Document o f The World Bank

FOR OFFICIAL, USE ONLY

Report No: 53054-SB

PROJECT APPRAISAL DOCUMENT

O N A

PROPOSED IDA GRANT

IN THE AMOUNT OF SDR 2.1 MILLION

(US$3.25 MILLION EQUIVALENT)

TO

SOLOMON ISLANDS

FOR A

TELECOMMUNICATIONS AND ICT DEVELOPMENT PROJECT

4 March;ZO 10

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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FISCAL YEAR January 1 - December 31

$ 3G ARPU AUD AusAID CBSI cso FMS ICT M C A MOF P M U PRIF RAMS1 SBD SIM STL UA UAF

CURRENCY EQUIVALENTS (Exchange Rate Effective February 10,20 10)

CurrencyUnit = SBD SBD7.50 = U S $ l US$1.55 = SDR 1

ABBREVIATIONS/ACRONYMS

All dollars are in United States dollars unless otherwise indicated Third-generation (mobile telecommunication) Average revenue per user Australian dollar Australian Agency for International Development Central Bank o f Solomon Islands Community service obligation Financial management specialist Information and communication technologies Ministry o f Communications and Aviation Ministry o f Finance Project management unit Pacific Regional Infrastructure Facility Regional Assistance Mission to the Solomon Islands Solomon Islands dollar Subscriber identity module Solomon Telekom Ltd (trading as Our Telekom) Universal access Universal access fund

Vice President: James Adams Acting Country Director: Kanthan Shankar

Sector Manager: Philippe Dongier Task Team Leader: Natasha Beschorner

Country Manager Edith Bowles

FOR OFFICIAL USE ONLY

CONTENTS

Page

I . STRATEGIC CONTEXT AND RATIONALE ................................................................................ 1

A . B. Rationale for Bank Involvement ......................................................................................... 3 C . Higher Level Objectives to Which the Project Contributes ................................................ 4

PROJECT DESCRIPTION ..................................................................................................... 4

Country and sector issues .................................................................................................... 1

I1 . A . B . C . D . E . F .

I11 . A . B . C . D . E . F .

IV . A . B . C . D . E . F . G .

Financing Instrument .......................................................................................................... 4

Program Objective and Phases ............................................................................................ 4

Project Development Objective and Key Indicators ........................................................... 5 Project Components ............................................................................................................ 6 Lessons Learned and Reflected in the Project Design ........................................................ 8 Alternatives Considered and Reasons for Rejection ........................................................... 9

IMPLEMENTATION ......................................................................................................... 9

Partnership Arrangements ................................................................................................... 9 Institutional and Implementation Arrangements ................................................................ 9

Monitoring and Evaluation o f Outcomes/Results ............................................................. 11

Sustainability ..................................................................................................................... 11 Critical Risks and Possible Controversial Aspects ........................................................... 11

Loadcredit Conditions and Covenants ............................................................................ 12

APPRAISAL SUMMARY ...................................................................................................... 13

Economic and Financial Analyses .................................................................................... 13 Technical ........................................................................................................................... 13

Fiduciary ........................................................................................................................... 13

Social ................................................................................................................................. 14

Environment ...................................................................................................................... 14

Safeguard Policies ............................................................................................................. 14

Policy Exceptions and Readiness ...................................................................................... 14

. .

. . .

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties . I t s contents may not be otherwise disclosed without World Bank authorization .

Annex 1: Country and Sector or Program Background ............................................................... 15

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ......................... 20

Annex 3: Results Framework and Monitoring ............................................................................. 21

Annex 4: Detailed Project Description ........................................................................................ 24

Annex 5: Project Costs ................................................................................................................. 29

Annex 6: Implementation Arrangements ..................................................................................... 30

Annex 7 : Financial Management and Disbursement Arrangements ........................................... 32

Annex 8: Procurement Arrangements .......................................................................................... 43

Annex 9: Financial Sustainability Assessment for the Telecommunications Commission ......... 48

Annex 10: Safeguard Policy Issues .............................................................................................. 57

Annex 1 1 : Project Preparation and Supervision .......................................................................... 58

Annex 12: Documents in the Project File .................................................................................... 59

Annex 13: Statement o f Loans and Credits ................................................................................. 60

Annex 14: Country at a Glance .................................................................................................... 61

Annex 15: Map ............................................................................................................................ 63

.. . 11 .

SOLOMON ISLANDS

SOLOMON ISLANDS TELECOMMUNICATIONS TECHNICAL ASSISTANCE PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

CITPO

Date: March 4, 2010 Country Director: Kanthan Shankar Sector ManagedDirector: Philippe Dongier

Team Leader: Natasha Beschorner Sectors: General information and communications sector (1 00%) Themes: Infrastructure services for private sector development (67%); Other rural development (3 3 %) Environmental category: Not Required Joint IFC:

Project ID: P113148 Lending Instrument: Technical Assistance Loan Joint Level:

[ ] Loan [ ] Credit [XI Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 3.25 Proposed terms:

Recipient: Solomon Islands

Responsible Agency: Telecommunications Commission PO Box 2 180 Honiara Solomon Islands Tel: +677 7423699 Nick Williams <ntwilliams 1 @gmail.com>

... - 111 -

Annual I 0.32 I 0.65 I 0.65 I 0.65 1 0.65 I 0.33 I Cumulative1 0.32 I 0.97 I 1.62 I 2.27 I 2.92 I 3.25 I Project implementation period: Start March 25,2010 End: March 25,2015 Expected effectiveness date: June 25,2010 Expected closing date: March 25,20 15 Does the project depart from the CAS in content or other significant respects? Ref: PAD I.C. [ ]Yes [XINO

Does the project require any exceptions from Bank policies? Ref: PAD I K G. Have these been approved by Bank management? I s approval for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Ref: PAD III.E. Does the project meet the Regional criteria for readiness for implementation? Ref: PAD IKG.

[ ]Yes [XINO

[XIYes [ ] N o

[XIYes [ ] N o

Project development objective Ref: PAD II.C., Technical Annex 3 The Project aims to facilitate increased access to a wide variety o f reliable and affordable telecommunications services for the majority o f the Solomon Islands population through efficient and well-regulated competition. The Project will support the development o f a new regulatory institution, the Telecommunications Commission, designed to promote good governance in the sector. Further, through support for enabling infrastructure, the Project will pave the way for more widespread application o f information communication technologies (ICT) supporting economic and social development, including greater opportunities for women.

Project description Ref: PAD II.D., Technical Annex 4

Component 1 will support the Ministry o f Communications and Aviation (and others as appropriate) to develop a policy capability for telecommunications and ICT ($0.3 million).

Component 2 wi l l provide operational support and advisory assistance to the Telecommunications Commission ($4.962 million)

Component 3 wi l l provide technical assistance on Universal Access ($0.3 million)

Component 4 will support the Project Management Unit (established under the Telecommunications Commission) ($0.395 million).

Which safeguard policies are triggered, if any? Ref: PAD IKF. , Technical Annex 10 The Project i s rated Category C. The Project will only finance soft activities and hence i s not expected to cause any direct negative environmental or social impacts. N o safeguards policies are triggered.

Significant, non-standard conditions, if any, for: Ref: PAD III.F.

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Board presentation: Standard.

Loadcredit effectiveness:

(a) The Subsidiary Agreement has been executed o n behalf o f the Recipient (Ministry o f finance and Treasury) and the Project Implementing Entity;

(b) The Telecommunications Commission has established a Project Management Unit and appointed within it a project coordinator, a financial management specialist and a procurement specialist for the Project, under terms o f reference and with qualifications and experience satisfactory to the Association;

precedent to its effectiveness or to the right o f the Recipient to make withdrawals under it has been fulfilled.

(c) The Cofinancing Agreement has been executed and delivered and al l conditions

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I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

2. The Solomon Islands i s one of the “fragile states” in the Pacific, emerging from years o f ethnic conflict and political instability. The formal economy i s based on natural resource exploitation; the informal economy comprises subsistence agriculture and fishing. The population o f about 550,000 (World Bank estimate) and i s dispersed across a far-flung archipelago; per capita income i s $1,142 (World Bank estimate).’ Governments have struggled to deliver basic services to highly-dispersed populations in rural and outer island areas, reflected in poor human development indicators. The country depends heavily on aid. Since 2003, the Regional Assistance Mission to the Solomon Islands (RAMSI) has assisted governments with basic security and economic management. Most manufactured goods and petroleum products must be imported. The islands are rich in undeveloped mineral resources such as lead, zinc, nickel, and gold. The main challenges facing Solomon Islands are how to stimulate productive activities/private sector development, create a more favorable business climate, and deliver health and education services more effectively. Improved telecommunications would be prospectively a significant contributor to these intents.

3. today, even among low-income and Pacific island economies. As o f mid-2009 the total population covered by telecommunications networks was about 11 percent. This compares to over 90 percent population coverage in Samoa, and over 80 percent in Vanuatu. As o f February 2010, there were 12,000 fixed l ines in service and 65,000 mobile subscribers.* Internet access i s primarily via dial-up, though a small high-frequency radio email service i s available in some locations through People First Network, a nongovernmental organization. There are fewer than 1,000 broadband (digital subscriber line) subscribers. Prepaid wireless local area network (or local area network) access i s available in Honiara in selected “WiFi Hotspots” (wireless fidelity). Mobile Internet (for example through general packet radio service or third-generation packet data access (3G) was not available.

The Solomon Islands i s also one of the least “connected” countries in the world

4. been high relative to regional comparators and per capita incomes. A one minute local mobile phone call cost around $0.40 (billed per minute) until July 2009, but was halved at a stroke with the prospect o f competition, indicating potential for further cost reductions and consequential uptake o f services. The price o f a mobile subscriber identity module (SIM) card was Solomon Islands dollar (SBD) 400 as o f mid-2009; this was reduced to SBD 75 with the prospect o f competition. High mobile termination rates are reflected in the cost o f “Skype-Out” calls to the Solomon Islands which, at $1.32 per minute (February 20 10) are among the highest in the world. Broadband Internet costs have declined slightly but s t i l l are very high: $1 OO/month for an “entry-level” 128 kilobits per second connection, $452 for 5 12k and $3,35 1 for 2 megabits per second. Public access to the higher speed broadband Internet, i s limited to Honiara, although 128Kbps services are available in Auki and Gizo.

Telecommunications tariffs, particularly for mobile and international calls, have

5. market structure and the high costs of service provision in outer islands. Solomon Telekom

The main reasons for this limited and costly service have been the monopolistic

All dollars ($) are in United States dollars unless otherwise indicated. Telecommunications subscriber and price data from STL and government estimates as o f February 2010. Skype

- 1 - tariff data available on www.skvpe.com

Ltd (trading as Our Telekom) the incumbent (“STL”), was issued in 2003 a 15-year exclusive license for al l service provision, and focused i t s investments primarily o n Honiara. The consequences of the limited market size and extent have included:

high transactions costs for businesses and citizens,

high opportunity costs associated with alternative modes o f communication (long foregone economic opportunities,

journeys on poor roads or by boat), and isolation o f rural communities.

6. June 2008 (“Policy”) based on the premise that availability o f efficient, reliable, and affordable telecommunications services i s key in promoting rapid economic, social and political development. The objective o f the Policy i s to modernize and expand the country’s telecommunications networks and services, to enhance economic and social development, and to integrate the Solomon Islands internally as wel l as with the regional and global economy. The key elements o f the Policy include:

Policy framework. The Government adopted a new telecommunications sector policy in

(a) Increased competition. Terminating the incumbent service provider’s monopoly through a negotiation process, and opening al l segments o f the telecommunications market, beginning with mobile;

(b) Strengthened regulatory capacity. Separating policy making and regulatory functions f rom the operations o f the sector and establishment o f an independent regulator for telecommunications; and

(c) Expanded rural access to communications services and Internet applications.

7 . initiated the process o f developing new telecommunications legislation, and invited the shareholders o f STL to renegotiate the terms o f their exclusive license in late 2008. The negotiations concluded in June 2009 with the signing o f a settlement agreement (“Settlement Agreement”) to terminate STL’s monopoly, phase in competition, and transfer regulatory functions such as spectrum and numbering management to a new, independent regulator. The new Telecommunications law, Telecommunications Ac t 2009 (Nc 20 o f 2009) (the “Act”) was enacted by Parliament on August 27, 2009, and gazetted. The Act, inter alia, established the regulator, the Telecommunications Commission (“Commission”), to be headed by a Commissioner. The Government conducted an internationally competitive recruitment process, in accordance with the Act, for the selection o f the Commissioner, and the position was filled on February 1 , 20 10.

Legal and regulatory framework. In accordance with the Policy, the Government

8. in December 2009 to an operator known as “Bemobile.” Bemobile i s expected to commence commercial operations in June, 20 10; i t s license includes explicit population coverage obligations. Other segments o f the telecommunications market (international gateway, Internet service provision) will also be liberalized. W h i l e some aspects o f regulation (interconnection, spectrum, numbering) have been incorporated into the Settlement Agreement, a complete set o f sector regulations will need to be prepared and implemented over the next year.

The Government also launched a tender for a second mobile license, which was awarded

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9. take over the small regulatory function currently held in the Ministry o f Communications and Aviat ion ( M C A or the “Ministry”). The Ministry will remain responsible for policy, but has very few staff, only one assigned to telecommunications. The Commission i s expected to be self-financing from license fee income, set at 2 percent o f telecommunications industry gross revenues minus interconnection charges (as per the Act). However, this income will not be available until 201 5 because, under the terms o f the Settlement Agreement, license fees from other operators will be used in part-fulfilment o f the Government’s obligation to pay certain compensation to STL for early termination o f its m ~ n o p o l y . ~ A substantial regulatory and institutional agenda therefore l ies ahead in order to achieve the objectives set out in the Government’s Policy.

Institutional Issues. The Commission will be responsible for sector regulation, and will

B. Rationale for Bank Involvement

10. World Bank to support the development of a competitive, well-regulated telecommunications sector, and to help design a program to ensure equitable access to services throughout the country. The World Bank has been advising successive governments o f the Solomon Islands on telecommunications issues since 2004. The Bank has so far provided the following assistance, in partnership with the Australian Agency for International Development (AusAID) and RAMSI:

In light of these developments, the Government has requested assistance from the

. initial sector assessment, 2003; . advice o n options for liberalization, including review o f the legal framework and STL’s license, 2004-2006; . advice on pol icy best practices, 2008; and . advisory assistance on best practice in telecommunications law and regulation, and defining the main elements o f regulatory functions, 2009-2009.

1 1. regional engagement strategy in the Pacific, in particular: improving the incentives for private sector-led growth and employment. It also supports the regional strategy’s objective o f strengthening capabilities for service delivery, by both public and private sectors. The Bank has extensive experience in supporting telecommunications market liberalization and development o f new regulatory structures, including in small island economies in the Caribbean, and in the Pacific (Fiji, Samoa, Vanuatu). The Bank, together with other regional partners, i s also supporting the establishment and operation o f a new telecommunications regional regulatory resource center for the Pacific in 201 0. The Bank also has extensive experience in rural communications: in Afr ica (Mozambique, Uganda); East Asia (in Mongolia, and under development in Cambodia, Indonesia, and Papua N e w Guinea) Latin America, and South Asia (Nepal). The Project will draw on the lessons learned from implementing similar operations.

The proposed Project i s fully consistent with the objectives of the World Bank’s

Following are the arrangements that the Solomon Islands Government has agreed with S T L relinquishing i ts monopoly. These arrangements include payments to STL as follows: (a) a direct compensation payment (SBD 85.6 Million) to be funded from payments by the national budget, the National Provident fund and other donors (SBD 24 million), refund of 2009 license fees under the old Telecanmunications Act (approximately SBD 8 million), and the balance (SBD 53.8 million) from license fees through the period ending 2014; and (b) a five year, annually declining community service obligation payment (fixed in total at SBD 22.59 million) to ensure continuity o f services for regions that are loss making that i s to be funded from an already approved grad from the Pacific Regional Infrastructure Facility ($1.5 million) plus a supplementary grant for which the government intends to apply.

12. AusAID and the World Bank have worked closely together in support of telecommunications reform in the region. AusAID has provided financing, through the Pacific Regional Infrastructure Facility (PRIF), and other trust funds, to support the Bank’s advisory assistance program, both country-specific and regional. AusAID and the Bank have also collaborated on the preparation o f analytical work on Pacific connectivity challenges.

C. Higher Level Objectives to Which the Project Contributes

13. stability and development. Reliable and affordable telecommunications supports business development in al l sectors, including o f small and medium enterprises. It i s particularly important, in this case, for the country’s nascent tourist industry, and would help to bolster revenues and job creation in more remote locations. Existing business users o f telecommunications can expand their reach and address new markets. This opportunity would be available to business entities in both national and district capitals as wel l as those in remote regions o f the country. The social value o f widely available communications i s also very important: facilitating a more mobile work force; enabling family and community l i n k s to be preserved despite distance, and assists intercommunity interaction. By providing access to low- cost communications tools, the Project i s expected to contribute to the economic and social empowerment o f women in particular, as has been the case in many other countries.

Telecommunications i s well established as an enabler o f economic growth and social

14. Other Government ministries and agencies in the Solomon Islands are developing programs and needed services for the wellbeing and personal development o f citizens, such as in health, education, and other social services. The increased availability o f telecommunications will increase awareness about, and also support the functioning o f these services.

11. PROJECT DESCRIPTION

A. Financing Instrument

15. recipient executed grant f rom the Pacific Region Infrastructure facility (PRIF).

The proposed financing instrument i s a technical assistance grant, cofinanced by a

B. Program Objective and Phases

16. development objectives described below. As a precursor, RAMS1 and AusAID are providing support to the Government to establish and operate the Commission until the Project becomes effective. This i s because the Commission has to be established as quickly as possible to manage the transition from monopoly to competition, and to ensure that an independent regulatory function i s in place as the market opens up. The start-up support covers the initial establishment o f the Commission, including the initial salaries o f the Commissioner, professional and administrative (financial management, procurement) staff to be recruited, as well as the office space and operational costs, for at least a three-month period from February 20 10.

The proposed project (“Project”) includes a five-year program o f support, in l ine with the

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C. Project Development Objective and Key Indicators

17. telecommunications services for the majority o f the Solomon Islands population through efficient and well-regulated competition. The Project will support the development o f a new regulatory institution-the Telecommunications Commission-designed to promote good governance in the sector. Further, through support for enabling infrastructure, the Project will pave the way for more widespread application o f information communication technologies (ICT) supporting economic and social development, including greater opportunities for women. Specifically, the Project will:

The Project aims to facilitate increased access to a wide variety o f reliable and affordable

(a) assist the Government in managing the transition f rom a monopolistic to a competitive,

(b) facilitate the transfer o f legal, regulatory, and technical expertise to support the

(c) assist the Government in designing a sustainable, self-financing connectivity program for

multioperator telecommunications market;

establishment o f fully-functional oversight institutions for telecommunications; and

rural and remote areas.

18. . .

.

. . .

19.

The Project i s expected to have significant development impacts such as:

new investment, and direct and indirect local employment: direct j ob creation in the telecommunications industry and related services such as construction, call centers, resale o f recharge cards, and Internet cafes;

lower transaction costs and new marketing channels and opportunities, particularly for small businesses;

reduced travel costs (where telecommunications i s an adequate substitute) for businesses and households, and reduced isolation o f outer island communities;

opportunities for remote communities to become tourist destinations or other sources o f industry (e.g., niche agricultural or marine products);

improved communications facilities for schools, clinics, and government offices;

new business opportunities for women, particularly in rural areas;

improved well being o f remote communities through availability o f telecommunications based expansion o f health, education, government information and other services that are core to society stability and integration; and

increased demand for and supply o f value-added services, that would underpin an expanding and new economy including, for example, mobile phone-enabled banking (e.g., for remittance transfers), e-commerce (e.g., for the tourism industry), and, potentially, online government services.

Suggested performance indicators are as follows: . . Improved I C T pol icy environment in the country Legal and regulatory framework more effective at delivering sector performance

Increase in teledensity Increase in the level o f competition in the I C T sector

Decrease in tariffs o f key communications services

D. Project Components

20. for: (a) a pro-competitive, multioperator environment, (b) establishment o f an independent regulator, and (c) establishment o f a universal access fund (UAF) to support extension o f services beyond commercially viable boundaries. The Project components are as follows.

The proposed Project i s built around the provisions o f the Act. In brief, the Act provides

Component 1. Sector Policy Support, $0.3 million comprises technical assistance for the MCA, in consultation with other ministries and agencies as appropriate, to develop a pol icy capability for telecommunications, and I C T in a broader sense. The Ministry will be recruiting a telecommunications, and prospectively ICT, Policy Director and deputy. The Project will provide advisory assistance and technical guidance to the Ministry in the fol lowing areas: . Review and update o f the telecommunications and I C T Policy after a period o f

experience with the current Policy. The review and update will be in l ine with observed industry developments and Government objectives (whether continuing or revised) and will consider international best practices, including second-generation reform and technological convergence;

Development o f governance arrangements for scarce resources and pol icy approaches toward wider access and use;

Over time, adjustments to the broader I C T legal and regulatory framework, and any fiscal incentives that may be relevant to the environment. This will include a needs assessment for secondary legislation;

Supporting the Government's work on international agreements related to telecommunications, including possible regional connectivity programs;

Participation in international agreements related to telecommunications (International Telecommunications Union, submission o f World Trade Organization commitments).

.

.

. Component 2. Regulatory Support, $4.962 million comprises operational support as well as advisory assistance and capacity-building for the Telecommunications Commission. The Commission i s a brand new institution; the planned organizationalhtaffing structure i s summarized in Annex 1. The technical and managerial sk i l ls required to run it are not currently available in the Solomon Islands and are unlikely to be in the short- to medium-term. The majority o f sk i l ls will therefore be outsourced to internationally-recruited specialists, given the pressures o f the changing telecommunications market. At the same time, every effort will be made to identify and recruit national counterpart staff in order to take on technicalhegulatory functions in the medium-to long-term. The component will finance:

(a) The Commissioner (an internationally-recruited, in-line salaried p o ~ i t i o n ) . ~ The Commissioner will be tasked with the development o f a regulatory regime including

As indicated in section I,,A.,6, above, the Commissioner has been recruited, in accordance with the Act) and has 4

commenced work in Honiara as o f February 1,20 10. - 6 -

necessary subsidiary legislation and regulatory instruments, structures, tools, capabilities and governance arrangements;

Core professional and administrative staff o f the Commission;

Technical assistance to the Commission to develop a complete regulatory regime, including all necessary regulatory instruments, structures, tools, capabilities and governance. This will include advisory assistance for the Commission in key areas such as:

o Issuance o f telecommunications service and radio spectrum licenses and other authorizations, and monitoring compliance with licenses and regulations;

o Planning, allocation, and management o f radio spectrum (including broadcast), telecommunications numbers, and Internet domain names;

o Technical regulation including interconnection, radio apparatus, and telecommunications equipments;

o Monitoring competitive behavior including resolving disputes between operators and protection o f users; arbitration and mediation services, as required; and

o Related regulatory matters including emerging needs linked to changes in the industry, market, technologies and international best practices.

For the f i rs t year, priority areas for support wi l l be: telecommunications market intelligence, verification o f mobile license coverage obligations, review o f the licensing framework, and preparation for the tender o f a third mobile license. Provision o f equipment, including computers, and specialized software for spectrum management and monitoring;

Funding o f specific training and overseas development visits for Commission staff; and

Recurrent/operational costs and expenses o f the Commission.

Component 3. Technical Assistance for Universal Access, $0.3 million will likely commence after year 3 once the commercial rollout o f telecommunications infrastructure and services i s more clearly established. The program would be sustained through the use o f the 2 percent universal access (UA) l e v y established under the Act which will be activated after 2014. The Project will finance technical assistance for the Ministry and the Commission in the following areas:

. . Development o f a UA policy, including stakeholder consultations; Development o f the necessary regulatory instruments, instructions and practical procedures to implement the provisions o f the Act in relation to UA, including procedures for the UA Fund; Identification, analysis and design o f possible UA projects; Design and implementation o f awareness-raising and training programs for women on the use o f telecommunications and ICTs to improve livelihoods

. . Component 4. Project Management, $0.395 million includes support for: (a) Project management consultants-project coordinator, financial management consultant and procurement consultant-working together with national staff to form a Project Management Unit (PMU) within the Commission; and (b) project audit.

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The estimated total Project cost i s $5.996 mil l ion over f ive years including contingency.

E. Lessons Learned and Reflected in the Project Design

2 1. Regional view. The proposed design incorporates lessons learned in ongoing telecommunications reform projects in the Pacific region as well as international best practice and analytical work in the sector. The Project i s therefore aligned with the telecommunications reforms in the region as a whole. This harmonization o f regulatory arrangements makes possible mutual support and assistance toward faster and more effective commercial development and availability o f telecommunications services not only within the country under study but across the region. I t also means that policies, regulatory approaches and tools can be readily compared and fine-tuned as circumstances in any country or across the region require; i s also makes for effective foundations o f the proposed regional regulatory resource center.

22. countries demonstrates that a pro-competitive framework which supports a multi-operator environment tends to improve service coverage and quality at better consumer prices than a monopoly operator. This lesson i s well taken by the Solomon Islands Government and its initiative and commitment i s demonstrated by the actions it has taken to date.

Importance o f Government commitment. Telecommunications sector reform in other

23. focus, but takes a realistic v iew towards the limitations facing institutions, as well as businesses, in the Solomon Islands. Skilled staff recruitment is very challenging. A key task o f the Commissioner will be to attract national professional staff, but this will take time, on top o f a heavy regulatory agenda. For the short-term, the technical assistance proposed will therefore be primarily “substitution” in nature, progressing over time to “capacity-building” mode. All technical assistance will have an explicit knowledge transfer element. However, for the medium- term, technical sk i l ls will remain in extremely short supply. This has been the experience o f neighboring Pacific economies also. Staff retentiodincentives are major issues for government institutions. These risks are being addressed. For example, the Commission-as an independent statutory body-will be able to develop i t s own human resource, including remuneration policies. In addition, the training resources provided under the Project are intended, in part, to foster collaborative relationships with other regulators in the region and beyond. However, there i s a strong possibility that, even after the Project closes, the Government may continue to require specialised international technical expertise. By that stage, however, the Commission would have sufficient funds from license fee income to finance it directly. In addition, the proposed regional regulatory resource center would provide additional external support on demand.

Approach to institutional development. The Project has an institutional development

24. spread over multiple islands and large distances. This poses particular challenges to the provision o f services on a commercial basis. The proposed support for the development and implementation o f UA policies and regulations as well as setting up a UAF to finance UA initiatives will incorporate the lessons from the successes in Africa, Lat in America, and South Asia. However while UA i s important to this Project, it is also important to ensure its timing is appropriate. Accordingly, while definition o f the UA framework early in the l i fe o f the Project i s planned for transparency and commercial certainty, implementation i s deferred until at least the commercial trajectory for services rollout is clear. This will be toward the latter years o f the Project and will include establishment o f the UAF and its governance, and mentoring in ongoing management o f a UA regime.

Rural access. One aspect that many Pacific Islands share i s l o w population centers

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F. Alternatives Considered and Reasons for Rejection

25. The goal o f expanded availability and variety o f telecommunications services at affordable prices to the people o f the Solomon Islands may be addressed in different ways. However the approach proposed under this Project i s considered to be the most efficient path to achievement given the decisions and actions already taken by the Solomon Islands Government. Other approaches considered were to:

(a) expand the UA component to include a demonstration project (subsidy funding). It was decided that it would be more appropriate to focus o n the enabling environment for commercial expansion o f telecommunications and Internet in the f i rs t instance, then focus on processes and mechanisms for use o f the proposed UAF using the industry levy;

(b) support national and international backbone development. This could be more appropriately addressed under a separate, more regionally-focused project.

111. IMPLEMENTATION

A. Partnership Arrangements

26. World Bank, AusAID, RAMSI and the Pacific Region Infrastructure Facility (PRIF).

This proposed Project has been developed as a partnership between the Government, the

(a) AusAID and R A M S I have financed the World Bank’s advisory support to the

(b) RAMSI has financed direct telecommunications-related legal assistance to the

(c) RAMSI has financed advisory support in connection with the award o f the second mobile

(d) RAMSI and AusAID are financing the start-up o f the Commission (AUD 600,000 or

Government, including best practice advice on policy, legal and regulatory matters;

Government;

license;

about $540,000 equivalent), including the salaries o f the Commissioner and administrative staff; procurement and financial management consultants for the PMU, and the initial capital costs o f the Commission (office renovation, vehicle, computer equipment) and the init ial operating costs, until the Project becomes effective; and

(e) The Pacific Region Infrastructure Facility (PRIF) will cofinance the proposed Project.

27. In addition, PRIF will finance a contribution o f $1.5 mi l l ion towards the community service obligations (CSO) o f STL, as agreed under the Settlement. The payments would be made on an annual basis, subject to receipt o f audited accounts. This PRIF grant i s being processed in parallel with the Project.

B. Institutional and Implementation Arrangements

28. The Government will designate an interdepartmental monitoring committee (the “Consultative Group”) to coordinate continued implementation o f the telecommunications reform program. The Consultative Group, comprising representatives o f central ministries and

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agencies, i s to convene o n a six-monthly basis, starting December 2010, to review the status of implementation o f Government’s reform program and highlight issues and concerns.

Commission 8 MCA --- - Integrated into

- %&T8:\:%.c. to

29. responsible for carrying out components 2, 3 and 4 o f the Project. The Ministry o f Communications and Aviat ion will be responsible for carrying out component 1 , and liaise with the Commission on the implementation o f the other Project components. The Commission will assist M C A in the implementation o f procurement and financial management under component 1. The Commission will contract project management consultants (project coordinator, financial management specialist, procurement specialist) to work alongside financial management and procurement staff to form a project management unit (PMU) within the Commission. The P M U will manage al l selection o f consultants (including for component l), and will be responsible for procurement, financial management, monitoring and evaluation, and reporting under the Project (Figure 1). The project management consultants will also help to develop the capacity for administration within the Commission.

The Project Implementing Entity will be the Commission. The Commission will be

Figure 1. Implementation Arrangements

Consultative Group

The World Bank and cofinancier will review progress reports, ensure that the implementing entity has adequate resources and staffing to meet the challenges o f implementing the Project and provide assistance to achieve the Project objectives. The Commission will submit to the Bank overall progress reports and financial management reports o n a biannual basis. The World Bank and cofinancier will undertake regular reviewhupervision vis i ts at least every six months. In addition, field-based staff will assist the respective teams with interim supervision. A midterm review (about 30 months f rom the date o f effectiveness) will be carried out to evaluate the progress o f implementation against planned objectives. The Commission will prepare and submit an implementation completion report within six months o f Project closure.

30. The Commission will make al l payments to consultants and providers on confirmation f rom the Commissioner-or the Permanent Secretary o f M C A in the case o f Component 1-that services or products have been delivered or progress payment milestone achieved. The P M U will coordinate with the Commissioner for direction and priorities and for day-to-day data and progress monitoring.

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C. Monitoring and Evaluation o f Outcomes/Results

Risk

Political interference, policy reversals by Minister.

Change o f policy direction following elections

Delays in processing o f required subordinate legislatiodregulations

3 1. by the Commission. Sources o f the information and data will include the Ministry, existing operators (including Internet service providers), and national entities in charge o f collecting economic and demographic data. Over the course o f the Project, the Commission will develop capacity to collect and analyze information for i ts ongoing purposes. Commission capabilities will be supported and strengthened by the Project. For specific targets, please see Annex 3.

The information required to monitor and evaluate progress o f the Project w i l l be collected

Risk Risk Minimization Measures Rating

L Policy and Legislation are settled. Consultation and advice to Government and industry stakeholders, public awareness efforts wi l l nonetheless continue as part o f the Commission’s outreach mandate. Continued engagement‘awareness-raising o f policymakers and parliamentarians. Consultative Group. Telecommunications reform generally perceived as popular due to visible benefits. Legislation limits the extent o f Ministerial regulation required. Regular consultations, advice about Ministerial instruments.

M

M

D. Sustainability

32. issue has been discussed in paragraph 21. With regard to financing, in l ine with regulatory arrangements implemented in other countries, the Commission i s to be financed through a levy on industry revenues (gross revenues net o f interconnection charges), and this i s provided for in the Act. An analysis o f the current industry revenues and modeling o f prospective future revenues indicates that the levy structure provides for coverage o f operating costs from the f i rs t year o f competition and increasing over coverage thereafter. However, the Settlement Agreement provides that license fees for the first five years are to be used to fund the Government’s obligation to pay compensation to STL in consideration o f i t s relinquishing o f i t s exclusive rights. The Project will therefore finance the operating costs and salaries o f the Commission during this transitional period. Details are given in Annex 9.

The key issues are staffing and financial sustainability o f the Commission. The staffing

E. Critical Risks and Possible Controversial Aspects

Strategic R i s k s

Operational R i s k s

33, very limited across government. However, the Government has demonstrated the political w i l l that i s needed to undertake reforms in this sector. Moreover, the focus o f this Project i s on institutional capacity-building. The proposed approach recognizes the challenges o f achieving a sustainable regulatory structure based on technical assistance in the Solomon Islands. The following summarizes the main operational issues related to the proposed Project.

The Solomon Islands i s politically and economically fragile. Institutional capacity i s

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Risk Minimization Measures

y an internationally-recruit

ing for projects; clear, formal responsibilities,

H=High, S=Substantial M=Medium, L=Low

telecommunications fund

F. Loadcredit Conditions and Covenants

34. Condition o f Appraisal: appointment o f a Telecommunications Commis~ioner.~

35. Condition o f Effectiveness:

(a) The Subsidiary Agreement has been executed on behalf o f the Recipient (Ministry o f finance and Treasury) and the Project Implementing Entity;

(b) The Telecommunications Commission has established a Project Management Unit and appointed within it a project coordinator, a financial management specialist and a procurement specialist for the Project, under terms o f reference and with qualifications and experience satisfactory to the Association;

precedent to i t s effectiveness or to the right o f the Recipient to make withdrawals under it has been fulfilled.

(c) The Cofinancing Agreement has been executed and delivered and all conditions

Condition satisfied, Commissioner commenced employment on February 1,20 10. 5

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IV. APPRAISAL SUMMARY

A. Economic and Financial Analyses

36. analysis has therefore not been undertaken. However, the financial sustainability o f the Commission has been assessed in Annex 9. This includes a review o f costs, revenue projections, and the terms o f the Settlement Agreement with Solomon Telekom Ltd. The review concludes that the Commission will have sufficient budget, from license fee income, to cover i t s operational costs from 201 5 onwards.

The Project i s a technical assistance operation. A traditional economic and financial

B. Technical

3 7. The Project will strengthen institutional capacity within the Telecommunications Commission and the Ministry o f Communications and Aviation. The scope o f technical assistance envisaged is designed to support implementation o f the approved sector policy and legislation, and i s in line with international best practice on telecommunications policy and regulation in a competitive market environment. The selected technical design o f the project corresponds with the needs and implementation capabilities o f the institutions concerned. I t also considers the Bank’s experience from previous operations in this sector. The third component o f the Project includes technical assistance for the design o f a universal access program. This will take into account lessons learned with similar programs worldwide to extend the reach o f communications services to rural and remote areas.

C. Fiduciary

38. Project i s Substantial. This reflects the increased risk o f the Project being implemented through an agency that, while established legally, has only recently begun recruiting administrativeEnancia1 staff. There i s neither past performance that can be assessed nor as yet any certainty about the financial management expertise o f the Commission. The financial management arrangements proposed will meet the minimum requirements o f the Bank. A detailed risk assessment and mitigation plan has been developed, and action plan to strengthen financial management has agreed (Annex 7). The Commission will recruit an international financial management specialist prior to effectiveness. Prior to July 1,20 10, the Commission will agree o n the format o f unaudited interim financial reports to be used for the Project, adopt a financial management manual, determine and establish an appropriate financial management software, and agree with the Office o f the Auditor-General on terms o f reference for external auditors. Financial management supervision will be carried out by the Bank at least three times in the f i rst year. The init ial supervision, before the first disbursement o f funds, wil l include a review o f progress in implementing the above-mentioned action plan.

Financial Management. The overall financial management risk assessment for the

39. with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated M a y 2004; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Financing Agreements. The general description o f various items under different expenditure categories are described in Annex 8. For each contract to be financed under the Project, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review

Procurement. Procurement for the proposed Project would be carried out in accordance

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requirements, and time frame are agreed between the Recipient and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The procurement assessment o f the Implementing Agency's capacity revealed a high procurement risk. Implementation o f the agreed action plan-hiring o f a Procurement Specialist as a condition for effectiveness, and prior review o f the majority o f contracts by the Bank-will provide sufficient mitigation to proceed with project implementation.

Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BP 4.10) Forests (OP/BP 4.36) Safety o f Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60)*

D. Social

[XI [XI [XI [XI [XI [XI [XI [XI

40. negative social impacts.

The Project will only finance technical assistance and i s not expected to cause any direct

E. Environment

41. not expected to cause any direct negative environmental impacts.

The Project i s rated Category C. The Project will only finance soft activities and hence i s

F. Safeguard Policies

42. No safeguard policies are triggered.

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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Annex 1: Country and Sector or Program Background

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Country Background

Macroeconomic Challenges.

1. immediate future and for the longer term. Economic activity, which had been recovering since 2003 from sharp falls in output during the five-years o f political tensions from 1998, grew more slowly last year and will fall in 2009. Recovery has been driven by unsustainable logging o f natural forests and by strong inflows o f aid from donors. Gross domestic product appears to have r isen at an average rate o f more than 6 percent a year between 2003 and 2008.6

The Government i s faced with a difficult set o f macroeconomic challenges in both the

2. The immediate period after the ending o f the tensions and the arrival o f the RAMS1 was marked by a very rapid increase in domestic demand, led by strongly rising public expenditure. However, the formal economy remains small, employing only about 50,000 out o f a working age population o f around 250,000. The public sector accounts for a large share o f the formal economy. Roughly two-thirds o f the population s t i l l works in agriculture, mostly subsistence with a small commercial sector supplying some exports, local markets and the capital, Honiara. The Government wi l l need to take additional measures to diversify job opportunities to improve the livelihoods and welfare o f the bulk o f the population.

3. metropolitan centers. This remoteness increases communication costs and transport costs to export markets. The scattered geography o f i t s islands adds to these difficulties by increasing internal transport costs. The Solomon Islands i s a small country, which reduces the opportunities to realize economies o f scale. The islands are also prone to natural disasters, hurricanes, tsunamis etc; and they are also vulnerable to climate change. The Solomon Islands small-size adds, too, to administrative costs. The Solomon Islands lacks many basic infrastructure features, including power, transport l inks , and communications. The cost o f providing many o f these across the archipelago i s likely to be prohibitive.

The longer term macroeconomic problems largely stem from population remoteness from

Sector Background

Sector Capability

4. Solomon Islands remains very low, and the “digital” divide i s considerable. Fixed teledensity in 2008 was less than two percent, and while mobile usage has grown, by February 201 0 it was about 8 percent. Access to Internet, particularly broadband, i s less than 1 percent. The cost o f mobile phone ownership-handsets, SIM cards, tariffs-remains relatively high (it has been recently significantly reduced with the prospect o f competition). Internet access i s primarily via dial-up, though a small high-frequency radio email service i s available in some locations through a nongovernmental organization, People First Network. Mobile Internet (for example through general packet radio service or third-generation packet data access (3G) i s not available.

With one o f the last monopoly markets in the region, access to telecommunications in the

There are considerable uncertainties, due to data problems, about gross domestic product growth figures over the past f ive years.

- 1 5 -

Broadband Internet access i s currently l imited to Honiara (asynchronous digital subscriber line, or ADSL, and some wireless "hotspots", plus broadband wireless in Auki, Gizo, and Ringgi). Monthly, post-paid, pricing plans start at around SBD 110 for a 128M64k connection; prepaid wireless services are also available for wireless local area network hotspots (SBD 50 for 50 megabytes/two hours or SBD 250 for 250 megabfledseven days).7

5. The main reasons for this l imited and costly service include the monopolistic market structure and high costs o f connecting remote and sparsely-populated islands. Other challenges for telecommunications networks deployment include high upfront investment due to lack o f supporting infrastructure (electricity, access roads). The consequence o f l imited access to telecommunications services include: high transactions costs for businesses and citizens, foregone economic opportunities, high opportunity costs associated with alternative modes o f communication (long journeys on poor roads or by boat). Inadequate connectivity greatly contributes to the isolation o f rural communities. Total population covered by telecommunications networks (fixed and mobile) as o f end-2009 was about 65,000 (1 1 percent) although the incumbent i s in the process o f considerably expanding i t s network (in readiness for competition). This compares to over 90 percent population coverage in Samoa, and 85 percent in Vanuatu at that time.

Figure Al.1 M o b i l e Teledensity in the Pacific, end 2009 (Percentage o f Population)

I f

OCB , MobileTeledsnsity in the Pacific

Fiji .,nrnozi 1 cnD@ C'CW~IJ Vanuatu f->M PNb h48"sh91 !-vrrtJdr buinmol- 15 15

Source: International Telecommunications Union, data provided by regulators and operators.

Policy Change

6. monopoly and establish an effective pol icy and regulatory structure for a liberalized, competitive market. Until now, STL (Our Telekom) has been the sole provider o f telecommunications, under a 15-year exclusive license, signed with Government in November 2003. The license was

Reflecting worldwide trends, the Government has taken the decision to end the current

The full menu o f STL 's products and services i s available on i ts Website. www.so1omon.com.sb. 7

- 1 6 -

subject to review every five years and as part o f the 2008 review the Government began negotiations for abandonment o f the monopoly (successfully completed in June 2009). In parallel and anticipating the outcome o f the upcoming review, the Cabinet approved the new Policy in June 2008 with the following objectives:

(a) to achieve rapid expansion o f telecommunications infrastructure and services in the Solomon Islands, and make available to the population the widest possible range o f efficient, reliable, and affordable telecommunications services competitively provided in a fairly-regulated market; and

(b) to enhance national economic and social development by promoting the ongoing development and effective use o f telecommunications in the Solomon Islands, such that quantifiable impact i s achieved throughout the country within the next five years

7. Policy, progressed along two parallel streams o f activity.

In order to trigger liberalization o f the sector, the Government having established the

(a) Renegotiating the 15-year license signed in 2003 with STL with a view to early termination o f STL’s monopoly (now completed).

(b) Drafting o f the new sector law to provide for, inter alia: (i) competition in al l segments o f the market, (ii) a new licensing regime, (iii) a universal service program, and (iv) establishment o f an independent regulator, the Commission.

Negotiation Issues

8. addressed that are relevant to the formation o f the regulatory regime established under the Act. Some o f these are expressed in the Act and some will impact the regime without inclusion in the Act. Relevant items l ikely to be outside the Ac t include compensation to be paid to STL for maintaining fixed l ine services in rural areas for loss-making customers.

During the process o f renegotiating STL’s exclusive rights, a number o f matters were

9. Interconnection termination rates are often a contentious issue in the introduction o f a competitive regime for network based industries. The matter i s traditionally the cause o f protracted and dif f icult interactions and the main use for mediation, arbitration, and litigation arrangements o f regulatory regimes.

10. Act’s arrangements in regard to UA. The provisions o f the Settlement Agreement between the Government and STL has set aggregate compensation at SBD 22.59 million, to be paid in decreasing amounts and terminating five years after commencement (end 2014). Funding o f this CSO compensation i s separate from this Project. Separately, the Act provides that UA levies will not be applied until five years after commencement.

The compensation for continuation o f existing loss making services (CSO) i s outside the

1 1. detailed regime definition, levy collection, and project initiation will be deferred. The deferral o f project initiation allows time for the extent o f commercial network development to become clear.

This arrangement means that activity toward UA regime specification can proceed but

- 1 7 -

New Legislation

12. secondary regulatory instruments. The Ac t was adopted by Parliament in August 2009, and gazetted. The objectives o f the Act are discussed below.

The Act i s comprehensive. However parts o f the legislation will require associated

(a) Introduction o f competition. The Ac t i s aimed at opening the telecommunications market ensuring fair competition in a multi-operator environment

(b) Establishment of an independent regulator. The Act also establishes an independent regulatory body (the Commission), defining its powers and functions vis-&vis the Minister and operators, as well as setting forth financing o f the Commission. The regulator i s a Commission comprised o f one Commissioner with a small staff. The regulator i s outside the public service, and staff are not subject to public service arrangements. I t s funding i s from license fees (capped at 2 percent o f gross revenues but deferred for five years) and i s entirely separate f rom the Government budget. After the expiration o f the five-year deferral period, license fees and other charges are to be structured to cover costs o f a declared budget which i s reviewed by an oversight committee o f senior government officials. The organizational structure o f the Commission that reflects the longer term and accommodates the requirements o f the Act may be found at Figure 3.

(c) New licensing regime. The Act provides for a new licensing regime for service providers using a “unified” licensing scheme largely based on “class” licensing under which an applicant only needs to “register.” Individual licensing is provided for in cases where specific obligations or conditions are to be imposed.

(d) Interconnection and tariff regulation. The Act regulates competition in the telecommunications market, including agreements for interconnection, retail prices, and consumer protection.

(e) Universal access. The Act provides that there be a UA Committee to assist identification and definition o f needs, and that works progress with funding from the UAF, established under the Act and managed by the Commission, that i s financed by an industry levy (capped at 2 percent o f gross revenues, as per the Act).

(0 Disputes and sanctions. Finally, the Ac t provides for detailed dispute resolution mechanisms as wel l as for c iv i l penalties for offences under the Act.

(g) The Ac t also covers aspects o f developing a regulatory framework including:

Extensive dispute resolution and mediation arrangements managed by the Commission;

All users o f radio spectrum, with a requirement for an early review o f uses and

Competition management, interconnection and access, including use o f reference offers

Pricing review and filings for both retail and wholesale aspects o f the industry;

regularization o f management arrangements;

and dominance management;

- 1 8 -

. Consumer protection mechanisms; . Telecommunications and radio communications equipment regulation; . Scarce resources management; . Assistance to operators seeking access to freehold and customary land; and . Significant information provision by operators to and collation o f data by the Commission.

Project Regulatory Licensing and Coordinator Resource Director Competition

Institutional Arrangements for the Sector

Universal Service

13. advised that the Ministry intends to appoint a director and a deputy with responsibility for telecommunications and ICT. These appointments will be managed by the Public Service commission.

14. The Telecommunications Commission i s a new institution with responsibility for implementing the policy and the law, as noted above. The proposed staffing/organizational plan is summarized in Figure A 1 -2. The functions will l ikely be undertaken by Project-financed consultants in the short-term, pending recruitment o f the positions.

The M C A has formal responsibility for sector policy. The Permanent Secretary had

Finance Manager

Figure A1.2. Telecommunications Commission: Proposed Structure

Procurement Interference Manager Management

Notes: 1.

ii. Project Coordinator initially only for the first 12 months. Prospectively, may be a two year post; Universal Service from June 2012.

- 1 9 -

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

SOLOMON ISLANDS: Telecommunications and ICT Development Project

1. The World Bank has no other projects in this sector in the Solomon Islands, but i s supporting telecommunications/ICT development in various forms in: Fiji, Kiribati, Papua New Guinea, Samoa, Timor-Leste, and Vanuatu. The World Bank also supports regional telecommunications initiatives including a regional regulatory resource center (in coordination with Australia, New Zealand, the International Telecommunications Union, Asia-Pacific Telecommunity), and, prospectively, a Pacific Regional Connectivity Project to facilitate international submarine cable connections for unserved Pacific member countries.

2. resources under the Pacific Facility I11 Trust Fund, and under an externally financed output (EFO 3 1) to the Bank for advisory assistance to develop the telecommunications policy and legislation. RAMS1 and AusAID will finance the start-up o f the Commission, including the salaries o f the Commissioner and staff, capital expenditures and operating costs and expenses.

As noted elsewhere in this document, AusAID has provided technical assistance

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Annex 3: Results Framework and Monitoring

SOLOMON ISLANDS: Telecommunications and ICT Development Project

To facilitate increased access to a wide variety o f reliable and affordable telecommunications services for the majority o f Solomon Islanders, through efficient and well-regulated competition. The Project wi l l support the development o f a new regulatory institution- the Telecommunications Commissiondesigned to promote good governance in the sector. Further, through support for enabling infrastructure, the Project wi l l pave the way for more widespread application o f ICT supporting economic and social development, including greater opportunities for women.

Component 1: Sector Policy [A] Strengthen policy-making capacity

Component 2: Regulation [B] Create conducive environment for competition through establishment o f regulatory authority

[B] Develop regulatory instruments

[C] Increase in competition

[D] Increase in network coverage

[E] Reduction in communications tariffs

Component 3: Universal Access :A] Develop U A strategy

1 [A] Improved ICT policy

1 [B] Legal and regulatory environment in the country

framework more effective at delivering sector performance

1 [C] Increase in the level o f competition in the ICT sector

1 [D] Increase in teledensity 1 [E] Decrease in tariffs o f key

communications services

ICT policy framework formulated and adopted

Telecommunications Commissioner and staff appointed and retained

Spectrum management plan Numbering plan Interconnection regime Dispute and mediation procedures Award o f third license Award o f other telecommunications licenses Percent o f population coverage by mobile networks Mobile subscribers per 100 people Mobile 3 minute local call rate Price o f call to Australia ($ per 3 minutes) Monthly Internet access (128kbps)

1 National U A objectives and strategy

These indicators measure the impact o f enabling legal and regulatory framework on access, quality and price o f ICT services.

Assess national ICT policy- making capacity

Assess regulatory capacity

Assess regulatory capacity

Monitor introduction of competition

Monitor impact o f sector competition

Monitor pricing and affordability o f services

Assess market gaps

- 2 1 -

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5 g 0 0 0 0

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$ $ $ 2 2 2 I , I

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Annex 4: Detailed Project Description

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Project Scope

1. The Project i s structured as a technical assistance program to support the Government on best practice policy and regulatory issues, the implementation o f these practices and support o f a regime specifically charged with capability transfer, and commencement o f a universal service regime.

2. Areas for regulatory assistance under this Project will be guided by the provisions o f the Act but also with a mind to the future. Given the initial sk i l ls gap, the Project i s structured as a “substitution” technical assistance that progressively phases into a “capacity building” technical assistance. The Project has a total estimated value o f $5.996 million comprising:

A World Bank contribution o f $3.25 million in the form o f an IDA grant.

A PRIF cofinancing contribution o f AUD 3.0 million (about $2.74 million equivalent),

The Project comprises four components.

. 3. 4.

Component 1. Sector Policy Support, $0.3 million

5. appropriate, to:

This comprises technical assistance for the M C A and other ministries and agencies as

(a) Review and update the telecommunications Policy o f 2008 in l ine with industry developments and international best practices, including second-generation reform and technological convergence;

(b) Recommend policy options for legislation, regulations, fiscal incentives; and

(c) Lead the Government’s work on international agreements related to telecommunications, including possible regional connectivity programs.

The pro-competition telecommunications Policy adopted by the Government in June 6. 2008 was the trigger for the next phase o f reform for telecommunications in the Solomon Islands. A project in the policy assistance component would need to be a wide ranging review o f the new legislation (1 8 to 24 months after introduction) in addition to addressing any urgently needed amendments that respond to circumstances not well addressed by the initial form o f the legislation.

7. Convergence policy would need to link with the spectrum management for planning and provisioning arrangements for spectrum use for and planning functions and consumer protection (content, child access, and billing) functions o f the Commission. This presumes ski l ls for: . Use o f public enquiry processes for wider views about the legislation and stakeholder

consultation processes generally

Analysis o f actual outcomes (or intended outcomes for new initiatives) in a policy sense,

Consideration o f possible adjustments to the Policy or any other related sphere.

. . - 24 -

. Consideration o f possible changes to relevant legislation or introduction o f new legislation

Preparation o f drafting instructions for both amendments and new legislation,

Political processes to facilitate passage o f legislation.

These ski l ls need to be imparted as part o f the Ministry assistance. An outline program

. . 8. could commence on the basis o f the review o f the telecommunications legislation or as a new initiative entirely related to development o f a national ICT policy. Timing o f commencement o f any o f the telecommunications related policy initiatives should allow for the (at least partial) stabilization o f the new competition regime. Because that industry i s an underpinning platform for expanded use o f ICT, i t s trajectory (coverage, service types, and costs) must be sufficiently identifiable as an input to wider ICT policy development.

9. Additionally, as imparting o f sk i l ls i s key to this part o f the Project, it i s important that the Ministry recruits new staff to take on formal responsibility for Telecommunications/ICT policy for the medium-term. The Ministry has created positions for a director and a deputy director level, prepared job descriptions, and intends to proceed with recruitment once clearance has been obtained from the Public Service Commission.

Component 2. Regulatory Support, $4.962 million (a) Telecommunications Commission - $1,290,000 (b) Commission Core Staff Salaries - $720,000 (c) Technical Assistance - $2,301,000 (d) Spectrum Monitoring Equipment - $236,000 (e) Training and Capacity Building - $130,000 ( f ) Recurrent/operational costs and expenses o f the Commission - $625,000

10. databases, special analysis software, and other facilities required for regulatory functions required under the Act, and operations o f the Telecommunications Commission in the early years as i ts staff are progressively recruited and capacities developed.

1 1. Component 2 will fund the recurrent/operational costs and expenses o f the Commission in the performance o f i t s responsibilities under the Act, including the salary and benefits o f the Commissioner and core Commission professional and administrative staff.

12.

This largest component supports development o f the necessary regulatory instruments,

Component 2 will also fund, inter alia, technical assistance in the following areas:

(a) Develop and establish the Commission as a business unit with relevant staff, financial, ICT facilities and Web publication service, property and assets management structures;

(b) Develop necessary regulatory policy and instruments for operator licensing, including new entry, and exemptions, document and set out a staff user manual based on regulatory instruments;

authorizations;

That regime will address policy and instruments for spectrum and band planning,

(c) Monitoring operators’ compliance with the terms and conditions o f their licenses or

(d) Conduct an audit o f known spectrum uses and develop a spectrum management regime.

- 25 -

licensing and exemptions, allocations and records systems with billing for spectrum use, radio communications standards, Interference monitoring and management, broadcast spectrum planning for the Solomon Islands (considering a future migration to digital TV and radio);

(e) Develop regulatory policy and instruments for scarce resources management, including, for example, numbers management regime based o n a number plan, regulatory instruments, an allocation database and administration procedures manual, and regulatory pol icy and instruments for ccTLD (country code top level domain) and IP numbering, consistent with internationally established an recognized norms, procedures, and agreements;

o f available and suitable experts for disputes resolution;

and filing o f reference offers where appropriate;

filing systems, and consumer dispute and awareness structures;

communications and telecommunications and develop or adopt such standards as are appropriate;

(i) Develop re gulatory pol icy and instruments for enforcement o f provisions relevant to regulation such as license conditions, spectrum and numbers usage, regulatory orders and directions, etc.;

(k) Monitor competitive behavior including resolving disputes between operators and protection o f users; arbitration and mediation services, as required;

(1) I nclude capability transfer and development across al l the above areas o f regulation through direct and on the j o b training and experience development visits to relevant organizations.

Priorities for the f i rs t year o f Commission operations will be: telecommunications

( f ) Establish dispute and mediation structures and procedures complete with a reference l i s t

(g) Develop and establish interconnection and access arrangements that will include review

(h) Develop competition regulation instruments and procedures, retail and wholesale prices,

(i) Develop re gulatory pol icy and instruments for technical standards for radio

13. market intelligence, verification o f mobile license coverage obligations, review o f the licensing framework, and preparation for the tender o f a third mobile license.

Component 3. Technical Assistance for Universal Access, $0.3 million Consultant Services: $300,000

14. the UA provisions o f the Act. In particular this component will, inter alia support the Government to:

This component will develop the necessary instruments and procedures to give effect to

. Develop UA policy, regulations and practical guidance in readiness for a later and ongoing regime that would be initiated when the extents o f commercial network development are clear.

- 2 6 -

0 Develop the necessary regulatory instruments, instructions and procedures to implement the provisions o f the Ac t in relation to UA and for efficient operation and use o f the UA Committee and related public consultation;

Develop structures and guides for developing and defining UA projects and to identify sustainable projects to facilitate investment in telecommunications infrastructure for access to telephony and Internet in rural and remote areas that are not commercially viable in the medium-term;

Develop tender and evaluation procedures for open and international competitive bidding and relevant contract arrangements for possible UA projects.

As it is important for the market to be given time to test the extent o f commercially

0

0

15. sustainable services and coverage, this component should be progressed in phases. There needs to be a balance between providing for industry certainty and avoiding regulatory gaming o n the part o f the industry in relation to subsidies for works that operators would be prepared to undertake without subsidy. Accordingly, establishment o f a UA policy could be undertaken upon appointment o f the Commission but it would be appropriate for detailed works to be deferred until an industry development trajectory i s clear (approximately midyear 3 o f the Project).

16. The first detailed phase (around year 3) i s to: establish regulatory instruments and development o f staff skills in readiness for use in consideration o f areas for UA support and later the imposition o f UA levies (as these are deferred to post 2014). Levy instruments and procedures for the levy need to be in place before invoicing the f i rs t levy. Preparation will require consultation with the industry.

Establish instruments and procedures for the analysis o f needs, development and definition o f proj ects, tender processes and contract arrangements;

17. The next part requires application o f these procedures and instruments through in-house analysis o f needs by area or some other subdivision. This would include l ikely costs and benefits to establish and prioritise a program o f works eligible for subsidy. This phase requires adequate clarity about prospective commercial development, a leading indicator o f which will be the operator rollout plans evidenced by spectrum utilization records and requirements.

18. The last phase i s the execution phase when:

process to identify prospective targets for assistance; and (a) analyses and instruments are applied together with a public consultation and enquiry

(b) bidding documents are drafted on the basis o f prepared instruments,

19. will be part o f this component. The skills will encompass abilities to:

The technical assistance for developing capabilities for the execution o f the UA program

(a) Undertake economic and financial data gathering and analysis for a UA model and

(b) Prepare and manage stakeholder consultation and enquiry processes for UA Project

financing scheme;

identification and benefit analysis;

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(c) Select and define projects on the basis o f settled criteria;

(d) Prepare bidding documents and performance-based service agreements for potential UA projects;

The Project funds will be applied to:

Support the development o f relevant instruments, procedures and documentation;

Support development and definition o f candidate projects

Develop awareness-raising and capacity-building programs specifically targeting women on the use o f ICTs to improve livelihoods

20. . . . 2 1. revenues, as per the Act) to subsidize UA. The Commission i s to administer these funds. New regulations and guides will be prepared to complement the Act to set out procedures and processes to impose the levy, collect funds and manage their use. This provision introduces another set o f skills that will also be part o f the program under Component 3. That is developing instruments and systems for setting the levy, invoicing o f it and managing and dispersing the funds gathered.

Component 4. Project Management $0.395 million Project Management Consultants: $3 70,000,

22. The Telecommunications Commission will recruit financial management and procurement staff. The Commission will, in addition, recruit a project coordinator, financial management and procurement consultants to form a P M U with responsibilities to:

The Ac t provides for a levy on the telecommunications industry (2 percent o f gross

.

.

. . . .

Develop and provide spending, progress and other reports to the Government and the World Bank/PRIF Review, validate, and finalize claims for payment for consultants, goods, training, study visits, operating costs Manage project finances and bank accounts Assist with procurement procedures and requirements Manage procurement o f consultants and goods (to supplied specifications) Conduct periodic reviews o f the Project (progress, achievement o f goals) Arrange the annual Project audit.

Audit: $25,000

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Annex 5: Project Costs

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Local Foreign Total $ million $ million $ million Project Cost By Component and/or Activity

Component 1. Policy Technical Assistance Component 2. Regulatory Support & TA Component 3 . Universal Access Component 4. Project Management

0.300 0.300 4.962 4.962 0.300 0.300 0.395 0.395

Total Baseline Cost 5.957 5.957

Contingency 0.039 0.039 Total Project Costs 5.996 5.996

Total Financing Required 5.996 5.996

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Annex 6: Implementation Arrangements

SOLOMON ISLANDS: Telecommunications and ICT Development Project

1. Entity i s the Telecommunications Commission. The Commission w i l l be responsible for carrying out components 2, 3 and 4 o f the Project. The Ministry o f Communications and Aviation will be responsible for carrying out component 1 , and liaise with the Commission on the implementation o f the other Project components. The Commission will assist M C A in the implementation o f procurement and financial management under component 1.

This Project wi l l be implemented over a five-year period. The Project Implementing

2. The Government will designate an interdepartmental monitoring committee (the “Consultative Group”) to coordinate continued implementation o f the telecommunications reform program. The Consultative Group, comprising representatives o f central ministries and agencies, i s to convene on a six-monthly basis (beginning December 20 lo), to review the status o f implementation o f Government’s reform program and highlight issues and concerns.

3. The Commission will contract project management consultants (project coordinator, FMS, procurement specialist) to work alongside financial management and procurement staff to form a project management unit (PMU) within the Commission. The PMU will manage all selection o f consultants (including for component l), and will be responsible for procurement, financial management, monitoring and evaluation, and reporting under the Project (Figure 1). The project management consultants will also help to develop the capacity for administration within the Commission.

4. Given the importance o f effective project administration, these will be the f i rs t consultants mobilized under the Project. Indeed, the financial management staff, consultant, and procurement staff and consultant will be recruited with the support o f AusAID start-up funding so that these positions are in place prior to effectiveness.

5. The specific implementation arrangements and relationships are described in Figure 6.1.

Figure 6.1. Implementation Arrangements

I Consultative Group I

Minister C 8, A

Permanent

-Regulatoty Role

I Functions j I - - - - - - - J

- Procurement service to Cornmission 8 MCA - Integrated into

- Ci%lTi’l;\:%ace to WBIAusAID. Project

& Reporting Monitoring

t L - - - - - - -

- 30 -

6. will operate the financial management system according to World Bank requirements (including management o f disbursement o f al l Project proceeds, monitoring implementation progress o f Project components, and work to prepare semiannual progress reports in accordance with a Project progress reporting format acceptable to the Bank). Annual audits will be arranged and carried out by professional auditors according to Bank and Government requirements and agreements.

The P M U will carry out the procurement o f a l l Project-financed goods and services. I t

7. resources and staffing to meet the challenges o f implementation, and provide assistance to the PMU should achievement o f Proj ect development objectives become imperilled by policy changes, institutional issues, or other unforeseen changes. The Bank will make regular field visits to the Solomon Islands to meet with beneficiaries and to assure implementation effectiveness o n the ground. A midterm review (about 30 months f rom the date o f effectiveness) will be carried out to evaluate progress o f implementation against planned objectives.

The Bank will review the PMU’s progress reports, make sure that there are adequate

8. months o f Project closing.

The PMU will prepare and submit an implementation completion report within six

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Annex 7: Financial Management and Disbursement Arrangements

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Introduction

1. This Annex summarizes the financial management arrangements in place for the proposed Telecommunications and I C T Development Project. The scope o f the work i s set out in the “Financial Management Practices in World Bank-Financed Investment Operations” issued by the Financial Management Sector Board on November 3,2005. Under the Bank’s O P B P 10.02 with respect to projects financed by the Bank, the borrower/recipient and the Project implementing agencies are required to maintain financial management systems- including accounting, financial reporting, and auditing systems-adequate to ensure that they can provide the Bank with accurate and timely information regarding Project resources and expenditures. These arrangements are deemed acceptable if they are capable o f correctly and completely recording al l transactions and balances relating to the Project. In addition, such arrangements are acceptable if they can facilitate the preparation o f regular, timely and reliable financial statements and safeguard the Projects assets; and are subject to auditing arrangements acceptable to the World Bank.

Overall Conclusion

2. Overall, the financial management system will meet the financial management requirement as stipulated in OP/BP 10.2 subject to implementation o f the agreed actions and mitigating measures.

3. increased r isk o f the Project being implemented through an agency that, while established legally, has only recently begun recruiting administrative/financial staff. There i s neither past performance that can be assessed nor as yet any certainty about the FM expertise o f the Commission. The financial management arrangements proposed will meet the minimum requirements o f the Bank.

The overall FM risk assessment for this Project i s Substantial. This reflects the

Risk Assessment

4. The table below details the financial management risk assessment for the program.

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I

m m

I

U s Y

I

d m I

8 ? & Q)

cd

I

IA m

I

ru 0 8

f,

Implementing Agency

5, The Project will be implemented through the Telecommunications Commission (Commission). The Commission i s established under the Act, and the Commissioner has been appointed. The Act stipulates under Section 17 (5) (b) that the Commission can “...administer and account for its finances., , . independently of the government., . ” and section 14 provides that the Commission can appoint staff “. . . to ensure it has sufficient legal, economic and technical resources to exercise its powers and functions and perform its duties under this Act. ” Hence while the reporting will be independent o f the Government o f Solomon Islands, the Act provides no guidance on the administrative structure o f the Commission.

6. Whi le the Commission will, through the Project, employ an international financial management specialist (consultant), the risk remains high due to the unknown fiduciary capacity o f both the Commission and the FM consultant. I t i s recommended that the terms o f reference and the suitability o f the successful candidates’ qualifications and experience for both the FM specialist (consultant) and the Finance Officer are reviewed by the World Bank. The Commission wi l l be responsible for all the financial management and procurement for the project initially with the assistance o f both procurement and FM international advisors. The FM requirements will include the preparation o f payments, maintenance o f documentation, preparation o f withdrawal applications, project cash management and monthly bank reconciliations, preparation o f financial reports for management, including quarterly interim financial reportss and end-of-year financial accounts, and liaising with external auditor.

Funding Sources

7. The Project includes four components: (a) Sector Policy Support (estimated $.3 million); (b) Regulatory Support (estimated $4.962 million); (c) Technical Assistance for Universal Access (estimated $0.3 million); (d) Project Management (estimated $0.395 million). There i s a small contingency o f $39,000.

8. Project: IDA Grant o f $3.25 mill ion and cofinancing by PRIF o f AUD 3 million (about $2.74 mill ion equivalent). The total Project funds are estimated to be $5.996 million including continency. Given the fluctuations between the Australian and United States dollars the final funds in United States dollars may change. In addition it i s proposed there will be a $1.5 million PRIF allocation to meet obligations to STL for compensation for loss making customers required under their rural obligation. The latter will be treated separately.

There are two sources o f funding under Bank administration for the Telecommunications

9. agreement for each source o f funding will include a fixed percentage o f financing with the total adding up to 100 percent. The program will not need to submit separate withdrawal applications for each source o f funding as the Bank will apply the relevant percentages from the financing agreements to determine allocation o f expenditures.

Each source o f funding will contribute to all activities under the program and the legal

10. each source o f funding to be administered by the World Bank. A single disbursement category i s proposed.

The table below indicates the amounts allocated and the percentage to be financed from

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Amount of the Grant Category Allocated (expressed in SDR)

(1) Goods, consultants’ 2,100,000 services, Training* and Incremental Operating Costs* for the Project

TOTAL AMOUNT 2.100.000

*For purposes of this paragraph, the term:

Percentage of Expenditures to be

Financed (inclusive of Taxes)

100%

(i) “Incremental Operating Costs” means incremental expenses incurred on account of Project implementation, support and management and reasonably related thereto, including salaries and per diems o f staff o f the Telecommunications Commission for travel outside Honiara but within the Recipient’s territory, communications, utilities, stationary, vehicle operation and maintenance costs and office rental costs, but excluding salaries o f the Recipient’s civil servants; and

(ii) “Training” means reasonable costs incurred by the Recipient and the Project Implementing Entity for training under the Project, including purchase, translation and publication of materials, rental of facilities, course fees, workshop supplies, rental of equipment, reasonable honorarium o f resource persons, and travel, accommodation and subsistence of participants, including participation in conferences, workshops and study tours outside Honiara and outside the Recipient’s territory.

Disbursement and Fund Flow Arrangements

1 1. The disbursement arrangements will allow the program to use al l o f the following methods: (a) advances into and replenishment o f designated accounts, (b) direct payment from the granutrust fund account and (c) reimbursement. I t i s expected that direct payments will be used for payment on larger contracts which may require payment in foreign currency, i.e., for international consultants.

12. withdrawal application. Funds will then be transferred into a commercial operating account in (designated account) which will operate in U S dollars. The initial authorized allocation will be $200,000 which will include both pooled funds from both the IDA Grant and the PRIF contribution.

Project funds will be disbursed by the World Bank into the CBSI based on an initial

13. On establishment o f this account the Bank will write to the Accountant General requesting a Standard Instruction to enable funds to be transferred automatically from the CBSI to the Project’s operational account. Subsequent replenishments will be made through submission o f withdrawal applications providing details on the use o f funds previously advanced on the basis o f statements o f expenditures. Disbursements would be made on the receipt o f a withdrawal application. The account will operate on an advance basis.

14. Where there i s a large payment in foreign currency it i s recommended the direct payment method be used to facilitate the payment o f these amounts. Thus the withdrawal application will

- 3 9 -

specify direct payment from the IDA funds account to contractor or supplier. The suggested threshold for determination o f the direct payment should be $40,OOOUS per individual payment. All direct payment applications would be paid based on documentation provided which would include, a copy o f the invoice provided by the supplier authorized by the Commission that the good or service had been satisfactorily completed, i s part o f the work plan and i s included in the in budget.

Budgeting

15. budget. However at present there i s no implementing agency to prepare a realistic budget. This will be done as a matter o f priority when the staff i s initially employed. Funds to employ these staff w i l l be paid from AusAID funds until the Project becomes effective. Throughout the program there will be a requirement to monitor actual expenditure against budget and make adjustments to the budget as required. Budgeting monitoring will be on a component basis.

The annual procurement plan will form the basis for the preparation o f the program

Recurrent Operational Costs

16. Costs related to the establishment and operations o f the Telecommunications Commission during the term o f the project, including the salary o f the Commissioner, as well as core and support staff salaries and project management unit operating costs will be covered by the Project, after the initial funding provided by RAMS1 and AusAID.

Accounting Systems

17. with the financial management staff, and the Commissioner will be responsible for providing the accounting system for Project funds. This may be an o f f the shelf accounting package, spreadsheets, data bases or a combination o f these.

Initially the international financial management specialist (consultant) in consultation

18. the Commission.

All documentation relating to payments wi l l be prepared and collated and authorized by

Reporting and Monitoring

19. The Commission will be required to provide interim unaudited quarterly financial within 45 days o f the end o f the reporting period. As these reports are to be used a measuring tool they should report program progress on a component basis with adequate description, explanation and analysis o f variances. A consolidation o f such reports at the end o f the fiscal year may form the basis o f annual program financial statements which will be subject to audit. The format for these reports will be determined based on discussions between the Commission and the World Bank’s Financial Management Specialist and w i l l be agreed upon by July 1 2010.

External Audit

20. Project. The Project funds can be audited in conjunction with the Telecommunications Commission. However a note to the accounts will be required that identifies the Project’s funds. This note could take the form of:

An annual audit wi l l be required o f the financial statements for each fiscal year o f the

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Balance at the beginning of the year Amounts received during the year Expenditures during the year Balance at the end of the year

(b) The opening and closing balances shown above are included in cash and cash equivalents and represent balances outstanding on the IDA funded designated account No.XXX held at the . . . . . . . . . . . . Included in long-term liabilities is also an amount o f US$x (preceding year: US$x) in respect o f the amounts disbursed under the grant to date.

(c) The proceeds o f the IDA & PRIF grants have been expended in accordance with the intended purposes as specified in the respective grant Agreement”.

The Commission’s Audited Financial Statements must be received by the World Bank within six months o f the end o f the fiscal year for which the reports have been audited. The Telecommunications Commission will be responsible for ensuring program funds are audited.

Current Year Preceding Year (US$) (US$)

X X X X

(X) (XI X X

2 1. Auditor General (which i s an independent auditor acceptable to the Bank). The Project would finance any incremental costs (other than staff time) incurred by the Office o f the Auditor General. The Office o f Auditor General has indicated it would most likely conduct the audit i tself rather than subcontract the audit to an audit firm. In the event o f the subcontracting o f the audit the appointed firm would require to be acceptable to the bank, based on an audit assessment. Before July 1 2010 the terms o f reference for the audit o f the Commission should be agreed to and this should meet the approval o f the Bank.

The Project financial statements will be audited under the supervision o f the Office o f the

22. The Office o f the Auditor General is currently undergoing a major capacity building exercise and this has meant increased staff resources and increased capacity within the staff. Previously the Auditor General’s Office has not always completed audits within the prescribed t ime frame although this has been less o f an issue with donor funds. It i s not anticipated there will be delays in the audit o f this program.

Financial Management Action Plan

23. financial management system and the stage at which they must be completed.

The action plan below indicates the actions to be taken for the Project to strengthen its

- 4 1 -

Action Plan to Strengthen Financial Management I I

Action Date due by Responsible

1

2

3

4

5

Supervision

used for the Project. July 1,2010 Commission

Agree on terms o f reference for external auditors July 1,2010 Commission

Adopt the FM manual for the Project July 1,2010 Commission Recruit an international FM specialist (consultant) to establish and maintain the financial records By effectiveness Commission Determine and establish an appropriate Project financial management software. July 1,2010 Commission

OAG and

24. supervision wi l l be carried by the Bank FMS at least three times in the first year and the frequency after that will be determined by the findings from these supervisions. The initial supervision, before the first disbursement o f funds, will include a review o f the implementation progress o f agreed action plans noted above and provide information to the Commission’s staff on the FM requirements o f the project and the disbursement procedures. The FMS wi l l also:

As the overall risk assessment for this Project i s substantial, financial management

. Review the financial component o f the quarterly IFRs as soon as they are submitted to the World Bank; and, Review the annual audit reports and management letters from the external auditors and follow-up on material accountability issues by engaging with the Task Team Leader, Client, and/or auditors.

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Annex 8: Procurement Arrangements

SOLOMON ISLANDS: Telecommunications and ICT Development Project

General

1. Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004, revised October 2006; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004, revised October 2006, and the provisions stipulated in the Legal Agreement. The general description o f various items under different expenditure categories are described below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the procurement plan. The procurement plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement for the proposed project would be carried out in accordance with the World

2. Procurement o f works. Works are not envisioned to be procured under this project.

3. equipment and software; specialized regulatory software and hardware (spectrum management); spectrum monitoring equipment and measurement vehicle. The procurement will be done using the Bank’s Standard Bidding Documents for al l International Competitive Bidding and National Standard Bidding Documents agreed with (or satisfactory to) the Bank and as per the mandatory provisions for N C B provided in the Financing Agreement. Contracts below $50,000 will be procured under the shopping method comparing quotations o f at least three qualified suppliers. Proprietary software may be procured through direct contracting with prior agreement with the Bank.

Procurement of goods. Goods procured under this project would include: office and computer

Provisions for National Competitive Bidding

4. competitive bidding in Chapter 22 (Purchase of Goods and Services, Sale of Government Property, Shares and Assets) of the Financial Instructions (January 2004), subject to the fol lowing additional procedures in order to ensure economy, efficiency and transparency and broad consistency with the provisions o f Section I o f the Procurement Guidelines, as required by paragraphs 3.3 and 3.4 o f the Guidelines:

National Competitive Bidding procedures shall be those set forth in the provisions on

(a) The eligibility o f bidders shall be as defined under Section I o f the Procurement Guidelines; accordingly, no bidder or potential bidder shall be declared ineligible for contracts financed by the Association for reasons other than those provided in Section I o f the Procurement Guidelines. Foreign bidders shall be eligible to participate in bidding under the same conditions as national bidders. In particular, no domestic preference over foreign bidders shall be granted to national bidders in bid evaluation, nor shall foreign bidders be asked or required to form jo int ventures with national bidders in order to submit a bid.

(b) Registration shall not be used to assess bidders’ qualifications. A foreign bidder shall not be required to register as a condition for submitting i t s bid and, if determined to be the lowest evaluated responsive bidder, shall be given reasonable opportunity o f registering, without any le t or hindrance. The registration process shall not be applicable for

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subcontractors. Bidding shall not be restricted to any particular class o f contractors, and non-classified contractors shall also be eligible to bid.

(c) Invitations to bid shall be advertised in at least one (1) newspaper o f national circulation, allowing a minimum o f thirty (30) days for the preparation and submission o f bids except for commodities and small goods contract. Potential bidders shall be allowed to purchase bidding documents up to any time prior to the deadline for submission o f bids.

(d) Standard Bidding Documents, acceptable to the Association, shall be used.

(e) Qualification criteria shall be clearly specified in the bidding documents, and al l criteria so specified, and only such specified criteria, shall be used to determine whether a bidder i s qualified. Qualification shall be assessed o n a pass or fa i l basis and merits points shall not be used. Such assessment shall only take into account the bidder’s capacity and resources to perform the contract, specifically i t s experience and past performance on similar contracts, capabilities with respect to personnel, equipment and construction and manufacturing facilities, and financial capacity. The evaluation o f the bidder’s qualifications shall be conducted separately f rom the technical and commercial evaluation o f the bid.

(f) Bidders may submit bids, at their option, either in person or by courier service or by mail. Bids shall be opened in public, immediately after the deadline for submission o f bids. Bids received after the deadline for bid submission shall be rejected and returned to the bidders unopened. In addition:

All bidding for goods shall be carried out through a one-envelope procedure.

(i) Evaluation o f bids shall be made in strict adherence to the criteria that shall be clearly specified in the bidding documents and quantified in monetary terms for evaluation criteria other than price; merit points shall not be used in bid evaluation.

(ii) A contract shall be awarded to the technically responsive bid that offers the lowest evaluated price and no negotiations shall be permitted.

(iii) Bidders shall not be eliminated from detailed evaluation on the basis o f minor, non- substantial deviations.

(iv) N o bidder shall be rejected on the basis o f a comparison with the employer’s estimate and budget ceiling without the Association’s prior concurrence.

(v) A copy o f the minutes o f the public bid opening shall be promptly provided to all bidders, and to the Association with respect to contracts subject to prior review.

(g) Neither shall a l l bids be rejected nor new bids solicited without Association’s prior written concurrence.

(h) Extension o f validity o f bids may be allowed in exceptional circumstances but there shall be no amendment o f the price or any other condition o f the bids. Bidders may refuse such an extension without forfeiting their bid securities, but bidders granting an extension shall provide extension o f the validity o f their bid securities.

mechanism allowing bidders to protest and to have their protests handled in a timely manner.

(i) The Recipient shall estab lish and implement an effective and independent protest

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6) The Association shall de C l a r e a firm or individual ineligible, either indefinitely or for a stated period, to be awarded a contract financed by the Association, if it at any time determines that the firm or individual has, directly or through an agent, engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in competing for, or in executing, a contract financed by the Association.

include a provision requiring bidders, suppliers, contractors and subcontractors to permit the Association at its request, to inspect their accounts and records relating to the bid submission and performance o f the contract and to have said accounts and records audited by auditors appointed by the Association. The deliberate and material violation by the bidder, supplier, contractor or subcontractor o f such provision may amount to obstructive practice.

(k) Each bidding document and contract financed from the proceeds o f the Grant shall

5. Ministry and for the Telecommunications Commission. Services will include, but not be l imited to, regulatory regime, legislation and regulatory instruments, structures, tools and governance. Where teams o f consultants are not required, individual consultants will be hired to provide specialized advisory services as well as for services to support project implementation and monitoring, short l i s ts o f consultants for services estimated to cost less than $200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

Selection o f consultants: Technical assistance required will consist o f support required for the

(a) Quality Cost Based Selection will be followed for assignments as stated in the procurement plan.

(b) Quality Based Selection specialized assignments for consultant services identified by the Commission will be selected by this method.

(c) Least Cost Selection method may be used for auditing services. (d) Selection Based on Consultant’s Qualifications for small value assignments (Under

$200,000), qualified consulting f i r m s may be selected through the CQS method.

(e) Individual Consultants as wel l as national consultants may be hired for policy advice to the Ministry and the Telecommunications Commission to assist in project implementation and to provide the required technical assistance. Selection should be based on a comparison o f at least three CVs from candidates that have expressed interest and meet the terms o f reference and qualification criteria. In addition with valid justification and with prior IDA concurrence, individual consultants may be selected under single source as per section 5.4 o f the Guidelines.

6. required for the project, as per the training plan submitted and reviewed by the Bank. Training costs will include purchase and publication o f materials, rental o f facilities, course fees, and travel and subsistence o f trainees. Eligibility o f training expenses will be stated in the Financing Agreement.

Training. The project will finance al l costs associated with training, study tours and workshops

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Assessment of the Agency’s Capacity to Implement Procurement

7. Communications and Aviation, Director o f Communications and the advisor to the Ministry o f Finance and Treasury. An assessment o f the capacity to implement procurement o f the implementing agency was not possible as the proposed implementing agency was yet to be established.

During pre-appraisal the World Bank met with the Permanent Secretary, Ministry o f

8. Telecommunication Commission as an independent regulator. The Commissioner and required staff will be initially financed by RAMS1 and AusAID, and the Project will finance these set o f activities for the remainder o f the Project term. At the time o f appraisal the Telecommunications Commissioner has been appointed, premises identified, but it i s not yet operational. The Commissioner will be tasked with the overall implementation responsibility including procurement. The Grant wi l l finance a procurement officer as well as a procurement advisor to mentor the commission’s staff.

The recently enacted Telecommunications Act (2009) provides for the establishment o f the

9. implementing entity for the project. A P M U i s to be established under the Commission. Given the newness o f the institution, a project coordinator with expertise in procurement and financial management wi l l be hired for start-up activities as well as for coordination with the Ministry and the Bank. Among the responsibilities o f the project manager i s to set up the administration and day-to-day management o f the PMU within the Commission. In the interest o f sustainability, the P M U i s expected to become the administrative/corporate service unit o f the TC after the project closes.

The Government has indicated i t s preference for the new Commission to be the

10. Giving the current status o f the proposed implementation entity, albeit legally established, with a Commissioner recently appointed and limited capacity at the MCA, the overall project risk for procurement i s High. The mitigation actions recommended are: the hiring o f a Procurement Specialist as condition for effectiveness and prior review o f the majority o f contracts by the Bank.

Procurement Plan

1 1. The Recipient has developed a draft procurement plan for project implementation at the time o f appraisal (February 201 0) which provides the basis for the procurement methods. This plan has been agreed between the Recipient and the Project Team on February 19,2010 and i s available at the office o f the Telecommunications Commission in Honiara. I t will also be available in the Project’s database and in the Bank’s external website. The procurement plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Frequency o f Procurement Supervision

12. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Entity has recommended quarterly supervision missions to visit the field to carry out post review o f procurement actions.

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Prior Review Thresholds

14.

Details of Procurement Arrangements Involving International Competition.

1.

(a)

All contracts subject to prior review would be stated in the procurement plan.

Goods and Works and nonconsulting services.

L i s t o f contract Packages which will be procured following I C B and Direct contracting:

2 1

Ref. No. TC-Goods- ICB-XX

3 4 1 5 1 6

Ref. No. TC-CS-XX- 1

TC-CS-XX-2

TC-CS-XX-3

TC-C S-XX-4

Domestic Contract 1 Estimated I Procurement I P- 1 Preferenc

Expected Description of Review by Proposals

Assignment Estimated Selection Bank(Prior f Submission cost Method Post) Date Comments

Telecommunications, $ 1,100,000 QCBS Prior xx-20 10 Project Coordinator on ICThegulatory board to initiate, technical assistance coordinate and

administer process TORs and timing determined by Commissioner and acceptable to WB

term TA to be determined by Project Manager

design and implementation o f U A program

31d License award $300,000 QCBS Prior xx-2010

Licensing Framework $250,000 QCBS Prior xx-2010 TORs for long and short

Universal Access TA $300,000 QCBS Prior xx-2010 Technical Assistance for

(Description) I cost I Method I Q I e (yesfno) Spectrum I $160,000 I ICB IN/ I NO equipment (hardware & Software)

A

7 Review by

Bank (Prior f Post)

Prior

8 Expected

Bid- Opening

Date xx-20 10

9

Comments TA to be provided for specifications and Schedule of delivery

ICB=International Competitive Bidding

(b) ICB Contracts estimated to cost above $100,000 per contract and all Direct contracting will be subject to prior review by the Bank.

2. Consulting Services.

(a) List o f Consulting Assignments with short-list o f international f i rms.

QCBS=Quality and Cost-based Selection

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Annex 9: Financial Sustainability Assessment for the Telecommunications Commission

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Introduction 1. The Project i s designed as a development and capability transfer project. I t s duration i s for five years and following that time the Commission i s expected to be se l f supporting both administratively and financially. This note i s an analysis o f sources o f funding and needs o f the Commission during the Project period and thereafter.

Methodology 2. and license fees. One i s the analysis prepared by the Government’s advisors during the negotiations with Solomon Telekom Ltd (STL), as shared by the Government (“Scenario 1”). This has been adjusted and supplemented to address a data issue. The other i s a World Bank calculation on Commission costs and revenue streams (“Scenario 2”). Other projections are possible by running either model with differing base assumptions.

Two methodologies are applied to estimate future telecommunications industry revenue

3. wil l:

rn

rn

rn

4.

The analyses indicate that license fees when set to 2 percent o f industry gross revenues

exceed Commission running costs in 20 10 and continue to grow as the industry revenues grow, over the five year period 201 0 through 2014, increase to between SBD 1 1.83 million (Scenario 2) (approximately $1.5 million) and SBD 12.86 million (Scenario 1) (approximately $1 -63 million) per year, and aggregate o f license fees for the period 2010 through 2014 amount to between SBD 45.91 mill ion (Scenario 2) (approximately $5.74 million) and SBD 49.98 million (Scenario 1) (approximately $6.25 million).

However the Settlement Agreement and the Act requires the use o f license (and other) revenues for up to five years to fund compensation payments to STL-with different provisions should the debt not be repaid by that time. The amount to be funded from license fees (and other revenue) i s SBD 53.8 mill ion (approximately $6.6 million). Scenario 1 makes no estimate for revenues for the sixth year (201 5). Scenario 2 suggests that the aggregate o f license fee revenues to 2015 may be SBD 61.08 million (approximately $7.63 million). (Note estimates about a distant future are less reliable than estimates about the near term.)

Conclusions

5. $1.12 mill ion per year.

The costs o f the Commission are expected to be about: $5.6 million over five years or

6. The annual revenues o f the Commission from license fees will be zero through to 2014 (the fees are diverted for compensation payment) and approximately SBD 12 mill ion (approximately $1.5 million) per year thereafter assuming no material change in the license fee structure.

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7. will have sufficient budget to cover those costs in 201 5 and onwards o n the condition that the Government pays the residual settlement debt o f between SBD 3.8 mi l l ion and SBD 5.9 mi l l ion (approximately $0.47 million and $0.73 million) (dependent on model and assumptions).

If the Project finances al l operating and development costs until 20 14, the Commission

8. fund the remainder o f the settlement debt. The models indicate that funding the residual and the costs o f the Commission may be possible; however this i s an indication and not a certainty.

Funding for the year 2015 will be affected if the Government requires that license fees

9. The Settlement Agreement (with parallel provisions in the Act) and the expectations o f Government in regard to revenues are a challenge to the viability o f the Commission. Absent settlement debt, the license fee levies could be significantly reduced (reducing industry burden) and s t i l l adequately fund the Commission.

10. This summary i s based on: . The legislated requirement that a l l license fees are used to repay the settlement amount for five years; Mobi le phone uptake achieves a minimum o f 40 percent penetration by 20 14; and N o n mobile phone service revenues continue their current trajectories.

. . An Option for the Settlement Residual

1 1. years f rom commencement o f operations o f the new entrant (or five years from October 2010); the balance becomes a debt owed by Government to STL.

The Settlement Agreement provides that if the settlement amount i s not paid after five

12. amounts f rom its sales tax payments to Government until the settlement debt is repaid.

This debt i s to be paid by Government within one year or if not then STL may deduct

13. If the Government were to accept that sales tax receipts from STL be used to settle the debt, and not seek the residual from license fees beyond 2014, the Commission’s development project i s viable under the terms o f the proposed IDNPRIF-funded Project.

Renegotiation o f the Monopoly

14. the ending o f the STL monopoly have a major impact on the finances o f the Commission. In summary, the financial terms provide that:

The terms o f the Settlement Agreement between the Government and STL that pertain to

.

. 15.

.

Government will pay to STL a settlement amount part o f which is to be paid upon commencement o f operations o f the new entrant or by October 1 , 20 10 whichever i s the sooner, and Government will also pay to STL a CSO compensation amount which has been computed by i t s advisors. However, if this amount differs by more than SBD 300,000 from the STL calculated amount, the difference is to be reflected in the settlement amount.

These two provisions result in the fol lowing payments to be made to STL: A settlement payment of: SBD 85,580,000

A CSO payment of: SBD 22,620,159

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16. The Settlement Agreement provides that the settlement amount i s paid by: a payment o f SBD 24,000,000 upon start o f operations by the new entrant or October 201 0 whichever i s earlier, and for the five years from the new entrant launch date, all telecommunications service license levy revenues, spectrum licenses and any UA levies will be paid into a compensation special fund from which fund there will be transfers:

.

. o after the launch o f the new entrant, to the Commission Special Fund to cover the

operating costs o f the Commission, and o the balance progressively released to STL to address the residual o f the above

settlement amount (and presumably any shortfall in other sources o f funding to cover the CSO amount)

17. the end o f the five years becomes a debt to STL payable by Government to STL within one year and if not then paid becomes a debt that i s offset against STL sales tax obligations. The implicit anticipation i s that the industry license fees wi l l be adequate to cover these payment commitments.

The Settlement Agreement provides that any underpayment o f the settlement amount at

18. . .

19. . .

The Settlement Agreement also provides that: neither STL nor the new entrant will be required to pay for spectrum that i s part o f their initial licenses.

There will be no UA l e v y for five years from the launch o f the new entrant date (i.e., UA levies will commence in 20 15).

The funding plan for the settlement and CSO amounts i s as follows: The Government has requested that the CSO amount (SBD 22,620,159) be funded from the Pacific Region Infrastructure Facility (PRIF) through a recipient-executed grant. O f this amount, $1.5 mill ion (approximately SBD 13 million) has been approved by PRIF, and a second application wi l l be made in the second half o f 20 10.

The settlement amount (SBD 85,580,000) to be paid in three components:

o The SBD 24,000,000 payment (nominally upon new entrant commencement) to be funded from Government and a bilateral grant from Taiwan, China;

o The return o f the 2009 STL license fees under the 2003 license (approximately SBD 8,000,000); and

o Repayment o f the balance (approximately SBD 53,800,000) from license fees collected over five years from 20 10 through 201 4.

Commission Cost Components . Costs for the Commission may be categorized as: establishment costs development costs, and recurrent/operating costs.

20. O f these costs: . The establishment costs, about AUD 600,000 (about $540,000 equivalent), w i l l include contributions from RAMS1 and AusAID until the Project becomes effective. . Development costs (consultants, goods, training) will be funded under the Project. .

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Recurrent/operating costs are expenses that the Commission will incur by virtue o f i t s day-to-day operations, and wi l l also be funded under the Project.

2 1. contracted Commissioner will choose, however an estimate o f these costs i s as follows:

The level o f the recurrent/operating expenses will depend on arrangements that the

Commissioner salary and expenses (from 201 0-20 14), being an internationally-recruited firm. Total estimated cost: $1,290,000 over five years.

Administrative staff for the Commission salaries (initially three, possibly up to seven) from 20 10-20 14: Total estimated cost: $720,000 over five years.

Commission administrative and services costs (all accommodation, administrative / utility costs, maintenance etc plus software licenses): Total estimated cost: $626,000 over five years.

22. An additional ongoing cost to the Commission will be a retainer amount to ensure timely availability o f mediators and relevant experts required for the Disputes Panel (section 104 o f the Act). This amounts to $100,000 over five years (US$20,000 per year). This amount will need to be covered by the Commission’s sources o f income beyond 201 0. The costs o f the actual presence o f these consultants if they are mobilized (charged under an agreed schedule set as part o f the retainer contract) would be charged to the parties to the dispute and hence not counted in this analysis.

Financial Viability

23. Financial viability i s determined by being able to cover from license fees:

The residual settlement amount (approximately SBD 53,800,000) over five years, and

Estimated total recurrent costs o f the Commission $2,635,000/5 = $527,000 per year (approximately SBD 4,084,250 per year) for year 201 5 and onwards.

This assumes that the estimated ongoing costs o f the costs o f the Commission for the 24. period 2010 through 2014 are met by the Project.

25. to redirect the license fees for 20 15 to cover any remaining settlement amount component and subject to surplus, contribute to the Commission on going costs. However the Settlement Agreement provides that Government may pay the residual separately or STL will be entitled to deduct the remaining amount owing by the Government from amounts STL owes to Government in relation to sales tax until the remaining amount i s paid out.

If the residual settlement amount i s not entirely paid out by 2014, Government may seek

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Revenues 26. In the longer term the revenues to support the ongoing costs o f the Commission are to be funded from sources set out in the legislation. In practical terms these sources will be dominated by license fee levies f rom telecommunications services licenses and use o f spectrum licenses.

Spectrum License Revenues

27. The Settlement Agreement provides that neither STL nor the new entrant will be liable for spectrum license fees for spectrum granted as part o f the initial license. Accordingly, the current spectrum license receipts that relate to non telecommunications usages o f spectrum i s a reasonable proxy for future such revenue. The quantum i s understood to be small and hence not material for the purposes o f this analysis.

Telecommunications Services License Revenues 28. Telecommunications services license revenues are determined by the total industry revenues and the level o f the levy-which the legislation has set to a maximum o f two percent o f revenues. (A supplementary levy may be applied but only for the purpose o f covering exceptional litigation expenses.)

29. legislation provides that there will be no new licensee entry for one year from the entry o f the second mobile operator, the industry income will be dominated by the sum o f incomes o f STL and the new entrant.

Total industry revenues comprise al l income streams from al l participants. As the

30. including:

Estimation o f future industry revenues may be done by several econometric approaches

benchmarking (against the experiences o f one or a group o f countries which had similar starting circumstances);

trend projection analysis (which anticipates that the patterns o f the past will continue into the future subject to adjustments to reflect environment changes;

Microeconomic analyses which link prospective future patterns to available funds o f the populace at any point in time; or

other methodologies that combine two or more o f the above.

3 1. Two modeling exercises have been undertaken. The f i rst i s a trend projection methodology while the second i s a benchmarking methodology. The trend projection model considers both mobile and fixed services revenue while the benchmarking methodology focuses o n mobile services only. Accordingly the benchmarking methodology requires some means o f treating with the revenues associated with nonmobile services components.

32. likelihood i s that only Internet services will attract new licensees because o f the l o w barriers to entry. These services in the Solomon Islands are presently high margin services and hence l ikely to attract competitor entry, the consequences o f which will prospectively be lowering o f prices and hence average revenue per user (AWU). The elasticity o f demand for such services will then determine if industry revenue from these services increases, is steady or decreases.

Nonmobile services are not open to competition initially and in the medium-term the

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33. Both modeling approaches are dependent on uptake rate o f mobile services and the mobile services ARPU. A recent development (July 2009) is the reduction o f STL mobile tar i f fs by 50 percent and reduction o f STL S I M card costs by 82 percent. The immediate effect has been a dramatic reduction in ARPU but the medium-term impact on ARPU is subject to the elasticity o f demand for mobile services and the extent to which this price reduction attracts new customers that would otherwise not have taken service.

T r e n d Projection M o d e l 34. This model uses the fol lowing input data:

Number o f mobile services and ARPU (from STL Annual Report data)

Number o f other services in aggregate and average ARPU for those services (from STL Annual Report data).

Estimate o f trend in ARPU for mobile services (ARPU ordinarily declines as penetration grows reflecting the init ial adopters being higher value while later adopters are lower spending customers).

Estimate o f the trajectory o f number o f users o f mobile services and separately al l other services for later years (from a Pacific Islands Connectivity Study conducted for the World Bank in 2008.

35. Two sets o f results o f that model are set out in the tables overleaf. The first (1 -- Trend Projection Model Results (Using Scenario 1 aggressive estimates o f mobiles growth) indicate that the license fee revenues over the period 2010 through 2014 will be SBD 49.04 mi l l ion (approximately $6.2 million).

. . 1

.

36. 2 Estimates o f Mobi le Growth) uses data f rom the Pacific Regional Connectivity study undertaken by the World Bank to estimate the likely increase in mobile telecommunications. The model with this data input estimated that the license fee revenues over the period 20 10 through 2014 will be SBD 45.91 mi l l ion (approximately $5.81 million).

The second application o f this model (2- Trend Projection Model Results Using Scenario

Benchmarking Projection M o d e l 37. Mobiles Growth - Adjusted (Note 1) considered a number o f less developed countries that had recently adopted competitive supply o f mobile services and used growth data from those countries to "benchmark" a prospective growth trajectory for mobile services in the Solomon Islands. That growth trajectory i s then applied to a start point o f known Solomon Islands data about mobile services. With the start point and trajectory, future mobile service revenues for the country can be estimated.

The Scenario 1 model (three benchmarking model results (Scenario 1 Upper Estimates o f

38. revenues trajectory. This was adjusted to an estimate o f actual mobile services revenue as the start point for the mobile revenues and the same trajectory applied. Additionally, this model did not consider services other than mobile. To insert representative earnings for nonmobile services, the nonmobile component o f the trend projection model was imported. This enables an aggregate o f revenues that would be reasonably representative o f the whole telecommunications industry model o f the Solomon Islands, albeit with benchmarking applied only to the mobile services component. This model indicates that the total industry license fee revenues from 201 0 through 2014 will be SBD 49.98 mi l l ion (approximately $6.248 million).

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In its ini t ial form this model used total STL revenues as the start point for i t s mobile

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Annex 10: Safeguard Policy Issues SOLOMON ISLANDS: Telecommunications and ICT Development Project

1. hence i s not expected to cause any direct negative environmental or social impacts. No safeguard policies are triggered.

The Project i s classified as Category C. The Project will only finance soft activities and

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Annex 11: Project Preparation and Supervision

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Planned Actual PCN review 10/09/2008 Init ial PID to PIC 10/09/2008 Initial ISDS to PIC 10/09/2008 Appraisal 0 1/26/20 10 02/08/20 10 Negotiations 02/08/20 10 02/19/20 10 BoardRVP approval 03/25/2010 Planned date o f effectiveness 06/25/20 10 Planned date o f mid-term review 11/15/2012 Planned closing date 03/25/20 15

Key institutions responsible for preparation o f the Project: Ministry o f Finance & Treasury, Ministry o f Communications and Aviation.

Bank staff and consultants who worked on the Project include:

Name Title Unit Natasha Beschorner Senior ICT Policy Specialist (TTL) CITPO David Satola Senior Counsel LEGPS Andrea Ruiz-Esparza Senior Program Assistant CITPO Naomi Halewood Operations Analyst CITPO Doyle Gallegos Lead Telecommunications Specialist CITPO Marianne Grosclaude Peer Reviewer EASRE Katharina Gassner Peer Reviewer FEUSE Juan Navas-Sabater Peer Reviewer CITPO John Haydon Senior Regulatory Specialist (cons) CITPO Sheila Braka Musiime Senior Counsel LEGES Stephen Hartung Financial Management Specialist EAPFM Evelyn Villatoro Senior Procurement Specialist EAPPR Charles Feinstein Sustainable Development Leader EASNS Robert O’Leary Senior Finance Officer CTRFC Thao L e Nguyen Senior Finance Officer CTRFC

Bank funds expended to date on Project preparation: 1. Bank resources: $50,000 (FY09); $45,000 (FY 10) 2. Trust funds: Pacific Facility I11 $95,000, $83,000

Estimated Approval and Supervision costs: Remaining costs to approval: $15,000

3. Estimated annual supervision cost: $100,000

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Annex 12: Documents in the Project Fi le

SOLOMON ISLANDS: Telecommunications and ICT Development Project

1. Telecommunications Assessment, 2004

2. Mission aide-memoires, 2004-2010

3, Telecommunications Policy, June 2008

4. Telecommunications Act, 2009 (Gazetted)

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Annex 13: Statement of Loans and Credits

SOLOMON ISLANDS: Telecommunications and ICT Development Project

Difference between expected and actual

disbursements Original Amount in US$ Millions

ProjectID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. F rm Rev’d

P1003 11 2009 SB-Solomon Islands Sustainable Energy 0.00 4.00 0.00 0.00 0.00 4.07 0.00 0.00 PO89297 2008 SB-Rural Development Program 0.00 3.20 0.00 0.00 0.00 2.83 1.21 0.00 PO97671 2008 SB-Health Sector Support Project (TA) 0.00 1.50 0.00 0.00 0.00 1.64 0.39 0.00

Total: 0.00 8.70 0.00 0.00 0.00 8.54 1.60 0.00

SOLOMON ISLANDS STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f Dollars

Committed Disbursed

FY Approval Company

IFC IFC

Loan Equity Quasi Partic. Loan Equity Quasi Partic.

Total portfolio: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

FY Approval Company

Approvals Pending Commitment

Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

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Annex 14: Country at a Glance

SOLOMON ISLANDS: Telecommunications and ICT Development Project POVERTY and SOCIAL Solomon

Islands 2007 Population. m id-year (millions) 0.50 GNIpercapita(At1asmethod. US$) 730 GNi (Atlas method, US$ billions) 0.36

Average annual growth, 2001-07

Population (Yd 2.5 Laborforce (%) 3.0

M o s t recent estimate (latest year avallable, 2001-07)

Poverty (% o f population beio wnationalpo verfyiine)

Life emectancyat birth (pars) 63 55

Child malnutrition (%ofchlidren under5) Access to an improved water source (%ofpopulation) 70 Literacy (%ofpopulation age rSc)

01 M ale TI2 Female 98

Urban population (%of totalpopulation) B

Infant mortality (per f000iive births)

Gross primary enrollment (%of school-age population)

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1987 1997

GDP (US% billions) 0 . 6 0.39 Gross capital formation1GDP 34.0 Exports of goods and ServicesIGDP 52.8 59.9 Gross domestic SavingsIGDP 22.3 Gross national savingsIGDP 44.6

Current account balance1GDP -2.8 -5.6 Interest payments1GDP 13 0.3 Total debtlGDP 59.4 35.8 Total debt servicelexports 0.1 2.4 Present value of debtiGDP Present value of debtleports

1987-97 1997-07 2006 (average annualgrowth) GDP 6.1 0.0 6.0 GDP percapita 3.2 -2.5 3.5 Exports of goods and services

East A s h a LOW- Paclflc Income

1914 2,BO 4,774

0 8 12

43 71 24 0

87 91 10 Ill

0 9

2006

0 34

-26 5 0 4

517 2 3

39 0 70 9

1296 578 749

2.2 2.7

32 57 85 29 68 61 94

TI0 89

2007

0.37

-39.1

2007 2007-11

5.7 2.9 3.2 -0.3

IDevelopment diamond'

Life expectancy

I T

GNI A \ Gross

- Access to improvedwatersource

1 -Soiomonlsiands

I ~ Low-incomegroup

,Economic ratlos'

I Trade

I Indebtedness

~ -Solomon Islands ~ Low-incomegroup

STRUCTURE o f the ECONOMY

(%of GDP) Agnculture industry

Services

Household final consumption eqenditure General gov't final consumption expenditure Imports of goods andservices

M anufactunng

(average annualgrowth) Agriculture industry

services

Household final consumption emenditure General gov't final consumption emenditure Gross capital formation Imports of goods and services

M anufacturing

1987 1997

.. 37.4

.. 110

.. 5.0

.. 515

47.9 29.8 64.5 79.6

1987-97 1997-07

6.1 2.7 9.4 4.3 5.1 -5.6 7.0 -0.9

2006

35.1 9.0 3.7

55.9

2006

6.1 8.7 2.6 7.0

2007

34.8 9.3 3.6

55.9

2007

7.4 7.0 15

4.5

IGrowth o f capital and GDP (Oh) 1

I -GCF -GDP I

Note 2007 data are preliminaryestimates This tablewas producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators in thecountry(1n bo1d)compared withits income-groupaverage if data are missing,thediamondlnli

be incomplete

- 6 1 -

Solomon Islands

26 49 19 %

2 6 251 292 25 27 33

PRICES and GOVERNMENT F I N A N C E

D o m e s t i c p r i ces (%change)

Implicit GDP deflator 272 6 3 7 2 4 7

Governmen t f inance (%ofGDP includes current grants) 4 ;

Current revenue 222 349 372 02 03 04 os OB or Current budget balance -3 4 6 8 4 4 Overall surplus/deficit -43 4 2 0 5

Consumer pnces 110 8 1

-GDPdeflator -CPi

300

100

I)

T R A D E

(US$ millions) Totalexports (fob)

Fish Timber Manufactures

Totalimports (cif) Food Fuel and energy Capital goods

Export pnce index(2000=WO) Import pnce index(2000=WO) Terms of trade (2000=WO)

B A L A N C E o f P A Y M E N T S

(US$ millions) Exqorts of goods andservices Imports of goods andservices Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

O o 7 IExpor t and l m p o l t levels (US$ mlll.) I 64 775 146 ~400 T 18 83 85 0 8

.. 118 ~ 01 02 03 04 05 Og 07 I 0 Exports Inports .. It?

.. 0 4

1997 O o 7 Current accoun t ba lance t o GDP (Oh)

84 239 774 201 1 10

119 293 281 359 -35 -54 - 0 7 -158

O

-8 -8 38 40

-5 -22 -89 -144 -30

11 22 -6 0

M e m o : Reserves including gold (US$ millions) 37 36 0 4 lt? Conversion rate (DEC, local/uS$) 2.0 3.7 7.6 7.7

I

EXTERNAL DEBT and RESOURCE FLOWS

(US$ mrllrons) Total debt outstanding and disbursed 98 140 773

1987 1997 20062 007

IBRD 0 0 0 0 IDA 0 30 45 46

Total debt SENICE 9 6 4 IBRD 0 0 0 0 IDA 0 0 1 1

Compositionof net resourceflows Official grants 34 6 51 Official creditors 14 4 2 Pnvate creditors 0 - 4 1 Foreign direct investment (net Inflows) 0 34 19 Portfolio equity (net inflows) 0 0 0

iCo rnpos l t l on o f 2006 debt (US$ mill.) T I

D 68 World Bank program

Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

A-iBRD E - Bilateral B - IDA D - Other mitiiaterd F - Private

1 C-IMF G- Short-ter 1 -1 1 0 0 0 1 3 0

0 0 1 2 -1

0 0 0 0 1 2 -1 -1

Note:This tablewas producedfrom the Development Economics LDB database. 9/24/08

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W E S T E R N

M A K I R A

T E M O T U

M A L A I TA

CHOISEUL

ISABEL

GUADALCANAL

CENTRAL

RENNELL ANDBELLONA

Kundu

Sasamungga

Seghe

Kia

TatambaHapaiDaringali

Tarapaina

Heuru

Apaora

Mwaniwowo

Paruru

Tinggoa

Tutumu

Noka

Vana

Su'uMaravova

Dadale

Avu Avu

Luti

Sosolo

Tulagi

Buala

Kirakira

Lata

Auki

Tigoa

Taro Island

Gizo

HONIARA

PAPUANEW GUINEA

VANUATU

SOUTH PACIFICOCEAN

Coral Sea

Solomon

Sea

N e w G e o r g i a S o u n d

Choiseul

Santa Isabel

Malaita

Ontong Java Atoll

IndespensableReefs

Roncador Reef

San Cristobal

Rennell

Nendo

Santa Cruz IslandsUtupua

Reef Is.

Duff Is.

Tinakula

Fatutaka

Tikopia

AnutaVanikolo

Bellona

Guadalcanal

Shortland Is.

Vella Lavella

Kolombangara

New Georgia

New GeorgiaGroup

Ranongga

Rendova

Tetepare

San Jorge

Russell Is.Florida Is.

Vangunu

Nggatokae

Vaghena

Ulawa

Dai

Maramasike

Mono

Mt. Makarakomburu(2,447 m)

156°E 158°E

156°E 158°E

160°E 162°E 164°E 166°E 168°E 170°E

164°E 166°E 168°E 170°E

6°S

8°S

10°S

12°S

14°S14°S

10°S

8°S

6°S

SOLOMONISLANDS

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100

0 50 100 150 Miles

150 Kilometers

IBRD 33482

MA

RCH

2005

SOLOMONISLANDS

SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

MAIN ROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES