PPIAF Assistance in the Kingdom of Bhutan

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1 PPIAF Assistance in the Kingdom of Bhutan October 2012 The Kingdom of Bhutan (Bhutan) is a small, mountainous, landlocked country in South Asia, located in the eastern Himalayas and bordered by India and China. According to the last census in 2005, its population is approximately 696,000, spread over an area of 38,394 square km roughly the size of Switzerland. While steadily decreasing overall, poverty in Bhutan is concentrated in isolated rural areas where two-thirds of the population lives. Given the difficult geographical terrain, these areas have limited income opportunities and a high cost of service delivery. Given this, telecommunications is a key element for poverty reduction. The Royal Government of Bhutan recognized that the private sector should play an important role in telecommunications and requested PPIAF s technical assistance for the first time in Technical Assistance for Bhutan s Telecommunications Sector In March 2001 the Government requested PPIAF s assistance to prepare a revised National Telecommunications Policy in the context of Bhutan s strategy to introduce private entry and competition in the sector. The National Telecommunications Policy prepared in 1997, and followed by the Bhutan Telecommunications Act in 1999, had set the institutional and legal framework to issue licenses to stateowned Bhutan Telecom Corporation to provide fixed, mobile, and Internet services. However, during the formulation of the 1997 and 1999 policies, the Government had not foreseen private participation or competition in the telecommunications sector. PPIAF was therefore asked to provide assistance to reflect this change in strategy towards private participation and to make progress on an appropriate regulatory framework. The specific objectives of the technical assistance were: Formulate an appropriate National Telecommunications Policy to promote the development of the sector to ensure that Bhutan reaps the benefits of the information revolution through private entry and competition Operationalize the newly established Bhutan Telecommunications Authority to effectively carry out its regulatory functions as mandated by the Bhutan Telecommunications Act of 1999 Build the capacities of the Policy and Planning Division of the Ministry of Communications and the Bhutan Telecommunications Authority to effectively carry out their policy and regulatory functions The PPIAF-funded technical assistance provided the following recommendations: Structural policy options and an in-depth analysis of the various industry structures: i) one new nation-wide cellular operator should be licensed; ii) up to three regional fixed network operators should be licensed; iii) cost-based interconnect terms should be introduced, which will produce revenue to justify investment in rural and remote lines; and iv) foreign investment and foreign partners should be allowed to enter the market. Gradual tariff rebalancing should be implemented to narrow the price differentials between local, long-distance, and international calls, whilst assuring that basic service remains affordable. A price cap regime was recommended for leased lines, fixed, and mobile without a price floor, thus leaving mobile operator(s) free to offer homezone tariffs. The interconnection regime should i) permit direct interconnection between any pair of networks operating in Bhutan; and ii) be based on costs, including the provision of higher rates in rural areas. The activity also helped draft interconnection guidelines, a model interconnection agreement, and telecommunications licenses (mobile and regional fixed network), and assisted the Bhutan Telecommunications Authority in prioritizing its regulatory agenda with a focus on licensing, interconnection, universal access, quality, and competition safeguards. Detailed recommendations were also made on the organization structure of the Bhutan Telecommunications Authority, job descriptions for key staff, and the funding of the authority. An awareness and capacity building workshop on 1

2 telecommunications competition and regulation was undertaken in 2002 in Thimphu, Bhutan. A second workshop was held in 2002 to discuss the outputs of the PPIAF-funded activity on the organizational plan, regulatory agenda, business plan, and training plan for the Bhutan Telecommunications Authority. Through its recommendations, PPIAF s technical assistance contributed to strengthening the policy, regulatory, and institutional environment of the Bhutanese telecommunications sector. The Government of Bhutan adopted recommendations from the PPIAF-funded report to liberalize the telecommunications sector including the introduction of a second mobile operator, liberalization of the Internet market, and commercial utilization of existing government-owned assets. This resulted in the award of the first private mobile license to Tashi Infocom (a local private sector company) in November 2006, the development of mobile telecommunications services by state-owned Bhutan Telecom, and the issuance of several licenses for private Internet service providers in In 2007 the Government of Bhutan requested follow-up PPIAF technical assistance. The lack of affordable broadband was impacting the performance and competitiveness of small and medium enterprises in Bhutan, and was a major handicap to attracting potential investors into call centers and IT enabled service businesses. Therefore the Government of Bhutan requested PPIAF assistance to evaluate options for improving the provision of backbone telecommunications infrastructure so as to improve the availability of telecommunications services including broadband and value-added services at affordable prices. PPIAF funded a study Enabling Access to Fairly Priced Backbone Capacity in Bhutan that provided: An assessment of the policy, regulatory, and institutional framework, as well as of the performance of operators in the sector in terms of infrastructure rollout, services, and competitive pricing Strategic options for the cost-effective provision of broadband and value-added telecommunications services in Bhutan, particularly those involving private sector participation A short- and medium-term roadmap for improving backbone infrastructure, broadband, and valueadded services Recommendations on the conclusion of agreements with international long-distance service providers in neighboring countries such as India PPIAF s work contributed to the issuance of a tariff order for domestic and international bandwidth by the Bhutan Information, Communications and Media Authority (BICMA) on June 15, In addition, PPIAF work facilitated the negotiation of affordable rates for international connectivity with international long distance operators by the Ministry of Information and Communications and BICMA and lead to an increase of the number of competing operators from one to three. The introduction of competition, by increasing the number of operators, resulted in competitive rates for international connectivity with international long distance operators. These led to the expansion of mobile coverage to about 70% of the population 490,000 people. Furthermore, the lease line tariff was reduced by 30 40% and teledensity increased from 2.5% in 2001 to 66% in These developments helped generate positive economic and social impacts for Bhutan by making telecommunications access more affordable and extending it across an expanded geographical area. This has allowed an increase in the use of information and communications technology in the country and resulted in reduced costs of doing business. In 2011 the Government of Bhutan requested PPIAF assistance to guide the development of Bhutan's telecommunications sector on the introduction of competition, divestment by existing operators, and government transformation agenda to use the telecommunications sector for cost-effective service delivery. This included preparing the Bhutan Telecommunications Sector Policy and Strategic Roadmap. The PPIAF activity was divided into three components: An analytical and quantitative analysis of the Bhutan telecommunications sector in the context of regional and international trends 2

3 A policy and qualitative assessment of the institutional, legal, and regulatory framework in Bhutan so as to make the appropriate recommendations for those policy elements based on policy principles and international best practice Proposed legal texts to be adopted by the Royal Government of Bhutan/Ministry of Information and Communications to give legal and operational effect to the policy recommendations included in the second component In regard to the mobile market, PPIAF funded technical assistance to introduce a third mobile operator through a competitive tender process by April 1, The objective would be to have the third mobile operator go live and provide service commercially starting January 1, With a view to expanding the size and coverage of Internet Protocol-provided telecommunications services, the PPIAF-funded reports recommended that the Government: i) amend current Internet Service Provider licences to remove the current provision that prohibits Internet Service Providers from providing national voice over Internet Protocol services, or pursue an equivalent approach that facilitates the expansion and coverage of fixed voice services in Bhutan, including via voice over Internet Protocol, to the greatest extent practicable; and ii) to undertake a review of the Internet Service Provider licensing regime to facilitate the entry into the Internet Service Provider market of alternative operators, or such other equivalent approach that facilitates the expansion and coverage of Internet Service Provider services in Bhutan to the greatest extent practicable. The PPIAF-funded technical assistance also recommended that the Universal Service Fund and licencebased mobile coverage obligations regime be based on the following principles: i) the only Universal Service Fund contribution mechanisms should be the Universal Service Levy based on 1% of operator annual gross revenues; ii) on a going forward basis, future coverage obligations for existing mobile operators should be eliminated where there is already mobile coverage; iii) operator-specific Universal Service Fund disbursements may be larger than contributions; the iv) the third mobile operator shall pay the Universal Service Levy and have coverage obligations. Workshops were organized on December 16, 2011 and March 9, 2012 in Thimpu, Bhutan to present the findings of the PPIAF-funded technical assistance to ministries and stakeholders. Results of PPIAF s Activity in Bhutan s Telecommunications Sector Analyses/assessments prepared Outputs Recommendations on telecommunications industry structure in light of private sector participation, on interconnections and tariffs regimes, 2002 Report Enabling Access to Fairly Priced Backbone Capacity in Bhutan assessing the options for improving the provision of backbone infrastructure, 2008 Bhutan Telecommunications Policy: Sectoral Analysis Report, March 30, 2012 Plans/strategies prepared Policies prepared or legal or regulatory changes recommended Project cycle-related assistance Bhutan Telecommunications Policy: Recommendations Report, March 30, 2012 Bhutan Telecommunications Policy: Policy and Directives Report, March 30,

4 Transaction support Draft mobile license and Internet licenses, 2002 Capacity and awareness building Workshops/seminars Two workshops in Thimphu on the introduction of competition, regulatory reform, and private sector participation in telecommunications, 2002 Workshops in Thimpu, Bhutan to present the findings of the PPIAF-funded technical assistance to ministries and stakeholders, December 16, 2011 and March 9, 2012 Policies adopted, legislation passed/amended, or regulation issued/revised Institutions created or strengthened Project cycle-related assistance Transactions facilitated Increased number of people with infrastructure services Outcomes Issuance of a tariff order for domestic and international bandwidth by the BICMA based on the recommendations of the report Enabling Access to Fairly Priced Backbone Capacity in Bhutan, June 15, 2009 Policy, regulatory, and institutional environment of the Bhutanese telecommunications sector strengthened, 2002 Negotiation of affordable rates for international connectivity facilitated with international long-distance operators by the Ministry of Information and Communications and BICMA, 2009 Award of the first private mobile license to Tashi Infocom, November 2006 Issuance of several licenses for private Internet service providers, 2002 Impacts Mobile coverage was expanded to about 70% of the population 490,000 people, 2010 Teledensity increased from 2.5% in 2001 to 66% in 2012 Improved level of services Lease line tariff reduced by 30 40% Technical Assistance for Bhutan s Enabling Environment for Public-Private Partnerships Recognizing the need to leverage private investments in order to develop strategic infrastructure in Bhutan, the Ministry of Economic Affairs prepared a Framework for Private Participation in Infrastructure in April In order to achieve its goal of expanding its public-private partnership (PPP) agenda, the Government requested PPIAF support in June 2011 to strengthen its PPP capacity and to help it formulate the PPP policy. PPIAF assistance consisted of: i) developing a finalized PPP policy in Bhutan; ii) developing a finalized PPP institutional framework; and iii) knowledge sharing and capacity building through rounds of consultations held from September 2011 to April More specifically PPIAF supported the Government in drafting the PPP policy by hiring a PPP expert and a legal expert to provide technical and regulatory inputs. Key features of the drafted policy emphasized the following points: 4

5 Provides a comprehensive over-arching framework for PPPs and states its goals and objectives Provides clarity on how the Government envisions PPPs and what its sector focus is Clarifies the Government s functions, the institutional structure for implementation, and the process to follow Emphasizes that projects follow a robust structuring process (addressing social and environmental issues; as well as Gross National Happiness principles) and a fair and competitive procurement process Guides on how the contracts would be managed once signed, and how amendments to these contracts could be made Explains what Financial Assistance would be available Encourages safeguarding public interest and consumer rights Provides for a process for dealing with Unsolicited Proposals The institutional framework document developed various options for locating a PPP capability within the Royal Government of Bhutan based on international good practices. Pros and cons of the establishment and location of the PPP Agency were discussed extensively with the Government. The preferred option during consultations and presented at the Cabinet was the establishment of an autonomous agency under the Ministry of Economic Affairs, as this would create the arm s length distance required to function impartially, possibly more so than creating a directorate in the Ministry. On the knowledge sharing and capacity building front, PPIAF assistance included three workshops held from September 2011 to April 2012 with key public sector stakeholders including the Ministry of Economic Affairs, Ministry of Finance, Cross National Happiness Commission, other line ministries, and public sector entities. Results of PPIAF s Activity for Bhutan s PPP Enabling Environment Outputs Plans/strategies prepared Proposed Institutional Framework for PPPs, April 2012 Policies prepared or legal or regulatory changes recommended Capacity and awareness building Workshops/seminars PPP Policy, April 2012 Three workshops held from September 2011 to April 2012 with key public sector stakeholders Looking Ahead: Moving the PPP Agenda in Bhutan Forward PPIAF is currently supporting a pre-feasibility assessment of several identified infrastructure projects under a PPP model. In addition, PPIAF is considering a second phase of support for Bhutan s enabling environment, which would include: draft PPP rules and regulations for operationalizing the PPP Policy Framework; a feasibility study and piloting of one potential PPP project; and training and capacity building for institutional development in PPPs. 5