PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE. Central African Backbone - APL2

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Sector Project ID Borrower(s) Implementing Agency PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Central African Backbone - APL2 Report No.: AB5852 AFRICA Telecommunications (60%);General information and communications sector (20%);General industry and trade sector (20%) P GOVERNMENT OF STP Ministry of Planning and Finance. [to be confirmed] Agência Fiduciária de Administração de Projecto (PASS, Fast Track Initiative) Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 22, 2010 Date of Appraisal November 2010 Authorization Date of Board Approval January 20, Country and Sector Background São Tomé and Príncipe is Africa s smallest economy and one of the poorest countries in the world. The per capita income of US$424 places the country below the average for Sub-Saharan Africa. While economic performance improved and the real GDP growth increased to an average 5 percent over the period from 2.0 percent in , approximately 54 percent of its population of 166,000 is poor and 15 percent live in extreme poverty. The country ranks 131 out of 182 countries in the 2009 UNDP Human Development Index. Life expectancy is 67 years and adult literacy rate is estimated at 83 percent. The small archipelago has consolidated democracy since 1990 but is still characterized by frequent turnover of governments. The last legislative elections took place in August 2010 and there has been a change in government. ICT sector situation in STP. There is currently only one operator for all services: CST (Companhia São Tomense de Telecomunicações 1 ). Fixed line teledensity is currently ~5% and mobile penetration stands at ~62%, with mobile coverage reaching around 70% of the population and less than 30% of the territory. Internet penetration was about 0.7% in Prices for voice and internet services are above average in the region. The Government of São Tomé e Príncipe (GoSTP) has attempted to introduce competition in the mobile segment in 2007, but has not been successful. 1 CST is owned 51% by Portugal Telecom and 49% by the state.

2 2. Objectives The development objective of the proposed project is consistent with the PDO for the CAB Program: To contribute to increase geographical reach and usage of regional broadband network services and reduce their prices. 3. Rationale for Bank Involvement 1. Poor access to international telecommunications capacity, over-dependence on costly satellite technologies and absence of competitive access to capacity via submarine cables are important constraints limiting opportunities for growth and development in West and Central Africa. STP is among a handful of countries in the region which is not connected to the global network of broadband optical fiber infrastructure. Small states in the region are often bypassed by submarine cable consortia, because their markets are not attractive enough. 2. STP finds it difficult to attract the attention of international cable investors. Being dependent on satellite communications with average satellite prices between US$4,000-5,000/Mbps/month STP is ill-placed to compete in the global economy. Countries connected to submarine cables can access international capacity at much lower prices: approximately $500/Mbps/month in East Africa, $100 in Morocco and Australia and $10 in Europe. High connectivity prices translate in some of the highest prices in the world for international calls and Internet costs - even compared to other countries in the region. The lack of access to low price and high quality telecommunications services is a factor that limits the potential of these countries to create jobs, expand production of goods and services, and trade competitively with the rest of the world. 3. The Africa Coast to Europe project (ACE). For purposes of international connectivity along the coast of West Africa and with the rest of the world, the most attractive and efficient viable option for these countries is to connect to ACE, which is anticipated to be an approximately 17,000 km submarine cable system. ACE is expected to connect South Africa to Europe, potentially connecting up to 23 countries, either directly for coastal countries or indirectly through terrestrial links for landlocked countries Mali and Niger. As a result of the proposed project, ACE will include a landing station in STP. There are no other opportunities for STP to connect to another submarine cable for many years to come. Analysis has confirmed that the other submarine cable projects or satellite projects under preparation in the region are not viable options for STP 2. Other countries have also mobilized World Bank financing to join ACE, including Liberia and Sierra Leone. Finally, Project Preparation Advances (PPA) have been mobilized for STP to cover project preparation activities and initial payment to join ACE consortium. 2 A comparative analysis of various connectivity options and its respective costs was performed in mid-2010 by an independent consultant. See document on project file.

3 4. Description 4. The main Project components correspond to a total investment cost estimated at $26.8 million of which $ 14.9 million are to be financed by the Bank, with the remaining funds coming from the private sector. These components will consist of: Component 1 Enabling environment ($1.1million IDA financing): technical assistance for legal and regulatory reform, to develop PPP arrangements for the infrastructure to be developed and to launch a second mobile operator, environmental studies and M&E support; Component 2 Connectivity ($13.3 million IDA financing, with additional $11.9 million financed by the private sector): Financing for STP s contribution for participating in the ACE cable on an open access basis and on the basis of PPPs, leveraging private sector investment and associated investments such as the setup of an IXP; Component 3 Project Management ($0.5million IDA financing) This component will consist of support to finance management related issues at the Project level, such as human resources support with management, procurement, financial management, M&E, internal and external audit, and communications expertise, operating expenses and equipments. While the CAB Program includes the possibility of egovernment related components, given the scarce IDA resources, the Bank and Government team have decided that the project focuses on connectivity elements only, which are a priority. 5. Financing Source: ($m.) BORROWER/RECIPIENT 0 International Development Association (IDA) 0 IDA Grant 14.9 Co-financing 11.9 Total Implementation The proposed project is a technically simple project to be implemented by an existing project implementation team, which is successfully implementing other Bank projects. The implementation of CITSTP will be lead by the Ministry of Planning and Finance. The Education for All - Fast Track Initiative Project Implementation Unit (established within the Ministry of Finance and Planning and also responsible for the implementation of the World Bank financed Social Sector Support Project in Democratic Republic of São Tomé e Príncipe (Credit No STP and Grant No. H088 STP) also known as PASS), will be responsible for project coordination and implementation, including all fiduciary tasks such as Procurement, Financial Management, M&E, Communications and Environmental Support. Staff will be complemented

4 and adequate incentives will be put in place as needed to be able to handle the additional workload generated by CITSTP. AGER is the multisector regulator and will be responsible for providing the technical inputs for the project. A project Steering Committee will be in charge of overall operative guidance and direction during implementation, have fiduciary and governance oversight. It will be chaired by the Minister of Planning and Finance and consist of high level authorities from public and private sector institutions. Results Monitoring and Evaluation: AGER/CST will be responsible for data collection. 7. Sustainability Sustainability of the proposed project is determined by (i) the commitment of the government in implementing the project: The GoSTP is highly committed to the project, as it sees participation in ACE as a unique opportunity to be connected to the global communication network for the next few years. The government is also committed to implement key sector reforms namely the introduction of competition through the second mobile operator (fully aligned with the activities to be developed under the project)and the open access of the submarine networks to be established (key aspects included in the SPV legal documentation), (ii) the private sector participation to finance its share of the investments: analysis shows that the investment in ACE is sustainable and represents the best option for STP for connecting to the global communications networks; by project approval the commitment of the private sector to finance will have been established through appropriate legal and binding agreements. 8. Lessons Learned from Past Operations in the Country/Sector The project incorporates lessons learned and builds upon experiences from various projects that have taken place within the region. Government commitment and ownership of the project. The team recognizes the importance of client ownership for an efficient implementation of project activities. The project design reflects the intent, interest and priorities of the beneficiaries and stakeholders, which ensures ownership of the project and particularly the reform process. The Government of STP has confirmed its strong interest in participating in the CAB program. In particular, Government of STP has specifically requested Bank support for (i) the structuring and potential financial contribution to be channeled to submarine cable connection that would connect STP to the global networks, and (ii) the tendering of a second mobile license. The arrangements are being structured so that part of the proceeds of the second mobile license can be reinvested in activities linked to the project. Technical assistance needed to support implementation of project activities. Given the low capacity of the institutions involved in project implementation, the project provides financing for extensive technical assistance to allow for detailed design of the PPP agreements and other technical activities under the project. The technical assistance will also provide support for the

5 formulation of the bidding documentation, where needed related to the various project components. Build on available expertise for project implementation arrangements. Given the limited availability and short supply of qualified staff for project management, procurement and FM, and following the discussions during a recent CPPR, the team is proposing to use an existing Project Implementation Unit (PIU) for managing project and fiduciary aspects of the project. The team would be adequately complemented and adequate incentives would be provided to enable the existing team to take on coordination for an additional project. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Indigenous Peoples (OP/BP 4.10) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X] Projects in Disputed Areas (OP/BP 7.60) * [ ] [X] 10. List of Factual Technical Documents 1. Project Concept Note 2. Minutes of Project Concept Note Review Meeting 3. PID PCN Stage 4. ISDS PCN Stage 5. PPA packages (2) 6. Waiver memo for the second PPA package 7. QER Package July 26, Minutes of QER Meeting 9. ISDS Appraisal Stage November 2010 (Sent to Infoshop) * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

6 11. Contact point Isabel Neto Senior ICT Policy Specialist Maputo, Mozambique Tel: Cell no: For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: