Document of The World Bank Report No: 75625 v1 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING FOR THE PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT (CREDIT NUMBERS 3767-VN AND 4863-VN) (P075399) (BOARD APPROVAL DATE: MAY 22, 2003) TO THE SOCIALIST REPUBLIC OF VIETNAM February 22, 2013 Poverty Reduction and Economic Management Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective: January 31, 2013) Currency Unit = Vietnamese Dong (VND) VND 1 = US$ US$1 = VND FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS BPS Budget Preparation System CO Change Order COA Chart of Accounts CQS Selection Based on the Consultants’ Qualifications DeMPA Debt management Performance Assessment framework DMFAS Debt Management Financial and Analysis System FMIS Financial Management Information System GBP Great Britain Pound GFMIS Government Financial Management Information System GoV Government of Vietnam IA Implementing Agency ICB International Competitive Bidding MoF Ministry of Finance MPI Ministry of Planning and Investment MTEF Medium Term Expenditure Framework MTFF Medium Term Fiscal Framework PFMRP Public Financial Management Reform Project PMU Project Management Unit QCBS Quality- and Cost-Based Selection SDR Special Drawing Right TA Technical Assistance TABMIS Treasury and Budget Management Information System TSA Treasury Single Account VND Vietnamese Dong Regional Vice President: Axel van Trotsenburg Country Director: Victoria Kwakwa Sector Director: Sudhir Shetty Task Team Leader: Quyen Hoang Vu VIETNAM PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT [CREDIT NUMBERS 3767-VN AND 4863-VN] 399 CONTENTS Project Paper Data Sheet A. Summary ................................................................................................................................. 1 B. Project Status and Rationale for restructuring ........................................................................ 1 C. Proposed changes.................................................................................................................... 3 Annexes Annex 1. Procurement Plan for the Extension Period .................................................................... 5 DATA SHEET 1. Basic Information Project ID & Name P075399: Public Financial Management Reform Project Country Vietnam Task Team Leader Quyen Hoang Vu Sector Manager/Director Deepak Mishra/Sudhir Shetty Country Director Victoria Kwakwa Original Board Approval Date May 22, 2003 Original Closing Date: February 28, 2009 Current Closing Date February 28, 2013 Proposed Closing Date October 31, 2013 EA Category C-Not Required 2. Revised Financing Plan (US$m) Source Original Revised BORR 7.14 7.14 IDA 9.99 9.99 DFID 54.33 68.33 Total 71.46 85.46 3. Borrower Organization Department Location Socialist Republic of Vietnam Vietnam 4. Implementing Agency Organization Department Location Ministry of Finance 1. State Treasury 28 Tran Hung Dao, 2. State Budget Department Hanoi, Vietnam 3. Debt Management and External Finance Department 4. Corporate Finance Department 5. Disbursement Estimates (US$m) Actual amount disbursed as of January 30, 2013 59.57 1.24 Fiscal Year Annual Cumulative 2013(H2) 10.24 69.81 2014 5.49 75.30 Total 75.30 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured project trigger any new safeguard policies? N 7. Project Development Objectives/Outcomes The objective of the Project is to strengthen the Recipient’s capacity to plan, execute and report on its budget and to improve the transparency and accountability of the budgetary systems and processes. VIETNAM PUBLIC FINANCIAL MANAGEMENT REFORM PROJECT RESTRUCTURING PAPER A. SUMMARY 1. This Project Paper seeks the approval of the Regional Vice President to extend the closing date of the Financing Agreement (FA) for the Vietnam Public Financial Management Reform Project (PFMRP: Project Identification No. P075399, Credit Numbers 3767-VN and 4863-VN) from February 28, 2013 to October 31, 2013. The proposed extension is necessary to ensure successful hand-over of the Treasury and Budget Management Information System (TABMIS) from the contractor to the Ministry of Finance (MoF) and to complete the remaining critical activities. The project’s closing date was first extended in 2009 for two years, and later extended in 2011 for another two years in conjunction with the Additional Financing. 2. This Project Paper also seeks the approval of the Country Director to amend the FA to reallocate the proceeds among the expenditure categories. The adjustment is necessary to align project activities to changing circumstances. B. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING B.1. Project Background 3. The subject project was approved by the Board of Executive Directors on May 22, 2003, and became effective on September 4, 2003. The Project aims to strengthen the government’s capacity to plan, execute and report on its budget and to improve the transparency and accountability of the budgetary systems and processes. The project includes major investments to upgrade the core systems of public financial management (funded by IDA credit), and Technical Assistance to support institutional reforms, policy formulation, and capacity building (partly funded by DFID co-financing). Total cost of the project is US$96 million, out of which US$75 million is IDA credits, US$11 million is DFID grant, and US$10 million is counterpart contribution. 4. On January 31, 2013, the Government of Vietnam proposed to restructure the project including (i) extending the closing date from February 28, 2013 to October 31, 2013; (ii) revising project activities and their associated output indicators; and (iii) reallocating proceeds across different categories. The proposed adjustments do not involve any changes to the project development objectives and key performance indicators. B.2. Status of Implementation 5. The project is already making a significant difference in the way the budget is prepared, executed, monitored and reported in Vietnam. Specifically, the project will: (i) enable the government to plan, execute and monitor the state budget through a centralized financial management information system, on a transparent and real-time basis; (ii) assist to strengthen the links between budget management and government's goals within a medium-term expenditure framework; and (iii) significantly improve the management of public debt and other fiscal risks. The project is making progress to meet its development objectives as discussed below. 6. Component 1 (Strengthening treasury and budget management): Five out of six stages of TABMIS implementation (design, development, testing, piloting, and roll-out) have been completed. TABMIS is now operational in all intended 1,500 treasuries and financial agencies across all 63 provinces, and 37 spending ministerial organizations. The last critical but still ongoing stage is to stabilize TABMIS operation and ensure smooth handover from the contractor to the MoF. These require (i) strengthening in-house capacity to be able to take over TABMIS; (ii) addressing remaining software issues to stabilize the operation; and (ii) fully activating several system functions, which were pending due to lack of legal framework. 7. Component 2 (Strengthening state budget and investment planning): The medium-term fiscal framework (MTFF) and the medium-term expenditure framework (MTEF) have been successfully piloted in 6 ministries and 4 provinces. The original objective of developing the methodology to implement the MTEF in Vietnam and testing its feasibility was achieved. There were plans to (i) mainstream the MTEF in the annual budget process by having it mandated by the budget law, to amplify the pilot results; and (ii) study the feasibility of a Budget Preparation System which can also support the MTEF. However due to the time consuming amendment of the law, the former activity is delayed to 2013 while the latter is proposed to be dropped. 8. Component 3 (Strengthening the management of public debt and other fiscal risks ): There has been considerable progress in this component, particularly in relation to the technical assistance activities (e.g. promulgation of the public debt law and development of debt management reform plan), and implementation of the DMFAS system for recording and management of domestic debt. The work to strengthen the monitoring of SOEs fiscal risks has gathered pace recently, with the finalization of relevant legal framework and gradual enhancement of risk management and assessment capacity. 9. Component 4 (Project implementation support): This component remains satisfactory. Institutional arrangements remain effective (including the Inter-Ministerial Steering Committee, Component Technical Units, and Project Management Unit organized into specialized teams). Support of consultants has improved during the period of project implementation. 10. The latest ISRs for the project are shown in Table 1 below. Table 1. ISR Ratings in the last 12 months ISR #14 ISR #15 ISR #16 Rating Category (Jan 2011) (Apr 2012) (Jan 2013) Progress Towards PDO S S S Overall Implementation Progress MS MS MS Financial Management S S S Procurement MS MS MS S (Satisfactory), MS (Moderately Satisfactory), n/a: not applicable 11. Disbursement and commitments. As of January 31, 2013, disbursement from IDA, DFID and counterpart fund was 80 percent, 93 and 66 percent respectively. The project had a cumulative IDA disbursement of US$59.6 million, with US$11 million disbursed in the last seven months. There has been a good disbursement progress in the recent years– largely on account of the steady progress in TABMIS implementation. 12. Fiduciary Management. There are no overdue or qualified audit reports. Financial Management and Procurement have been rated Satisfactory and Moderately Satisfactory respectively. The project procurement performance has notably improved with the signing of a major Change Order (CO) for the TABMIS contract, an ICB contract for procurement of additional computers and a dozen of consultants' contracts. Nevertheless, compared to the earlier agreed Procurement Plan, there have been delays particularly due to the CO, and some contracts (mostly small consulting services) remain outstanding. Safeguards compliance is not required for this project. B.3. Rationale for Extension of Project’s Closing Date 13. The proposed extension is essential to ensure successful hand-over of the TABMIS from the contractor to the MoF and completion of remaining critical activities. The original plan was to complete the system roll out by the end of 2011, and for the MoF to take another year to gradually take over the system that has been developed under a turn-key contract. However, the project experienced delays due to time consuming implementation and procurement involving large and complex IT system. The nationwide TABMIS roll-out was completed at the end of 2012, thereby delaying progress by nearly a year. The long implementation period is however within the norm for such IT based PFM projects in Vietnam and other developing countries. The extension of the project by another eight months will ensure a smooth and efficient handover and realization of full potential of the TABMIS system. C. PROPOSED CHANGES C.1. Extension of Closing Date 14. The closing date of the FA would be extended from February 28, 2013 to October 31, 2013. To justify for the proposed extension, the MoF has updated the Action Plan including the disbursement schedule during the extension period. Following the detailed discussion with the Bank team, the MoF has realistically updated the procurement plan for the outstanding contracts including another CO for the TABMIS contract (Annex 1). While a detailed proposal for this CO is yet to be submitted by the MoF, it is envisaged that the CO can be processed in parallel to TABMIS handover activities and therefore would not hamper the project overall progress. The plans have been reviewed and found acceptable. 15. Key activities to be completed in the extended periods include:  Strengthening capacity to fully take over TABMIS and prudently manage the final operational acceptance of the system while addressing a number of remaining software issues to stabilize TABMIS operation;  Fully activating a number of critical TABMIS functions (e.g. commitment control and cash management);  Designing TABMIS Portal and developing GFMIS model and roadmap;  Developing detailed guidelines for nationwide implementation of MTFF and MTEF; C.2. Reallocation of Proceeds 16. It is necessary to adjust the allocation of proceeds to align them with the changes in project activities.  For the Original Credit (Cr 3767-VN): TABMIS is delivered under a turn-key contract covering both goods and operating costs– it is therefore not possible to split category 2 and category 3a in each bill. The government wishes to charge the entire contract amount to category 2, thereby requesting to reallocate SDR5.74 million from category 3a (which was supposed to finance operating costs of the turn-key contract) to category 2.  For the Additional Credit (Cr 4863-VN): The government requests to reallocate fund from category 2 to category 3a and category 4 to fully utilize the remaining fund to meet the additional consultancy and training needs in order to fully achieve the objectives of the project. 17. Schedule 2 of the FA should be updated accordingly as follows: Table 3. Proposed reallocation of proceeds (expressed in SDR) Current allocation Revised allocation % Original Additional Original Additional Financing Category Credit Credit Credit Credit (inclusive (IDA 37670) (IDA 48630) (IDA 37670) (IDA 48630) of taxes) 1) Goods other than financial management information systems 130,000 - 130,000 - 95% 2) Goods for the financial management information systems 32,380,000 5,835,000 38,120,000 4,600,000 95% 3) Incremental Operating Costs a) For TABMIS 6,600,000 280,000 860,000 1,080,000 95% b) for PMU 130,000 - 130,000 - 100% 4) Consultants' Services/ Training/ Workshops 660,000 3,085,000 660,000 3,520,000 100% TOTAL 39,900,000 9,200,000 39,900,000 9,200,000 Annex 1. Procurement Plan for the Extension Period WB Proc. Cost estimated Proc. Proc. Proc. End No. Activities Ref. Notes review Type IDA Gov't Total Method Start End Contract COMPONENT I 5,389.4 231.6 5,621.0 PCs and other equipment to support TABMIS C1.2.5 1(c)-2 Prior IS 2,500.0 132.0 2,632.0 ICB 2/2013 4/2013 10/2013 implementation sites Additional licenses, and software support, C1.3.2.1 1(c)-3 Prior IS 1,003.0 53.0 1,056.0 C.O 2/2013 4/2013 10/2013 maintenance, upgrading and customization services Printing of TABMIS accounting policy books and C1.4.16 1(c)-4 Post G 47.5 2.5 50.0 S 3/2013 4/2013 5/2013 guiding documents for users International consultant supporting TABMIS in C1.8.2 1(b)-1 Post CS 140.0 140.0 CQS 12/2012 2/2013 9/2013 implementation assessment and contract closing progress Local consultant supporting TABMIS in C1.8.3 1(b)-1 Post CS 60.0 60.0 CQS 12/2012 2/2013 9/2013 implementation assessment and contract closing progress International consultant for Oracle database and in C1.8.6 1(b)-2 Post CS 180.0 180.0 CQS 12/2012 2/2013 9/2013 applications assessment progress Consultant supporting the study on possible C1.8.8 approaches and tools to migrate to and utilize 1(b)-2 Post CS 100.0 100.0 CQS 3/2013 6/2013 10/2013 TABMIS data outside the production environment in C1.8.11.b Local consultants for functional expertise (period 2) 1(b)-3 Post CS 18.0 18.0 IC 12/2012 2/2013 9/2013 progress International consultant for State accounting 1(e)-3 in C1.9.4 information consolidation and development of Post CS 60.0 60.0 IC 12/2012 2/2013 9/2013 1(e)-4 progress operation guidelines for public accounting standards Local consultant for State accounting information 1(e)-3 in C1.9.6 consolidation and development of operation Post CS 50.0 50.0 CQS 12/2012 2/2013 9/2013 1(e)-4 progress guidelines for public accountant standards Consultancy service for develop model, roadmap, in C1.9.7 tech requirements and bid document for TABMIS 1(f) Post CS 198.0 198.0 CQS 11/2012 2/2013 9/2013 progress Portal Consulting services for studying model and roadmap in C1.9.10 1(g)-2 Post CS 196.0 196.0 CQS 11/2012 2/2013 9/2013 towards GFMIS progress WB Proc. Cost estimated Proc. Proc. Proc. End No. Activities Ref. Notes review Type IDA Gov't Total Method Start End Contract COMPONENT II 270.0 0.0 270.0 International consultants (2 individuals) supporting in C2.1.1 development of guidelines on implementation of 2(d) Post CS 180.0 180.0 SSS 2/2013 4/2013 9/2013 progress MTEF&FFs and revision of templates/ forms Local consultants (3-5 individuals) supporting in C2.1.2 development of guidelines on implementation of 2(d) Post CS 90.0 90.0 SSS 2/2013 4/2013 9/2013 progress MTEF&FFs and revision of templates/ forms COMPONENT III 317.0 0.0 317.0 International consultant support assessment of in C3.1.1 3(a)-1 Post CS 30.0 30.0 IC 12/2012 2/2013 8/2013 Component 3's impacts progress Local consultant supporting development of mid- in C3.1.9 3(a)-2.2 Post CS 20.0 20.0 IC 5/2012 6/2012 9/2013 term debt management program for 2013-2015 progress Local consultant support development of a plan for in C3.1.10 debt management reform in accordance with 3(a)-2.3 Post CS 20.0 20.0 IC 5/2012 6/2012 9/2013 progress DeMPA standards International consultant support development of C3.1.11 3(a)-2.3 Post CS 35.0 35.0 IC 2/2013 4/2013 10/2013 public debt management reform action plan Local consultant for establishment of website for C3.1.12 3(a)-2.4 Post CS 20.0 20.0 IC 5/2012 6/2012 1/2013 Debt Management and External Finance Department International consultant support development of in C3.1.16 3(a)-2.6 Post CS 30.0 30.0 IC 12/2012 2/2013 8/2013 handbook/guidelines for ISDA Contract negotiations progress Local consultant support development of in C3.1.17 3(a)-2.6 Post CS 20.0 20.0 IC 12/2012 2/2013 8/2013 handbook/guidelines for ISDA Contract negotiations progress International consultant support study on C3.1.18 international experiences on sub-governmental debt 3(a)-2.6 Post CS 35.0 35.0 IC 2/2013 3/2013 9/2013 management Local consultant support development of legal C3.1.25 documents perfecting the legal framework for 3(a)-3 Post CS 25.0 25.0 IC 2/2013 3/2013 10/2013 guarantees and on-lending WB Proc. Cost estimated Proc. Proc. Proc. End No. Activities Ref. Notes review Type IDA Gov't Total Method Start End Contract Local consultant support preparation of the C3.2.2 development of public debt and risk management 3(b)-2 Post CS 20.0 20.0 IC 2/2013 3/2013 9/2013 information system International consultant support development of a in C3.2.3 strategy for public debt and risk management 3(b)-2 Post CS 55.0 55.0 IC 12/2012 2/2013 9/2013 progress information system development Printing 2,000 copies of the Guiding Handbook for C3.3.2 SOEs financial monitoring and performance 3(c)-3 Post G 7.0 7.0 S 2/2013 3/2013 9/2013 assessment COMPONENT IV 320.7 6.3 327.0 in C4.1.1 Component 1 Coordinator (2nd) 4(a) Post CS 16.7 6.0 22.7 IC 12/2012 2/2013 2/2014 progress Consultant(s) to support project evaluation and CQS / C4.1.2 4(a) Post CS 198.0 198.0 4/2013 6/2011 2/2014 closing, preparation of completion report ICs C4.2.1 International consultant for follow-on project 4(b) Post CS 60.0 60.0 IC 5/2013 7/2013 10/2013 C4.2.2 Local Consultant for follow-on project 4(b) Post CS 40.0 40.0 IC 5/2013 7/2013 10/2013 C4.4.3 PMU equipment 4(c) Post G 6.0 0.3 6.3 NS 2/2013 3/2013 4/2013 TOTAL 6,297.1 237.9 6,535.0 Disbursement schedule during the extension period (Unit: US$1,000) Calendar Year 2013 Total Q1 Q2 Q3 Q4 Component 1 3,638 5,859 2,857 892 13,246 Component 2 0 95 230 135 460 Component 3 183 165 529 248 1,125 Component 4 95 208 379 225 907 Total 3,916 6,327 3,996 1,500 15,738