75906 May 2012 PPIAF Assistance in Vietnam Vietnam, a country of about 87 million people, sustained average growth rates of over 7% between 1994 and 2008. This growth, driven by trade and the private sector, has cut poverty from 58% of households to around 15%. Despite substantial investment in all forms of infrastructure, a substantial service gap remains. Sustaining the future pro-poor quality of growth will become increasingly difficult if these gaps are not meet. More recent estimates show that growth rates have been slower, and as Vietnam moves towards middle-income status, the supply of substantial grant and concessionary aid to finance infrastructure is expected to decrease. Realizing these trends, the need to diversify financing and make greater use of the private sector through public-private partnerships (PPPs) to build and deliver much needed infrastructure has become important to Vietnam’s development and poverty reduction strategy. Overall trends in private infrastructure investment however show only modest results for Vietnam, although energy—in particular electricity generation—has seen significant levels of private sector participation. For the c ountry’s large future infrastructure needs, the correct enabling environment needs to be in place and perceived as working if the necessary private sector funding is to be achieved and sustained. Technical Assistance for Vietnam’s Water Sector Vietnam faces major challenges in a number of areas, particularly in finding ways to serve the growing demand from rapidly transitioning rural areas in densely populated provinces. The provinces in or near the Red River and Mekong deltas, within the orbit of the two major cities of Hanoi and Ho Chi Minh City, are prime examples. These areas increasingly demand piped water systems that can be most effectively managed by larger scale agencies or enterprises. At the same time, there is a need to reflect the voice and choice of users—not only in selection of service levels, but also in how schemes are operated and maintained. New rural water supply and sanitation ownership and management models have emerged, the most significant of which seems to be Provincial-level Rural Water Supply and Sanitation Enterprises (RWSSEs), joint stock companies with both water user and provincial government shareholding. The RWSSEs are envisaged as being co-owned by the Provincial People’s Committee (PPC) and the water users, represented by commune-level cooperatives or by other commune-level organizations. These RWSSEs will manage rural piped systems throughout a Province, through contracting with local small and medium enterprises or cooperatives. Contract planning, design, construction, and supervision services will also be through the local private sector. As they develop, the RWSSEs will also be tasked by the PPC to manage the coordination of initiatives to support household-level water and sanitation services, to ensure inclusiveness of the poor, and to commission hygiene and sanitation behavior and capacity building initiatives. At the request of the government, PPIAF provided grant funding in 2005 to help develop a charter, legal framework, and business plan template to support the establishment of RWSSEs. A national level training was delivered on June 28, 2006 where representatives from provinces and central agencies participated. Also, dissemination workshops were held in all four Red River Delta rural water supply and sanitation project provinces. RWSSEs were subsequently established in 2008 in four project provinces in the Red River Delta Region: Nam Dinh, Ninh Binh, Hai Duong, and Thai Binh. The World Bank’s Red River Delta Rural Water Supply and Sanitation Project is currently helping build the capacity of these enterprises in service delivery. Access to water services also poses a challenge in district towns. Only some 200 district towns in Vietnam have piped water supplies, and even those can have limited coverage. To address this shortfall the government has embarked on an ambitious program to use innovative methods to expand services in district towns. As a response to the government’s request, PPIAF provided a $406,000 technical assistance grant in 2005 to pilot a new way of providing water to two district towns and their surrounding communities: Lim Town, with a total population of approximately 12,500, and Minh Duc Town, with a total population of 11,700. The required services were bundled into a single contract —a design, build, and lease (DBL) contract—and PPIAF support enabled each community, along with its local authority and provincial water company, to take part in designing and implementing the scheme, including the 1 unfamiliar tasks of preparing the projects for bidding, evaluating bids, and awarding the contracts. While this is a new concept for Vietnam, this kind of demand-based approach had already been used in the Philippines, and the experience there showed that the private sector could meet the water needs of underserved communities through arrangements such as competitively bid DBL contracts. This approach provided an initial model for engaging with the private sector on the Vietnam pilot programs, with modifications to fit that country’s characteristics. Under the piloted approach, a competitively selected contractor carried out the detailed design work on the water supply system, constructed the system, and then operated it for a specified lease period (10 years for each town) before reverting it to the provincial water company as the nominated project owner. The contractor then paid a lease fee to this provincial water company. Both contracts were awarded to local private operators in January 2006. Soon thereafter construction commenced, and water delivery to customers began in early 2007. The construction of the water supply project for Lim Town was financed by a grant from the Swiss Agency for Development and Cooperation, and that for Minh Duc Town by a grant from Finland’s Ministry of Foreign Affairs. The DBL pilot projects demonstrated the willingness and ability of the local private sector to participate in contract bidding and confirmed the local market’s appetite for such opportunities. Clinics, schools, and other public services have also visibly benefited. In both towns the consumer take-up of piped connections has been faster than originally envisaged, and individual household consumption has increased. Viable tariffs have been established, and both private sector operators are already interested in expansion, either through direct investment or bidding for more DBL contracts. Lim Town quickly saw the number of connected households grow from 1,792 to 2,336, and a further increase to 2,500 is expected. Fourteen local full-time and six part-time jobs have been created. Minh Duc Town is showing similar results, with the initial 1,350 connected households quickly growing to 2,000, and a further expansion to around 3,000 likely over the next few years. A comparable number of new local jobs has also been created. Both operators report that women are driving the increased consumption of water for household uses, and that clinics, schools, and other public services have also visibly benefited from gaining access to running water. To further stimulate PPPs in district towns, the government requested another PPIAF grant in 2007 to help pilot an innovative PPP approach in Binh Dinh Province wherein design-build contracts would be used for the water system, followed by the contracting out of operations to the local private sector for a period of 5–10 years. The activity supported the development of a contract packaging strategy and customized standard bid documents to the requirements of the Province, and assisted the provincial water company in the contracting process. During the implementation, the pilot project encountered difficulties in attracting private sector interest to bid for a design-build contract. In light of this, an operations contract was drafted to allow for the creation of a new business unit in the water company to operate the systems under contract to the company. This is envisaged to lead to the new business unit being "spun off" in the future to formally operate the system as a commercial entity. In urban areas, provincial water supply companies provide piped water supplies to around 50% of the urban population. Many are reasonably well-run but are constrained by a lack of access to adequate investment funds, leading to the overreliance on public sector funding. The government recognizes the need to develop the sector on a sustainable basis, and to mobilize a wider range of resources, including the private sector. To attain this objective, the government decided to set out a new policy for the urban water sector in the form of an urban water decree. In response to the government’s request, PPIAF provided grant funding in 2005 to draft a decree in urban water supply to help delineate to the government and other stakeholders the institutional and legal issues to be taken into account for the implementation of the full range of PPP options in that sector, from build-operate-transfer (BOT) contracts or concessions to service contracts. The draft decree developed with PPIAF support was subsequently adopted in July 11, 2007 (Decree 117/2007) and envisaged to facilitate the role of the private sector in the delivery of water supply in urban areas by providing legal and institutional bases for water supply contracts with water providers. 2 Non-revenue water (NRW) is a major issue for many water utilities in developing nations such as 3 Vietnam. It is estimated that developing countries face daily losses of around 45 million m in their water 3 systems, enough to serve several hundred million people. Around 30 million m is delivered daily to customers but not invoiced due to corruption, pilferage, poor metering, etc. High NRW levels (average 35%) significantly affect the financial viability of utilities. In 2005 PPIAF supported a review of existing international practices to reduce NRW though performance-based contracts with the private sector; this review was subsequently published as a Water Supply and Sanitation Sector Board Discussion Paper in December 2006. The main findings of the report were then applied in developing a performance-based contracting arrangement to help address the NRW problem of the Saigon Water Company (SAWACO), the local water utility of Ho Chi Minh City. A workshop was held in Ho Chi Minh City in July 14, 2005 to present the lessons of international experiences for the design of performance-based PPP contracts for NRW reduction, and discuss how these could be taken into consideration for the design of the SAWACO contract. The World Bank Institute helped develop modules for the workshop. Ho Chi Minh City and the Finnish Government complemented PPIAF’s support by funding a consultant to prepare a feasibility study for reducing NRW. The innovative performance-based contract was subsequently adopted, and SAWACO launched a competitive tender for this type of contract for one of its zones. The overall project design was to contract out all NRW reduction works (as performance-based contracts) for one of SAWACO’s service areas 1 (Zone 1) to the private sector while undertaking a traditional contracting for another area (Zone 2) . Given this performance-based contracting was the first of its kind in the country, SAWACO again sought PPIAF’s assistance in 2008 to undertake the PPP process, specifically in building SAWACO’s capacity in evaluating the bids from the prequalified bidders and how to prepare for overseeing the performance- based contract, pending the mobilization of an international consultant who will provide ongoing implementation support. Since contracting was done through a competitive selection, according to World Bank procurement rules (performance-based NRW reduction contracts were often negotiated contracts in the past), the PPIAF activity also documented the feedback received from some of the involved parties in relation to the bidding process, bidding documents, contract documents and lessons learned. As a result of the activity, a five-year performance-based NRW contract was awarded in July 2008 to Philippine- based Manila Water Company, Inc. (MWCI), which teamed up with Vietnam-based Construction Technology Development JS Co to win the $15 million contract to increase the efficiency of the water system and establish around 100 district monitoring areas to manage leakage and system expansion works in Ho Chi Minh City. To date, MWCI has set up 29 operational district monitoring areas out of the 3 expected 95 under the contract, and reduced the volume of NRW to 39,300 m /day, surpassing the end- 3 contract target of 37,500 m /day by 2013. These translated to 64.1 billion Vietnam Dong (about US$3.2 million) in additional income for SAWACO, and—with the water saved—SAWACO was able to cater to an additional 200,000 new customers. The average NRW water for Zone 1 has gone down from 60% in 2008 to 41% as of October 7, 2011. In Zone 2, all contractors and suppliers were procured, but the construction of district monitoring areas has just started, and thus NRW reduction activities have yet to start. The Ho Chi Minh City intervention on NRW reduction has been replicated in Hanoi, Vietnam’s capital. Faced by a major shortfall in water supply, Hanoi recognizes the need to improve the management of its water distribution network —particularly reducing physical loses, which are as high as 70% of total water loses—to obtain maximum performance from the existing assets and maximize the amounts of water available to meet current and future demand. Upon the request of the Hanoi Water Business Company (HWBC), PPIAF provided assistance in 2006 to review options available for improving network and NRW management in the city. This included identifying ways in which the private sector can be mobilized to assist the government of Hanoi in addressing the challenge it now faces to reduce NRW. Among the options, a performance-based contract with the private sector was selected by HWBC. The preferred arrangement also included capacity building/training activities for the HWBC staff to effectively address NRW problems in zones outside the potential private contractor's area and help strengthen the sustainability of the project. A PPIAF-supported water leakage reduction study was undertaken in parallel to complement and feed into the then ongoing work to identify options to reduce NRW in Hanoi. The 1 In Zone 2, SAWACO procures materials and equipment, hires a contractor for establishing district metering areas, uses subsidiaries for its NRW reduction activities under assistance from several international consultants. 3 report identified the most common types of leaks in the water network, detected leakages and their locations within the low-pressure environment, and quantified water losses in those areas. The government of Hanoi, however, decided not to go forward with the performance-based contract. Instead, HWBC is now working on reduction of NRW by its own resources. Solid waste management and sanitation are also areas where the government of Vietnam has explored the potential of private sector participation. In 2006 the government was preparing a Coastal Cities Environmental Sanitation project to help improve the solid waste management and sanitation services of the coastal cities of Nha Trang, Quy Nhon, and Dong Hoi. Solid waste management and sanitation services are operated by Urban Works Companies or Urban Environmental Companies, which are heavily subsidized and suffer not only from a shortage of funds for capital equipment for development of services or replacement, but also often suffer from a shortage of funds for day-to-day operations. Participating cities in the World Bank Coastal Cities Environmental Sanitation project have expressed interest in involving the private sector in solid waste collection and septage management but are unsure how to proceed both in terms of the options that are available to them, and what actions they need to take to facilitate private sector participation. In response to three participating cit ies’ request, PPIAF provided grant funding in 2006 to undertake a study to present PPP options for the delivery of solid waste and septage collection in the cities of Dong Hoi, Quy Nhon, and Nha Trang. The work also recommended an implementation approach for the preferred option of the pilot cities, and corresponding PPP contracts were drafted. Competitive tendering for solid waste management operations and septage cleaning services is being pursued under the World Bank project where the bidding documents prepared under the PPIAF activity will be tested. To date, septic tank emptying was fully carried out by private contractors in Nha Trang, and about 20–30% of solid waste collection and beach cleaning in Dong Hoi and Quy Nhon was done by private contractors. Results of PPIAF’s Activities in Vietnam’s Water Sector Category Outputs Enabling environment reform  Lessons Learned from the Ho Chi Minh City Performance- Based Leakage Management Contract, April 2009  Hanoi NRW Management Options Study, May 20, 2008 Analyses/assessments prepared  Hanoi water leakage reduction study (incorporated into Hanoi NRW Management Options Study), May 20, 2008  Proposed Coastal Cities Environmental Sanitation Project— Vietnam—PPPs for Solid Waste and Septage Management, February 2006 Policies prepared or legal or  Draft decree on clean water production, supply, and regulatory changes recommended consumption, May 18, 2006  Draft charter, legal framework, and business plan template to Plans/strategies prepared support the establishment of RWSSEs, September 2006 4 Project cycle-related assistance  Draft DBL bid documents for water supply in Lim and Minh Duc Towns, January 16, 2004  Draft standard PPP bid documents for the operation and maintenance of three water supply systems for four towns, which were recast as an internal contract, and operations contract for Binh Dinh, July 29, 2008 Transaction support  Training for SAWACO staff on bid evaluation for the performance-based contract to reduce NRW, March-April, 2008  Draft Solid Waste Collection Service Contract; Draft Septic Tank Emptying Service Contract; Draft Equipment Lease Contract; Draft Beach Cleaning Service Agreement, February 2006 Capacity and awareness building  Capacity and consensus building workshop among key stakeholders on the legal and organizational aspects of RWSSEs, and the practical steps necessary to establish them and their constituent share-holding bodies, June 28, 2006  Provincial dissemination/awareness building workshops on the Workshops/seminars practical issues of establishing and operating the RWSSEs, August 22–25, 2006  Workshop on lessons learned on performance-based PPP contracts for NRW reduction from experiences in developing countries held in Ho Chi Minh City, July 14, 2005  The Challenge of Reducing NRW in Developing Countries— How the Private Sector Can Help: A Look at Performance- Based Service Contracting, December 2006 Knowledge products  Performance-Based NRW Reduction Contracts: Workshop Outline and Objectives; Module 1: Background Information; disseminated Module 2: Utilizing the Private Sector for NRW Reduction; Module 3: Lessons Learned—Case Studies from Around the World; Module 4: Designing a NRW Reduction Contract, July 14, 2005 Category Outcomes Enabling environment reform Policies adopted, legislation  Urban Water Decree (Decree 117/2007 on Clean Water passed/amended, or regulations Production, Supply and Consumption) adopted, July 11, 2007 issued/revised  RWSSEs established in Nam Dinh, Ninh Binh, Hai Duong, and Thai Binh adopted, 2008 Institutions created or strengthened  HWBC able to determine that physical losses (poor quality of service lines and service connections, and absence of any leak detection activities) are the major cause of its NRW, 2008 5 Plans/strategies adopted  Strategy to establish RWSSEs adopted, 2008 Project cycle-related assistance  Lim and Minh Duc Towns DBL contracts awarded to local private operators, January 2006  Performance-based contract to reduce NRW in Ho Chi Minh City awarded to Manila Water, July 2008 Transaction facilitated  Septic tank emptying carried out by private contractors in Nha Trang and about 20-30% of solid waste collection and beach cleaning in Dong Hoi and Quy Nhon were done by private contractors, as of 2009 Capacity and awareness building  SAWACO’s understanding of performance-based contracts to reduce NRW enhanced, July 2005 Technical capacity enhanced  SAWACO’s capacity to evaluate bids for performance-based contracts to reduce NRW enhanced, 2008  Consensus achieved on the structure of RWSSEs, June 28, 2006 Consensus achieved  Consensus achieved among Ho Chi Minh City stakeholders on the merits of performance-based contracts to reduce NRW, July 2005 Category Impacts  Number of households with water connection increased from 1,792 to 2,336 in Lim Town, March 2010 Increased number of people with  Number of households with water connection increased from infrastructure services 1,350 to 2,000 in Minh Duc Town, March 2010  With the water saved, SAWACO was able to cater to an additional 200,000 new customers, as of 2011  Reduced NRW in Zone 1 in Ho Chi Minh City from 60% in 2008 to 41% as of October 7, 2011 Improved level of services  Improved solid waste collection and sanitation services in Nha Trang, Don Hoi, and Quy Nhon, 2009 Increased employment  Fourteen full-time and six part-time jobs were created in Lim opportunities Town, March 2010  Additional US$3.2 million income for SAWACO from the Fiscal impact on government reduction of NRW, 2011 Technical Assistance for Vietnam’s Energy Sector PPIAF’s assistance to Vietnam’s electricity sector started with a small activity on corporate rural electrification in 2000. The activity looked at investment and management models for electricity distribution at the commune level that would help maximize the local participation of the private sector 6 and even of the state-owned utility, Electricity of Vietnam, in servicing rural power networks at a commune level. Work under the PPIAF grant included the preparation of licensing and model legal/organization structures for the joint-stock and cooperative investment and management models. A cooperative is a legal entity with all the rights and obligations similar to those of any economic organizations but which is user-owned and user-controlled. Whatever benefits are derived from its operation are then distributed equitably on the basis of use. A joint stock company on the other hand has similar responsibilities to those of a cooperative, but its aim is to make profits and offer greater investment flexibility in permitting other enterprises to invest as shareholders. The joint stock model was recommended by the PPIAF activity and subsequently piloted in two communes: Hiep Luc commune of Hai Duong and Lich Hoi Thuong commune in Soc Trang province under a World Bank-funded project. The joint stock model has been widely adopted, and over 5,000 joint stock companies now exist. They serve rural villages throughout Vietnam. Vietnam’s electricity consumption overall has grown for the past decade and is expected to continue growing rapidly. Electricity shortages are already emerging, and the government of Vietnam has targeted state-owned enterprises and foreign investors for increased investment in Independent Power Producers (IPPs) to meet this rapidly growing demand and address supply constraints. In 2000 PPIAF provided technical assistance to the government in finalizing the BOT contract and Power Purchase Agreement (PPA) for an IPP project, Phu My 2-2. PPIAF assistance provided timely support to the government to retain legal advisors to assist it with finalizing negotiations on the project contracts with the winning private consortium. The BOT contract and PPA were finalized in a form that enabled the government and private sector to sign these documents. The Phu My 2-2 power generation project, Vietnam’s first competitively bid major private infrastructure project , was awarded and reached financial closure on October 30, 2002. Commercial operation began on February 4, 2005. The 715 MW gas-fuelled plant is part of the power complex in Phu My Industrial Park. Under a 20-year BOT contract, the power generated by the plant will be sold to the state-owned utility, Electricity of Vietnam. When the contract expires, the plant will revert to Electricity of Vietnam. The Phu My 2-2 project also benefitted from World Bank-International Development Association (IDA) credit for technical assistance and Japan’s Policy and Human Resource Development grant for project preparation. The Asian Development Bank (ADB) also supported the project. Project financing was sourced from the ADB, IDA, Japan Bank for International Cooperation, and Promotion et Participation pour la Coopération Economique for $340 million along with sponsors’ equity of $140 million from Electricité de France, Sumitomo, and Tokyo Electric Power Company. In a move to set in motion a large-scale reform program, the government of Vietnam passed the Electricity Law in November 2004. To oversee all of these developments at that time, the responsible line ministry—the Ministry of Industry—established a dedicated regulatory unit, which could eventually be spun off as an autonomous regulatory authority as the sector opened up to private sector players. In response to the government’s request in 2005, PPIAF provided assistance to the set-up of an electricity regulator, particularly in reviewing issues surrounding its establishment and ideas on immediate steps forward. Originally, a more detailed work was to be undertaken on training needs assessments and the development of a first-year program for the independent regulator, Electricity Regulatory Agency of Vietnam (ERAV). However, following the formal establishment of ERAV, priorities shifted and required some relatively minor re-adjustments to the activity but still within the scope of the PPIAF-supported activity’s objectives. At ERAV's request, the remaining funds were used to prepare an outline of transmission and bulk power supply licenses for Electricity of Vietnam as well as specific draft licenses for specific generation, distribution, and retail supply for the private sector service providers. A stakeholder workshop was held in Hanoi on January 18, 2007 and had 76 attendees including government officials, investors, donors, and other stakeholders. The first session was on ―Functions of Licenses within an Effective Power Sector Regulatory Framework,‖ while the second was on ―Structure and Content of D raft Generation and Distribution and Retail Power Supply Licenses.‖ As a result, ERAV was strengthened through the establishment of a licensing system for generation, distribution, and retail supply. This work later led to a similar small, follow-up PPIAF activity in 2007 that dealt with transmission and single buyer licenses in a competitive generation market. The project further enabled the reform of the 7 electricity market through unbundling costs and charges, increased predictability, and non-discriminatory markets. Draft licenses developed under this activity were adopted and subsequently translated to Vietnamese by ERAV. Further revisions on the drafts were expected to be undertaken by ERAV once the market design for the competitive generation (single buyer) market had been finalized. Building on this PPIAF activity, ERAV requested a third PPIAF grant in 2008 to help complete the design of the generation competitive (single buyer) market to ensure consistency with the objectives and conditions established by the Electricity Law and the government’s sector road map. A PPIAF-funded report reviewed the legal and institutional framework for the establishment of the generation competitive market. It also identified international experience that may assist the ERAV in improving the generation competitive market design and achieving its objectives (e.g., cost-based bidding, cost-based caps, hydro bidding and operation in competitive markets, mitigation of market power, contracts and capacity payment mechanisms to promote generation adequacy, efficiency, and investment). A workshop was held in April 2008 to gain consensus around the conceptual design of a generation competitive market. In 2007 PPIAF supported the government of Vietnam in developing a standard IPP tender framework and related processes, which will act as the Ministry of Industry’s instructions for the implementation of new electricity generation projects through the general BOT Decree in Vietnam. There is strong donor support for reform and development of Vietnam's power sector from the World Bank, ADB, Japan Bank for International Cooperation, and Agence Française de Développement. The PPIAF-funded work recommended a mechanism for reducing government support while recognizing sponsor/lender concerns, and developed a mechanism and strategy for the government to integrate IPPs into future power markets. The work complemented IFC’s advisory role to the Vietnamese government on IPPs. The PPIAF-supported work formed an important part of the framework for Vietnam’s future IPP program. Around 45 people from relevant government agencies, power developers, gas developers, and private banks actively participated in a workshop in April 2009 in Hanoi to build consensus around the framework. Consensus was reached in adopting the framework for BOTs but a firm commitment to strategy has yet to come. PPIAF has also provided support for downstream gas in Vietnam. In 2001, upon the request of the government, a regulatory framework for the downstream gas sector and a policy statement were drafted with grant funding from PPIAF. An outline decree based on international best practice and model licenses for gas transmission and supply was also prepared. These were intended to set the environment to attract private investment to build transmission and distribution pipelines to expand gas use in Vietnam and benefit from access to clean modern fuel. However, reforms in downstream gas have been moving slower than expected. Results of PPIAF’s Activities in Vietnam’s Energy Sector Category Outputs Enabling environment reform  Design of Vietnam Generation Competitive Market, May 31, Analyses/assessments prepared 2008  Establishment of Joint Stock Company/Co-operative for Power Distribution Network, 2000  Electricity Regulation Development Project, May 2005 Plans/strategies prepared  Vietnam: Framework for Thermal BOT Tenders and Strategy for Gas Coordination and Harmonization with Market Roadmap, June 20, 2009 8  Draft Electricity Generation and Distribution and Retail Supply Licenses, January 29, 2007  Outlines of Electricity of Vietnam Transmission License and Bulk Power Supply License, January 28, 2007 Policy prepared or legal or regulatory changes recommended  Draft Electricity Transmission and Single Buyer Bulk Supply Licenses, October 30, 2007  Establishing a Legal and Regulatory Framework for the Downstream Gas Sector in Vietnam, December 2003 Project cycle-related assistance  Assistance on Contract Negotiations for the Phu My 2-2 BOT Transaction support Power Project, September 17, 2001 Capacity and awareness building  Workshop to build awareness and consensus around the joint- stock model for local electricity distribution undertaken in Hanoi (December 2000) and in Soc Trang province (April 2001); 33 local participants in Hanoi workshop but no estimates from Soc Trang event  Stakeholder workshop on draft ERAV licenses with 76 attendees held in Hanoi, January 18, 2007  Workshop to finalize the Vietnam competitive market design for Workshops/seminars the electricity sector, with 94 representatives from the government, media, private sector, and donors, April 3, 2008  Workshop in Hanoi to discuss draft IPP framework attended by around 45 people from relevant government agencies, power developers, gas developers, and private banks, April 1–2, 2009  Kick-off workshop in Hanoi with around 60 stakeholders to discuss options for downstream gas regulation, January 31, 2002 Category Outcomes Enabling environment reform  Joint stock power distribution model for rural electrification Plans/strategies adopted widely adopted, 2000  ERAV strengthened in its regulatory role and in driving reforms in the electricity sector, 2001–2009  ERAV was able to refine its conceptual design of a generation Institutions created or competitive market, April 2008 strengthened  Government of Vietnam (Ministry of Industry) strengthened in terms of developing a framework for Vietnam’s future IPP program, April 2009  Electricity Generation and Retail Supply Licenses adopted by Policy adopted, legislation ERAV, 2007 passed/amended, or regulation issued/revised  Electricity Transmission and Single Buyer Bulk Supply Licenses adopted by ERAV, 2007 9 Project cycle-related assistance  Phu My 2-2 BOT Power Project reached financial closure, Transactions facilitated October 30, 2002 Capacity and awareness building  Consensus built around various strategies, legal documents, and reforms to support the electricity sector: – Joint-stock model for electricity distribution, 2001 – Electricity licenses and specific generation, distribution, Consensus achieved and retail supply licenses, 2007 – Competitive market design for electricity sector, April 3, 2008 – IPP framework, April 2009 Category Impacts  Additional 715 MW electricity generation from Phu My 2-2 BOT Power Project sold to the state-owned utility, Electricity of Improved level of services Vietnam, which is then distributed to the people of Vietnam, 2005–2025 Technical Assistance for Vietnam’s Transport Sector Much of Vietnam’s growth is driven by international trade. Vietnam’s transport and logistics system has so far met the substantial demands from its population, but there is evidence of increasing strain and congestion on supply networks. In 2004, with PPIAF support, a review of Vietnam's multimodal transport regulation was undertaken to recommend ways of improving the efficiency of the country's transport sector and, ultimately, its logistics network to encourage the operation of market mechanisms and involvement of the private sector. The report recommended placing all regulations governing multimodal transport in a new decree, to replace Decree 125/2003 on international multimodal transport, and gave guidelines to help ensure consistency with policy on matters affecting multimodal transport and the economic regulation of individual modes. Decree 87/2009 on Multimodal Transport was passed and took effect on December 15, 2009 and supersedes the Government's Decree 125/2003 on international multimodal transport (as was recommended by the PPIAF-funded activity). Since Vietnam’s economic liberalization in the late 1980s, Vietnam’s biggest cities—Hanoi and Ho Chi Minh City—experienced rapid urbanization and rising incomes. With these came motorization, mostly motorcycle-led, and its accompanying problems of street congestion, road accidents, and emissions. To cope with these challenges, both cities had undertaken steps in involving the private sector in improving bus systems (Hanoi and Ho Chi Minh City) and planning for more investment intensive interventions such as a light rail transit (Ho Chi Minh City). In 2003 the city government of Hanoi increasingly realized the need to further expand its state-owned bus system through its bus operator, Transerco, to address transport demand and attract commuters who would otherwise revert to personal modes of motorized travel and contribute to street congestion and pollution. However, this expansion would have meant shouldering unsustainable increases in operating subsidies. To be financially sustainable, Hanoi would have needed to either increase fares or reduce costs. To closely examine its options for operating an efficient and effective bus system, the Hanoi city government requested support from PPIAF in 2003 to analyze possible ways to minimize the bus system’s dependence on public subsidies with the participation of the private sector, which would lead to 10 increased efficiency, define public service obligations, and create appropriate economic regulation to monitor and oversee the bus system’s development. The PPIAF-funded study determined the potential role of the private sector in providing bus services, including maintenance facilities and ticketing systems. The work also included a review of other developing countries’ experiences in restructuring and involving the private sector in their respective urban bus services. Two options relevant to Hanoi were recommended: area contracts and route—or package of routes—contracts based on terms of supply of service at gross and net cost. These options were presented in a workshop where stakeholders were able to discuss and choose a preferred strategy. The Hanoi city government subsequently chose a route-by-route gross cost contract—i.e., operators will not bear revenue risks and will be compensated based on service provided—as the basis for involving the private sector in bus services. Institutional and regulatory arrangements, as well as draft bidding and contract documents, were subsequently drawn up to help Hanoi execute its chosen strategy. In 2004 competition was introduced into the provision of bus services, with both state-owned companies and private sector companies bidding on the routes. Route service contracts were awarded based on technical and operating capacity and lowest subsidy requirement. Between 2005 and 2008, some 16 bus routes were competitively contracted out—three to Transerco and the rest to private and joint stock companies—and more are expected. There was also room to reduce subsidies without greatly affecting affordability. As a result, both monthly and single-use fares were increased, and differentiated fares based on trip length were implemented. The Transport Management and Control Center, the government entity that plans Hanoi’s bus routes and services, was strengthened to manage contractual relationships with the operators on behalf of the city. Assistance from the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), European Union, and French-Vietnam cooperation Institut des Métiers de la Ville (Cooperation Center for Urban Development) focusing on building the Transport Management and Control Center’s capacity played an important role in encouraging private sector participation in Hanoi’s bus services. With new bus routes contracted out based on the lowest subsidy requirements, the Hanoi city government realized a cumulative reduction of approximately $2.5 million in public subsidies. The new bus routes have generated an additional 1,300 private sector long-term jobs and $11 million in private investments for 218 new buses. The increased level of competition between the public sector (Transerco buses still ply old routes) and private sector has led to improved service quality for consumers, as well as environmental benefits. While Hanoi’s public transport is largely run by the public sector, Ho Chi Minh City’s public transport supply is very mixed with the private sector (mostly small cooperatives) having a relatively bigger market share than the main formal operator, the state-owned Saigon Star Bus Company. Until 2002, the government of Ho Chi Minh City had very limited interaction with private operators (who have exclusive rights on their designated routes and, at the time, did not get any operating or capital subsidies from the city government). From 2002 to 2004, the government of Ho Chi Minh City took a very active role in promoting bus services. Using an experimental approach, the city increased the capacity of Saigon Star Bus Company’s system through government investments, subsidies, and guarantees, as well as through investments by enterprises and cooperatives. However, the cost on the public capital budget was high, and with controlled fares there was an ever increasing subsidy requirement. Ho Chi Minh City wanted to find a way of reducing this burden by progressively mobilizing private sector participation through the competitive tendering of services. Upon the request of the government of Ho Chi Minh City, PPIAF supported the evaluation of alternative ways to improve private participation in the provision of bus services in the city. The PPIAF-funded activity included: i) a diagnostic report setting out the various options for managing private participation in the supply of services and making recommendations for the selection of a system and its institutions; ii) recommendations to increase the operational efficiency of the existing operators; iii) a report on a bus rapid transit system and details of a pilot scheme for the selected corridor, including recommendations on a financing plan for project components; iv) set of documentation for the new system; and v) detailed specification of an education and training program for the improved system. A workshop was also undertaken to present the findings of the reports to Ho Chi Minh City officials. Once this bus service improvement plan was approved, initial drafts of invitations to tender and contract documents for the service franchise arrangements were prepared. Two bus routes (Cho Lon–Go 11 Vap and Sai Gon–Thoi An) were competitively bid and won by Saigon Bus (a state-owned company) and Ba Chieu cooperative in 2007. However, Ho Chi Minh City decided to pursue rail-based mass transit as they anticipate higher demand in public transport than what the bus rapid transit can accommodate (see details below). Ho Chi Minh City proposed to implement a rail mass rapid transit (MRT) system for the city as a key element in its strategy in anticipation for the future growth of travel demand. An MRT was considered to be the most efficient mode in terms of space requirements per passenger (at least 15 times more efficient than passenger cars). Ho Chi Minh City prepared an MRT plan with a system of six lines to be developed up to year 2020, requiring an investment likely to exceed $5 billion. It was envisaged that both public and private sector financing would be required. In 2007 the government of Vietnam requested a loan from the ADB to implement two interconnected MRT lines. In order to clarify the scope and feasibility of the proposed lines, the ADB undertook a Project Preparation Technical Assistance (PPTA) and requested PPIAF funding to support a PPP options study to feed into its PPTA. The PPIAF-funded study identified and assessed various options for private sector participation in the planned two lines of the MRT. A gross-cost form of concession was recommended—an option where the government will eventually pay the concessionaire for the services provided. The study also recommended that at least two companies should be involved in the operation of the MRT, and that the selection should be undertaken through competitive bidding. In 2011 ADB agreed to provide a loan initially to one of the lines, Line 2, and construction is expected to be undertaken in 2013–2016. Line 2, however, is a pure public sector project. ADB indicated that its next investment in Ho Chi Minh City’s MRT system will likely be a PPP and will take into account the findings of the PPIAF study. The government of Vietnam has increasingly been keen in involving the private sector in the road sector, and in 2010 embarked on an ambitious highways program to be implemented over the next three to four decades. Several of the planned expressways in the program are expected to be implemented through PPPs. Furthermore, complementary initiatives to build the capacity within the Ministry of Transport (e.g., by setting up a PPP cell within the Ministry of Transport) and the overall enabling environment for PPPs (e.g., PPIAF supported activities on developing a PPP financing framework and a PPP unit within the Ministry of Planning and Investment) are being pursued to encourage private sector participation in the country’s infrastructure sectors. In light of these developments, the Ministry of Transport —with support from the World Bank and PPIAF —held a three-day workshop on PPPs in roads and highways from December 13–15, 2010 in Hanoi. The workshop aimed to foster a better understanding of PPPs in the development of expressways and build the capacity of local road officials in implementing PPP arrangements. Around 30 people attended, mostly from the various departments within the Vietnamese Ministry of Transport. Vietnam’s Minis try of Planning and Investment, Ministry of Finance, and development partners such as the Australian Agency for International Development (AusAID) and Japan International Cooperation Agency (JICA) also participated. The sessions used the PPIAF-funded Toolkit for PPP Roads and Highways and other tools available for planners and policy makers. Concepts on PPP policy, planning, and development were introduced through various case studies and financial models that came with hypothetical spreadsheet templates to provide participants hands-on training on the basics of PPP project finance. This helped participants better understand the key parameters that affect the financial viability of a PPP highway project. Simulated negotiations—where each group had someone play the role of a consumer, the government, and the private sector—further demonstrated to participants the trade-offs between subsidies or government support, tariffs, and returns to investment in PPPs. The Ministry of Transport is currently working with the World Bank on preparing the Dau Giay-Phan Thiet and portions of the Ninh Binh-Thanh Hao-Bai Vot expressways as potential PPP projects. PPIAF and AusAID are currently supporting a PPP viability study for the Ninh Binh-Than-Hao-Bai Vot expressway. 12 Results of PPIAF’s Activities in Vietnam’s Transport Sector Category Outputs Enabling environment reform  Options for private participation in the provision of bus services bus maintenance facilities and services, and a ticketing system Analyses/assessments prepared in Hanoi, November 18, 2004  Ho Chi Minh City Metro Rail Completion Report, August 2008 Policies prepared or legal or  Multimodal Transport Regulatory Review, April 2006 regulatory changes recommended  Technical Assistance for Consolidation and Development of a Bus System in Ho Chi Minh City, Vietnam: – Review of Status of Bus System, March 29, 2006 – Bus Rapid Transit, March 29, 2006 Plans/strategies prepared – Institutional Recommendations for Involvement of the Private Sector, April 6, 2006 – Institution Building and Training Requirements, April 18, 2006 Project cycle-related assistance  Draft bidding documents for the initial tender of bus routes in Hanoi, November 18, 2004 Transaction support  Report on Bidding and Contract Preparation: draft bidding documents for the initial tender of bus routes in Ho Chi Minh City, June 16, 2006 Capacity and awareness building  Workshop on options for private participation in the provision of bus services in Hanoi, September 2004  Seminar ―Institutional Aspects and Bidding Document Preparation‖ to present findings of the report ―Consolidation and Workshops/seminars Development of a Bus System in Ho Chi Minh City‖ to Ho Chi Minh City officials, June 2006  Workshop on PPPs in roads and highways, December 13–15, 2010 in Hanoi Category Outcomes Enabling environment reform  Hanoi’s Transport Management and Control Center Institutions created or strengthened to manage contractual relationships with strengthened operators, September 2004 Policies adopted, legislation  Decree 87/2009 on Multimodal Transport was passed and took passed/amended, or regulations effect on December 15, 2009 issued/revised  Strategy to bid out bus routes to private sector adopted in Ho Plans/strategies adopted Chi Minh City for two bus routes, 2006 13 Project cycle-related assistance  Sixteen bus routes successfully bid out in Hanoi, 2005–2008 Transactions facilitated  Two bus routes successfully bid-out in Ho Chi Minh City, 2007 Capacity and awareness building  Consensus achieved in allowing private sector participation in Consensus achieved the provision of bus services in Hanoi, September 2004  Government officials with a better understanding of and Technical capacity enhanced increased ability to implement PPP projects in roads and highways, December 15, 2010 Category Impacts Additional private investment in  US$11 million in private investments for 218 new buses in the sector (US$) Hanoi City, as of 2010 Increased employment  Additional 1,300 private sector long-term jobs in Hanoi City, as opportunities of 2010  Reduction of approximately $2.5 million in public subsidies for Fiscal impact on the government buses in Hanoi City, as of 2010 Technical Assistance to Develop Vietnam’s Overall Enabling Environment Local Development Investment Funds (LDIFs) are emerging as key players in infrastructure development as the decentralization process unfolds in Vietnam. LDIFs are involved in financing developmental infrastructure (roads, water, etc.), often in collaboration with the private sector. However, LDIFs lack the technical capacity to carry out many functions, which constrains their effectiveness to deliver much- needed infrastructure projects. Upon the request of the Ministry of Finance, PPIAF provided grant funding in 2006 to help develop a comprehensive, consistent, and practical investment policy for the Vietnam LDIFs, which was then articulated in operational guidelines. The activity also drew on relevant international best practices from the existing successful infrastructure development or financing facilities. Under the PPIAF activity, investment and financial policies as well as operational guidelines for the LDIFs were developed. Decree No.: 138/2007/ND-CP has since been issued on August 28, 2007 laying down the guidelines on the operations and functions of LDIFs. The PPIAF-funded reports formed a part of the overall World Bank-Ministry of Finance work to develop policy and operational guidelines of the LDIFs. A study tour to South Africa from July 27-August 2, 2007 for key policy makers to learn from the experience of South Africa on municipal financing was also undertaken under the PPIAF activity. At the national level, PPIAF provided support to two related activities to enhance Vietnam’s overall PPP enabling environment. A recently concluded activity assisted the newly established PPP Development Program Office (DPO) within the Ministry of Planning and Investment in developing an institutional and implementation framework for a pilot PPP, coordinating PPP-related activities, and disseminating PPP best practices. Through this PPIAF-funded intervention, the DPO identified the Dầu Giây–Phan Thiết Expressway Project as a potential pilot PPP project and helped the Ministry of Transport develop the implementation and institutional framework for the project. The PPIAF grant also supported the DPO in organizing four training (two study tours and local training courses on PPPs in water supply and drainage in Bac Ninh and in the road sector) and three consensus building workshops. The DPO also organized an international conference to launch Vietnam’s PPP program . PPIAF supported the participation of DPO officials in two international conferences on infrastructure finance to build their capacity and learn from the experiences of other countries. The PPIAF grant also enabled the DPO to hire independent consultants 14 (environment and social experts, financial experts, and lawyers) to help prepare the implementation of the Dầu Giây–Phan Thiết expressway PPP project. The other PPIAF-funded work is currently assisting the Ministry of Finance in developing a financing framework for infrastructure PPPs, specifically looking at a viability gap financing mechanism to improve the financial viability of well-prepared projects that follow prescribed qualification criteria. This mechanism is being piloted in the Dầu Giây–Phan Thiết expressway project. Results of PPIAF’s Activities to Support Vietnam’s Overall Enabling Environment Category Outputs Enabling environment reform  Project summary report for the establishment and operation of Analyses/assessments prepared the PPP DPO Office of Vietnam, October 2011  Safeguards-related work, including the Resettlement Policy Plans/strategies prepared Framework and Ethnic Minority Development Plan, October 2011  LDIF Financial Policies, May 14, 2007 Policies prepared or legal or  LDIF Investment Policy and Guidelines, May 14, 2007 regulatory changes recommended  LDIF Operating Guidelines and Procedures, May 14, 2007 Project cycle-related assistance  Institutional and implementation framework for the Dầu Giây– Transaction support Phan Thiết Expressway Project, October 2011 Capacity and awareness building  Study tour to South Africa to help senior policy makers make key decisions on the new government decree on the operations and functions of Local Development Investment Funds, July 23- August 2, 2007  Consensus building workshops to discuss the activity objectives, overall PPP financing framework for projects, and results of the project screening undertaken with the PPP DPO, 2008–2011  Study tours in Australia and India to improve the PPP DPO’s Workshops/seminars knowledge of the various PPP arrangements that may be applicable to Vietnam’s current situations, 2011  Participation in two Annual Infrastructure Finance Conferences in Singapore, October 2010 and September 2011  International conference in Hanoi to launch Vietnam’s PPP program, June 2008  Forum on PPP in water supply and drainage in Bac Ninh, Vietnam, April 2011  Training course on PPPs in the road sector, 2011 15 Category Outcomes Enabling environment reform  PPP DPO strengthened on its role as overseer of pilot PPPs in Vietnam, 2008–2011 Institutions created or strengthened  Ministry of Transport strengthened on its preparation for the implementation of the Dầu Giây–Phan Thiết Expressway Project, October 2011 Policies adopted, legislation passed/amended, or regulation  LDIF Decree No. 138/2007/ND-CP, August 28, 2007 issued/revised Capacity and awareness building Technical capacity enhanced  PPP DPO’s knowledge on PPPs enhanced, 2010–2011 Looking Ahead: PPIAF Support to Vietnam As the above results show, PPIAF support has helped both initiate and sustain private participation in infrastructure enabling reforms, through independent analytical advice on options, pilot design, and procurement in addition to draft provision of decrees and standard licensing documents. PPIAF activities have made a substantial contribution to the current reform and restructuring of a number of infrastructure sectors—specifically electricity, transport, and water supply—and are closely aligned with both growth and poverty alleviation objectives of Vietnam. Success achieved to date and Vietnam’s infrastructure needs and desire to sustain growth and continue poverty reduction mean PPIAF support will remain relevant to help improve Vietnam’s enabling environment for PPPs. 16