of transmission
lines·Inter-station transmission lines
Fiber-optic cables·Backbone transmission lines
Backbonetransmission
lines: 140 Mb/s system for
Harare-Ruwa, 34 Mb/s
system for Rusape-Mutare
4) Construction of station Expansionofexistingbuildings
buildings: 24 stations
5) Installation of batteries
Installation of batteries6) Consulting services
Detailed design, preparationof bidding documents, bid
evaluation,
construction
supervision
7) Training services
Technical transfer to thestaff of the executing
agency by the consultants
and contractors
2. Project Period

3. Project Cost
Foreign Currency
Local Currency

Total
ODA Loan Portion
Exchange Rate

Actual
38,300 lines
Not started
Not started
Not started
Construction of exchange
stations (8 additional stations)in urban areas of Harare
Not started
Partially implemented (theportion involving the installedswitchboards)
Partially implemented (theportion involving the installedswitchboards)

44 months
July 1996 – February 2000
(Started with signing of L/Aand ended with terminationof the consultant contract)

64 months
July 1996 – October 2001
(Started with signing of L/Aand ended with loan expiry
because of the problem inprocurement)

11,451 million yen
1,504 million yen

1,591 million yen
Not known (the portion
involving construction of
station buildings)
Not known
1,745 million yen

12,955 million yen
11,451 million yen
Foreign currency
95.2 yen/US dollar
Local currency
11.2 yen/ZW dollar(As of October 1995)

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