Document of The World Bank Report No: ICR00002828 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-40280) ON A CREDIT IN THE AMOUNT OF SDR, 75.20 MILLION (US$ 112.64 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE URBAN WATER SUPPLY DEVELOPMENT PROJECT December 12, 2013 Sustainable Development Department Vietnam East Asia and Pacific CURRENCY EQUIVALENTS (Exchange Rate Effective October 31, 2013) Currency Unit = Vietnamese Dong 1VND= 0.00005US$ 1US$ = 21, 059.7VND FISCAL YEAR January 1- December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CPS Country Partnership Strategy CPU Central Project Unit DB Design and Build DBO Design, Build and Operate DCA Development Credit Agreement EMP Environmental Management Plan GoV Government of Vietnam HCMC Ho Chi Minh City IDA International Development Association MABUTIP Management Board of Urban Technical Infrastructure Development Projects M&E Monitoring and Evaluation MOC Ministry of Construction MTR Mid-term Review NPV Net Present Value NRW Non-revenue Water PAP Project Affected Persons PDO Project Development Objectives PPC Provincial Peoples Committee PPMU Provincial Project Management Unit RAP Resettlement Action Plan RPF Resettlement Policy Framework SDR Special Drawing Rights UAFW Unaccounted-for-water USD United States Dollars VDB Vietnam Development Bank VND Vietnamese Dong WSC Water Supply Company Vice President: Axel van Trotsenberg Country Director: Victoria Kwakwa Sector Manager: Jennifer Sara Project Team Leader: Quang Vinh Nguyen ICR Primary Author: Christopher Ancheta VIETNAM Urban Water Supply Development Project CONTENTS Page Data Sheet A. Basic Information ……………………………………………………………………… i B. Key Dates ………………………………………………………………………………. i C. Ratings Summary ………………………………………………………………………. i D. Sector and Theme Codes ………………………………………………………………. ii E. Bank Staff ……………………………………………………………………………… ii F. Results Framework Analysis …………………………………………………………… ii G. Ratings of Project Performance in ISRs ……………………………………………….. vii H. Restructuring …………………………………………………………………………… vii I. Disbursement Graph ……………………………………………………………………. viii 1. Project Context, Development Objectives and Design ………………………………… 1 2. Key Factors Affecting Implementation and Outcomes ………………………………… 5 3. Assessment of Outcomes ……………………………………………………………….. 13 4. Assessment of Risk to Development Outcome ………………………………………… 18 5. Assessment of Bank and Borrower Performance ………………………………………. 19 6. Lessons Learned ………………………………………………………………………... 21 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners …………. 23 Annex 1. Project Costs and Financing ……………………………………………………. 24 Annex 2. Outputs by Component …………………………………………………………. 25 Annex 3. Economic and Financial Analysis ………………………………………………. 34 Annex 4. Bank Lending and Implementation Support/Supervision Processes …………… 39 Annex 5. Beneficiary Survey Results ……………………………………………………... 41 Annex 6. Stakeholder Workshop Report and Results …………………………………….. 44 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ………………… 45 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ………………….. 49 Annex 9. List of Supporting Documents ………………………………………………….. 50 MAP 51 A. Basic Information Vietnam Water Supply Country: Vietnam Project Name: Development Project Project ID: P073763 L/C/TF Number(s): IDA-40280 ICR Date: 12/26/2013 ICR Type: Core ICR SOCIALIST Lending Instrument: SIL Borrower: REPUBLIC OF VIETNAM Original Total XDR 75.20M Disbursed Amount: XDR 53.78M Commitment: Revised Amount: XDR 53.78M Environmental Category: B Implementing Agencies: Vietnam Development Bank Ministry of Construction 13 provincial project management units (PPMUs) Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/30/2001 Effectiveness: 11/11/2005 11/11/2005 06/29/2012 Appraisal: 06/21/2004 Restructuring(s): 06/28/2013 Approval: 12/21/2004 Mid-term Review: 06/16/2008 11/26/2008 Closing: 06/30/2012 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Unsatisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Moderately Satisfactory Unsatisfactory Implementing Moderately Quality of Supervision: Moderately Satisfactory Agency/Agencies: Unsatisfactory i Overall Bank Moderately Overall Borrower Moderately Performance: Unsatisfactory Performance: Unsatisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Unsatisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sanitation 5 1 Water supply 95 99 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 30 89 Other Private Sector Development 20 6 Pollution management and environmental health 20 1 Urban services and housing for the poor 30 4 E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg Jemal-ud-din Kassum Country Director: Victoria Kwakwa Klaus Rohland Sector Manager: Jennifer J. Sara Keshav Varma Project Team Leader: Quang Vinh Nguyen William D. Kingdom ICR Team Leader: Quang Vinh Nguyen ICR Primary Author: Christopher Casuga Ancheta F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to assist the Borrower to improve water and household sanitation services in selected district towns and large urban centers in the ii participating provinces in financially and environmentally sustainable manner, thus enhancing the health and economic potential of the resident households. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Thousands of additional people with access to improved water supply Value quantitative or 0 None 1203.000 1446.648 Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments Achieved 120% of the revised target. No target value at appraisal. The project (incl. % achieved fewer beneficiaries in Component 1 but achieved a larger number of achievement) beneficiaries in Component 2 Indicator 2 : Thousands of additional people with access to improved sanitation facilities Value quantitative or 0 None 59.780 37.375 Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Partially achieved (62%) of the revised target. The revised target was not Comments achieved because of the high construction costs that resulted in reduction in (incl. % outputs during the last years of project implementation. No target value at achievement) appraisal Indicator 3 : Average working ratio of participating provincial WSCs Value quantitative or 60.87 None 63.00 64.00 Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2013 Comments Achieved based on the revised target. Average working ratio reflects the ability (incl. % of provincial WSCs to recover operating costs from annual revenue achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Component 1: Thousands of additional people with access to improved water Indicator 1 : supply Value 113 885 445 383.654 iii (quantitative or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments Partially achieved original (43%) and revised (86%) targets. The project (incl. % experienced implementation delays and high rate of inflation. Thus the original achievement) and revised targets could no longer be achieved. Component 1: Thousands of additional people with access to improved sanitation Indicator 2 : facilities Value (quantitative 30 None 60 37.375 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments Partially achieved (62%) the revised target value. The reason is the same as (incl. % described above. achievement) Indicator 3 : Component 1: Thousands of people reached by hygiene education program Value (quantitative 113 None 445 383.654 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments Partially achieved (86%) the revised target value. The reason is the same as (incl. % described above achievement) Component 1: Proportion of water samples effectively disinfected at the water Indicator 4 : plants Value (quantitative 100 100 100 100 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments Achieved. The project uses the national standards for clean water issued by (incl. % Ministry of Health. the local provincial health departments monitor water quality. achievement) All water supply systems provide clean portable water Indicator 5 : Component 1: Sanitation Revolving Fund repayment rate Value (quantitative 95 None 95 99.73 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments (incl. % Achieved (105%) the revised target value achievement) Indicator 6 : Component 1: Net operating income of sub-project (VND million) Value (quantitative -247 None 22462 -6.884 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments Not achieved. The water supply systems have been operational in just one year. (incl. % Revenues are still lower relatively to the target because connection rates are still achievement) picking up. The Government froze increases in water tariffs during 2008-2011 iv Component 2: Thousands of additional peoples with access to improved water Indicator 7 : supply Value (quantitative None None 553.13 841.927 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments Achieved (152%) the revised target value with more water saved in Ho Chi Minh (incl. % City and more household connections in Hai Phong achievement) Component 2: Proportion of water samples effectively disinfected at the water Indicator 8 : plants Value (quantitative No data None 100 100 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments Achieved. The project uses the national standards for clean water issued by (incl. % Ministry of Health. The local provincial health departments monitor water achievement) quality. All water supply systems provide clean portable water Component 2: Reduced volume of water physically lost from systems (HCMC Indicator 9 : only) Value (quantitative To be determined None 91726 m3/day 101645 m3/day or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments (incl. % Achieved (110%) the revised target value achievement) Indicator 10 : Component 2: Net operating income of PWSCs (VND million) Value (quantitative None 318638 413469 125322 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments Not achieved. The new systems are just in their first year of operation and the (incl. % GoV decided to freeze the increases in water tariffs during 2008-2011 achievement) Indicator 11 : Component 2: Average water tariff (VND/m3) Value (quantitative 2200 None 5878 8300 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments Achieved. The tariff has been set based on full cost recovery principles as (incl. % regulated by the GoV (joint circular issued by MOF, MOC and MARD). achievement) However, during 2008-2011 increase of tariffs has been frozen Indicator 12 : Component 3: Fund amount disbursed on non-subsidized terms (VND million) Value US$ 10M (quantitative None 157510 97800 converted in VND or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 v Comments Partially (61%) achieved. The investors borrowing loans from the facility have (incl. % reduced size of investments and arranged other financing models achievement) Component 3: Thousands of additional people with access to improved water Indicator 13 : supply Value (quantitative None None 205 221.070 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2012 06/30/2012 Comments (incl. % Achieved (108%) the revised target value achievement) Component 4: Institutional strengthening procedures developed by consultants Indicator 14 : and accepted by MOC Value (quantitative None None 1 1 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Achieved the revised target. MOC has an issuance that institutionalized the Comments regular reporting procedures on performance indicators of WSCs. Data are (incl. % generated by these WSCs and submitted to the provincial departments of achievement) construction and then to MOC Indicator 15 : Component 4: Establishment of sector performance database Value (quantitative None None 1 1 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments The sector database has been established. Administration of Infrastructure under (incl. % the MOC is operating this database achievement) Component 5: Training courses provided to provincial WSCs on project Indicator 16 : management Value (quantitative None None 14 14 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Comments Achieved (100%) the revised target. Trainings covered procurement, contract and (incl. % financial management, social and environmental safeguards achievement) Indicator 17 : Component 5: Consulting contracts awarded to agreed procurement plan Value (quantitative None None 14 17 or Qualitative) Date achieved 11/22/2004 06/30/2012 06/30/2013 06/30/2013 Achieved. The CPU has mobilized 14 consultants to support the CPU in project Comments management and supervision. It additionally mobilized 3 consultants to work on (incl. % drafting project ICR, reviewing equitization of WSCs and tariff setup in achievement) participating provinces vi G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 04/20/2005 Satisfactory Satisfactory 0.00 2 12/22/2005 Satisfactory Moderately Satisfactory 0.00 3 05/30/2006 Satisfactory Moderately Satisfactory 0.10 4 12/22/2006 Moderately Satisfactory Moderately Satisfactory 1.91 Moderately Moderately 5 06/07/2007 2.98 Unsatisfactory Unsatisfactory Moderately Moderately 6 12/19/2007 4.89 Unsatisfactory Unsatisfactory 7 06/24/2008 Unsatisfactory Unsatisfactory 6.97 8 03/02/2009 Unsatisfactory Unsatisfactory 14.33 Moderately Moderately 9 09/25/2009 16.71 Unsatisfactory Unsatisfactory 10 06/02/2010 Moderately Satisfactory Moderately Satisfactory 21.51 11 06/18/2010 Moderately Satisfactory Moderately Satisfactory 23.10 12 11/28/2010 Moderately Satisfactory Moderately Satisfactory 29.28 13 07/16/2011 Moderately Satisfactory Moderately Satisfactory 41.53 Moderately 14 02/03/2012 Moderately Satisfactory 52.90 Unsatisfactory 15 06/16/2012 Moderately Satisfactory Moderately Satisfactory 61.82 16 08/10/2012 Moderately Satisfactory Moderately Satisfactory 66.15 Moderately Moderately 17 02/04/2013 77.03 Unsatisfactory Unsatisfactory Moderately Moderately 18 06/25/2013 78.88 Unsatisfactory Unsatisfactory H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Reduction in project scope, change from Design-Build- Operation to Design-Build arrangement for Component 1; 06/29/2012 MS MS 62.50 revision in overall financing plan and costs; reallocation among disbursement categories; partial cancellation of Credit in vii ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions amount of SDR 9,740,000 (US$ 14.6M); revisions in Result Framework; extension of Credit closing date for selected provinces and project components from June 30, 2012 to June 30, 2013 Partial cancellation of Credit 06/28/2013 MU MU 79.62 proceeds in amount of SDR 8,746,753 (US$ 13.1M) I. Disbursement Profile viii 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Vietnam continued to evolve from centrally planned to market-economy during appraisal. Its economy was growing at approximately 7.5 percent per annum. Against this backdrop, Vietnam’s water and sanitation sector was struggling and was confronted with many challenges. Water service coverage was generally low. Piped water supply was only available to 50 percent of the urban population of Vietnam, with higher coverage in larger cities. Consumers without piped water accessed a variety of alternative sources including drawing water from shallow unprotected wells, streams or rivers. In 2004, only one quarter of the 550 district towns had piped water supply. In addition, a number of water systems needed rehabilitation as these were already providing very poor service and had high levels of leakage. The level of unaccounted-for-water (UAFW) was high. In Hanoi alone, UAFW was higher than 50 percent. Water services were also underpriced. Tariffs were set at very low rates that did not allow water supply companies (WSCs) to recover investment costs and expand service coverage. Moreover, the high design standards of the water supply systems led to unnecessarily high capital costs, which adversely affect tariffs and affordability. Water services were mainly provided by public WSCs, which were generally characterized as having overlapping roles and responsibilities, multiple objectives, overstaffing and lack of focus on quality of services. Finally, provision of sanitation services significantly lagged behind water supply services. The Government of Vietnam (GoV) recognized the need to improve and expand water supply and sanitation services to cope with increasing demand as well as to support the country’s pursuit for more rapid growth. The GoV, with assistance from the Government of Finland and the World Bank, developed in 1998 its urban water policy. The policy, set out in the “Orientation for Urban Water Supply Development” and “Orientation for the Development of Urban Sewerage and Drainage”, mainly sought to provide 100 percent of Vietnam’s urban population with 120-150 liters per capita per day (lcpd) of clean water by 2020. In the short term (2005), GoV targeted to reach 180 unserved district towns. Other objectives of the policy included promoting greater commercialization of the water supply sector, modernizing technology and equipment, improving protection of water resources and the environment, enhancing human resource and development, and mobilizing contributions from all sectors of the economy and community. The Bank has been a long time partner of the GoV in pursuing development. Through its Country Assistance Strategy (CAS) for Vietnam (2003-2006), the Bank committed to support GoV in achieving three broad objectives: (a) high growth through a transition to a market economy, (b) equitably, socially inclusive and sustainable pattern of growth, and (c) adoption of modern public administration, legal and governance system. This project was envisioned to support all three CAS objectives by encouraging the private sector in infrastructure provision, narrowing the development gap of disadvantaged and lagging areas, making basic social services accessible to the poor, enhancing environmental sustainability, and supporting transparency in governance. 1 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project development objective (PDO) is to improve water and household sanitation services in district towns and large urban centers in ways that are financially and environmentally sustainable thus enhancing the health and economic potential of the resident households. The project outcome indicators were as follows:  ‘000 additional people with access to improved water supply  ‘000 additional people with access to improved sanitation  Percent of treated water with adequate disinfection  Number of people exposed to hygiene education campaign  Improved net operating income of WSCs 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not changed. The Results Framework was modified to provide baseline and target values for the many indicators that were non-existent during appraisal. The target values reflected the reduction in project scope as a result of restructuring. There were no changes in project outcome and intermediate outcome indicators. See Section F of Data Sheet, page 7. 1.4 Main Beneficiaries The project aimed to benefit (a) an estimated 1.2 million residents in participating provinces and district towns through improved water supply and sanitation services; (b) participating WSCs through improved operational efficiency and financial sustainability; (c) provincial women’s unions through grants for sanitation; (d) local private sector to participate in the provision of water supply infrastructure through design-build-operate (DBO) arrangement; and (e) Government through capacity strengthening of the Ministry of Construction (MOC) -Central Project Unit (CPU) and Provincial Project Management Units (PPMUs). 1.5 Original Components (as approved) The project had five components: Component 1: Competition Route (US$ 55.87M) aimed to expand water service delivery to a total of 135 un-served district towns in 27 provinces through selection of contractors to design, construct and subsequently operate (DBO) the water supply facilities. This component also sought to assist households in these district towns to improve their sanitation facilities through the operation of provincial sanitation revolving funds that would provide households with access to small loans for such facilities. Considering the 2 large number of participating district towns and provinces, the project sought to carry out the preparation of subprojects on a phased basis. Phase 1 covered 15 towns in three provinces. Feasibility studies for these subprojects were already prepared at the time of appraisal. Phase 2 would cover up to 120 towns in 24 provinces. The project envisioned mobilizing a consultant to prepare feasibility studies for these towns. In addition to the developing new water supply schemes, the project intended to improve household’s sanitation conditions in project participating towns by providing a “household sanitation revolving fund”, which would be managed by respective provincial women unions. Under the revolving fund, poor households could borrow on average of US$ 150 for constructing/ rehabilitating their private toilets/ bathrooms. Component 2: Performance Route (US$61.86M) intended to expand water supply services through the rehabilitation of treatment plants, rehabilitation and/or expansion of distribution systems, and expansion of water production capacity in selected large urban centers in three provinces (Hai Phong, Binh Thuan, Ha Tinh), and one city (Ho Chi Minh). Investment funds would be available to these WSCs, which achieved defined levels of performance based on a 2002 benchmark exercise. Component 3: Non-Subsidized Water Supply and Sanitation (WSS) Lending Facility (US$10.12M) sought to establish a Development Assistance Fund (DAF) to provide non- subsidized lending for several water supply and sanitation infrastructure projects of technically and financially qualified public or private WSCs with a broader aim of making sector players more familiar with commercial financing. The DAF would charge close to market commercial lending rates with 5-15 years repayment including grace period. This lending was seen as a critical element in the development of the water and sanitation sector given the huge future demand for investments and current reliance of the sector on official development assistance. Component 4: Building Capacity in the Sector (US$1.01M) was designed to improve water sector performance by (a) developing standard implementation practices for participating WSCs; (b) developing procedures and implementation support to assess the performance of non-participating WSCs, and identifying areas that can be improved to promote participation in future projects; (c) strengthening the implementation capacity of the project provinces and the CPU; and (d) building the capacity of WSCs and bidders to participate in the competitive bidding and DBO contracting process. Component 5: Management of Project Implementation (US$6.13M) provided support to the MOC in the preparation, implementation, monitoring and management of project activities. 1.6 Revised Components The project faced major delays in subproject preparation and implementation and considerable increases in construction costs. These necessitated a reduction in project scope to allow the project to achieve its development objective. In general, the project 3 retained all its components. However, the scope of components 1 and 3 was reduced to take into account fewer participating towns and provinces. Component 4 originally intended to build capacities of project players in the DBO process. However, project shifted from DBO to Design- Build (DB) arrangement. This made many Component 4 activities irrelevant. Thus, the project revised the scope of this component. The details are presented below. Component 1: Competition Route (US$ 40.57M). The scope of this component was reduced as a result of the substantial delays in recruiting a consultant for Phase 2 subprojects, additional delays faced by the selected consultant in the preparation of feasibility studies, and substantial increases in construction costs. The original number of towns and provinces (i.e., 135 towns in 27 provinces) envisioned to be covered by the project was no longer achievable. Thus, it was reduced to 39 towns in 9 provinces. There was also a shift from the DBO contracting process to DB only with operations directly assumed by the water utilities. This shift in arrangement was mainly due to the limited market or competition among contractors in the operation and maintenance (O&M) of water supply facilities. The local private sector lacks readiness to participate in long-term O&M contracts (10 years and more) while the public WSCs have substantial experience working in this field for many years. Component allocation was reduced from US$55.87M to US$40.57M. With such substantial reduction in scope, the number of beneficiaries of this component was reduced from 885,000 at PAD stage to 445,000 at project restructuring. While the number of provinces and towns participating in the project was reduced, the scope of household sanitation component was reduced accordingly. Component 2: Performance Route (US$57.11M). This component was revised to take into account the withdrawal of the province of Binh Thuan from the project, as it was able to secure investment funds from other sources. It was replaced by Quang Ninh province. The delays in the implementation of Ho Chi Minh City subproject required some activities to be cancelled. Thus, component allocation was reduced from US$61.86M to US$57.11M. Component 3: Non-Subsidized WSS Lending Facility (US$5.01M). Component allocation was reduced from US$10.12M to US$5.01M because of general lack of demand for credit at non-subsidized terms. GoV changed the name of the implementing institution from Development Assistance Fund (DAF) to Vietnam Development Bank with the same mandates and functions as the DAF. Component 4: Building the Capacity in the Sector (US$0.65M). Some of the original activities under this component were no longer relevant because of the change from DBO to DB contracting arrangement under Component 1. Activities intended to strengthen the capacity of WSCs and bidders to participate in the competitive bidding and contracting under DBO arrangement were dropped. Government at the same time decided to refocus the priorities in sector institutional development from providing assistance to WSCs in developing their business plans to developing a system for evaluating their performance. The revised component, therefore, sought to establish a database system of WSCs 4 through regular report regime to gradually improve MOC’s and other state agencies’ management systems. It also intended to strengthen the capacity of (a) the MOC to manage urban water supply; and (b) the WSCs to improve project management capacities. Component allocation was subsequently reduced from US$1.01M to US$0.65M. Component 5: Management of Project Implementation (US$3.37M). Allocation for this component was reduced fromUS$6.13M to US$3.37M following the reduction in project scope, termination of the contract signed with an international consultant due to its poor performance and use of local consultants for monitoring key project activities. 1.7 Other significant changes a. A request for withdrawal of Binh Thuan province from participating in Component 2 and replacement by Quang Ninh province was approved by the Country Director and countersigned by the GoV on December 17, 2007. Binh Thuan province obtained financing from other sources. b. A Level 2 Restructuring was approved by the Country Director on June 29, 2012. The changes included: (i) reduction in project scope; (ii) partial cancellation of credit proceeds in the amount of SDR9, 740,000 (US$14.6M) to reflect the reduction in project scope; (iii) extension of credit closing date for selected provinces and project components from June 30, 2012 to June 30, 2013 to enable Ho Chi Minh City, Ha Tinh province and MOC to complete ongoing contracts; (iv) a change in the DBO contracting process to DB only with operations directly assumed by water utilities; (v) change in the name of the implementing institution for Component 3; (vi) revision and reduction of the overall financing plan and costs by component; (vii) revisions in Schedule 1 (Withdrawal of Loan Proceeds) of the Credit Agreement to reflect actual costs and disbursements and in Schedule 2 to reflect the revised scope of Component 4 including the names of participating provinces; and (viii) revision of the Results Framework to provide target values for the project’s outcome and output indicators and at the same time reflect the reduction in project scope. c. The second Level 2 Restructuring was approved by the Country Director on June 28, 2013 to reflect an additional partial cancellation of credit proceeds in the amount of SDR 8,746,753 (US$13.15M). Revision in Schedule 1 (Withdrawal of Loan Proceeds) of the Credit Agreement was approved by the Country Director on June 28, 2013. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The project did not have Quality at Entry assessment. Soundness of the background analysis. Background analysis was relatively sound. The 5 Project Appraisal Document (PAD) and related project documents properly identified and captured the problems in Vietnam’s water and sanitation sector. Vietnam was in transition to a market economy and was experiencing rapid economic growth but its water supply and sanitation sector was struggling. Water supply systems needed to be constructed and/or rehabilitated to expand provision of basic public services and cope with increasing demand. The GoV strongly pursued sector reforms by adopting the principle that water is an economic and social good and setting out an ambitious target of full water supply and sanitation service coverage by 2020. It sought to achieve this vision by developing alternative means of providing water services and mobilizing contributions from a wide range of potential partners ranging from households to the private sector. The project was informed by the analytical work relating to the development of GoV’s strategy and policy for the sector as set out in the “Orientation for Urban Water Supply Development” and “Orientation for the Development of Urban Sewerage and Drainage”. In addition, the project drew lessons from international experiences, particularly in developing innovations and new ways of providing water supply and sanitation services and promoting market competition in the water sector. It also considered lessons from the implementation of the first water supply project (credit N0260), which enabled GoV to expand access of households to water supply in major cities and two sanitation projects (Credit 3211 and 3475). The project, however, did not provide sufficient attention to the local market conditions as well as the institutional capacity implications for the key innovations and the scale that it intended to implement. During project preparation, Vietnam was still in transition to market economy and the private sector was still growing. In the water sector, the legal, commercial and regulatory environment for private sector participation was still premature. In terms of capacity, the local private sector practically had no experience in water supply provision and lacked readiness to operate water supply systems. Despite this, the project intended to apply the DBO innovation immediately to a rather large number and geographically dispersed towns, provinces and cities (135 district towns in 27 provinces under Component 1). Assessment of the project design. The PDO was too broadly defined. It covered five areas: improved household water supply, improved household sanitation, enhanced financial viability, environmental sustainability, and enhanced household health and economic potential. The health and economic benefits were actually higher level objectives instead of project level outcomes that can be solely attributable to the project interventions. On the other hand this practice was often seen in other similar operations at the time of appraisal. What was more of a problem was the lack of targets for the KPIs, which was only added when the project was approaching the closing date. The Results Framework that aimed to capture project achievements in these areas did not show a logical sequencing of outcomes and outputs , i.e. there were no output indicators at all (e.g., number of water supply systems constructed, number of sub-loans processed, etc.), which made the project scope unclear. The project adequately identified and assessed the environmental and social issues, correctly determined safeguards classification and triggered applicable safeguards 6 policies. The project was made up of components that aligned well with government’s strategic decision to scale up provision of water supply and sanitation. To achieve this, the project offered a set of modalities (Components 1 to 3) to allow more flexibility in response to a large number of WSCs, each having different investment needs. It also envisaged applying many innovations in water supply provisions. It intended to bring private sector into the provision and management of water supply and sanitation services; implement sanitation revolving funds in participating towns and provinces through women’s unions; and providing credit at commercial terms for WSCs to invest in water supply, among others. This meant working with more than 40 institutions including the CPU, PPMUs, VDB, WSCs, and women’s unions, among others, which were of varying sizes and capacities. However, the institutional analysis for coordination, implementation and management was wanting. The resulting institutional design for project implementation was weak and became partially responsible for the many hurdles and delays that the project had to face during implementation. The implications of bringing the private sector to participate in water supply provision were also not fully studied and tested in terms of appropriateness and applicability to local conditions. Finally, considering the scale and complexity of design, the project only intended to implement all these activities within a six-year period, which meant the implementation timetable was ambitious and unrealistic. In fact, it was noted that prior to effectiveness, it already suffered a five-month delay relative to the timetable agreed upon at negotiation. Risk assessment: The project also did not have a complete and more thorough risk assessment (as documented in the PAD). The project identified many risks. Among these include (a) the application of DBO scheme in the development of a more efficient water supply industry might not work since the scheme is unproven and the market response largely untested; (b) procurement activities could be delayed due lengthy review and approval process, lack of knowledge of World Bank procurement procedures and documentation, lack of knowledge and skills on contract management, and weak communication capacity; (c) WSC and Provincial Peoples Committee (PPC) would not maintain tariffs at full cost recovery levels, (d) communities would not honor willingness- to-connect agreements once the water supply system is complete; and (e) project funds would not be disbursed on schedule. While the project correctly rated these risks as “High” or “Substantial”, it did not provide sufficient and effective mitigation strategies that could have been used to inform project design at appraisal and to focus monitoring and supervision during implementation. In addition, the project was unable to anticipate the possibility of project delays resulting from lack of readiness of subprojects (i.e., need for feasibility studies to be carried out, completed and approved during project start up) and institutions that would prepare, review, approve, procure and implement these subprojects. This risk, which turned out to be very critical during implementation, almost compromised PDO achievement. The project intended to hire an international consultant to facilitate preparation of feasibility studies. However, the project experienced substantial delays in procuring the consultant and further delays because it performed poorly during implementation. 7 Adequacy of government’s commitment, stakeholder involvement and/or participatory processes. GoV’s overall commitment to implement the project was adequate. GoV provided policy and institutional support to the project. It carried out sector reforms and further decentralization of decision making to the local level. During project implementation, GoV transformed all provincial WSCs from state owned enterprises operating under the Law of State Owned Enterprises to limited liability companies operating under the Incorporation Law. It also allowed WSCs to have autonomy in making investment decisions and improving operational efficiency. With the new laws became effective since 2005 (Construction Law and Procurement Law) and following Government’s decrees guiding implementation of these laws, the distribution of responsibilities between different levels (central/ local) and different units, agencies (ministries, provincial peoples committees, provincial departments, WSCs, PPMUs) became clearer and the decision making process has been streamlined. The project tried to optimize stakeholder participation in project design (i.e., extensive social intermediation, willingness-to-connect surveys, etc.). It moved from the traditional supply- driven to demand- driven approach through extensive discussion and negotiation with potential beneficiaries on willingness-to-pay for water services. However, the lack of a good coordination mechanism between the CPU and the PPMUs during subproject preparation and implementation led to the re-design of some subprojects as some designs were not fit to local conditions. 2.2 Implementation The project did not have Quality of Supervision assessment by Quality Assessment Group (QAG). Implementation delays. The project experienced considerable delays from project start up to completion. Initially, the project effectiveness was delayed for five months. Implementation further lagged behind schedule because of the procurement hurdles the project had to face both at the CPU and the PPMU level. At the CPU level, there was procurement failure in the recruitment of consultant who would prepare Phase 2 subprojects under the Competition Route. It took more than a year for the CPU to complete the re-bid and implement this critical contract. Furthermore, the implementation of this critical contract suffered from substantial delays because of the consultant’s poor performance. It was only able to carry out feasibility studies for 22 district towns in six provinces out of the planned 120 towns in 24 provinces. MOC terminated this contract after two years of implementation and mobilized a number of local consultants to implement remaining project activities. At the PPMU level, implementation again suffered delays because feasibility studies and technical designs had to undergo a lengthy review and approval process. Many PPMUs also faced difficulties in the procurement of contractors for civil works because of their lack of familiarity with World Bank procurement guidelines. In most cases, PPMUs took around two years to complete the process. 8 The innovations introduced by the project likewise delayed implementation. For instance, in Ho Chi Minh City a NRW reduction program was piloted with a private sector through performance-based contract was delayed because the PPMU had limited knowledge of performance-based contracts. Finally, land clearance and compensation activities were also delayed due to the following major factors: (a) delayed mobilization of GoV counterpart funding for compensation; (b) disagreement between District Committees and affected persons on the amount of compensation; and (c) weak collaboration between PPMUs and District’s Committee for Compensation, Support and Resettlement (or District’s Land Fund Development Center). Considerable increases in construction costs and town populations. The project was heavily affected by inflation in 2007-08 and 2010-2011. In 2007-08, when some subprojects were ready for implementation, Vietnam experienced extremely high inflation, particularly in the construction sector. The spike in construction costs including labor, cement and steel necessitated a review and subsequent adjustment of subproject costs. Originally, the project proposed to construct water supply systems 135 towns for about USD450, 000 per system. Each town had an average population of 6,500. However, the considerable increases in construction costs coupled with increases in population particularly of large towns (now averaging 15,000), the total cost of constructing a water supply system increased to USD1.1 million. This necessitated a significant reduction in the scope of Component 1. In 2010-2011, Vietnam again experienced high inflation (i.e., price indexes increased about 24 percent in just one year). This resulted in further scaling down of some subproject activities (e.g., expansion in household connections). By the original project closure, 3 out of 39 towns couldn’t complete their construction activities and households in those towns couldn’t get access to water supply service as planned. Those systems could be only fully completed in a year later. The project ultimately was unable to achieve some of its revised targets (e.g., number of water supply beneficiaries under Component 1). Project mid-term review (MTR). At mid-term, the project was already performing unsatisfactorily and was facing substantial risks in not achieving its development objective. The MTR in 2008 properly identified key issues that affected implementation, correctly determined key actions milestones, and focused on addressing implementation bottlenecks. The Bank and Government agreed on firmer timelines for completing feasibility studies and procurement activities and non-compliance with the deadline would entail cancellation of the subproject. Both also agreed to carry out adjustments in the project scope to address issues relating to slow project implementation and high construction costs. However, MTR missed the opportunity of reviewing the relevance, adequacy and robustness of the indicators specified in the project Results Framework and providing targets for the indicators. This oversight, in turn, limited the ICR team to have a better assessment of project achievements. Project restructuring. The project was unable to optimize the benefits of restructuring because it took place just as the project was closing. Project restructuring was initially 9 planned to be implemented in October 2010 with the full package submitted to the Country Director for final approval. However, with substantial project changes, there were discussions on whether or not the restructuring remained at Level 2 or needed to be elevated to Level 1 that requires Board approval. Given that the Level 1 project restructuring would be required only in the case of changing the PDO or introducing a new safeguard policy, the Task Team had a series of consultations with the relevant units within the Bank and the Government. The agreement to maintain a Level 2 restructuring was reached only in April 2012. As a result, the project would be assessed giving more weight (70%) to achievements before the project was restructured. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design. Based on the PAD, M&E would be carried out by the CPU and PPMUs. The PPMUs would be responsible for data collection while the CPU would take charge of compiling data and monitoring overall project performance. Unfortunately, the M&E framework was rather weak. The indicators specified were not well defined to properly assess project performance and outcomes, and the key outputs were not sufficiently captured in the framework. Some were also difficult to quantify and monitor. Besides, most indicators did not have baseline and target values. Furthermore, the discussion to revise the Results Framework was initiated at MTR, but formal revision only took place as the project was closing in June 2012 (original closing date). The reason for the delays was that at MTR, the preparation of phase 2 of Component 1 had just started and the number of participating provinces was unclear. Only by middle of 2010, when the project preparation was extremely slow due to the poor performance of the selected consultant did the Task Team and the GoV have reached an agreement to stop further preparation and the number of participating provinces was finally identified. The revised Result Framework was incorporated in the planned project restructuring, which was expected to be approved by October 2010. However, with the delay in processing the project restructuring as described in the section above, this only occurred in June 2012. The revision only introduced project targets. The project provided insufficient attention in terms of assessing the relevance, adequacy and appropriateness of outcome and output indicators as well as procedures for data analysis and reporting. Implementation and Utilization. During implementation, the project the CPU hoped that baseline and targets values could be generated early on from the feasibility studies and through the mobilization of a consultant to help the CPU to develop a monitoring system for the project. However, the completion of feasibility studies was substantially delayed and the hiring of the consultant fell through. The CPU instead designated an M&E consultant to provide guidance to PPMUs in reporting, verifying and consolidating data at the project level. With those efforts, the project M&E was improved during the last three years of implementation and was helpful in informing decision and reallocation of resources. It was a pity though that the target values were only provided near the project end. 10 2.4 Safeguard and Fiduciary Compliance Social safeguards. The project triggered Involuntary Resettlement (OP4.12). It anticipated that adverse social impacts would be created as a result of land acquisition for the construction or rehabilitation of water treatment plants, source works and pipeline. The preparation of social safeguards instruments followed the phasing of project activities. At appraisal, four RAPs were prepared for Phase 1 and a Resettlement Policy Framework (RPF) was developed to guide the preparation of RAPs of subprojects to be implemented in Phase 2. All social safeguard instruments (including RAPs of Phase 2) were reviewed and were consistent with OP 4.12 Involuntary Resettlement. Land acquisition was carried out following the provision stipulated in the RAPs and the RPF. The project complied with social safeguard policies. However, the project experienced substantial delays in the implementation of site clearances and compensation (see Section 2.1). These delays had considerable adverse impact on the progress of civil works, particularly for subprojects in Hanoi, Thai Nguyen, Bac Ninh and Ha Tinh. In addition, changes in national legislation requiring the project to decentralize land acquisition and compensation activities from the PPMUs to District Committees contributed to difficulties in implementing these activities. Environmental safeguards. The project was classified as Environmental Category B and triggered Environmental Assessment (OP4.01). The project fully complied with environmental safeguards policies. It prepared Environmental Assessment (EA) reports and Environmental Management Plans (EMPs) for each sub-project and disclosed before appraisal. The project mainly provided positive environmental and public health impacts through the provision of clean, and reliable water supply services and improved sanitation. During construction, the negative environmental impacts mitigated included the temporary environmental pollution caused by waste and wastewater generated from construction sites, and disturbance to daily activities of local population caused by increased traffic on access roads, dust and noise from construction activities, traffic disturbance and safety risks related to excavation works, etc. The project mobilized construction management consultants to monitor subproject impacts on the environment. The mitigation measures specified in the EMPs were incorporated in the construction contracts and these were adequately carried out during the construction phase. There were no reported cases of complaints from local communities during construction phase. During operation, the key potential impacts mitigated include pollution related to sludge and wastewater generated from the water treatment, and pollution from increased wastewater generated by users connected to the new water supply systems. The main risk is increased erosion/land slide potentials when the water treatment plants and drains are built in hilly areas. While some potential impacts and risks in operation phase were also addressed through engineering design solutions, some subprojects went further than environmental safeguards through investments in architectural design and landscaping for the water treatment plants. The project could have been better designed if it also included investments to address the issues related to increased wastewater from new water supply connections. 11 Procurement. The project generally complied with project procurement procedures, except for two cases that led to a re-bid of consulting services contract for the preparation of Phase 2 subprojects and another one resulted in a declaration of misprocurement by the Bank. In terms of procurement implementation, the project experienced a number of challenges that led to serious delays in construction. These included difficulties and delays in the preparation of standard bid documents, occurrence of failed bids, and difficulties in evaluating reasonableness of bids. These problems were mainly a result of the lack of familiarity and experience of project implementers in using World Bank procurement procedures. A Procurement Manual was also developed to guide the PPMU. Procurement training was also provided to the PPMUs and close supervision of the CPU was carried out to help resolve these issues. A lengthy process also took place in resolving the issue associated with the participation of State Owned Enterprises (SOEs) of the MOC in the project given that MOC is the main implementing agency. This issue was later resolved. MOC-dependent SOEs were declared ineligible to bid on any contract under the project. While the project experienced serious procurement hurdles, it also had achievements. The high-value contract for NRW reduction under the Ho Chi Minh City subproject was the first-ever (and only) performance based works contract that involved the participation of the private sector in the O&M of a part of the public water supply system. This contract has been successfully implemented. The project was also the first in Vietnam to introduce and successfully implement the innovative form of bidding using DB contract for construction of water supply schemes. This approach was replicated in another project (Red River Delta Rural Water Supply & Sanitation Project). Initial implementation of the sub-project was slow due to delays in sub-project preparation, including reviewing and approving of the sub-project feasibility study and delays in procuring consultants and contractors. Despite a lag in physical implementation, the results of this sub-project have been impressive with NRW reduction targets already being surpassed. The performance based contract could serve as a model for improving efficiency and quality of water supply services in Vietnam, and in particular for reducing water losses. The substantial impact of this subproject in achieving overall project objectives as well as in providing a national demonstration effect warranted Bank approval for partial project extension for one year. Financial Management (FM). The FM and fund flow arrangements under the project were complex. As a result, FM implementation was problematic at project start up to 2010. The project faced several FM-related issues including poor contract management, delayed submission of interim financial reports and low disbursement rate. However, at the latter part, FM implementation gradually improved as the CPU and the Task Team streamlined the contract and fund flow arrangements; strengthened the FM capacities of implementing agencies; and carried out improvements in internal controls. The project mobilized consultants to support weak provincial WSCs and provided contract management training for all implementing agencies. In addition, one of the participating WSCs was allegedly in involved in fraudulent practices under the project. The province’s State Inspectorate reported cases of poor 12 quality of construction, potential acceptance of incomplete works, and overpayment to completed volume of works. The Task Team conducted several special missions to review the status of project implementation and requested corrective measures from project implementing agency, contractors and consultants. Following the Team’s request, appropriate corrective measures have been taken and the project implementation in this province has been successfully and adequately completed. In another province, where a contract was declared misprocurement, the concerned province refunded the Bank the amount relating to that contract in a timely manner. By 2011, the project had a functioning FM system, with adequate staff. Audit reports for 2012 of the whole project were submitted on time with an unqualified opinion on the total project expenditures. All WSCs disbursed funds as scheduled 2.5 Post-completion Operation/Next Phase The water supply systems financed under Component 1 have been operational since 2012. The respective provincial WSCs are managing these systems. They have already started the collection of water payments. The project provided training on operation and maintenance to strengthen their capacities. The provincial women’s unions will continue to manage and on-lend the sanitation revolving fund (now on-lending second generation fund) to households in respective provinces. Under Component 2, the WSCs will continue to manage and operate their rehabilitated and expanded water supply systems that allowed them to reduce water losses and improve service quality. The performance- based contract for reducing NRW in HCMC is now widely accepted in the country as an effective approach for improving the utility’s operational efficiency. Under Component 3, the VDB will continue to provide new loans to the sectors from the fund collected from repayments. In Component 4, a unit within the Administration of Technical Infrastructure of the MOC will maintain the water and sanitation sector database that was established under the project. The unit is equipped with adequate personnel and equipment. MOC also issued an order institutionalizing the reporting mechanism for providing the required performance indicators from water supply utilities for updating the database. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The project’s objective remains highly relevant to the development priorities and circumstances of Vietnam today. The project remains well aligned with GoV’s current development priorities as reflected in Vietnam’s Socio-economic Development Plan. It is also consistent with the current World Bank Country Partnership Strategy (CPS) for Vietnam, which includes the Bank’s support to GoV’s efforts to improve water and sanitation through the three engagement pillars: (a) strengthening Vietnam's competitiveness in the regional and global economy, (b) increasing the sustainability of its development, and (c) broadening access to economic and social opportunity. In terms of design and implementation elements, the successful piloting of the innovative NRW reduction program that involves private sector participation in the operation and 13 maintenance of a part of the public water supply system though a performance based contract was particularly relevant in the overall development of the water supply and sanitation sector in Vietnam. 3.2 Achievement of Project Development Objectives Based on the PDO statement, the project intended to improve: (a) household access to water supply services, (b) household access to sanitation services, (c) participating WSCs’ financial sustainability, (d) environmental sustainability, and (e) household health and economic potentials. Project achievements were measured based on these sub-objectives. However, there were no baselines and targets for many of the project outcome and output indicators. Thus, the ICR team faced limitations in terms of capturing project performance vis-à-vis its original intent. Considering this, the ICR team rates the overall project performance using the original Results Framework as Unsatisfactory. Based on the Revised Results Framework, the project was evaluated as follows: Objective 1: Improved access to water supply services. This objective was originally envisaged to be achieved mainly through the (a) construction of water supply systems in 135 district towns in 27 provinces (Component 1); and (b) rehabilitation and expansion of water supply systems in three provinces and one city (Component 2). Around 885,000 households were expected to benefit from Component 1 while there was no target set for Component 2. The operational difficulties and the unanticipated inflation during implementation necessitated the project to be restructured; the scope of Component 1 was substantially reduced to 39 towns in 9 provinces (see Section 1.6). The number of target beneficiaries was subsequently reduced to 445,000. At ICR, the project was only able to benefit 383,654 individuals, achieving 86 percent of the revised target. The project had to further scale down the number of household connections because of the considerable increases in construction costs in 2010-11. For Component 2, there were no changes in the overall scope (3 provinces, 1 city). At restructuring, the project targeted 553,130 individuals to benefit from improved water supply access. At ICR, it provided access to 841,927 individuals (152 percent of revised target). This was made possible because Ho Chi Minh City was able to reduce the volume of water physically lost from its water system by 101,645 m3/day surpassing by 10 percent the target of 91,726 m3/day (and thus reaching more households). In addition, Hai Phong was able to connect more households in its water system. While the project reached fewer beneficiaries in Component 1, this was compensated by larger number of beneficiaries in Component 2. In total, the project benefited 1,446,648, representing 120 percent of the overall revised target. Finally, all water samples were effectively treated and complied with Vietnam water quality standards, signifying that water is clean, safe and potable. Project performance in achieving this objective is rated Satisfactory based on the revised target. Objective 2: Improved access to sanitation services. Again, the project did not have any targets in terms of outcomes and outputs at appraisal. At restructuring, the project intended to (a) improve access to sanitation of 60,000 individuals, (b) reach 445, 000 14 individuals by the project’s hygiene education program, and (c) target repayment rate under the sanitation revolving fund at 95 percent. At ICR, it was able to improve the access to sanitation of 37,375 individuals (62 percent of the revised target). It also reached 383,654 individuals with hygiene education (86 percent of those with improved water supply access). Household repayment rate for borrowing from the sanitation fund repayment rate is 99 percent (beyond the revised target of 95 percent). The performance of the sanitation subcomponent is rated as Moderately Satisfactory based on the revised target. The results of the beneficiary survey supports the figures presented above. It reported that 98.7 percent of the respondents expressed satisfaction with the improved provision of water supply and sanitation services. Households also indicated that improved water and sanitation access resulted in (a) declining incidence of water-borne diseases, (b) additional livelihood and entrepreneurial opportunities for households, (c) time savings for women in doing house chores, and (c) children being able to go to school because they saved time in fetching water, among others. The improved access of households to water also resulted in household investments in sanitation and hygiene improvements. See Annex 4: Beneficiary Survey Results. Objective 3: Improved financial sustainability of participating WSCs. While participating WSCs, in general, are still unable to recover operating costs from annual revenues because the operation of many new water supply systems has just started, they already achieved the target working ratio at end-of-project (64 percent against targeted 63 percent). Provincial WSCs under Component 1 registered a net loss of VND 6.884 million while those participating in Component 2 reported a net income of VND 125,322 million. The WSCs have been operational in just one year. Revenues are still lower relative to target because the number of water connection is still picking up. The expected improvements in household connection and the lifting of Government regulation to freeze water tariff, there will be definite increases in the revenues of participating WSCs will increase. The successful piloting HCMC of reduction in NRW program through performance-based contract with a private sector has improved its financial sustainability. It has also demonstrated a new model for improving operational efficiency. Project performance in achieving this sub-objective is rated Moderately Satisfactory based on revised target. Objective 4: Improved environmental sustainability. The project did not have specific indicators to assess project achievements in promoting environmental sustainability. However, the project contributed to environmental sustainability through (a) improvement in access of 37,375 households to sanitation fund to allow them to invest in sanitation facilities, (b) reduction in NRW that allows WSCs to operate efficiently, and (c) provision of water treatment plants to treat wastewater and sludge generated from increased water consumption. Project performance in achieving this sub-objective is rated Moderately Satisfactory based on associated outcomes. Objective 5: Improved household health and economic potentials. The project likewise did not have any indicators to assess this objective. It is also difficult to measure 15 and attribute changes in household health and economic potentials solely to project interventions. This should not have been part of the PDO as it belonged to higher-level objectives. On the other hands, the project obviously did contribute to achieving this objective through the provision of (a) water supply that comply with Vietnam water quality standards to 1.2 million people, (b) sanitation facilities to 37,375 households, (c) information and dissemination campaigns that improved health and hygiene of people in project areas. Project performance in achieving this sub-objective is rated Moderately Satisfactory based on associated outcomes. Summary of Ratings Objectives Rating Against Against Overall Original Revised Targets Targets (weight: 63%) (weight: 37%) Improved household access to water 2 (U) 5 (S) 3.11 (MU) supply (1.26) (1.85) Improved household access to 2 (U) 4 (MS) 2.74 (MU) sanitation (1.26) (1.48) Enhanced financial sustainability of 2 (U) 4 (MS) 2.74 (MU) WSCs (1.26) (1.48) Improved environmental sustainability 2 (U) 4 (MS) 2.74 (MU) (1.26) (1.48) Improved household health and 2 (U) 4 (MS) 2.74 (MU) economic potential (1.26) (1.48) Overall Rating (MU) 3.3 Efficiency At appraisal, an economic analysis was conducted. The project sampled 4 provinces including Ha Nam, Thai Binh, and Binh Dinh (for Component 1) and Haiphong (for Component 2). The economic benefits were derived from consumer surplus or user gains resulting from easy access to water at rates lower than more costly alternatives and public health improvements. The economic analysis showed economic rates of return (EIRR) higher than the discount rate of 12 percent. It also produced positive net present values (NPV). A financial analysis was also carried out. The analysis showed that the FIRRs remained robust even under scenarios of demand shortfalls, higher capital and operating requirements. Economic and financial analyses were also carried out at ICR following the methodology at appraisal. Results show EIRR at completion ranges between 9.7 and 52.0 percent, showing evident combination of direct benefit, consumer surplus, and public health benefits. For the subprojects included at restructuring, NPV tends to be smaller than the projected value simply because this analysis employs the same methodology as that used at appraisal, i.e., base year in 2006. Benefits for HCMC subproject became significant because of the combination of successful water loss and water tariff that is higher than 16 when projected. The FIRR, on the other hand, range from -15.2 to 31.9 percent. The values are generally small because the water tariff level is still stepping up, yet to recover all the costs including depreciation. But cash flow analysis shows that the current tariff level is already sufficient in recovering all the operational cost and paying finance cost, and generating positive annual net cash flow. For the projects included at restructuring, NPV tends to be smaller than the projected value simply because this analysis employs the same methodology with that at appraisal, i.e., base year in 2006. FIRR for component 2 is generally higher than component 1 because of higher tariff level and better operational cost control. FIRR for HCMC project is much larger because of the combination of successful water loss and water tariff that is higher than when projected. See Annex 3. 3.4 Justification of Overall Outcome Rating Moderately Unsatisfactory. The project remains relevant to current priorities of GoV. There was also evidence that the water supply systems supported by the project are operating in full cost recovery and are providing economic benefits to society in direct benefits, consumer surplus and public health benefits. However, the original project scope was significantly reduced relative to project design. Restructuring happened at a very late stage so the original targets carry more weights (63%) because disbursement was 63% at the time of restructuring. Overall the weighted rating is MU given the original rating is U and the revised is MS. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development During project preparation, socio-economic surveys were carried out in each project town with specific focus on poverty and gender issues. The poor households were carefully identified and verified. Women have been specifically interviewed. Connection commitment surveys were also undertaken to determine the communities’ views in terms of the scope of investment, technical options, associated costs and tariffs. The project could only be approved for implementation if at least 60 percent of the households in the towns endorsed the investment and committed to use the service provided with predefined tariff. At completion, the project benefited low- income households through improved access to water supply and sanitation. The sanitation revolving fund implemented by women’s unions allowed low- income households to access loans for the construction of improved on-site sanitation facilities. Eighty six percent of the respondents of the Beneficiary Survey affirmed that the project benefited women and children because they were generally responsible for house chores. Benefits generally accrue from time- savings from fetching water. (b) Institutional Change/Strengthening Institutional strengthening occurred at the local and national levels. At the local level, the project built the capacity of PPMUs to plan, develop and implement water supply 17 systems through learning-by-doing and training particularly in the areas of project management, procurement, contract management, financial management and construction quality assurance. At the national level, the project also strengthened the capacity of the MOC in project management and water sector management and regulation through a series of knowledge exchanges and establishment of water sector database. (c) Other Unintended Outcomes and Impacts (positive or negative) The project did not have any significant unintended outcomes and impacts. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A Beneficiary Survey with a total of 757 respondents was conducted in October 2013 to ascertain project achievements in relation to its project outcome indicators. Results of the survey show that 99 percent of the respondents are satisfied with the improved water supply service (42 percent are highly satisfied, 40 percent are quite satisfied and 17 percent are satisfied). In addition, 58 percent of the household respondents stated that the water supplied for 24 hours per day; 29 percent said the water supplied within 12-24 hours per day and just 13 percent indicated the water supplied less than 12 hours per day. About 94 of survey household respondents consider water quality as acceptable. When asked about water tariff, about 88 percent of household respondents stated that the project water tariff is reasonable and affordable. Eighty percent of the household respondents are also very satisfied with the service provided by WSCs. Those who were not satisfied expressed the following reasons: delayed monthly billing, inaccuracy in metering, and unresponsiveness in household requests to repair broken pipes or leakages. The survey also revealed that there were significant changes in sanitation behavior of household- respondents. The percentage of households using flush toilet increased from 76 before the project to 83 percent after the project. Households using public/shared facilities or using practice of open defecation reported that they already built their own sanitation facilities. There was also an increase in the number of households using double septic tanks. Please see Annex 4: Beneficiary Survey. 4. Assessment of Risk to Development Outcome The risk to development outcome is rated Moderate. The water supply facilities had sound technical design and were generally constructed following quality standards. These facilities are now operational. Households generally expressed commitment to obtain water services through willingness-to-connect surveys. Water tariff is set following the full cost recovery principle. However, tariff increases were frozen for certain periods due to hyperinflation. During the first year of operation, water bill collection rate is relatively high ranging from 85 to 93 percent indicating that households are willing and able to pay for the water services. The WSCs have experience in operating and managing water supply systems. On the other hand, the provincial sanitation fund implemented by the women’s is likely to be sustained. The rate of repayment is high at 98 percent. The ability of households to sustain payments for water and sanitation services, particularly the poorer ones, however, is largely dependent on their ability to access income and 18 employment opportunities, which in turn, is generally influenced by the country’s macro - economic conditions. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory The Bank Team was responsive to the needs of the country and GoV’s pursuit of scaling up the provision of water supply and sanitation at the time of appraisal. The Team attempted to incorporate in the project design the lessons from previous projects and successful international experience in bringing the private sector into the provision of water supply and sanitation. The project also adequately identified and assessed the environmental and social issues, correctly determined safeguards classification and triggered applicable safeguards policies. However, appraisal had serious shortcomings including the following: (a) the PDO was too broadly defined and the Results Framework was inadequate in capturing project performance, outputs and outcomes. There were no baselines and targets, which is a significant shortcoming for quality at entry and limited the ability of the ICR team to assess overall outcome; (b) project design was too complex and ambitious- the project required working with a large number of implementing agencies that are geographically dispersed and having varying capacities, sizes and investment needs; (c) the project intended to apply a number of innovations to a large number of WSCs without fully studying or testing their applicability and appropriateness to local conditions; (d) it also did not adequately assess the institutional and implementation requirements vis-à-vis local capacity for carrying out the innovations introduced by the project; and finally (e) the project did not sufficiently identify and develop risk mitigation measures. These shortcomings apparently took a toll on project implementation and outcomes. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately Satisfactory The Task Team carried out 17 formal implementation review missions over the 8 years of project implementation. The skills mix of the Task Team was deemed adequate, with technical, social, environmental, procurement and financial management specialists participating in most supervision missions. The Aide memoires and Implementation Status Reports (ISRs) provided candid assessment of project status. The Task Team carried out the MTR on time; identified the right issues and sought various approaches to solve them. The advice of the Task Team was considered by government implementing agencies as very useful and responsive. While the Task Team successfully helped GoV to restructure the project, it could have exerted more efforts to expedite the restructuring process to optimize the benefits of restructuring which included one year of extension for 19 a number of project components and sub-projects. The extension then proved its appropriateness when it allowed the performance-based contract in Ho Chi Minh City to substantially complete, Ha Tinh province to fully complete its sub-project and MOC to complete the establishment of the sector database. The Bank could have also carried out quality-of-supervision assessment to further help steer project implementation considering that the project was a problem project for several years. Finally, the Bank team could have exerted more efforts in helping GoV to review and assess the appropriateness, adequacy and relevance of the indicators in the Results Framework. This shortcoming has apparently limited the ICR’s assessment of project achievements and overall performance. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Unsatisfactory Quality at entry is rated Moderately Unsatisfactory while quality of supervision is rated Moderately Satisfactory. Overall Bank performance is therefore rated Moderately Unsatisfactory given the overall outcome rating of Moderately Unsatisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory Government provided policy and institutional support to the project. Sector reforms and further decentralization efforts were carried out. Government transformed state owned enterprises into limited liability companies operating under the Incorporation Law. It continued to carry out sector reforms and further decentralization of decision making to the local level. During project implementation, all provincial WSCs were transformed from state owned enterprises operating under the Law of State Owned Enterprises to operating under the Incorporation Law. It also allowed WSCs to make their own investment decisions to improve operational efficiency. Government also provided decrees guiding the implementation of laws that affect the water and sanitation sector. This allowed a clearer distribution of responsibilities at various levels and a more streamlined decision-making process among agencies. However, during the transition, the project experienced delays in decision-making. In 2007, the Government issued a new decree on production and distribution of clean water in urban areas and industrial zones, which has set clearer commercial principles for the sector. (b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory The MOC was successful in establishing the CPU, which provided clear guidance and strong support to provinces during the project implementation. The MOC-CPU regularly carried out field visits to the subprojects and reviewed implementation progress. The 20 CPU also provided advice in resolving implementation hurdles; and urged participating Provincial People’s Committees to continue to support and facilitate subproject progress. However, the MOC faced considerable hurdles in mobilizing the consultant who would support the CPU in project preparation and implementation. The project involved a large number of implementing agencies with varying commitment, capacity to implement and sustain investments, and compliance with project requirements. While in general, compliance with the project requirements was sustained, several weaknesses were observed. The PPMU staff had limited technical capacity in construction quality assurance, contract and financial management, environmental and social safeguards implementation. This resulted in extremely slow process of reviewing project documents, several procurement failures, cases of fraud and misuse of project funds, and a number of contract management issues, among others. During the project implementation, series of training courses to PPMU staff have been provided to improve their skills in overall project management, contract and financial management. The performance of PPMUs was improved in the last year of project implementation. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory Government provided policy and institutional support to implement the project. However, the large number of implementing agencies to be coordinated by the MOC, and the limited knowledge and capacity of local project staff in project implementation significantly slowed down project implementation and almost compromised PDO achievement. 6. Lessons Learned The key lessons from this project are: Performance based contract could be a good model for improving operational efficiency of a water supply utility. It was clear from the Ho Chi Minh City non- revenue reduction sub-project that for the type of works targeting improvement of operational efficiency of a water supply utility, where the required inputs from the contractors were not just construction activities, but their expertise and knowledge, a new model of contract such as performance based one could be an appropriate model. The big difference in results achieved in 2 zones of Ho Chi Minh City networks with 2 different models of contracting demonstrated advantage of the new model. The Ho Chi Minh City and the GoV now seriously considers using this new type of contract model introduced by the project for similar activities in new projects. Keep project design simple and realistic. The appraisal team could have been more selective in the approach and modalities for water and sanitation provision as well as in the innovations that it wanted to carry out. It could also have proposed to unbundle interventions or phase implementation to lower project risks and make implementation manageable. The project was composed of many components; some could actually be 21 stand-alone and be a separate project (e.g., component 3- provision of non-subsidized credit to WSCs, etc.). Perhaps, the team could have focused on providing support to public WSCs in rehabilitating and expanding their water supply systems (Component 2) and/or piloting a few innovations. Start small and test innovations before scaling up. Following the discussion above, the team could also have piloted an innovation (e.g., DBO) to a few district towns first to test its appropriateness and applicability in the local context before scaling it up. If it worked, the project could replicate this to other district towns or provinces. The pilot cases should also complete the entire project cycle (preparation to completion) first before these are scaled up. In the case of VUWSP, the pilot cases (15) for the DBO were only applied to project preparation and immediately scaled up to 135. The failure to implement the pilot cases before scaling up did not allow the project to fully test the applicability of the innovation, extract lessons and anticipate serious problems during implementation. In addition, the team could have carried out market and institutional analyses particularly when adopting innovations that involve the private sector. Adopting lessons and innovations from other countries, as in the case of DBO contracting arrangement, should take into account their applicability to the local context and the capacities of local stakeholders to carry them out. Vietnam was still in transition to market economy, its legal, commercial and regulatory environment for private sector participation was still premature, and both the Government and the private sector were not fully prepared to adopt the innovations introduced by the project. Pay sufficient attention to institutional readiness to implement. In low capacity context, a thorough assessment of institutional readiness of implementing agencies would be necessary in order for any project to craft a feasible institutional and coordination mechanism for project implementation; and design any capacity-building program. The project should provide sufficient support to areas showing high or substantial risks (e.g., procurement and safeguards) and strengthen capacity building activities including more implementation support by the Bank team. . The project mobilized a consulting firm to support implementation and beef up local capacity. There is a need to review this approach. Like some other projects in EAP, this approach seemed to have not worked well. In the case of VUWDP, it almost compromised achievement of PDO. Don’t just identify the risks; exhaust ways to effectively manage them. This is particularly true in the context of procurement under the project. The project pursued the hiring of a consultant to prepare 135 feasibility studies in one single (and lumpy) package despite the fact that procurement risks were considered substantial during appraisal. The project could have considered clustering towns and provinces into several packages based, for instance, on geographic location. By doing this, the project could have mobilized a number of firms all at the same time to prepare the feasibility studies, thereby, avoiding delays. 22 Ensure a properly designed and functional M&E. At startup, the project should have immediately set up an M&E system and ensured that M&E arrangements were in place. The ability of any project to steer implementation in light of many hurdles depends largely on whether it can (a) monitor and evaluate plans and activities, outputs and outcomes; (b) inform in a timely manner the key project decision-makers about project status, issues, and key risks; and (c) obtain feedback on key actions needed to mitigate risks or resolve issues. Many delays could have been avoided, proactive measures could have been put in place, and project achievement could have been properly and adequately measured if the project had a sound M&E system in place. Follow through on good practices or innovations initiated by the project. The project demonstrated innovations that are worth pursuing (e.g., sanitation revolving fund and NRW reduction program). It would be beneficial to have a follow through on these good practices or innovations 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies See Annex 7. (b) Cofinanciers N/A. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) There are no comments from NGO/private sector/ civil society. 23 Annex 1. Project Costs and Financing Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Component A: Competition Route 46.593 35.410 76 Water Supply 43.693 34.540 79 Sanitation 2.900 0.870 30 Component B: Performance Route 51.242 52.830 103 Component C: Water Supply and 10.100 5.010 50 Sanitation Lending Facility Component D: Institutional 0.840 0.640 76 Development Component E: Project 5.085 2.900 57 Implementation Support Total Baseline Cost 113.860 96.790 85 Contingencies 10.386 0 Taxes 10.753 0 Interests during construction 0 0 0 Total Project Costs 135.000 96.790 72 (b) Financing Appraisal Actual/Latest Type of Co- Estimate Estimate Percentage of Source of Funds financing (USD (USD Appraisal millions) millions) Borrower 22.363 13.690 61 International Development 112.637 83.100 74 Association (IDA) 24 Annex 2. Outputs by Component A. Overall Project WTPs, total Distribution Installed New Established DMA Number of capacity (m3/ networks with Service (number) sanitation day) : total length (km) Connections facilities (Number) constructed Component A 46,700 37,993 50,237 7,807 Component B 40,000 92.931 46,629 140 Component C 38,200 87,767 Project overall 124,900 218,691 96,866 140 7,807 25 Component A : Competition Route Sub-project component AA: Construction of Water supply system Sub-project component AB WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Number of sanitation facilities (km): (Number) constructed District Town of Sub-Project Planned Achieved Planned Achieved Planned Achieved Planned Achieved A1 Binh Dinh sub-project 1) Binh Dinh Town: 1,550 1,550 3.9 1.7 3,431 2,633 100 605 2) Dap Da 1,650 1,650 11.0 13.8 3,827 2,005 100 650 3) Go Gang – Ngo May 1,250 1,250 16.8 16.5 3,170 2,725 100 565 100 335 4) Binh Duong 500 500 2.1 2.1 1,103 1,119 100 475 5) Tang Bat Ho 600 600 16.8 19.1 1,649 1,499 100 565 6) Bong Son - Tam Quan 3,850 3,850 1.9 1.8 8,464 6,501 100 385 100 505 7) Tuy Phuoc 1,250 1,250 12.7 15.5 2,251 1,653 100 810 Sub-total 10,650 10,650 70.5 18,135 4,875 A2 Hanoi (former Ha Tay) sub-project 1. Phu Minh 550 550 15.11 15.11 1,091 1,591 0 2. Tan Hoi 1800 1800 21.9 21.9 2,727 3,227 0 26 Sub-project component AA: Construction of Water supply system Sub-project component AB WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Number of sanitation facilities (km): (Number) constructed District Town of Sub-Project Planned Achieved Planned Achieved Planned Achieved Planned Achieved 3. Tram Troi 550 0 0 0 0 Sub-total 2,900 2,350 37.01 4,818 0 A3 Hai Duong sub-project 1. Gia Loc (boosting station) 2,500 2,500 47.932 3,776 8,060 84 84 2. Thanh Ha 1,000 1,000 56.336 2,763 1,416 124 3. Thanh Mien 1,200 1,200 72.923 3,243 833 76 4. Minh Tan. 3,500 3,500 106.695 6,578 101 150 Sub-total 8,200 8,200 283.88 10,410 434 A4 Quang Nam sub-project 1. Thanh My (HT1) 1,000 1,000 36.81 39.976 1,200 544 55 55 67 2. PhuNinh (HT2) 1,000 1,000 28.670 1,000 500 45 3. Vinh Đien (HT3) 3,000 3,000 125.932 1,200 2,500 235 430 Sub-total 5,000 5,000 168.775 3,544 552 A5 Thai Nguyen sub-project 27 Sub-project component AA: Construction of Water supply system Sub-project component AB WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Number of sanitation facilities (km): (Number) constructed District Town of Sub-Project Planned Achieved Planned Achieved Planned Achieved Planned Achieved 1. Dinh Ca 600 600 31.124 1,034 1,399 125 151 2. Du 600 600 8.995 17.590 1,038 919 125 172 Sub-total 1,200 1,200 48.714 2,318 365 A6 Bac Ninh sub-project 1. Cho 3,000 3,000 Not yet 15.95 25.45 3,913 3,400 102 183 fully completed 2. Gia Binh 1,200 1,200 52.73 2,197 2,500 102 143 Sub-total 4,800 1,200 78.180 5,900 326 A7 Thanh Hoa sub-project 1. Cam Thuy (TH1) 700 700 21.195 1,200 900 60 79 2. Ngoc Lac (TH 2) 1,200 1,200 40.402 2,134 1,000 60 78 3. Nong Cong (TH 3) 900 900 19.564 1,449 1,200 60 79 4. Tao Xuyen (TH 4) 1,000 1,000 33.024 1,807 1,807 60 78 5. Tinh Gia (TH 5) 1,400 1,400 21.810 1,454 460 60 78 6. Trieu Son (TH 6) 1,200 1,200 27.210 2,074 2,074 60 78 28 Sub-project component AA: Construction of Water supply system Sub-project component AB WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Number of sanitation facilities (km): (Number) constructed District Town of Sub-Project Planned Achieved Planned Achieved Planned Achieved Planned Achieved Sub-total 6.400 6,400 142.010 6.541 470 A8 Lam Dong sub-project 1. Tan Ha (LD1) 2,000 2,000 6.215 921 0 2. Nam Ban (LD 2) 2,000 2,000 26.638 992 701 3. Madaguoi (LD 3) 1,500 1,500 15.605 1,452 0 4. Đam’Ri (LD 4) 500 500 12.133 678 451 5. Đ’Ran (LD 5) 1,500 1,500 23.936 1,376 993 6. Bang Lang (LD 6) 500 500 10.216 273 210 Sub-total 8,000 8,000 94.743 2,355 404 500 A9 Dak Nong sub-project 1. Ea T’ling (DN1) 2,000 2,000 14.4 20.920 2. Đak Mam (DN 2) 1,000 1,000 8.4 12.649 3. Kien Duc (DN3) 1,000 0 0 4. Quang Khe ((DN 5) 700 700 3.5 3.500 29 Sub-project component AA: Construction of Water supply system Sub-project component AB WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Number of sanitation facilities (km): (Number) constructed District Town of Sub-Project Planned Achieved Planned Achieved Planned Achieved Planned Achieved Sub-total 4,700 3,700 37.069 2,750 285 Component A Total 46,700 37,992.812 50,237 7,807 30 Component B: Performance Route WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Established DMA (km): (Number) (Number) Items Planned Achieved Planned Achieved Planned Achieved Planned Achieved B1 Hai Phong sub-project: Upgrade and expand water supply system for Kien An district and suburb Upgrade Cầu Nguyệt WTP to 40,000 40,000 capacity: Install 4 transmission 31.695 31.690 pipelines, diameter D250- D800, length: Install service connections, 15,394 number : B2 HCMC sub-project DMA establishing:  Zone 1: 119 DMAs 114 DMAs  Zone 2: 125 DMAs 26 DMAs Replacement of service 2,400 22,135 connections Replacement of big meters 1,000 100 Replacement of domestic 25,000 15,000 water meter 31 WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Established DMA (km): (Number) (Number) Items Planned Achieved Planned Achieved Planned Achieved Planned Achieved B3 Ha Tinh sub-project: expand water distribution system for Ha Tinh City from 16.000 m3/day to 24.000m3/day Construction of a treated water tank (2,000 m3) and a booster station (24,000 m3/ day) Install treated water 7.847 7.842 transmission pipeline Install distribution pipeline 37.574 Install service connections 9,000 9,100 B4 Quang Ninh sub-project Replace old transmission 11.53 11.710 pipeline, length: Instal pipeline, length: 4.148 4.115 Total of Component B 40,000 92.931 46,629 140 32 Component C: Sector Lending Facility, Credit Sub-component WTP with capacity of (m3/ day) : Distribution network with length of Installed New Service Connections Valves, meters (km): (Number) Items Planned Achieved Planned Achieved Planned Achieved Planned Achieved C2 Binh Duong loan - Nam Tan Uyen industrial park WS project Water Supply System: 10,000 10,000 22.014 22.078 409 C3 Tra Vinh loan - NRW reduction for Tra Vinh WS project (both real water losses (physical leakages) and apparent water losses (commercial losses) Replacing galvanized steel 13.0 13.0 pipes to uPVC pipes: D100 and D90, 13 km lenght Constructing zoning control 20 26 valve holes Replacing old water meters 9,450 9,000 C4 Hai Phong loan - Thuy Nguyen WS project: Construction water supply system in the centre of the district of Thuy Nguyen – Hai Phong city Water Supply System: 3,200 3,200 47.4 45.3 5.000 C5 Ninh Binh loan - BOO VSG WS project: Construction BOO VSG water treatment plant) at Hoa Lu district, Ninh Binh province WTP (phase 1), capacity : 15,000 15,000 0 0 0 0 C6 Khanh Hoa loan - Cam Ranh WS project: Water supply system for Cam ranh city, Khanh Hoa province WTP, capacity: 10,000 10,000 7.389 (main 4,970 pipelines) Total of Component C 38,200 87,767 33 Annex 3. Economic and Financial Analysis Economic and financial analysis has been conducted to the water supply service subprojects in Component 1 (Competition route) and Component 2 (Performance route). The water supply service in Component 1 and 2 accounts 87% (USD 117.7 million) of the total project cost at PAD stage, and 91% (USD 88.2 million) of the total project cost at completion stage. A. Economic Analysis 1. Introduction The economic analysis calculates projects’ net present value (NPV) and economic internal rate of return (EIRR), assuming (a) direct benefit, (b) consumer surplus, and (c) public health benefits for the project period 2006-2016. The same methodology, assumptions and constant 2003 prices, and economic discount rate of 12%, which were used at appraisal, were used to make the comparison between appraisal stage and completion stage viable. However, some modification was made, namely for the methodology to estimate water supply cost and consumption in without case, and the methodology to calculate public health benefits. 2. Methodology and assumptions Economic analysis was conducted by comparing two scenarios: (a) “with” the Bank project and (b) “without” the Bank project. Without project scenario for Component 1 assumes that the Project area continues to have no access to piped water, and therefore, peoples rely water supply on alternative methods such as bore holes, open wells, rainwater etc. Without scenario for Component 2 assumes no rehabilitation or reinforcement for each subproject. The concept of and the methodology for calculating direct benefit, consumer surplus and public health benefits are summarized below. Direct Benefit: Direct-use benefits measure the gain in society’s welfare from the incremental increase in output at a lower price and its value that a consumer attaches to the output that they receive. It can be measured by the amount a consumer pays for water after the project has been commissioned. In this analysis, direct benefit is nearly identical to the financial revenues generated by the subproject, i.e., the average tariff of water from the water supply multiplied by the amount of water consumed by customers in the Project area. Data on yearly average tariff and yearly water consumption in the Project area were provided by the water supply companies (WSCs) in each subproject. Consumer Surplus: Consumer surplus is the additional benefit to society’s welfare arising from a higher consumption with a lower price than the consumption and price in 34 the “without” case. The consumer surplus consists of two parts, one arising from the less costly water supply, and the other arising from higher use of water with lower prices, compared to alternative water supply options in “without” case. In order to estimate the consumer surplus, alternative water supply options including possible water supply cost and water consumption in without case needs to be identified. At appraisal, those were determined using information from socio-economic surveys analyses as part of the feasibility study. At completion, those relied on the latest estimation submitted by each WSC. Water supply cost varied approximately from 10,000 to 15,000 VND/m3, depending on the types of alternative supply options and conditions in each subproject. Public Health Benefits: Water supply projects have often been justified on the basis of perceived positive impacts on public and private health, e.g., clean water supply reduces water-related diseases such as diarrhea, worms and skin-infections. Also, people affected by those diseases lose income when they cannot work and have to spend money for curing. Quantification of these benefits is, however, not straightforward because of several reasons including that (i) improved health cannot be achieved only by clean water, but accompanied by health and hygiene awareness, (ii) health impacts are sometimes caused by nutrition issues rather than safe water issues, and (iii) health benefit in monetary terms is ultimately realized by increased productivity due to reduced number of sick days. At appraisal, public health benefits for each subproject were estimated by using information from socio-economic surveys analyses and putting various complicated assumptions as part of feasibility studies. Reproduction of this procedure at completion stage is unrealistic, but, as an alternative way, annual public health benefit per capita (VND/capita) was derived from feasibility study at the timing of the Project restructuring in 2012. It has been found out that the annual unit value varies from 134,520 VND/capita to 298,070 VND/capita. In this analysis, the lowest (the most conservative) value of 134,520 VND/capita was used to all the subprojects in order to avoid overestimation of the benefits. Salvage Value: The analysis included salvage value of economic assets at the end of the Project period in 2016. Depreciation rate for civil construction, equipment, and building, which was reported by each PMU, was used for calculating the salvage value. Project Cost: Economic project cost is calculated from actual project cost, assuming 10% for VAT in domestic work and equipment, and 20% import duty for foreign equipment, which is adjusted by exchange rate of 1.31. 3. Results EIRR and NPV for each subproject are summarized in the Table A3-1, showing evident combination of direct benefit, consumer surplus, and public health benefits. For the 35 projects included at restructuring, NPV at completion tends to be smaller than the value at appraisal because of the difference in project period assumption. Benefits for HCMC subproject became significant because of the combination of successful water loss and water tariff that is higher than the expected price level. Table A3-1: Results of Economic Analysis At appraisal At Restructuring At completion Project towns EIRR NPV@12% EIRR NPV@12% EIRR NPV@12% (%) (million VND) (%) (million VND) (%) (million VND) Component 1 Binh Dinh 19.6 31,687 19.6 31,687 9.7 -4,980 Thai Binh 18.2 5,022 # # # # Ha Nam 18.0 4,476 # # # # Hanoi* - - 15.6 40,329 21.6 5,022 Hai Duong* - - 25.2 15,028 17.7 8,587 Quang Nam* - - 15.6 21,224 16.4 3,810 Thai Nguyen* - - 19.3 7,540 13.5 563 Bac Ninh* - - 18.9 19,026 32.6 10,839 Thanh Hoa* - - 18.2 2,004 14.2 3,086 Lam Dong* - - 15.8 32,255 15.0 4,636 Dak Nong* - - 13.5 23,766 20.9 5,528 Component 2 Hai Phong 22.0 134,357 22.0 134,357 21.3 49,447 Binh Thuan N/A N/A # # # # Ho Chi Minh City N/A N/A 30.8 341,329 52.0 314.132 Quang Ninh N/A N/A 15.6 21,224 25.1 17,738 Ha Tinh N/A N/A 16.0 49,655 15.6 5,510 #: Included in PAD, but withdrawn during implementation of the Project. *: Added in the Project restructuring. B. Financial Analysis 1. Introduction Financial Internal Rate of Return (FIRR) and Financial Net Present Value (NPV) with the hurdle rate of 10% were calculated. FIRR was calculated on net cash flow against “equity”. At appraisal, 15% of the project cost had been assumed to come from equity contribution from local stakeholders. But in reality, little equity contribution was made for Component 1, which makes the direct comparison using the same methodology impossible. Hence, the financial analysis at completion stage hypothetically assumes 15% of the project cost was financed by equity even when it came from debt. For Component 2, actual equity injection value was used. 2. Methodology and assumptions Operational Data: This analysis used the actual (from 2003 to 2013) and projected (from 2013 to 2016) operational data, such as population, average household size, number of new water connections, total water connections, water supply capacity, annual water consumption, Unaccounted for Water (UFW), average water tariff, connection fee, staff cost, operational cost (electricity, alum and chlorine), and depreciation of fixed asset. The information was provided by each WSC. 36 Debt: It is assumed that 85% of the project cost was financed by debt with the term of 3.0% interest rate, 20-year duration, and 3-year grace period. It is also assumed the debt was injected in accordance with the actual project disbursement profile. 3. Results FIRR for each subproject is summarized in the Table A3-2. For component 1, FIRR is generally small mainly because, as stated in the main text, the water tariff level is still picking up, yet to recover all the costs including depreciation. But cash flow analysis shows that the current tariff level is almost sufficient to recover all the operational cost, pay most of finance cost, and finally generate positive annual net cash flow. For the projects included at restructuring, NPV at completion tends to be smaller than the value at appraisal because of the difference in project period assumption. FIRR for component 2 is generally higher than component 1 because of the higher tariff level and better operational cost control. FIRR for HCMC project is much bigger because of the combination of successful water loss and water tariff that is higher than when projected. Table A3-2: Results of Financial Analysis At appraisal At Restructuring At completion Project towns FIRR NPV@10% FIRR NPV@10% FIRR NPV@10% (%) (million VND) (%) (million VND) (%) (million VND) Component 1 Binh Dinh 14.9 8,723 2.4 N/A -15.2 -7,590 Thai Binh 9.2 -306 # # # # Ha Nam 11.6 498 # # # # Hanoi* - - 14.0 45,512 8.5 -127 Hai Duong* - - 15.2 16,322 35.6 7,983 Quang Nam* - - 9.8 25,265 4.5 -902 Thai Nguyen* - - 3.1 11,710 1.2 -335 Bac Ninh* - - 3.4 4,007 18.8 610 Thanh Hoa* - - 3.0 7,000 N/A -1,605 Lam Dong* - - 3.0 11,939 3.9 -1,592 Dak Nong* - - 3.6 7,068 5.0 -364 Component 2 Hai Phong 12.1 29,433 12.1 29,433 10.8 9,697 Binh Thuan N/A N/A # # # # Ho Chi Minh City N/A N/A 16.0 129,556 33.8 578,557 Quang Ninh N/A N/A 15.2 18,637 31.9 16,452 Ha Tinh N/A N/A 13.6 18,452 18.7 2,026 #: Included in PAD, but withdrawn during implementation of the Project. *: Added in the Project restructuring. C. Conclusions The economic analysis showed that the Project brought sufficient economic benefits to the consumers in the Project areas by providing better access to clean water with higher quantity and with lower price. The financial analysis showed that positive cash flow for WSCs has generally been achieved, and this achievement will be continued if the current 37 pace of increasing demand and increasing average tariff for cost recovery are maintained. Financial viability of WSCs is generally dependent on the level of water tariff. 38 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Task Team Leader, Lead Water and William Kingdom SASDU Sanitation Specialist Alan Coulthart Infrastructure Coordinator EASIN EASUR - Thanh Cong Nguyen Sr. Water Engineer HIS Hoa Thi Hoang Sr. Urban Specialist EASVS Tran Thi Thanh Phuong Sr. Environmental Specialist EASVS Chaohua Zhang Lead Social Development Specialist SASDS Takuya Kamata Country Manager ECCUZ Hoa Thi Mong Pham Sr. Social Development Spec EASVS Kien Trung Tran Sr. Procurement Specialist EASR2 Hung Viet Le Sr. Financial Management Specialist EASOS Hoi-Chan Nguyen Sr. Counsel LEGEA Bekir A. Onursal Sr. Environmental Specialist EASEN Hien Minh Vu Program Assistant EASWE Supervision/ICR Task Team Leader, Sr. Water & Quang Vinh Nguyen TWIEA Sanitation Specialist Quang Ngoc Bui Operations Officer EASVS Alan Coulthart Lead Municipal Engineer EASIN Hoa Thi Hoang Sr. Urban Spec. EASVS Isabel Duarte A. Junior Program Assistant EASIN Sr. Financial Management Hung Viet Le EASOS Specialist EASUR - Thanh Cong Nguyen Sr. Water Engineer HIS Hoi-Chan Nguyen Sr. Counsel LEGEA Lead Water and Sanitation William Kingdom SASDU Specialist Lead Water and Sanitation Sudipto Sarkar EASWE Specialist Lixin Gu Sr. Infrastructure Specialist EACWE Hoang Xuan Nguyen Procurement Specialist EASR2 Trang Phuong Thi Nguyen E T Consultant EASVS Christopher C. Ancheta Sr. Sanitary Engineer EASPS Hoa Thi Mong Pham Sr. Social Development Spec EASVS Nghi Quy Nguyen Social Development Specialist 39 Sr. Financial Management Cung Van Pham EASFM Specialist Tran Thi Thanh Phuong Sr. Environmental Specialist EASVS Kien Trung Tran Sr. Procurement Specialist EASR2 Mai Thi Phuong Tran Financial Management Specialist EASFM Hien Minh Vu Program Assistant EASWE Linh Thi Thuy Tran Team Assistant EACVF Chaohua Zhang Lead Social Development Specialist SASDS Daisuke Miura Energy Specialist EASVS Ly Thi Dieu Vu Environmental Consultant EASVS (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY01 37.59 FY02 95.75 FY03 108.70 FY04 184.86 FY05 106.83 FY06 -0.06 FY07 0.00 FY08 0.00 Total: 533.67 Supervision/ICR FY01 78.00 FY02 77.92 FY03 47.13 FY04 103.25 FY05 112.24 FY06 52.40 FY07 69.71 FY08 48.20 FY09 40.00 Total: 628.85 40 Annex 5. Beneficiary Survey Results The main objective of the beneficiary survey is to obtain the perceptions of the project beneficiaries about the water supply and sanitation services provided under the project, assess the level of satisfaction for these services. Data was primarily obtained from the conduct of a survey using a structured questionnaire. A total of 757 household- respondents were participated in the survey, including 752 households and 5 institutions. Key Findings 1. Household-respondents have an average size of 4.2. Majority of the households respondents have an estimated income ranging from VND 1.6-5.0 million per month and averaging VND 3.8 million per month. Based on the current poverty line, HHs living in rural area with income below VND1.6 million per month (equivalent to VND 400,000 per person per month) can be considered poor, while those with income between VND1.6 – 2 million can be considered near poor. The survey estimated that 47 HHs have income of VND1.6 million and below per year (accounting for 6.3% of total respondents), while 245 HHs have income of VND1.6– 2 million (accounting for 32.6% of total respondents). 2. All water supply systems are under operation since June 2012. The average monthly household water consumption of surveyed respondents is about 15.9m3, or 132.5 liters per person per day; which is a bit higher than the Government benchmarking index of 100 liters per person per day. 3. The average water tariff ranges from VND 6,200 to 8,300 per m3. Collection of water payments is registered at 85.1% (from draft PCR). Most households (52.9% pay less than VND84,000 per month, for their water usage. On the average, households pay VND 121,600 per month for their water consumption. 4. Results obtained from the survey indicate that improved water supply provide satisfaction to the local population: 621 respondents (about 82%) expressed their full satisfaction; 127 respondents (about 16.8%) stated that it is normal; while only 8 respondents (1.2%) said they are partially unsatisfied. 5. The household’s satisfaction is also expressed through continuity of service, which is illustrated by average hours of service per day for water supply. About 57.5% stated that the water supplied for 24/24 hours per day; 29.2% said the water supplied within 12-24 hours per day and just 13.3% indicated the water supplied less than 12 hours per day. The water pressure is high, which reach about 20m height or more. It is also confirmed by surveyed households that 442 surveyed household (58.6%) stated that the water can reach at about 10-20m height, and 312 other households (30.7%) indicated the height that water can reach is beyond 20m. 6. About 93.9% of survey households (equivalent to 709 households) expressed that the quality of water supply is acceptable. There rest of the households (about 6.1%) claimed that the water quality is not quite good because of un-fresh, has bad smell and bad taste. 41 7. When asked about water tariff, about 87.5% households stated that water tariff is reasonable and affordable. About 6.4% others expressed it is quite expensive, as compared with their current income. 8. Out of 757 respondents participating the survey, 606 respondents (equivalent to 80%) showing that they are very satisfied with the service provided by WSCs; 135 respondents (about 17.8%) stated that the water service is acceptable and just only 16 respondents (occupy 2.1%) indicated they are a little un-satisfied. The reasons why some households were not satisfied with the services of WSCs are: delayed billing, inaccurate metering, bad condition (e.g., pipe breaks and leakages) of piped network, and weak customer service particularly on information dissemination. 9. The survey also revealed that there was significant change in sanitation behavior of household- respondents. The percentage of households using flush toilet increased from 76 before the project to 83 percent after the project. Households using public/shared facilities or using practice of open defecation reported that they already built their own sanitation facilities. The survey also shows that other households using public/shared facilities or using practice of open defecation (none of sanitation facility) built their own facilities as a result of water supply. 10. In term of sanitation facility types, the septic tank seems to be a common structure, for population living in suburban or district towns with no connection to main sewage pipes provided by local governments. This is also familiar with project households. About 94.3% of the respondents stated that they are using septic tank before the project, in which 80.2% using septic tank with double tanks and 14.5% using septic tank with single tank. After the project about 86.4% households are using double septic tanks. Most households who previously used bucket latrine or using practice of open defecation have built their own sanitation facilities. The number of bucket latrines decreased and having been replaced by septic tanks. 11. When the households were asked to give their views about benefits obtained from improved water supply system, they all indicated that piped water supply enables to change their lifestyle and living standards. a. 81.8% indicated that benefits from improved water supply and sanitation is of crucial importance to the preservation of human health as diarrhea, psilosis, typhoid, and cholera, especially among children and women, that the improved water supply and sanitation services would largely contribute to promoting them. b. 47.8% expressed that water-related diseases are the most common cause of illness and death, mostly among the poor people, that those with improved services would suffer less morbidity and mortality from water-related diseases. c. 24.5% said that girls and boy have better educational and productive opportunities when they have water and sanitation facilities nearby, because they can safeguard their privacy in school and save time fetching water. 42 d. 52.5% revealed that better services resulting the installation of piped water supply in houses, and latrines closer to home yield significant time savings, especially for housework carried out by woman. e. 20.8% showed that the availability of water could be used to start or expand small enterprises (as motorbike wash, laundry…) and thus increase disposable household income. 12. Beyond reducing the water-borne and water-washed diseases, providing better access to improved water and sanitation confers many other diverse benefits ranging from the easily identifiable and quantifiable (costs avoided, time saved) to the more intangible and difficult to measure (convenience, well-being). The respondents, to some extent, provided that the most benefit from the improved water supply is woman, as affirmed from 60% of total respondents, because they are key actor for housework mostly related to water consumption, then next coming are children, reported by 25.8%. In addition, the man is also benefited from the service, for time saving related to water collection or accessing sanitary facilities, and the elder, could expect to live longer, while access to better water quality. 43 Annex 6. Stakeholder Workshop Report and Results There was no workshop with stakeholders on the ICR. 44 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 1. The Management Board of Technical Infrastructure Development Projects (MABUTIP) prepared the Project Completion Report (PCR) for the Vietnam Urban Water Supply Development Project (Credit number 4028 –VN) from July 1, 2013 to November 30, 2013. MABUTIP required all subprojects implemented under this project to prepare individual completion reports. These reports were reviewed and verified by MABUTIP and the PCR consultant and then consolidated at the project level. Project Background 2. The Vietnam Urban Water Supply Development Project aimed to assist the Borrower to improve water and household sanitation services in selected district towns and large urban centers in the participating provinces, in financially and environmentally sustainable manners, thus enhancing the health and economic potential of the resident households. The project was approved by the Board on December 21, 2004, signed on July 15, 2005 and became effective on November 11, 2005. The project had five components:  Component A (Competition Route)- Investment in new water supply systems for district towns where w a t e r s u p p l y c o m p a n i e s ( WSCs) are willing to contract out delivery of services through the DBO process (Sub-component A1), and investments in household sanitation including associated hygiene education program (Sub-component A2);  Component B (Performance Route)- Investment to improve and expand services in better performing WSCs;  Component C (Water Supply and Sanitation Lending Facility)- Establishment of a non-subsidized water supply and sanitation lending facility;  Component D (Building Capacity in the Sector)- Investment in building capacity in the WSS sector; and  Component E (Management of Project Implementation). Assessment of PDO 3. Overall, the project achieved the following: (a) 1,446,648 million individuals benefited from improved access to water supply systems. This represents 120% of the revised target; (b) 37,375 individuals now have access to improved sanitation facilities (62% of revised target); and (c) Average working ratio is 64%, achieving the target value of 63%. Project achievement is rated Satisfactory. Evaluation of the Bank’s Performance 4. Supervision of Bank staff has substantially contributed to the implementation of the Project. The WB review and approval particularly with respect to proposals/ 45 queries by CPU and PPMUs and review and approval of bid evaluation reports were provided in a timely manner. In addition, project effectiveness, the Bank sent many missions to Vietnam to review the implementation of the project. The missions appeared to be very effective with respect to helping solve outstanding problems encountered during implementation; hence the project progress was expedited and improved. With direct discussions, the missions were able to provide useful advice and/or instructions based on the Bank guidelines and policies. With this assistance, the CPU and PPMUs ensured that action taken were acceptable to the Bank. On completion of each mission, an Aide Memoire was provided to record difficulties and problems in each sub-project, specifying responsibilities, recommending remedial actions, and timely settlement of all problems and obstacles to ensure project progress. Bank performance is rated Highly Satisfactory. 5. Government proposes that the World Bank should:  Intensify its involvement in giving comments and recommendations to the Vietnam authorities for solving the difficulties, obstacles during the preparation and implementation of sub-projects.  Issue the criteria for the assessment of the conflict of interest of the bidders to facilitate the selection of contractor.  Issue the detailed guidance and train the contractors on contract payment procedures especially the preparation of Final Statement. Evaluation of Performance of the Borrower and the Implementing Agencies 6. The MOC was the focal point among the Government, World Bank and participating provincial people’s committees. During preparation of the project, the MOC worked closely with the World Bank during project preparation, discussed project implementation arrangements and recommended limiting pilot initiatives in the project. To support the participating provinces, the MOC in collaboration with the World Bank regularly (a) conducted provincial visits to review project progress, discuss measures to promptly resolve difficulties, and write to urge the participating provincial People's Committee to support and facilitate sub-project progress; (b) collaborated actively in the evaluation, approval and implementation of the project; (c) provided timely remedial actions to revise objectives, scope of work and duration of contracts; (c) facilitated the provision of information and necessary documentation to enable agreed activities to be performed; and (d) supported international and local consultants engaged under this component, provide its own staff to work in cooperation with the consultants. 7. The Vietnam’s provincial authorities have given many supports to their respective subprojects. However, it normally took more time (longer than expected) for their review and approval of documents including agreements on selection of water sources, agreements on selection of project site, feasibility 46 studies, bid documents and bid evaluation reports, revised basic designs, road excavation permits, etc. 8. In general, the CPU’s staff is qualified in their assigned tasks and managed to familiarize themselves with WB guidelines. However, CPU had major difficulties in overall management of project implementation. An international consultant was to be hired to assist CPU in preparation of Phase 2 of Component 1 and support to the oversight of activities that focus on the quality of construction. However, there was two-year delay in hiring the consultant and when the consultant was finally hired, it performed poorly during implementation. Thus, subproject preparation was delayed and the feasibility studies were not in good quality, which affected project implementation. Moreover, fraudulent practices before and during contract award notified by the World Bank led to Contract termination in July 2010. 9. The project had complex implementation arrangements- a decentralized approach with multiple components, different implementation arrangements for each component and varying staff. The PPMUs had limited staffing capacity and competence. Some PPMU staff did not have sufficient manpower and had limited competence particularly in term of foreign language capability. This had an adverse impact on project implementation. 10. Overall the performance of the Borrower and the Implementing Agencies is considered as Unsatisfactory. Lessons Learned 11. The project was designed as a complex development program including a number of components with different objectives and different implementation arrangements. Investments include new construction and renovation and expansion of water supply systems, un-accounted-for water reduction, capacity building and operating management. The project was implemented under a credit scheme, with an amortization plan. As investors, the participating water supply companies borrow and repay the credit proceeds. The Provincial People's Committee is the executing agency of the project provinces, responsible for implementing the project. The Ministry of Construction, through the CPU, is the coordinating agency responsible for monitoring and coordinating the implementation of project activities, a point of contact to assist the Government and the Bank and the participating provinces, coordination relationships between the employers, local and foreign consultants. 12. The project encountered many problems and difficulties in terms of progress and disbursement delays with works items having to undergo re-bidding. During the initial implementation period, World Bank’s comments on the project concern slow physical progress and disbursement. The Ministry of Construction as the project coordinator worked closely with the World Bank, the relevant agencies 47 and the participating provincial People's Committees to identify problems in each sub-project, specify responsibilities, propose corrective measures to ensure accelerate the works progress. So far, at the end of the project, the project has essentially met the objectives set out in the PAD. 13. The Project financial management arrangement, as well as the Project implementation arrangement, are complicated and risky by design. The Project has been implemented in a decentralization approach. The components A, B and C include various Sub-projects and each sub-project is implemented by one participating province through PPMUs. However, the PPMUs’ capacities and experiences are lacking. Therefore it is difficult for them to meet the requirement that the procurement and management of consulting services and Design-build contracts shall be implemented under the Bank guidelines and procedures of the Bank. In future projects, the design project implementation arrangements, financial management and fund flow management should be simple, to enable fast disbursement, reduce pressure and risks. 14. The Financing Agreement did not specify roles and responsibilities of the stakeholders in implementing the project, which leads to problems reviewing conflicts of interest in procurement activities, thus causing delays of the bidding process. WB has revised the Financing Agreement on a timely basis to resolve this issue: Revision of project implementation arrangements to reflect current obligations of MoC. 15. Loan projects funded by multilateral development banks most often undergo multiple phases of development. However, the fact that the changes from the original engineering studies take place in the project areas led to time-consuming revision(s) and re-approvals of feasibility study reports. 16. The application of new approaches such as procurement for works operations, performance-based contracts, credit to invest in water supply systems on commercial terms (through a revolving fund for water supply development managed by VDB), etc. the proposed mode of procurement, contract type and commercial terms applied as a pilot in Vietnam caused delays and seemed not be fully appropriate in the Vietnamese water supply context. In particular, the idea of competitive selection of contractors to operate and maintain the newly developed water supply system in Component A sub-projects could not be implemented. The application of new approaches should be carefully evaluated in order to ensure that they are suitable to the local conditions. 17. One of the major problems of the Project is the quality of feasibility studies. For some Sub-projects (such as in Ha Tay Sub-project, Lam Dong Sub-project), the social surveys as well as technical site surveys were inadequate and led to unsuitable proposals. The FSs should be carefully appraised with the involvement of qualified local engineers. 48 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders There was no comment received. 49 Annex 9. List of Supporting Documents 1. World Bank Country Partnership Strategy for Vietnam 2. Project Appraisal Document 3. Financing Agreement 4. Implementation Review and Results Report Sequence No. 1 to 17 5. Mission Aide Memoires and Management Letters 50 IBRD 40552 CHINA VIETNAM Ha Giang Cao Bang VIETNAM URBAN WATER SUPPLY Lai Chau Lai Chau Town Town Lao Cai 4 5 3 9 DEVELOPMENT PROJECT 1 8 Tuyen Bac Can 10 7 Quang Lang Son 2 Yen Bai 13 Thai Nguyen Dien Viet Tri 12 14 Son La Vinh Yen Quang Ninh Bien Phu 11 Bac Ninh 6 HANOI Hoa Binh 16 18 19 PROJECT CITIES/PROVINCES 21 Hung Yen Hung Yen Ha Nam 22 23Thai Binh a elt PROVINCE CAPITALS rD Ninh Binh Nam Dinh LAO ve i NATIONAL CAPITAL 24 25 dR 26 Re PROVINCE BOUNDARIES Thanh Hoa INTERNATIONAL BOUNDARIES PE OPLE ' S PEOPLE'S DEM.. REP. DEM RE P. 27 Gulf of Vinh To n k i n Ha Tinh 28 PROVINCES: 1 Lai Chau 32 Da Nang 29 Dong Hoi 2 Dien Bien 33 Quang Nam 3 Lao Cai 34 Quang Ngai 4 Ha Giang 35 Kon Tum Dong Ha 5 Cao Bang 36 Gia Lai 30 6 Son La 37 Binh Dinh Hue 7 Yen Bai 38 Phu Yen 31 32 Da Nang 8 Tu Yen Quang 39 Dac Lac 9 Bac Can 40 Dac Nong THAILAND 3 33 Quang Nam 10 Lang Son 41 Khanh Hoa Tam Ky 11 Phu Tho 42 Binh Phuoc 12 Vinh Phuc 43 Lam Dong 34 Quang Ngai 13 Thai Nguyen 44 Ninh Thuan 14 Bac Giang 45 Tay Ninh 35 15 Quang Ninh 46 Binh Duong Kon Tum 16 Ha Noi 47 Dong Nai 37 17 Bac Ninh 48 Binh Thuan Pleiku 36 Quy Nhon 18 Hung Yen 49 T.P. Ho Chi Minh 19 Hai Duong 50 Ba Ria-Vung Tau 20 Hai Phong 51 Long An 38 Tuy Hoa 21 Hoa Binh 52 Tien Giang 39 22 Ha Nam 53 Dong Thap 23 Thai Binh 54 Ben Tre CAMBODIA Buon Ma Thuot Dac Nong 41 24 Ninh Binh 55 An Giang Nha Trang 25 Nam Dinh 56 Vinh Long Gia Nghia Da Lat 26 Thanh Hoa 57 Tra Vinh 42 Dong 44 27 Nghe An 58 Kien Giang Xoai Lam Dong Phan Rang- 28 Ha Tinh 59 Can Tho 45 Thap Cham Tay Ninh 29 Quang Binh 60 Hau Giang Thu Dau 46 47 48 30 Quang Tri 61 Soc Trang Mot Phan Thiet 31 Thua Thien Hue 62 Bac Lieu Ho Chi Minh City 53 51 63 Ca Mau 55 Cao Lanh Tan An 50 Long Xuyen 52 My Tho Vinh Long Ben Tre Vung Tau 59 56 Rach Gia Can Tho 54 N lta 58 60 Tra Vinh Vi Thanh 57 De G ulf Soc Trang 61 g GSDPM on of 62 Map Design Unit ek T ha iland Ca Mau Bac Lieu M 63 0 50 100 150 200 Kilometers This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 0 50 100 150 Miles endorsement or acceptance of such boundaries. NOVEMBER 2013