PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE VIETNAM WATER RESOURCES ASSISTANCE PROJECT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR (US$157.8 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE VIETNAM WATER RESOURCES ASSISTANCE PROJECT March 3, 2004 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region Report No: VN This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective January 3 I, 2004) Currency Unit = US Dollar VND 15,713 = USS1.00 SDR = US% 1.OO FISCAL YEAR Govemment: January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB AFD CAS CPO CPRGS DARD DWR DONRE EAP EIA EMDP EVN FA0 GOVN IBRD ICB ICOLD IDA IMC MARD JBlC MOF MONRE NCB O&M OPIBP OPRC PIM PMO PMU PPC PSW QCBS RAP SBV SIL SI0 SOE TA V WRAP WUG Asian Development Bank Agence Francaise de Developpement Country Assistance Strategy Central Project Office Comprehensive Poverty Reduction and Growth Strategy (Provincial) Department of Agriculture and Rural Development Department of Water Resources (MARD) (Provincial) Department of Natural Resources and Environment Environmental Action Plan Environment Impact Assessment Ethnic Minority Development Plan Electricity of Vietnam Food & Agriculture Organization Government of Vietnam International Bank for Reconstruction and Development International Competitive Bidding International Commission on Large Dams International Development Association Irrigation Management Company Ministry of Agriculture and Rural Development Japanese Bank for International Cooperation Ministry of Finance Ministry of Natural Resources and Environment National Competitive Bidding Operation and Maintenance Operational PolicyIBank Procedure Operational Procurement Review Committee Participatory Irrigation Management Project Management Office (in MARD s CPO) (Provincial) Project Management Unit Provincial Peoples Committee Procurement of Small Works Quality and Cost Based Consultant Selection Resettlement Action Plan State Bank of Vietnam Specific Investment Loan Sub-Implementation Office (MARD) Statement of Expenditure Technical Assistance Vietnam Water Resources Assistance Project Water User Groups Vice President: Country Director: Sector Director: Task Team Leader: Jemal-ud-din Kassum, EAPVP Klaus Rohland, EAPVN Mark D. Wilson, EASRD Greg Browder, EASRD

3 A B C D Page STRATEGIC CONTEXT AND RATIONALE... 1 Country and sector issues... 1 Rationale for Bank involvement. Higher level objectives to which PROJECT DESCRIPTION... 2 Lending instrument... 2 Project developmen... 3 Project components... 3 Lessons learned and reflected in the project design... 5 Alternatives considered and reasons for rejection 6 IMPLEMENTATION... 7 Partnership arrangements... 7 Institutional and implementation arrangements Monitoring and evaluation of outcomesiresults Sustainability... Critical risks and possible controversial aspects Key Credit Conditions and Covenants APPRAISAL SUMMARY Technical Annex 1: Country and Sector Background Annex 2: Major Related Projects Financed by the Bank and other Agencies. 30 Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Annex 7: Financial Management and Disbursement Arrangements This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 Annex 8: Procurement Annex 9: Economic and Financial Analysis Annex 10: Safeguard Policy Issues Annex 11: Project Preparation and Supervision Annex 12: Documents in the Project File Annex 13: Statement of Loans and Credits Annex 14: Country at a Glance MAPS IBRD No Location of V W W Subprojects IBRD No Cau Son-Cam Son Subproject IBRD No Yen Lap Subproject IBRD No Ke Go Subproject IBRD No Phu Ninh Subproject IBRD No Da Ban Subproject IBRD No Dau Tieng Subproject IBRD No Quang Hue-Vu Gia River Control Subproject

5 Date: March 3, 2004 Country Director: Klaus Rohland Sector Managermirector: Hoonae KidMark D. Wilson Project ID: PO65898 Lending Instrument: Specific Investment Loan (SIL) Team Leader: Greg Browder Sector(s) AI-Irrigation and drainage (80%), WD-Flood Protection (10%) WS-Water Supply (10%) Theme(s): 78-Rural Services and Infrastructure (P) 85-Water Resources Management (S), Environmental Screening Category: A Proiect Financing Data Source Borrower International Development Association (IDA) Total: Local Foreign Total $12.9 $5.5 $18.4 $76.9 $80.9 $157.8 $89.8 $86.4 $176.2 Borrower: Socialist Republic of Vietnam (SRV) Responsible agencies: Ministry of Agriculture and Rural Development (MARD); Electricity of Vietnam (EVN) FY IO I1 Annual Cumulative $3.2 $12.7 $31.7 $31.7 $31.71 $ $1 5. $3.2 $1 5.9 $47.6 $79.3 $1 11.o] $ $ Does the project depart from the CAS in content or other significant aspects? (See Section A. 3) Does the project require any exceptions from Bank policies (See Section D.7) Have these been approved by Bank management? Is approval of any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? (See Section C. 5) Does the project meet the Regional criteria for readiness for implementation o Yes 0 No 0 Yes o No 0 Yes o Yes 0 No 0 Yes o No 0 Yes (See Section D. 7) 1 0 No

6 ~ ~~ Project development objective (See B.2, Technical Annex 3) The project development objective has three parts: (i) foster agricultural diversification and gains in productivity through irrigation system modemization, and thereby raise farm household incomes and reduce rural poverty; (ii) :stablish effective systems of dam safety management and lower the risks associated with dams; and (iii) promote the environmentally sustainable development and management of water resources in the Thu Bon River Basin. Project description (See Section B.3.a, Technical Annex 4) Component 1, Irrigation Modernization ($154.7 million): modernizes infrastructure and management for six of Vietnam s largest irrigation schemes, including remedial dam safety works. Component 2, Dam Safety Management (US$10.2 million): finances remedial safety works on additional dams and supports the establishment of a MARD dam safety unit. The component also finances dam safety instrumentation and data acquisition systems for Hoa Binh dam, the largest dam in Vietnam and located upstream of Hanoi. Component 3, Thu Bon Basin Development ($2.6 million): finances river control works at the intersection of Vu Gia (water source for Da Nang City) and Quang Hue rivers, and initiates a river basin management program through institutional development and preparation of feasibility studies. Component 4, Project Management and Capacity Building (USS8.7 million): provides technical assistance, training, monitoring and evaluation, and project management support. Which safeguard policies are triggered if any? (See Section 0.6, Technical Annex 10) Policy 1 EA (OPIBPIGP 4.01) 2 Natural Habitats (OPBP 4.04) 3 Pest Management (OP 4.09) 4 Cultural Property (OPN 11.03, being revised as OP4.11) 5 Involuntary Resettlement (OD4.30) 6 Indigenous Peoples (OD 4.20, being revised as OP 4.10) 7 Safety of Dams (OP/BP 4.37) Triggered Yes Yes Yes Yes Yes Yes Yes Significant, non standard conditions: (See Section C. 6): Credit effectiveness: Condition of Disbursement: Covenants applicable to project implementation Formally establish project management offices and units, and appointment of key staff Adopt procurement and financial management manuals and complete associated training Adopt an updated project implementation plan None See Section C.7.

7 A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues (See Annex 1) Agriculture provides about a quarter of Vietnam s GDP and exports, and employs two-thirds of the labor force. Rural poverty has been sharply reduced over the last decade, falling from 66% in 1993 to 37% in 2002 with only small increases in inequality. Progress in rural poverty reduction has come from the equitable distribution of land-use rights, freeing up of prices, and targeted investments in rural infrastructure. During the 1990s, rice production grew rapidly from 20 to 30 million tons annually and Vietnam became the world s second largest rice exporter. More recently, rice output has stabilized as farmers shifted into production of more profitable cash crops and aquaculture. Future growth in the rural sector is expected to come from further crop diversification and increases in productivity, making the quality of irrigation services of central importance. At the same time, industrial and urban growth are straining available water resources and the need to manage water among competing users within river basins is increasing. The dominance of irrigated rice production based on abundant water supplies will give way to more diversified cropping systems that demand modem hydraulic infrastructure and more efficient delivery of irrigation and drainage services. Vietnam has about 750 large and medium-sized dams, many of which were constructed during the period from when financial resources and technical expertise were scarce. Consequently, many dams were built with low design and construction standards. Moreover, the dam operations, monitoring, and regulatory capacity in Vietnam are relatively weak. The monsoon climate, mountainous terrain, and high population density, combined with low dam safety standards, pose safety risks that need to be addressed. The Government of Vietnam (GOVN) has made agricultural modernization a top priority in its Strategy of Socio-Economic Development , as an instrument of growth and poverty reduction. Natural disaster mitigation, particularly for floods and dam breaks, is highlighted in the Strategy. These priorities are also reflected in Vietnam s Comprehensive Poverty Reduction and Growth Strategy (CPRGS). The priorities in the CPRGS are in tum reflected in the Bank s Country Assistance Strategy (CAS) which has three pillars: (i) supporting the transition to a market economy; (ii) enhancing equitable, inclusive and sustainable development; and (iii) promoting good governance. The Vietnam Water Resources Assistance Project (VWRAP) is consistent with the elements of the CAS that relate to the rural sector and is designed to support the G0V s strategic goals of agricultural modernization, improved water resources management, and natural disaster mitigation. 2. Rationale for Bank involvement (See Annex 2) The Vietnam Water Resources Assistance Project will support Vietnam in meeting its strategic objectives in the rural sector by providing financing, advice on policy development, and international expertise. The Bank has extensive experience of irrigation and water resource issues in Vietnam, having financed three projects in the sector: the Dau Tieng Irrigation Project (FY78), the Irrigation Rehabilitation Project (FY95), and the Mekong Delta Water Resources Development Project (FY99). The Dau Tieng project was the first Bank-financed project in Vietnam after reunification of the country, and consists of a large dam and reservoir, with an 1

8 irrigation command area of 65,000 ha. The Dau Tieng scheme was constructed in the early- 1980s under difficult conditions, and VWRAP will finance its modernization and upgrade the safety of the dam. Dau Tieng is the largest subproject under VWRAP with an estimated cost of US$62.4 million. The Bank has supported a number of irrigation modernization and dam safety projects globally, and Bank staff will draw upon its international experience to help Vietnam upgrade its hydraulic infrastructure and management systems. World Bank involvement also brings needed financial resources to the water resources sector, which despite its importance has suffered from decades of under-investment and where many schemes need to be renovated. In partnership with other international donors, central and provincial government agencies, and project beneficiaries, the Bank through VWRAP will support the development of national programs for irrigation modernization and dam safety, which will have impacts beyond the specific infrastructure investments to be financed under the project. To address water resources management issues more comprehensively, Vietnam passed a new Law on Water Resources in 1999, established a National Water Resources Council, and committed itself to basin-wide water resource planning and management in the future. VWRAP will support Vietnam as it makes this transition, in particular in the Thu Bon Basin. 3. Higher level objectives to which the project contributes VWRAP will support the key elements in the Vietnam s CAS in three ways. First, VWRAP supports the transition to a more market-based economy by promoting changes in infrastructure and management that will encourage and underpin further agricultural diversification. Second, although irrigated farmers are not among Vietnam s poorest, most of them live just above the poverty line. By promoting agricultural diversification and intensification, VWRAP will help to keep small-scale irrigated farmers out of poverty and maintain the gains made in the 1990s. Third, the management reforms to be implemented under VWRAP at the corporate and farmer group levels will improve governance by making the providers of an essential public service more accountable to their clients. Service delivery under VWRAP will be based on a public utility model that holds the irrigation agencies - the state-owned Irrigation Management Companies (IMC) - more accountable for their technical and financial performance. B. PROJECT DESCRIPTION 1. Lending instrument The project will use a Specific Investment Loan (SIL) instrument. This instrument was selected to ensure the technical, financial, economic, environmental, and institutional viability of the specific subproject investments over the medium term. The use of credit conditions and performance indicators also allow the SIL to support the reform of policies that enhance the productivity of the investments. The Government of Vietnam is familiar with the operation of SILs and with Bank procedures gained from 10 years experience since the Bank s return to Vietnam in

9 2. Project development objective and key indicators The project development objective has three parts: (i) foster agricultural diversification and gains in productivity through irrigation system modernization, and thereby raise farm household incomes and reduce rural poverty; (ii) establish effective systems of dam safety management and lower the risks associated with dams; and (iii) promote the environmentally sustainable development and management of water resources in the Thu Bon River Basin. Specific results associated with these objectives and their indicators are: Irrigation Modernization: Increase agricultural diversification and gains in productivity by providing more efficient, reliable, flexible, and equitable irrigation services through the introduction of modem infrastructure and management on six of the largest irrigation schemes in Vietnam. Performance indicators are: P Serviced area of each scheme to reach 75% of the design command area P Development and implementation of comprehensive management plans for each scheme P Water user groups covering 25% of each scheme area with volumetric service contracts Dam Safety Management: Reduce flood and disaster risk by improving dam safety and management throughout Vietnam. Performance indicators are: P Establishment of a functional Dam Safety Unit in MARD P Implementation of remedial safety works on at least 3 to-be-identified dams P Complete dam safety audits - approved by the Dam Safety Unit - in the six dams in Component 1 and at least 3 dams to-be-identified P Improved Dam Safety Instrumentation for Hoa Binh Dam Thu Bon River Basin Development: Promote integrated management and development of water resources that is environmentally sustainable on a basin-wide basis using the Thu Bon River Basin as a pilot case. Performance indicators are: P Restoration of river flows to Da Nang City P Preparation of at least two feasibility studies for water resources infrastructure P Establishment of a River Basin Coordination Committee 3. Project components (See Annexes 4 and 5) Total estimated project costs are US$176.2 million for the following components: Component 1 : Irrigation Modemization (US$154.7 million) Component 2: Dam Safety Management (US$10.2 million) Component 3: Thu Bon Basin Development (US$2.6 million) Component 4: Project Management and Capacity Building (USSS.7 million) Component 1: Irrigation Modernization (US$lSA 7 million): The component will renovate and modemize the infrastructure and management of six of the largest irrigation schemes in Vietnam:

10 Notes: 1. Dau Tieng Excludes Chu Chi in HCMC (1 1,000 ha), includes Tan Hung (10,700 ha) and excludes future expansion 2. Collection areas are defined as the area over which IMC collects either full or partial fees in the peak irrigation season The hydraulic infrastructure will be upgraded to make water delivery more reliable, flexible, efficient, and equitable. This will be achieved by renovating degraded canals, installing new types of water control and flow measurement structures, and developing lower level canal systems. The safety of dams supplying water for the schemes will be improved through remedial works, such as additional emergency spillways, slope reinforcement, motorizing spillway gates, and repairing outlet works. Modernizing the infrastructure will enable the schemes managers to supply more water to a wider variety of agricultural, municipal, and industrial users, and make improved water resource management capacity operational. This component also aims to improve the management of the schemes so that new infrastructure can be utilized effectively. Each provincial irrigation management company (IMC) will prepare and implement comprehensive plans covering operations, maintenance, and financial management. A participatory irrigation management (PIM) will be developed for each subproject whereby water user groups (WUG) will be established that enter into contracts with IMCs for volumetric service delivery, thereby enhancing IMC accountability. The WUGs will also be represented in the IMC management board. Component 2: Dam Safety Management (USU0.2 million) The component will improve dam safety and management throughout Vietnam through the establishment of a Dam Safety Unit in MARD and the implementation of remedial safety works in at least three selected dams. The component also finances the improvement of the Hoa Binh dam safety instrumentation system (US$1.2 million). Hoa Binh is the largest reservoir in Vietnam, located 75 kms upstream of Hanoi on the Da River, and the safety of the dam and is of paramount concern for the entire Red River delta. A MARD national Dam Safety Unit (DMU) will be established under the project to improve the management of all MARD-affiliated dams, with a focus on the six dams in Component 1. The DMU will prepare dam safety and emergency management plans, undertake dam safety inspections, and formulate and enforce laws and regulations. Approximately US$2.0 million will be used to support the start-up activities of the DMU. US$7.0 million will be reserved to upgrade additional, to-be-identified, dams during implementation. 4

11 Component 3: Thu Bon Basin Development (US$2.6 million): This component will fund the high priority Quang Hue River Flow Stabilization works (US$1.6 million), which control the flow of water to the cities of Da Nang and Hoi An. Approximately US$l.O million will be reserved for planning and pre-investment studies for priority projects identified in the Thu Bon River Basin Master Plan, which could be considered for follow-up financing by the World Bank. Component 4: Project Management and Capacity Building (US$& 7 million): This component will finance technical assistance for project management (US$3.5 million) and training programs for capacity building (US$2.4 million), which are essential for effective project implementation. The project will also support incremental operating costs for the project management office and the (eleven) subproject implementation offices (US$2.8 million). The project will be implemented in three phases: Phase I will include dams, main canals and 20% of the command areas in Component 1 ; Hoa Binh Dam instrumentation in Component 2; and Quang Hue River works from Component 3. In addition, design work for the 80% of work remaining will be completed. Phases I1 and I11 will each cover half the remaining work in the project command areas. The rationale for phasing implementation is to provide the opportunity to pilot both new water control structures and new approaches to participatory irrigation management before extending them to the entire project area. Major implementation reviews comparable to mid-term reviews will be conducted by the Bank in years 3 and 5 to review phasing. 4. Lessons learned and reflected in the project design Upgrade management and infrastructure: Many irrigation schemes in Vietnam provide poor service due to degraded infrastructure caused by low construction standards and quality, deferred maintenance, and lack of incentives and accountability by the IMCs. VWRAP will address the fundamental causes of poor performance by focusing on improving scheme management, increasing farmer participation, and modemizing infrastructure to enable operators to provide better service. In the past, the GOVN has focused on rehabilitating schemes often to original design standards that are inadequate today and by not addressing management problems, which has resulted in under-performing irrigation schemes and low investment efficiency. Under VWRAP, both scheme management and infrastructure will be upgraded to higher performance standards. Promote Accountability: Irrigation has been considered a public good in Vietnam, and there is a lack for accountability both for providing and paying for the service. The project will address these constraints in two ways. First, the project will introduce a system o f pilot volumetric service contracts at transaction points between IMCs and Water User Groups (WUGs). Charging for water on a strict volumetric basis is considered impractical in Vietnam, but the service contracts proposed will include provision for delivery of defined quantities of water at specific times. The IMCs will be held accountable for providing water in accordance with the contracts, and the WUGs will be obligated to make payments if adequate service is provided. Second, the key project performance indicator is the increase in IMC service area, which will demonstrate improved service and increase IMC revenues, thereby allowing increased maintenance to sustain 5

12 service and initiate a virtuous circle. Training and capacity building are integral to the project and essential for establishing accountability as people and organizations should be held accountable only when they are qualified and equipped to undertake that responsibility. Comprehensive Dam Safety: Dams rarely fail for one specific reason but generally through a combination of unforeseen events. Dam safety remedial works are important to reduce risk, but they must be accompanied by improved dam safety management overseen by a regulatory body. Past investments in dam safety have focused on physical works and neglected the management and regulatory framework. VWRAP includes a national dam safety program, focusing first on MARD, and aiming to create an appropriate regulatory regime to ensure comprehensive dam safety management at specific facilities. Each subproject will be required to prepare and implement dam safety management and emergency preparation plans. Project scope: Although the project is the largest Bank-financed operation in the irrigation subsector to-date in Vietnam, efforts have been made to reduce the complexity of design by ensuring that all six sub-projects in Component 1 follow the same basic approach to irrigation modernization. Since all six irrigation subprojects rely on dams, which automatically invoke the Bank s Dam Safety Safeguard Policy, the decision was made to use the project to address dam safety issues. 5. Alternatives considered and reasons for rejection Project Length: Rural sector projects in Vietnam typically are planned for five or six-year periods of implementation, but VWRAP is proposed for seven years. This longer duration was considered necessary to provide enough time progressively to introduce new irrigation modernization concepts and build capacity to support the reform efforts. In addition, some of the works are large and canal construction work can only take place intermittently - seasonally or during water closures - to minimize adverse impacts on farmers, thus prolonging the construction period. Integrated Water Resources Management: Each of the six irrigation schemes under VWRAP belong to river basins with multiple water users. Ideally, all of the schemes would be managed within the context of an integrated basin management system, but Vietnam has only just begun to put in place the institutions and capacity to manage water comprehensively at the basin level. Since several international agencies are providing capacity support at the national level to improve water resources management, it was not considered necessary to address national issues under VWRAP, although the World Bank remains actively involved in supporting and tracking these efforts through analytical work, partnership groups and liaison with other international agencies. Addressing river basin management issues for all six basins was considered impractical due to the limited resources and capacity of the implementing agencies to deal effectively with a new concept. The decision was made, therefore, to concentrate on management of one river basin- Thu Bon Basin. The Thu Bon Basin covers the city of Da Nang, which is not only the third largest economic center in Vietnam, after Hanoi and Ho Chi Minh City, but also faces pressing and complex water resource problems. 6

13 National Dam Safety: Most of the large dams in Vietnam are owned and operated by Electricity of Vietnam (EVN) which is supervised by the Ministry of Industry (MOI), while MARD has responsibility for irrigation dams and flood protection. Requiring a stand-alone National Dam Safety Unit under the National Water Resources Council, which is now part of the recently established Ministry of Natural Resources and Environment (MONRE), was considered and rejected, based mainly on institutional constraints. Instead, the project will facilitate the establishment of a to-be-defined institutional mechanism for the coordination of dam safety activities, laws and regulations in Vietnam, with respect to MARD and EVN related dam safety programs. The project will focus primarily on MARD dam safety issues-where the most serious problems are believed to reside-and support the formation of a MARD Dam Safety Unit. In parallel, VWRAP will finance dam safety improvements at Hoa Binh, which is owned by EVN, but operated during flood season in collaboration with MARD. Thus, both EVN and MARD will be engaged in dam safety management under the project. Provincial vs. Central Government Implementation: In the past, MARD was responsible for implementing irrigation projects at the provincial level. Under the new GOVN policy of decentralization and with VWRAP s emphasis on improving the performance of existing systems, the decision was made to allow provincial governments to be the implementing agency for irrigation modemization works. Dam safety works and inter-provincial works, due to their more complicated nature, will remain the responsibility of MARD. C. IMPLEMENTATION 1. Partnership arrangements Although there will be no co-financing under VWRAP, the World Bank will continue to work closely with other donor programs to provide consistent support for irrigation modemization, dam safety, and water resource management activities in Vietnam. MARD has established the International Support Group (ISG) to promote donor coordination of support to the Ministry. In water resources management a special technical group under ISG has operated for approximately two years led by the Government and supported by the Asian Development Bank (ADB), of which the World Bank is a member. The United Nation s Food and Agriculture Organization (FAO) also supports an active program of irrigation modemization from its regional office in Bangkok, Thailand. FA0 staff have been involved in preparation of VWRAP, and will support training for irrigation modemization and participatory irrigation management programs during imp 1 em en t at i on. For the Dau Tieng subproject, the IDA-financed investments will upgrade the existing irrigation scheme and improve dam safety. The ADB and the Agence Francaise de Developpement (AFD) are considering financing an extension of the existing Dau Tieng scheme through the proposed Phuc Hoa Project, which would transfer water from the Song Be Basin into the Dau Tieng reservoir and expand the irrigated area in neighboring provinces. Although VWRAP does not depend on Phuc Hoa to meet its project objectives, ADB, AFD, and the World Bank share a common interest in ensuring efficient system operation and will cooperate with provincial and national agencies on basin and scheme management issues in Dau Tieng. 7

14 2. Institutional and implementation arrangements (See Annexes 6,7, and 8) MARD will be the primary executing agency for the project. EVN will be the executing agency for the US$1.2 million Hoa Binh component. Both MARD and EVN have extensive experience with implementing IDA-financed projects. Since VWRAP supports the development of national programs in irrigation modernization and dam safety, MARD will establish a high-level Project Steering Committee, chaired by a MARD Vice Minister, with representatives from the Ministry of Planning and Investment, Ministry of Finance, State Bank of Vietnam, and representatives from the six respective Provincial People s Committees. A special Irrigation Modernization Task Force has also been established to provide technical and policy guidance to MARD on Vietnam s overall irrigation and dam safety modemization program. MARD project management functions take place at various levels. At the top level, a MARD Vice Minister has overall responsibility for the project, and provides general guidance. The two key MARD agencies are the Department of Water Resources in MARD and the Central Project Office, both of which report to the same Vice Minister responsible for the project. The DWR is mandated to provide policy, planning, and management oversight of irrigation schemes in Vietnam. In conjunction with other MARD departments, including the Planning and Construction Departments, the DWR will review and recommend for MARD approval tender documents, large contracts, and irrigation management plans. DWR will be the lead MARD department for overall project supervision and monitoring, and a Deputy Director of DWR chairs the Irrigation Modernization Committee. MARD s Central Project Office (CPO) is responsible for management of all foreign-financed water resource projects in Vietnam, including ADB, JBIC, and World Bank-assisted projects. CPO has a staff of managers, engineers, safeguard specialists, procurement specialists, and accountants who are familiar with both GOVN and donor requirements. A VWRAP Project Management Office (PMO) will be established within CPO to provide day-to-day project management and liaise between implementing agencies, the World Bank, and the relevant departments of MARD. Implementation of the project will take place through two mechanisms. MARD subimplementation offices (SIOs) will be responsible for complex dam safety or any inter-provincial works. MARD has a network of SIOs organized on a regional basis to implement large projects financed by the central govemment. However, most irrigation schemes are owned and operated by provincial governments, and provincial project management units (PMUs) will be established to implement canal improvement works. The PMUs will be composed primarily of staff from the provincial Departments of Agriculture and Rural Development (DARD) and the Irrigation Management Companies, under the authority of the Provincial People s Committee (PPC). MARD s SIOs and the provincial PMUs will be responsible for most procurement and all construction supervision activities, and operate under the general MARD project management framework. 8

15 There will be seven PMUs and four SIOs involved in the project, all of whom will operate under the general supervision of the PMO in the Central Project Office. The MARD PMO will be responsible for managing the IDA special account, procurement of ICB and QCBS contracts, contractor payments, ensuring safeguard compliance, and reporting to IDA, MARD, and the GOVN. While these institutional arrangements appear complex, they are consistent with Vietnam s policy of decentralization and are similar to the arrangements used in previous World Bank- financed projects. The main difference is that provincial authorities will take more responsibility for modernizing their own schemes under VWW. An overall project organization chart is provided in Annex 6. The International Cooperation Department of EVN will be responsible for the Hoa Binh subcomponent, and will work closely with EVN s Hoa Binh management office. Given the small size of the EVN component a separate special account is not necessary. Since there will only be one large turnkey contract (approximately US$1.1 million) and perhaps one or two small consultancy contracts, the direct payment procedure can be used for the EVN subcomponent. Since EVN is considered to be a commercial enterprise, MOF will enter into a subsidiary loan agreement with EVN for the subcomponent. Because V W W includes a broad range of reforms and the progressive introduction of modern irrigation infrastructure and management, the project duration is estimated to be seven years starting in mid Since the canal systems supply irrigation water to farmers, communities, and industries, they cannot be closed for long periods of time. Canal construction works can only be undertaken on an intermittent basis, thus prolonging the construction period. 3. Monitoring and evaluation of outcomeshesults (See Annex 3) The VWRAP PMO, under the direction of MARD s Department of Water Resources, will be responsible for project monitoring and evaluation. World Bank supervision missions will take place at least twice a year, with formal reviews equivalent to mid-term reviews in Years 3 and 5 of implementation. The project s key performance indicator will be the increase in IMC fee collection area for each subproject during the major irrigation season. The project will finance a comprehensive benchmarking and training program implemented through a Vietnamese institute, which will conduct scheme audits as part of the benchmarking program, and compile the results into one document. Preliminary benchmarking training and audits of two schemes, Dau Tieng and Cam Son, have taken place during project preparation. MARD has agreed to expand these efforts into a national program, focusing initially on the VWRAP subprojects. An independent panel of national and international dam safety advisors will be convened to oversee and advise on the MARD dam safety program. The panel will produce reports describing the national dam safety program, and contain recommendations for improvements. 4. Sustainability Sustainability of the project s benefits depends primarily on provincial government leadership and MARD oversight. The GOVN and MARD have a strong commitment to improving the 9

16 performance of irrigation schemes and dam safety. An Irrigation Modemization Task Force has been established by MARD to guide the process, and draft decrees on participatory irrigation management and dam safety are under consideration by MARD. IMCs are provincial stateowned-enterprises under the supervision of the Provincial Peoples Committee (PPC). In order to sustain project benefits, the PPCs will hold the IMCs accountable and have a basis for judging their performance. The project design attempts to address this issue by establishing a national benchmarking program whereby the performance of the IMCs can be objectively assessed and compared with other provinces. This will provide both MARD and the PPC with information to judge the performance of IMC management. Participatory Irrigation Management (PIM) programs will be established in each subproject province to help develop a constituency for better IMC services, and provide a forum for increased farmer interaction with the IMCs. Sustainability of dam safety management activities will be enhanced under the project through formulation of a national regulatory framework, including the establishment of a MARD Dam Safety Unit. The project will also develop a mechanism to coordinate dam safety activities, laws and regulations in Vietnam, in particular MARD- and EVN-related dam safety programs. The appropriate institutional arrangements to do this will be studied and developed during the project. The active involvement of MARD and EVN dam safety units in intemational organizations, such as the International Commission on Large Dams (ICOLD), will also raise their understanding of the importance of, and procedures for, dam safety regulation and management. 5. Critical risks and possible controversial aspects Risks Risk Rating wlmitigation Substantial modernization To Component Results _ Irrigation Modemization: a) Low capacity of units new to Bank a) Ensure well-funded and closely procedures and insufficient training supervised training program b) Inadequate technical expertise b) Provide technical assistance c) Lack of farmer participation c) Ensure implementation of PIM programs d) Low levels of cooperation between d) Ensure effective involvement of MARD departments concerned with construction Steering Committee and Modemization and irrigation management in MARD Task Force a) Provide technical assistance and Modest independent expert panel b) Confine involvement to instrument upgrades. 10

17 6. Key Credit Conditions and Covenants Conditions of Effectiveness: 0 MARD shall establish a Project Management Office (PMO), and each project province shall establish a Provincial Project Management Unit (PMU), with functions and staffing acceptable to IDA. All existing MARD Sub-implementation Offices (SIOs) involved in the project shall also appoint an accountant and a procurement specialist. 0 MARD will finalize and adopt a Project Implementation Plan (PIP) acceptable to IDA which sets forth in detail the organizational structure, schedule of activities, and procurement plan. The PIP will be updated periodically. 0 MARD shall finalize and adopt a Project Financial Management Manual and establish a financial management system acceptable to IDA, and complete training for all PMO, PMU, and S I0 staff. MARD shall finalize and adopt a Procurement Manual acceptable to IDA, and complete procurement training for all PMO, PMU, and S I0 staff. Dated Covenants and Time-Bound Implementation Plan: By December 31, 2004: Complete all necessary tender documents for lst year civil works. MARD shall prepare a detailed rolling two-year plan for training and capacity building, in particular in regard to participatory irrigation management programs, acceptable to IDA, and thereafter implement the plan in a manner satisfactory to IDA. The plan shall be updated annually throughout the course of the project. MARD shall appoint a panel of qualified and independent dam experts with terms of reference and qualifications acceptable to IDA, to review and advise the Borrower on matters related to dam safety activities financed under the project; and to advise on the national dam safety program as requested. Each project province, as a condition to its participation in the Project, shall enter into a Memorandum of Understanding (MOU) with the Ministry of Finance, acceptable to IDA, which sets forth, among other matters, the authorization, and terms and conditions, for said province to use the proceeds of the IDA Credit for the modemization and improvement of any part of its irrigation scheme, including canals serving less than 150 ha, which are included in the Project Feasibility Study, provided the province shall be responsible for at least 20% of the costs for such works. Establish and maintain throughout the period of project implementation a Steering Committee to be chaired by a vice minister of MARD, with representation from the Ministry 11

18 of Planning and Investment, Ministry of Finance, State Bank of Vietnam, and fi-om the People s Committee of each project province to provide overall guidance in the implementation of the project. By March 31, 2005: 0 MARD shall engage a technical assistance team, with expertise in irrigation engineering and management, participatory irrigation management, dam safety, construction, procurement, environmental and social safeguards, and with terms of reference and qualifications acceptable to IDA. By December 31, MARD shall establish a dam safety unit responsible for i) establishing a system of dam inspections, including regulations, procedures and standards for dam construction and management to ensure dam safety; ii) supervising dam safety inspections; iii) establishing standards for and building the capacity of dam owners, operators, and inspectors; and iv) establishing and maintaining a database and dissemination of information on dams in Vietnam; all in respect of dams under MARD s jurisdiction; and v) no later than June 30, 2007 formulate recommendations regarding the establishment of a national dam safety coordination mechanism to ensure consistency among the various agencies responsible for dam safety. By June 30, 2006: 0 MARD shall cause each project province to prepare an environmental management plan in respect of indirect impacts from irrigation scheme operation, which analyzes among other issues and as may be appropriate, those related to: i) design of a water quality monitoring program; ii) aquaculture; iii) municipal and industrial pollution control; and iv) reservoir watershed management, and develop proposals for addressing problems identified, and thereafter implement such environmental plan. 0 Complete an assessment of the Integrated Pest Management program under implementation within each project province. Establish a Thu Bon River Basin Steering Committee with representation from MARD, Quang Nam Province, the City of Da Nang, and Ministry of Natural Resources and Environment (MONRE), with such powers, functions, and resources as shall be necessary to support basin-wide flood management, water allocation, and planning and management of water resources infrastructure, and to guide and review feasibility studies prepared under the project. 12

19 By December 31, 2006: Each project province, and MARD in the case of the Dau Tieng IMC, shall prepare for IDA review and comment an IMC management plan setting forth: the organizational structure; procedures and guidelines for the administration, operation and maintenance of the irrigation system; financial management; an action plan for the gradual increase in irrigation service fee collection coverage; principles and procedures for participatory irrigation management, and monitoring and evaluation plans. Each province shall implement the IMC management plan in a manner satisfactory to IDA, and from time to time review the plan with MARD and IDA and update as necessary. By December 31, 2007: Prepare a time-bound action plan for the establishment of a national dam safety coordination mechanism, and thereafter put into effect such action plan giving due consideration to IDA S view thereon. General Non-Standard Conditions: Each project province, and MARD in the case of the Dau Tieng IMC, shall take all necessary actions to enable the respective IMCs to meet the costs of operation and maintenance as established in its management plan. MARD shall maintain an Irrigation Modernization Task Force throughout the project with such powers, responsibilities, and resources as shall be necessary to provide technical and policy guidance on a national program of irrigation and dam safety modernization. Upon completion of the works on the Cat Hai water transfer facilities, under the Yen Lap Subproject in Component 1, MARD shall transfer ownership and associated operations responsibility of said facilities to the Hai Phong Water Supply Company. D. APPRAISAL SUMMARY 1. Economic and financial analyses (See Annex 9) Cost-benefit ERR=14.7% Economic benefits derive primarily from modernization and renovation of deteriorated water infrastructure, resulting in more reliable, efficient, and equitable water distribution. This will lead to increased crop diversification, higher yields, and lower production costs and thereby increase farmer incomes. More equitable water distribution, generated through improved infrastructure and participatory irrigation management, will have a positive impact on the poorer farmers often found at the tail ends of irrigation canals. The project investments in irrigation modernization and dam safety will help to prevent dam or canal failure and subsequent damage that could cause loss of life or interrupt farm production. The project will also generate non-agricultural benefits 13

20 from increased water supply to municipal and industrial (M&I) users and cost savings related to flood prevention or mitigation. A conservative approach has been taken in the economic analysis by taking into account only the direct benefits that can be monetized. This includes primarily the incremental returns from irrigated farming within the existing irrigation command area of each sub-project. For water supply, benefits were calculated only for Yen Lap and Da Ban subprojects because these subprojects have confirmed investments for municipal and industrial (M&I) water supply, which draw water from the irrigation schemes. For the other subprojects, although M&I water use from the irrigation schemes is expected to grow significantly in the future, the timing and magnitude of the increases cannot be confirmed with accuracy and thus were not included in the economic analysis. Dam safety investments were not considered in the benefit-cost analysis, but rather a least-cost analysis was performed to ensure the dams meet the safety design criteria at the lowest cost. Nevertheless, benefits and costs are also captured in criteria for dam safety design. Dams with higher economic and loss of life risks have higher design criteria. The project is justified based on an overall estimated rate of retum of 14.7% with sub-projects ranging from 11% to 34%. Four of the seven subprojects have ERRs at or just below the Bank s guideline of 12%. However, the analysis is conservative in two ways: (i) it does not include the very real, but difficult to assess, future without-project situation in which benefits are declining as the irrigation system continues to deteriorate; and (ii) substantially increased municipal and industrial water supply is not included where it cannot be clearly imputed to the project. Sensitivity analysis shows the ERR is robust under various scenarios, including increased costs, delayed benefits and diminished benefits due to adverse movements of price, yield and performance of irrigation service providers. However, the overall rate of retum is most sensitive to delayed realization of benefits, which could be caused by delays in implementation, particularly in construction of tertiary canals, and four subprojects would have ERRs below the guideline if the expected benefits decrease by 20%. The financial sustainability of the project is dependent on increasing farmer incomes and IMC revenues. Based on crop budgets, farm income is expected to increase on the order of 50%-100% due to greater diversification, higher yields, and lower production costs. IMC revenues should also increase on the order of 50%-100%, due to extending service coverage, greater incentive to collect fees, and increased farmer willingness to pay due to better service, increased incomes, and more participation in irrigation management. Since most of the IMCs costs are already fixed, higher net revenues can be used to improve maintenance and ensure better performance of the schemes and service sustainability. Financial projections show that by the end of the project, the IMCs will be able to cover all required maintenance costs, and most IMCs will generate small surpluses. This should result in better scheme performance and sustainability. MARD guidelines for water fee rates are around 5-8% of farm production (paddy equivalent), depending on the type of service provided (i.e. full gravity, partial pump lifted/gravity, fully pump lifted). Actual fees are set by provincial governments, and usually range from 3-5% of farm production. IMC revenues will be increased primarily through expansion in service coverage and collection, rather than hikes in fee rates. 14

21 Fiscal impact on the provincial govemment is expected to be approximately neutral. Tax revenues will increase due to incremental farm production, and the elimination of subsidies to IMCs will reduce provincial expenditures. Provincial govemments, however, will be required to repay approximately 20% of all project costs. The increase in tax revenues, combined with IMC surpluses, approximately cover the debt service costs. Alternatively, the provincial governments could reduce the tax rate and charge higher water fees to cover the debt service costs. During project implementation, detailed financial management plans will be developed for each IMC. 2. Technical (See Annex 4) An overall project feasibility study of acceptable quality has been prepared, and preliminary engineering designs have been completed for first phase (Phase I) of works which cover: Component 1-dams, main canals, and 20% of the command areas; Component 2-Hoa Binh dam instrumentation; and Component 3-Quang Hue river works. During implementation, designs for the remaining 80% of the command areas under Component 1, and the dams to be identified under Component 2 will be undertaken. The rationale for only starting with 20% percent of the command area in Component 1, the so-called pilot areas, is to have an opportunity to test new types of water control infrastructure and participatory irrigation management approaches. Lessons leamed in the pilot areas will be applied in Phase I1 and Phase I11 of the project, each covering half of the rest of the command area. The project includes a number of technical issues that will need to be carefully managed during implementation. Modem canal lining and strengthening approaches will be used to renovate degraded canals. Since farmers rely on irrigation water from the canals, a key challenge will be to devise methods to minimize service disruptions while maintaining construction quality and cost efficiency. A number of options for expediting canal works have been identified at the feasibility level and will be explored further during early phase of implementation. New water control structures, such as long-crested weirs, and flow measurement devices will be introduced under the project. The detailed design and construction of these structures must be of high quality in order to function properly. The modernization of irrigation infrastructure will require capacity building and training across a broad spectrum, including government agencies, engineering companies, irrigation management companies, and water user groups. The project finances significant training and technical assistance activities to ensure that modem infrastructure is properly designed, constructed, and operated. Improving irrigation management is another dimension to achieving higher performance. VWRAP will complement modemization of infrastructure investments by fostering more participatory irrigation management and upgrading skills of the IMCs and water user groups (WUGs). This will be done through training, and development of management plans covering the following issues: i) organization structure; ii) system operation; iii) maintenance; iv) administration; v) financial management; vi) participatory irrigation management; and vii) monitoring and evaluation. A national benchmarking program will be established under the project, providing MARD and the (PPC) with objective information on how different schemes on performing. Volumetric service contracts between IMCs and WUGs will tested on a pilot basis, and should serve to make service provision more transparent. These measures should provide a basis for enforcing accountability for IMC performance. 15

22 Remedial works on MARD dams consists primarily of improving spillway capacity, slope protection, installing instrumentation, access roads, etc. New Vietnamese dam safety standards were promulgated in 2002 and were adopted under the project. These standards, are more conservative from a safety perspective than earlier standards, and generally in line with international practice. In some cases, such as Dau Tieng, additional safety measures were adopted given the importance of the dam and the catastrophic consequences of a dam break upstream of Ho Chi Minh City. In addition to the six dams under Component 1, there are many other dams in Vietnam with safety problems that need to be upgraded. Component 2 reserves US$7 million for upgrading to-be-identified dams during project implementation. Approximately US$2.0 million will be used for institutional strengthening, including training to assist in the start-up of MARD s Dam Safety Unit to take responsibility for a comprehensive system of dam inspections, and for development and enforcement of laws and regulations. An independent dam safety panel will be established under to review and advise on dam safety works under the project, and to advise on the national dam safety program as requested. Hoa Binh is the largest dam and reservoir in Vietnam, located approximately 75 km upstream of Hanoi on the Da River which is a major tributary of the Red River. The upper half of the Da watershed is in China, and the lower half in Vietnam. The dam was completed in the early 1990s, and constructed with technical and financial assistance from the former Soviet Union. International and World Bank experts have inspected the dam and found no obvious structural problems, and although the spillway is somewhat undersized it poses no immediate, major safety concerns. However, the dam safety monitoring and instrumentation system is outdated and will be upgraded under the project. 3. Fiduciary (See Annexes 7 and 8) An assessment of the adequacy of the project financial management system was carried out by an IDA team in June 2003, and updated in early October The scope of the work has been set out in the Assessment of Financial Management Arrangement in World Bankfinanced Projects-Guidelines to Staf issued by the Financial Management Sector Board dated June 30th The objective of the review was to assess the suitability of the existing project financial management system as required by the Bank under OP/BP with a view to implementing the proposed project. In Annex 7, the financial management risks have been addressed using the recent Vietnam Country Financial Accountability Assessment and also have been analyzed at levels relevant to the project covering inherent risk, control risks as well as mitigating factors. The results of the assessment and corresponding remedial actions to address weaknesses have been agreed with the agencies and are included in the Action Plan (see Attachment 1 in Annex 7). The review has concluded that with the fulfillment of the above Action Plan, this project will meet the Bank s financial management requirements. The Project will produce Financial Monitoring Reports (FMRs) and follow standard disbursement methods. MARD and EVN have experience implementing various projects funded by the World Bank. Project accounts will be kept for all projects related expenditures using accounting principles and practices acceptable to IDA. Project accounts will be audited on an annual basis in accordance with international standards on auditing, and in compliance with the independent auditing 16

23 regulations of Vietnam. The auditor s report will be made available to IDA within six months of the close of each fiscal year. The audit will include a separate opinion on the SOEs other than the Special Accounts and Project Accounts. A management letter addressing internal control weaknesses of implementing agencies will also be provided by the auditor together with the audit report. An assessment of the procurement capacity of various MARD project management units was carried out in accordance with World Bank procedures. The project will follow standard Bank procurement procedures. Both MARD and EVN PMOs have significant experience in IDA procurement procedures, and have experienced procurement staff. All ICB and QCBS contracts will be handled by the PMOs. Most of the MARD NCB procurement will take place at the subproject level through PMUs and SIOs, which do not have experience with IDA procedures, but are well-versed in GOVN procurement and construction management. Given the country s general procurement environment as reported in the Country Procurement Assessment Report, and lack of experience at the sub-implementation level, the overall procurement risk is rated as high. To overcome these constraints, a comprehensive Procurement Manual and Training Program has been developed. In addition, domestic and intemational consultants will be contracted to assist the PMOs and PMUs/SIOs during project implementation. IDA procurement specialists will assist and evaluate the procurement training for SIOs/PMUs to ensure adequate capacity before subproject activities begin. IDA shall carry out ex-post reviews of 20 percent of the contracts that were not subject to prior review. With the concurrence of the Regional Procurement Advisor, this percentage may be lowered if, during implementation, it is determined that the processing of procurement is satisfactory and there is a lower perceived risk. 4. Social The project will provide more efficient, equitable and reliable irrigation services to farmers, and is expected to improve access to irrigation water for all farmers in the system, particularly benefiting those at the tail-end of the canal system. The project is designed to increase and improve farmers participation in irrigation management by strengthening local water user groups, and involving them more in overall scheme management. Social assessments have been conducted in all subproject areas which confirm there is an urgent need to upgrade the degraded irrigation systems and farmers expect this project to benefit them significantly. The project will establish a new mechanism of water use management with active participation of farmers. For this purpose, farmers, including women, will also be trained. Project implementation will take place in phases, and Phase 1 will cover: Component 1-dams, main canals, and 20% of the command areas; Component 2-Hoa Binh dam instrumentation; and Component 3-Quang Hue river works. During implementation, designs for the remaining 80% of the command areas under Component 1, and the dams to be identified under Component 2 will be undertaken. Socio-economic surveys and social assessment exercises have identified ethnic minority groups in one of the subproject areas (Cam Son) in Phase I. The survey and assessments indicate that the project will have no adverse impacts upon them, and that they will benefit from the project. Project information has been disclosed among them and consultations have been conducted with 17

24 local leaders and communities. An ethnic minority people development policy framework has also been developed to guide future planning regarding ethnic minority issues in Phase I1 and 111, and will be applicable regardless of whether the impacts on Ethnic Minorities are positive or negative. One impact of the project is the possible disruption of water supply due to the closure of the main canal system for rehabilitation. This has been discussed extensively with MARD and the provincial authorities, who are keenly aware of this issue. The construction work will be planned and implemented as much as possible to minimize disruption of water supply, and arrangements will be discussed and planned with local communities prior to civil works. A study on gender issues under the project was carried out during project preparation. It reveals significant potential for women, particularly women-headed households and vulnerable groups, to participate in both construction and water management. Local authorities expressed commitment to greater involvement of women in water management. Training of farmers and capacity building to establish water user groups, which includes increased participation of women, has been incorporated into project design. Gender training will be provided to project management staff at all levels to sensitize them to issues and opportunities to advance gender equity. Since VWRAP finances safety works on existing dams, resettlement legacy issues were examined. The ESSD Safeguard Unit advised that: i) a rapid assessment of legacy issues should be undertaken for each project dam during preparation; ii) if resettlement legacy issues are identified and dam construction was financed by the World Bank, then a resettlement rehabilitation program should be included under the project; iii) if resettlement legacy issues are identified but the Bank did not finance dam construction, then the Bank should consider requests by the Government to finance a resettlement rehabilitation program. Dau Tieng dam was financed by the World Bank but no resettlement legacy issues were identified. None of the remaining dams were financed by the Bank. For Phu Ninh, a minor resettlement legacy problem was identified and Provincial officials have requested assistance from MARD to fund the construction of small-scale irrigation systems under the project for the people displaced due to the original construction of the dam This proposal will be appraised by MARD and IDA during implementation. For Hoa Binh, a large resettlement legacy issue exists and details are provided in Annex 10. However, the GOVN has not requested support for this issue from VWRAP. 5. Environment VWRAP is treated as a Category A project although the EIA indicated that the impacts were more in line with Category B projects. Seven detailed environmental impact assessments (EIAs) were carried out for the six irrigation subprojects and the Quang Hue River subproject, and consolidated into a project-wide EIA document. A separate EIA for the EVN Hoa Binh component was not done, as the defined investments only deal with upgrading existing dam monitoring equipment, but the issues are discussed in the project EIA. The EIA report was cleared by the East Asia Safeguards units and has been submitted to the Bank s Infoshop and 18

25 disclosed within Vietnam. Given that project activities will be implemented in phases and there are activities with unknown nature and locations under the MARD dam safety fund, an Environment and Social Safeguard Screening Framework (ESSF) was prepared and approved by IDA. The ESSF has been incorporated into the Environmental Management Plan (EMP) and will be applied to subsequent phases of the six irrigation subprojects in Component 1, and the MARD dam safety works under Component 2, and any other unidentified works. The EIA study concluded that the overall impact of the project will be positive and most of the potential negative impacts are temporary, localized, and can be mitigated. The major construction issues identified by the EIA are temporary disruption of water supply; extraction and disposal of construction materials; and possible risks due to unexploded ordnance. During operations, there are potential secondary impacts associated with more efficient water supply such as increased use of pesticides and fertilizers due to agricultural intensification; aquaculture development potentially impacting coastal wetlands; and water pollution from municipalities and industries. A detailed environmental management plan (EMP) was formulated, including its implementation arrangements and estimated costs. Funding for implementation of the EMP, estimated to be US$1.1 million, will be provided under the IDA credit. 6. Safeguard policies (See Annex 10) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI ~~ Natural Habitats (OP/BP 4.04) [x 1 Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.1 1) [x 1 [x 1 Involuntary Resettlement (OD 4.30) Indigenous Peoples (OD 4.20, being revised as OP 4.10) [x 1 [x 1 Forests (OP/BP 4.36) [I Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP/GP 7.60)* [I Projects on International Waterways (OP/BP/GP 7.50) [I Although seven safeguard policies are triggered under the project, most of the triggers are of a precautionary nature or associated with small-scale impacts. Annex 10 provides details on each of the triggered safeguard policies and how they are addressed under the project. The two major issues are involuntary resettlement and dam safety. In line with national laws, decrees and World Bank OD 4.30 (since PCD took place before Jan.1, 2002, OD 4.30 is applicable policy, not OP 4.12) seven Resettlement Action Plans (RAPS) for Phase I activities have been prepared, and a Resettlement Policy Framework (RPF) has been formulated to guide resettlement planning in subsequent phases during implementation. The RAP and RPF have been reviewed and cleared by the World Bank's East Asia Safeguards Unit. Land acquisition and resettlement requirements for Phase 1 were estimated based on feasibility level engineering designs and detailed land use data and surveys. VWRAP will cause temporary loss of land during construction, and permanent loss of land due to enlargement and [ XI * By supporting the proposed project. the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 19

26 widening of canals. A distinction is made between severe impact such as relocation and loss of more than 20% of household land, and marginal impacts with no relocation and less than 20% of land lost. The total amount of affected land is 272 ha, affecting an estimated 10,896 households. Over 99% of the project affected households have less than 20% of their land holdings affected, and more than half of these households will only experience temporary land acquisition needed for construction purposes. All feasible efforts to reduce resettlement impacts were adopted during project preparation. Only 10 households in the Yen Lap subproject will need to be relocated, and only 45 households will lose more than 20% of their land. More details are provided in Annex IO. Dam safety is an integral part of the project design. All of the seven dams under the project were inspected and evaluated by dam specialists from IDA as well as from MARD/EVN. The project feasibility study contains detailed recommendations on physical and operational improvements that will be financed by the project. Given the complexity of the of some of the remedial works, the Bank will require MARD to engage a panel of experts to review remedial works under the project as well provide advice on the MARD national dam safety program. The Bank supervision team will also contain a qualified dam safety expert. 7. Policy Exceptions and Readiness Fiduciary Issues Project Staffing and Consultants Tender Documents Disclosure Requirements Monitoring and Evaluation Land Acquisition Plans ~~~ Co-Financing Status Draft Financial Management and Procurement manuals have been prepared, and finalization and adoption by MARD will be a condition of credit effectiveness. MARD PMO and SIOs already established; PMUs will be formally established by effectiveness. Design consultants for 1 year works have been selected, and technical assistance consultants will be mobilized shortly after effectiveness. MARD and EVN will complete lst year tender documents shortly after effectiveness, and no later than December 3 1, Bank and local disclosure reauirements have been met. Performance Indicators and M&E arrangements agreed won and tx-esented in Annex 3. Resettlement Policy Framework acceptable to IDA has been approved by Prime Minister s Office, and MARD has approved the Resettlement Action Plan (RAPs) for Phase 1; RAPs will be refined during detailed design None VWRAP is a large investment project with approximately US$l50 million in works and goods. The project will be implemented in three phases. Phase I will include dams, main canals and 20% of the command areas in Component 1 (referred to as pilot areas ); Hoa Binh Dam instrumentation in Component 2; and Quang Hue River works from Component 3. Phases I1 and I11 will each cover half the remaining work in the project command areas. The rationale for 20

27 phasing is to provide time to pilot new water control structures and new approaches to participatory irrigation management before extending them to the entire project area. In September 2003, the GOVN approved the project pre-feasibility study which defined the project objectives, scope, and costs, and delegated MARD to approve the Feasibility Study (FS). In January 2004, MARD approved the subproject feasibility studies prior to negotiations. The FS package includes one summary report, and seven subproject feasibility studies, each of which has preliminary engineering designs and drawings; the FS package contains about 1,500 pages and 150 drawings. Implementation following the FS stage, includes: i) procurement of engineering design consultants; ii) investigations and detailed design; iii) construction tendering; and iv) construction. The draft Vietnam Country Readiness Criteria recommends that tender documents for first year works be prepared by negotiations. Dam safety works under Component 1, with a total estimated cost of around US$10 million, have been selected as first years works under the Project. MARD initiated detailed design for 1'' year works in early 2004, shortly after the subproject Feasibility Studies were approved, and will have construction tender documents ready by late 2004, with construction scheduled to start in mid EVN also plans to have tender documents for the Hoa Binh dam safety instrumentation contract, valued at approximately US$l.l million, ready by the end of For canal works under Component 1, MAFCD will select engineering design consultants through the QCBS procurement process in 2004, and the consultants will undertake investigations, detailed design, and prepare tender documents throughout 2005, with large-scale canal construction works slated to begin in The implementation schedule is presented in more detail in Annex 6. The project requires an exception from the Bank policy regarding the eligibility of dependent government owned agencies as defined in Section 1.10 (b) of the Consultant Guidelines. The MAFCD-dependent engineering companies contain the largest pool of hydraulic engineers in Vietnam, and their exclusion from consulting assignments could potentially result in a lack of qualified bidders during competitive procurement of national consultants. The Bank's Operational Procurement Review Committee (OPRC) has granted an exception to the Bank's SOE policy to allow these firms to participate in Bank-financed contracts as sub-consultants, provided the subcontract does not exceed 50% of the total contract amount. OPRC has also approved an exception for provincial engineering companies dependent on the provincial government, provided the subcontract amount will not exceed 20% of total contract amount. World Bank policy on the hiring of Government-owned Universities and Research Institutes i s outlined in an Office Memorandum by Alfonso Sanchez, Director of OCSPR, dated August 19, Under this policy, universities and research institutes are eligible for consulting assignments under certain situations. The Project includes a contract for "irrigation modemization training and participatory irrigation management support." OPRC has provided clearance to sole source the MARD-affiliated Vietnam Institute of Water Resources Research (VIWRR) as the lead institute for this assignment. Given the importance of language and local knowledge to the assignment, a Vietnamese organization should take the lead role. The VIWRR has unique and exceptional skills for the assignment with the requisite expertise in irrigation modemization, participatory irrigation management, and research facilities. The involvement of 21

28 the VIWRR is critical to project implementation, and there are no obvious suitable alternatives from the private sector. 22

29 Annex 1: Country and Sector Background VIETNAM WATER RESOURCES ASSISTANCE PROJECT The Role of Agriculture and Irrigation and Drainage (I&D) The Vietnamese economy continues to exhibit strong growth, recording around 6% growth in between 1993 and 2002, twice the regional average and in spite of a regional economic crisis and a global economic slowdown. Growth in the agricultural sector has recently been more modest at about 2% percent, and almost all of this was due to the explosive expansion in shrimp cultivation in the southern coastal area. While rice production had soared from 20 million tons in 1990 to over 30 million tons by the end of the decade, rice output has stabilized. Growth in 2001 was strong in cash crops such as coffee (5.5%), tea (18 YO), and cashews YO), however the value of export commodities was hurt by historically low world prices for rice, coffee, and pepper. Much of the decline in rice output was due to a 2.4 percent reduction in land area under rice cultivation, resulting from a shift of land from rice into other cash crops and aquaculture. Agriculture remains an undeniably important sector in Vietnam. It still accounts for 23 percent of GDP, provides about one-quarter of export earnings, and employs almost two-thirds of the labor force. Important crop exports include rice, coffee, rubber, and cashew. Exports of black pepper, vegetables and fruits, and tea are smaller but growing rapidly. While NortWSouth income disparities are shrinking, ruralhrban differences continue to grow. Almost 37% or the rural population lives below the poverty line and many more live just above it, including members of farm households with irrigation. This places a premium on increasing agricultural productivity. Between 1993 and 1998, agricultural income rose by 61% and was the main source of poverty reduction in rural areas. This resulted mainly from the return of land-use rights to farmers and the freeing up of prices as Vietnam progressed toward a socialist market economy. But future growth in agriculture is expected to come largely from crop diversification and yield increases, making the quality of irrigation services, in terms of timeliness and reliability, of central importance. This marks a change from past emphasis on expanding the irrigated area, though area growth will continue to some extent, and places a premium on effective infrastructure and capable and responsive management. Some 80 percent of the cultivated area of 7 million hectares in Vietnam is equipped with irrigation infrastructure, most of which is paddy land. Of 4 million hectares of paddy land, approximately 3 million ha are within the command areas of irrigation projects, but only about 2 million hectares are actually irrigated by gravity while the remaining area relies on farmers pumping, or manually transferring, water from drainage canals or shallow groundwater, thereby increasing production costs and reducing income. This utilization gap provides a rich opportunity for increasing irrigation coverage without making large new investments. A number of problems currently affect the irrigation and drainage sector in Vietnam. They include irrigation systems, which can serve only a fraction of their design areas, water shortages during summer months, persistent operating deficits in Irrigation Management Companies (IMC), lack of transparency and accountability in management and finance, an accumulating 23

30 backlog of deferred maintenance, and inadequate investment funds for rehabilitation and new construction. At the same time, the sector has many strengths and assets including developable water resources, capable professionals and farmers, a strong government structure, a dynamic agricultural sector, and a sincere desire for change and improvement. Bringing these resources to bear on the problems, aided by appropriate international assistance, is the challenge. I& D Sector Institutional Arrangements Irrigation and drainage development and management is currently organized in a four-tiered hierarchical structure that mirrors the structure of civil administration: national, provincial, district, and commune. Although each provinces organizes in a slightly different way, the general role of each level is described below: Central: At the central government level, the various MARD departments are responsible for the overall policy framework, for the planning and prioritization of new development, and for the allocation of inter-provincial water resources. Funding of large capital projects, including investment for main canals of large irrigation and flood control projects, is largely carried out by the central government. The Department of Water Resources has the lead mandate for the management of water resources and hydraulic infrastructure. Provincial Peoples Committees (PPCs) are responsible for the public irrigation systems within their boundaries. Their functions include managing the systems, setting Irrigation Service Fees (ISF) based on national guidelines, determining subsidies for the irrigation sector and investments in the local infrastructure, and overseeing the work of the Provincial Departments of Agriculture and Rural Development Service (DARD). The DARDs, through their irrigation departments, are the provincial government arms with the overall responsibility for operating, maintaining, and repairing public irrigation, drainage and flood control systems, and for survey, design, and construction of minor new works. Provincial Irrigation (and Drainage) Management Companies (IMCs) exist at the provincial or system level and operate under the supervision of the Provincial Peoples Committees (PPC) acting through the DARDs. IMCs are state owned enterprises that work for public benefits, and the government will make up the deficits they incur. This ask-give system removes the organizational incentive to perform that normally comes with private sector operation. Although nominally established as for-profit companies, breaking even is rare and most companies are partially funded by the PPC. IMCs are generally responsible for headworks and main irrigation and drainage canals and control works that supply water to districts, which they operate and maintain. They supervise the districts and IMEs and receive a portion of the service fees collected by them. IMC staffs are civil servants, subject to standard government service rules and conditions. District Irrigation Management Enterprises (IMEs) deliver water to communes and manage canals, drains, and offtakes within their districts, particularly those serving more than one commune. District stations sign contracts with communes for water delivery. They receive fees from the communes, remitting a portion to the IMC and retaining the rest. They are accountable 24

31 both to the District Peoples Committee (DPC), through the District Agriculture and Rural Development Service, and to the IMC. Commune Irrigation Teams: Within the IMC systems, there are more than 10,000 agricultural cooperatives, associations and groups providing water service. Irrigation Teams provide irrigation and drainage services to farmers at the level of the hamlet or natural village. Hamlet heads collect water fees for the cooperative or commune. An additional collection, separate from that made under State mandate to pay for the activities of the IMC and DS, is made to support the irrigation teams at the commune level. I&D Sector Constraints Financial: Irrigation investments accounted for about half of the MARD budget in and about two-thirds of the ministry s capital budget. They also figure importantly in provincial budgets, accounting for about 10% of total provincial investments over the last 5 years. Since 1996, the GOVN has reserved $120 M annually from the state budget (including ODA sources) to invest in irrigation and drainage schemes. Funding for new construction and for rehabilitation and modernization have been roughly equal, and is provided on a grant basis. According to the Ordinance on Exploitation and Protection of Hydraulic Works, subsidies to IMCs are specifically mandated for (a) pumped drainage, (b) pumped irrigation exceeding planned norms, (c) overhauling and upgrading I&D works, (d) fees which cannot be collected due to natural disasters, and (e) rehabilitating I&D works destroyed by natural disasters. Costs of normal depreciation and replacement are also not recovered from beneficiaries. This tends to create a short-term perspective on the part of managers and farmers and to defer maintenance until it becomes overhauling and upgrading at which time Government subsidies can be obtained. Irrigation fees paid by farmers range from 2-5% of rice production. However, only about half of the fees assessed are actually collected with the end result being just under half of annual O&M costs, estimated at VND 1,200-1,500 billion (US$ million), and only about 25% of total O&M costs including natural disaster mitigation and large-scale rehabilitation, are covered by fee collections. Both nominal and actual assessment rates are nevertheless high by regional standards. In addition, irrigation fees are not the only payments to the public sector required of rural residents. Annual taxes paid by farmers in the Red River Delta, for example, often amount to 20 to 25% of the value of annual paddy production. In addition to the water fee, these include the land tax and other taxes for housing, local road construction, health, labor insurance, construction, new economic zones, and the police. Moreover, an additional 25% of output goes to paddy production costs (not including the water fee and own labor), meaning that only about one-half of output is retained by the farmer. Calls to raise irrigation rates further must thus be treated gingerly, as the burden on farmers is already very high. One fundamental problem with the fee assessment system, is that it is not done with respect to the costs of operation and maintenance incurred in a particular system but is based on political factors for an entire region. If I&D operations are moved in the direction of true company-style management, a complementary change in the fee setting would be required. This would involve setting fees in particular systems on the basis of actual costs of operation, less the cost of items allocated to the public sector, such as regional drainage. 25

32 Institutional: The Master Programme for Public Administration Reform (PAR) effort was approved by the Prime Minister in September The Master Programme highlights a number of problems with the current public administration system, which, in its words, is still heavily influenced by the former centralized and subsidized bureaucratic management mechanism. Among the problems highlighted in the Master Programme, the following are highly relevant to governance and management in the irrigation sector: State management functions and responsibilities in a market-oriented economy are not yet clearly defined. Organizational structure of public administration is multi-layered, cumbersome, centralized, and compartmentalized. Appropriate financial mechanisms and policies for the operation of public administration and public service delivery agencies do not exist. Administrative reform is clearly on the front bumer and has top-level attention, and the GOVN is paying particular attention to MARD. The separation of public administrative functions from service delivery functions is a theme that runs strongly through the program. The fundamental structure for functional separation is, in fact, in place in Vietnam with the Irrigation Management Companies, however, the heavy influence of the former centralized and subsidized bureaucratic management mechanism has created perverse operating and financing practices that negate the benefits which could be derived from the company structure. There are essentially two types of irrigation-related local organizations at the commune level, agrarian cooperatives in the north and cooperative groups in the south. The core service provided by most agrarian cooperatives is irrigation. This reflects, in part, the importance of irrigation as a shared production input. But it also reflects the lucrative nature of the irrigation fee collection concession which accompanies the authority to provide irrigation service. Irrigation service fees provide the bulk of the income of most cooperatives, and that income is used to support both irrigation service and other cooperative activities. There are some serious problems, though, with this picture. First, although cooperatives typically retain about one-quarter of the fees they collect, they bear only a small fraction, perhaps one-tenth, of the total cost o f irrigation and drainage service provision. They are thus not reimbursing IMC and district stations for their costs, which results in IMCs typically losing money. Second, irrigation fee income is not all used to operate and maintain irrigation facilities, but is diverted to other uses within the cooperative. Deferred maintenance thus accumulates. Third, the commune government often serves as the collection agent for irrigation fees and tends to use this income as general revenue to the commune. Irrigation fees thus become general tax revenue rather than irrigation-specific fees for service. The agrarian cooperatives have a de facto monopoly on irrigation service provision (and irrigation fee collection) at the commune level, and serve as an important source of revenue to the commune. Organized along administrative lines, their span of control does not correspond to irrigation system boundaries, and their accountability to irrigators is sometimes limited. They do offer an existing structure at the commune level which can be employed as an element of an improved irrigation management set-up in some circumstances. It contains enough variability and sufficient handicaps, however, it is not useful to see the agrarian cooperatives as the sole, 26

33 optimal, or universal local-level organizational structure for managing irrigation and drainage services. Cooperative groups are established on the basis of a contractual agreement among members, agreeing to contribute assets or labor to carry out a particular task. These groups are not required to maintain a formal internal structure but can be represented in economic dealings by their elected leader. They are required to register with the commune government. Cooperative groups are more lightly regulated by the State than cooperatives, and receive no public financial assistance, as do cooperatives. They are more nearly private than public organizations, Cooperative groups are found primarily in the south, where local authorities have been more tolerant, and even supportive, of them. Groups form for a wide variety of purposes and take on different organizational forms. The loose structure of cooperative groups, however, often means that they are ill-equipped to manage essential public services such as irrigation and drainage. Technical: The low percentage of the command area, typically 50 percent, which is under contract between the IMC and the user organizations (typically user cooperatives in the South and agrarian cooperatives in the North) indicates the high level of under-performance in the sector. Many schemes were built in the s when construction equipment was not adequate to meet high quality standards of construction. The tail areas of some of the subprojects do not receive any water through the canal system. Some main canals have low efficiencies because of local leakage and seepage losses due to poor construction standards. The lowest level of some distribution systems have not been completed. On secondary and tertiary canals, many control gates are now either missing or not functional. Many areas cannot be irrigated because of lack of tertiary canals and excessive losses in unlined lower systems. In addition, some storage reservoirs are not operated to their normal design water level due to dam safety concerns. Consequently, the volumes of water available irrigation during the dry season is often substantially reduced. All irrigation projects in Vietnam were designed to be controlled by manually operated gated cross regulators and intakes. Without exception, all the gates are of underflow type. World experience indicates that these gated systems are the most difficult to operate resulting in unsteady flow conditions. Water delivery is often inequitable and unreliable. Operators are not able to make frequent adjustments to respond to sudden changes in water demand during the wet season. The situation is commonly exacerbated in Vietnam by the absence of access roads along the main and primary canals and the outdated communications systems. Furthermore, the systems were designed to be operated at full capacity without consideration for operation at less than full supply. Some canals may have to run at full supply to deliver water to the next level. Even the best-qualified managers and operators would not be able to manage these systems to the highest standards. The operational deficiencies of the irrigation schemes is partly compensated by the hard work of the farmers who capture the irrigation water losses from any water source in the command area: drains, groundwater, local ponds and rivers. However, that situation is far from acceptable. First, the farmers have to pay the pumping costs and are depending on water sources of poor quality and low reliability. Second, the financial resources of the IMCs are insufficient to meet the recurrent costs since water fees are only due for the areas that have been contracted with the user organizations. The result is the vicious cycle of inadequate maintenance and deterioration of the infrastructure. 27

34 Dam Safety: According to MARD, around 750 large and medium-sized dams over 10 meters exist in Vietnam. Most are earth dams built during from when Vietnam suffered from technical and financial constraints. Consequently, many dams were constructed with inferior designs and poor construction quality. Provincial IMCs are generally responsible for dam operation, but dam safety management is usually inadequate. Moreover, MARD does not have a national regulatory unit to ensure that IMCs follow proper dam safety procedures. Typical problems can be summarized into the three areas: (i) inadequate spillway capacity subject to overtopping, (ii) poor construction quality control (materials, compaction procedure, etc.) resulting in structural deformation of dam bodies (cracks, settlement, sloughing, etc.) and (iii) inappropriate structural design, such as internal concrete structure inside embankment bodies (spillway and irrigation intake), subject to cracking and settlement of the concrete structure and loosing of the fill materials in contact areas. Electricity of Vietnam (EVN) owns and operates a number of large hydropower dams. The design and operation of these dams are usually generally acceptable due to their more recent construction and revenue generating importance for the company. There are still, however, a number of operating and dam safety management issues that should be addressed by EVN. Of particular importance is Hoa Binh, which is Vietnam s largest reservoir (1 0 billion cubic meters) and located only 50 kms (75 kms earlier!) upstream from Hanoi. Hoa Binh is a multi-purpose reservoir operated by EVN year-round, but managed by MARD during the flood season due to its important role in flood control in the Red River Delta. Hoa Binh was built in the late-1980s with technical and financial assistance from the former Soviet Union. Although there are no pressing structural dam safety problems, the instrumentation and monitoring system for dam safety is outdated and needs to be modernized. GO W Strategy for Addressing Sector Constraints: GOVN policy places high priority on key sector issues such as irrigation modernization, dam safety, and improved water resources management. The overall Strategy of Socio-Economic Development presented by the Central Committee at the gth National Congress highlighted the importance these issues. One of the major objectives is to speed up agricultural and rural industrialization and modernization geared toward forming a large-scale commodity agriculture relevant to market demands and ecological conditions of individual regions. Modemization or irrigation and drainage systems will result in more reliable, efficient, and equitable water services, which is indispensable for agricultural modernization. The Socio-Economic Development Plan aims to continue developing and basically complete the water conservancy system for protection from salinization, fresh water conservation and flood control, ensuring safe and proactive irrigation and drainage for agricultural production (including industrial crops and aquaculture) and the livelihood of farmers. Flood control, management, and reducing dam safety risks are also outlined in the Plan. The 1999 Law on Water Resources calls for the integrated management of water resources along hydraulic boundaries, which lays the legal foundation for both river basin management and local irrigation management based on hydraulic rather than administrative boundaries. 28

35 MARD has pursued overall GOVN objectives through a number of decrees. The 2001 Ordinance and Protection of Irrigation Works stresses that IMCs shall operate according to the public utility regime and promotes the concept of water user cooperatives. Currently, two draft MARD decrees on the establishment of water user group organizations and establishment of dam safety unit are under consideration and will be the legal building blocks for successful VWRAP implementation. Vietnam has a number of strengths on which to build an improved irrigation and drainage sector. A number of macro-level reform efforts provide a strong impetus for change. Another strength is the formal existence of the IMC corporate form. The formal separation of the service provider (the IMC) from the regulator and resource manager (MAFWDARDS) is an important hallmark of a maturing water economy. The country also has a carefully considered new water law that establishes a number of important principles for the future, including the use of hydrologic units as the management basis for water resources. Some important relationships, such as between the IMCs and the communes, are governed by formal contracts rather than informal agreements, which provide a sound base for future improvements. Vietnam has also accumulated some experience with creating WUGs and irrigation modernization, and has hosted several international conferences and workshops on these topics. Finally, the country has a productive and diversifying agriculture operated by capable, hardworking, and entrepreneurial farmers. It also has many committed, knowledgeable, and experienced professionals in government service, a number of whom are far-sighted, fonvardthinking professionals who can lead change when the time is right. All of these factors taken together provide a strong base for change and improvement in the water sector. 29

36 Annex 2: Major Related Projects Financed by the Bank and other Agencies VIETNAM WATER RESOURCES ASSISTANCE PROJECT 1 Sector Issue World Bank-financed Mekong Delta Water Resources Development Approved: FYOO; Closing: FY006 Irrigation Rehabilitation Project Approved: FY95; Closed FY03 Dau Tieng Irrigation Project Approved: FY79; Closed FY88 Other development agencies ' ADBi Agence Francaise de ProjectIArea of Concentration higation; Water Resources Management; Rural Water SUDDlV higation higation and Dam Construction (Bank-financed 7rojects only) Implementation Development Progress (IP) Objective (DO) S S S -- Irrigation and Flood Control; Watershed Degradation; Water Management Irrigation; Water Management Irrigation; Disaster Management Rural Water Supply and Sanitation Irrigation 30

37 u 3 M a c a,@ h Ei cd 3 * Y v1 1 in 2 d

38 M E:.3 n Q) M E SY zs ---I---.e % m

39 2 4 Z > r) m

40 d- m c 0 m I

41 Project Summary Annex 4: Detailed Project Description VIETNAM WATER RESOURCES ASSISTANCE PROJECT The Vietnam Water Resources Assistance Project supports the development of national programs for irrigation modemization and dam safety; it also begins the long-term process of integrated development in the Thu Bon River Basin. Total estimated project costs are US$176.2 million with the following four components: Component 1 : Irrigation Modernization (US$154.7 million) Component 2: Dam Safety Management (US$10.2 million) Component 3: Thu Bon Basin Development (US$2.6 million) Component 4: Project Management and Capacity Building (US$8.7 million) Project implementation will take place in three phases. Feasibility studies and preliminary engineering designs have been completed for Phase I of works which cover: Component 1- dams, main canals, and 20% of the command areas; Component 2-Hoa Binh dam instrumentation; and Component 3-Quang Hue river works. During implementation, designs for the remaining 80% of the command areas under Component 1, and the dams to be identified under Component 2 will be undertaken. The rationale for only starting with 20% percent of the command area in Component. 1, the so-called pilot areas, is to have an opportunity to test new types of water control infrastructure and participatory irrigation management approaches. Lessons leamed in the pilot areas will be applied in the rest of the command area during implementation. Phases I1 and I11 will each cover half of the remaining 80% of works in praject Components 1 and 2 - Irrigation Modernization and Dam Safety Management. Because the project includes a broad range of reforms and the need to progressively introduce modem infrastructure and management, the project duration is estimated to be seven years starting in mid The longer duration project will also help to minimize service disruptions due to the intermittent nature of canal construction works. Project Description by Component Component I: Irrigation Modernization (USSI 54.7 million) Component 1 is the largest investment component and will cover six irrigation sub-proj ects listed below. These six were selected for modernization and dam safety improvements as a priority among the 75 irrigation schemes existing in Vietnam. The command area of these schemes is 130,966 hectares, about 5 % of the total command area in Vietnam. Works in the selected projects are in poor condition having been designed and built two decades ago, shortly after the unification of Vietnam with outdated technology, poor construction quality and little attention to proper operations and maintenance (O&M). The project will fund the 35

42 Command Current IMC Total Reservoir Collection Area Cost US$ Notes: 1. Dau Tieng Excludes Chu Chi in HCMC (1 1,000 ha), includes Tan Hung (10,700 ha) and excludes future expansion 2. Collection areas are defined as the area over which IMC collects either full or partial fees in the peak irrigation season Present Situation and Modernization Objectives Scheme performance is low with typically only 50 percent of the area receiving full service, defined by a contract between Irrigation Management Companies (IMCs) and Water User Groups (WUGs). The tail ends of some of the sub-projects do not receive any water through the canal system. Some main canals have low efficiencies because o f local leakage and seepage losses due to poor construction. On secondary and tertiary canals most control gates are now either missing or not functional. Many areas cannot be irrigated because of lack of tertiary canals and excessive losses in unlined lower systems. In addition, some storage reservoirs (Da Ban and Yen lap) are not operated to their design water level because of safety concerns; consequently, the volumes of water available for irrigation during the dry season are substantially reduced. Traditionally, canals in Vietnam were designed to be controlled by manually operated gated cross regulators and intakes. Without exception, all the gates are of underflow type. Experience indicates that these gated systems are the most difficult to operate reliably, resulting in unsteady flow conditions. The result is water delivery is often inequitable and unreliable. The situation is exacerbated by the common absence of access roads along the main and primary canals and the outdated or missing means of communication. Furthermore, the systems by design are operated at full capacity with no flexibility to operate at variable flow rates. The systems are difficult to manage and result in low operational efficiencies. These operational deficiencies are partly compensated by the hard work of the farmers who capture the irrigation water losses from drains, groundwater, local ponds and rivers. However, this situation is not acceptable because it forces farmers to pump this water at their cost and they are dependent on water of poor quality and low reliability. Poor system operations resulting in less fully commanded, contacted areas impacts dramatically on the revenue raised by the IMCs. Thus there are insufficient funds to meet recurrent costs since water fees are only collected for the contracted area, which is typically about half of the command area. The result is a vicious cycle of inadequate O&M, deterioration of the service levels and deteriorating infrastructure. A simple rehabilitation of the physical infrastructure as it was will not be enough to meet the revised objectives of the project. 36

43 The component therefore aims to invest in a broad range of interventions that will result in irrigation systems that: P Are more flexible, reliable, and equitable water distribution P Better utilize reservoir storage capacities P Result in a reduction in seepage losses from the canal system through canal lining P Increase the conveyance capacity of main canals for future demands P Complete the canal distribution systems at the secondary and tertiary levels To meet these aims, the project will fund the following specific activities. Modernization of Water Control A systematic study of the possibilities for using downstream control was undertaken during project preparation. Downstream control presents the advantage of being able to respond quickly to any change in demand and is mostly used for long, gently sloping main canals. Upstream control requires the complex preparation of a demand schedule taking into consideration a number of estimated hydraulic and agro-meteorological factors. The Dau Tieng main canals, and some of the large primary canals, are already presently operated under manual downstream control. Operation of the main canals in Phu Ninh will be converted from upstream to downstream control. All other subprojects will continue to use upstream control. In the Dau Tieng and Phu Ninh schemes, gates along the main canals and primary canals under downstream control, will be motorized and automated through the use of programmable local controllers (PLC). For the other subprojects, upstream water level control of the primary and secondary canals will be improved where possible through the modification of existing gated regulators into composite regulators consisting of long crested weirs associated with undershot gates. All large regulators and off-takes will be motorized, and where appropriate fitted with automatic local control. Off-takes will be equipped either with conventional gates associated with flumes for flow measurements, modular gates also (Le., baffle distributors), or some other type of flow measurement device. Operation of the Dau Tieng main system will be improved through the installation of a Supervisory Control and Data Acquisition (SCADA) system, providing remote supervision only. If the Dau Tieng experiment is successful, other subprojects may also install SCADA systems. Canal Lining and Strengthening The project will provide for lining or strengthening of selected sections of main, primary, secondary and tertiary canals. Strengthening consists in protection of the canal slopes to avoid erosion or slumping due to heavy rainfall and high groundwater level, and will be accomplished with concrete panels or other forms of slope protection. Canal lining will be provided for different purposes: i) to reduce seepage rate in semi-permeable or highly permeable soils and/or ii) to increase the hydraulic capacity of existing canals where necessary. Trapezoidal secondary and tertiary canals will be replaced either by rectangular 37

44 sections built in brick or stone masonry covered with mortar or by parabolic sections made of pre-cast elements. Management Modernization Enhanced IMC management capacity, greater financial autonomy, and increased water user participation are key outcomes of the irrigation management modemization process The project will therefore provide technical assistance to each IMCs to develop and implement plans for proper management, operation and maintenance of the schemes. The plan will address the following issues: i) organization structure; ii) system operation; iii) maintenance; iv) administration; v) financial management; vi) participatory irrigation management; and vii) monitoring and evaluation. Participatory Irrigation Management Under the project, independent W Gs will be formed and trained on water distribution, maintenance and financial management. Water measurement devices will be installed at transaction points between IMCs and WUGs, and the standard IMC contract will be revised to include volumetric water service delivery obligations. This intervention will support and enhance the generally strong local irrigation management arrangements in Vietnam, albeit based on the commune administrative structure. MARD has experimented with different types of water user groups (WUGs) organized around hydraulic boundaries. Although the WUG experiments have been generally successful at improving water distribution, establishing independent organizations outside of the normal govemmental structures is still uncommon. Nevertheless, MARD is committed to implementing WUG reform on a much larger scale under the project, and is preparing enabling govemmental decrees for this purpose. The WUGs are expected to federate at the primary canal and scheme level, and have formal representation on the IMC Board of Directors. Contractual arrangements between IMCs and WUGs based on volumetric should make the IMCs more accountable for their service performance and improve the efficiency of use of irrigation water by farmers. Volumetric pricing is considered too complex and contentious for use in Vietnam at this stage and will not be part of the reforms. Dam Safety Improvements This component will fund the dam safety infrastructure improvement works for the six dams that are the respective headworks for the irrigation subproject. Component 2 will address national dam safety management issues, including the management issues at these six dams. The following table gives a summary of the infrastructure improvements with approximate costs. For the Ke Go and Cam Son subprojects, dam repairs will include necessary provisions for mini-hydropower plants (Le., less than 5 MW), but the IMCs in combination with private investors will finance the hydropower plants. Management improvements are described under the dam safety management sections. 38

45 Dau Tieng Dam ($3.3 million): Enlarge spillway capacity by addition of an emergency spillway. Repair leaking diversion conduit Repair seals spillway gates and stoplogs Rehabilitate the dyke sections Maintain access road, location markers, display of gate operation rules, etc Cam Son Dam (50.8 million) Rehabilitate the spillway gate Add emergency spillway Repair of the upstream control gates of the intake conduit. Stop leakage in the penstock Add access road to the dam site Install piezometers Install location markers, staff gauge, telephone, operator, etc. Ke Go Dam ($1.5 million) Stop leakage of the outlet conduit, Enlarge the spillway capacity by means of an emergency spillway, Repair upstream slope of saddle dams 1 and 3, Upgrade access road to main and saddle dams. Install hoist motor Install piezometers, Da Ban Dam ($4.0 million) Repair of upstream control gates, Stop leakage of outlet conduit, Enlarge of the spillway capacity, Repair of upstream slope protection, Upgrade access road Install communication equipment and power Add motor for hoist, Install piezometers Yen Lap Dam ($1.7 million) Enlarge the spillway capacity by means of an emergency spillway, Install an electric hoist on the spillway, Repair guard gate and control gate, Repair stoplogs, Phu Ninh ($0.2 million) Renovate existing emergency spillway for Long Son Saddle Dam #3 Component 2: Dam Safety Management ($I 0.2 million) There are around 750 large and medium-sized dams in Vietnam, and the project will help improve national dam safety management through MARD and EVN-Hoa Binh dam safety programs. The Project will help establish an institutional mechanism for the coordination of dam safety activities, laws and regulations in Vietnam, in particular MARD- and EVNrelated dam safety programs. In addition, VWRAP will support both MARD and EVN dam safety programs as follows: MARD Dam Safety Program ($9.0 million): In addition to the 6 dams upgraded under Component 1, $7.0 M will be reserved for upgrading to-be-identified small and medium sized dams during implementation. Approximately $2.0 million will be used for institutional strengthening, including training to assist in the start-up of a MARD National Dam Safety Unit (DMU) to take responsibility for a system of dam inspections, and for development and enforcement of laws and regulations. The specific functions of the DMU will cover all MARD-affiliated dams and include aspects such as: > supervision of dam safety inspections; > enforcement of dam construction and dam management laws and regulations; 39

46 P capacity building of dam owners, dam operators and dam inspectors; P establishment and maintenance of a dams database; and P dissemination of information on dams in Vietnam; EVN Dam Safety: ($1.2 million): The project will finance upgrades to the dam safety instrumentation ($1.2 million) at Hoa Binh dam. Hoa Binh is the largest reservoir in Vietnam with a storage capacity of 10 billion cubic meters. The reservoir is located 75 km upstream of Hanoi on the Da River, which is the largest tributary of the Red River. The dam was completed in the early 1990s, and constructed with technical and financial assistance from the former Soviet Union. International and World Bank experts have inspected the dam and found no obvious structural problems, although the spillway is somewhat undersized and the instrumentation is outdated. Although the dam is owned and operated by EVN, during the flood season the Central Committee for Flood Protection, chaired by MARD, is responsible for reservoir operation decisions, thus making Hoa Binh a truly multi-purpose reservoir. Component 3: Thu Bon Basin Development ($2.6 million) The project will fund the high priority Quang Hue River Flow Stabilization works ($1.6 million) and the feasibility studies and preparation work (US $1 million) for other priority projects to be identified in the Thu Bon River Basin Master Plan, which could be considered for follow-up financing by the World Bank. The GOVN conducted a Central Coast basin screening process in 2000 for eight basins. The Thu Bon basin was selected as the priority basin based on the projected growth of water demand from various sectors and the complexity of water resource management issues. The Vu Gia - Thu Bon river basin is the eighth largest basin in Vietnam, with a catchment area of 10,500 km2. The basin covers the provinces of Quang Nam, Da Nang and Kon Tum with over 2 million habitants. The Government of Vietnam plans to develop this basin into one of the three economic pillars in the country. A master plan study, the Thu Bon Integrated River Basin Plan for Water Resources Development and Management (TIBP), was then undertaken as part of VWRAP preparation, and identified the two priority subprojects that could be funded under the project. These were: i) Phu Ninh Irrigation Modernization (Component 1) and ii) Quang Hue River Flow Stabilization under this component. The Quang Hue River connects the main stems of the Thu Bon River and the Vu Gia River, approximately 30 kms upstream of Da Nang. The Vu Gia river flows to the city of Da Nang and provides the city s raw water supply as well as 10,000 ha of irrigated land along the river. The Thu Bon River flows to the ancient town of Hoi An which is an important tourist center. During a tropical storm in 2000, a new connecting channel was formed which diverted most of the Vu Gia water towards Hoi An and the Thu Bon, thus depriving Da Nang of its vital water supply. Local authorities constructed a temporary structure to divert the water back to Da Nang, but this was quickly damaged. The project will finance a more robust river training scheme to keep sufficient water flow flowing to Da Nang in the medium-term, as well as explore other possible long-term solutions to Da Nang s water supply. 40

47 Component 4: Project Management and Capacity Building ($8.7 million) VWRAP is a complex project which requires significant technical assistance and capacity building to successfully introduce modem water management concepts into Vietnam. The project will therefore finance: Technical Assistance ($3.5 million): MARD will contract international and domestic experts in irrigation modernization, dam safety, procurement, environmental management, training, and resettlement to assist MARD, provincial authorities, and local engineering and construction companies during project implementation. Training and Participatory Irrigation Management ($2.4 million): The objective is to support the transformation and improved performance of the irrigation sector institutions and facilitate adoption by the sector of a strong management and service orientation. This would be achieved by the development of new skills and knowledge through the academic studies and training of staff of the operating departments at both central and provincial levels. At the same time, a Participatory Irrigation Management (PIM) program would: i) create institutions representing stakeholders and farmers of each irrigation system, allowing IMCs and PMUs to discuss with and consult stakeholders on major system policies and project implementation issues; ii) develop representative and efficient water user associations in the command areas of the irrigation systems, receiving bulk water delivery services fi-om IMCs and providing services to farmers; iii) provide a third level of training to WUGs and WAS, farmer group representatives and lower-level irrigators, delivered by adequately trained staff of IMCs and provincial and district; iv) build on the experience of the project in participatory irrigation management to develop national policies and guidelines. The training and capacity building program would consist of four activities: 1. National (Strategic) training 2. Provincial and Irrigation Management Company training 3. Participatory Irrigation Management 4. Research and development Incremental Operating Costs: ($2.8 million): The project will fund incremental operating costs associated with MARD Central Project Office for project management costs, including travel costs, per diems, accounting software, necessary computer equipment, workshops, etc. In addition, each provincial management office will be provided with essential equipment necessary to manage and upgrade their schemes, including motorcycles, computers, software, and travel budgets for visiting other schemes and for conferences/workshops in Vietnam. 41

48 - a d I d

49 ~ Annex 6: Implementation Arrangements VIETNAM WATER RESOURCES ASSISTANCE PROJECT The Ministry of Agriculture and Rural Development (MARD) will be the primary executing agency for the project. Electricity of Vietnam (EVN) will be the executing agency for the US$1.2 million Hoa Binh component. Both MARD and EVN have extensive experience with executing implementing IDA-financed projects. The organizational chart for the project is presented below, along with a description of the roles of different agencies. A project implementation plan has prepared which provides further on implementation arrangements. : Z';PTeZonSuitZ:- 7 I Construction Management I Figure 1: Organizational Chart I Design I I Social & Environmental 8 Training & Social Mobilization L--,,,, I World Bank MARD Steering Committee MARD Lead Department ' Modernization Task Force - Project - Management Office (CPO) I TechnicaVPM I I Social Environmental I I Training -,--I MARD SlOs 5 For Dau Tieng: System - Management Committee Provincial -' People's - Committee I DOSTE DARD DPH IMC Provincial Project 1' , Management -,I Contractor I c 1 GZje7~oGltZs:- I Design I I Construction Management I I Social & Environmental I I Training &Social Mobilization I I I '-- - MARD will e tablish a high-lev 1 Project Steering Committee, chaired by a MARD Vice Minister, with representatives from the Ministry of Planning and Investment, Ministry of Finance, State Bank of Vietnam, and representatives from the respective Provincial People's Committee. A special Irrigation Modernization Task Force has also been established to provide technical and policy guidance on Vietnam's overall irrigation and dam safety modernization program. 43

50 MARD project management functions takes place at various levels. A MARD Vice Minister has overall responsibility for the project, and the two key MARD agencies, the Department of Water Resources (DWR) and the Central Project Office (CPO) report to the Vice Minister, The DWR is mandated to provide policy, planning, and management oversight of irrigation schemes in Vietnam. In conjunction with other MARD departments, such as the Planning Department and Construction Department, the DWR will review and recommend for MARD approval tender documents, large contracts, and irrigation management plans. DWR will be the lead MARD department for overall project supervision and monitoring, and a Deputy Director of DWR is chairperson of the Irrigation Modemization Committee. MARD s Central Project Office (CPO) is responsible for management of all foreign-financed water resource projects in Vietnam, including ADB, JBIC, and World Bank-assisted projects. The CPO has a staff of managers, engineers, safeguard specialists, procurement specialists, and accountants who are familiar with both GOVN and donor requirements. A VWRAP Project Management Office (PMO) will be established within the CPO to provide overall project management functions, and liaison between implementing agencies, the World Bank, and MARD departments. Implementation of the project will take place through two mechanisms. MARD subimplementation offices (SIOs) will be responsible for complex dam safety or inter-provincial works. MARD has a network of SIOs organized on a regional basis to implement large projects financed by the central government. The irrigation schemes are owned and operated by provincial governments, and provincial project management units (PMUs) will be established to implement canal improvement works. The PMUs will be composed primarily of staff from the provincial Department of Agriculture and Rural Development (DARD) and the Irrigation Management Companies, and will be under the authority of the Provincial People s Committees (PPC). MARD s SIOs and the provincial PMUs will be responsible for most procurement and all construction supervision activities, and operate under the general MARD project management framework. There will be seven PMUs and four SIOs involved in the project, all of whom operate under the general supervision of the PMO, as follows: The PMO will be responsible for coordinating and approving the annual PMU and S I0 plans; procurement planning; annual budgeting; procurement under ICB and QCBS methods; 44

51 training; managing the Special Account; processing disbursement applications; monitoring the implementation of RAP, EMDP and EAP; managing technical assistance and training services; and reporting and liaison with IDA. The International Cooperation Department of EVN will be responsible for the Hoa Binh subcomponent, and will work closely with the EVN Hoa Binh management office. Given the small size of the EVN component a separate special account is not necessary. As there will be only one large turnkey contract (approximately US$l.l million), and perhaps one or two small consultancy contracts, the direct payment procedure for the EVN subcomponent can be used. Since EVN is a commercial enterprise, MOF will enter into a subsidiary loan agreement with EVN for the subcomponent. 45

52 Attachment 1 to Annex 6 Implementation Readiness Introduction: VWRAP is a large investment project with approximately US$150 million in works and goods. In September 2003, the GOVN approved the project pre-feasibility study which defined the project objectives, scope, and costs, and delegated MARD to approve the feasibility study (FS). In January 2004, MARD approved the FS prior to negotiations. The FS package includes one summary report, and seven subproject feasibility studies, each of which has detailed preliminary engineering designs and drawings. Implementation of civil works following the FS stage, includes: i) procurement of engineering consultants; ii) investigations and detailed design; iii) tendering; and iv) construction. The development of tender documents, including consultant procurement, typically takes around 1 year. Since GOVN does not have the resources to do detailed design work for projects that have yet to be approved, and the subproject feasibility studies were only approved in January, 2004, much of this work is included as a start-up/year one activity to be financed by the Credit and the length of the Credit has been extended to seven years. Design, investigations, and construction management will cost around US$6.5 million. Project Phases: VWRAP will be implemented in three phases. Phase I will include dams, main canals and 20% of the command areas in Component 1 ; Hoa Binh Dam instrumentation in Component 2; and Quang Hue River works from Component 3. Phases I1 and I11 will each cover half the remaining work in the project command areas. The rationale for phasing is to provide time to pilot new water control structures and new approaches to participatory irrigation management before extending them to the entire project area. Major implementation reviews comparable to mid-term reviews will be conducted by the Bank in years 3 and 5 to review phasing. Project Implementation Plan: To guide implementation, a detailed project implementation plan (PIP) has been agreed which addresses organizational, financial management and procurement issues, and implementation planning. PIP will be finalized before effectiveness. This Annex provides an overview of the implementation schedule, with a focus on the first two years. A graphic summary of the PIP starting in 2004 is presented below. The PIP itself contains a GANNT chart showing the schedule of activities in greater detail. Financial management, procurement and environment: Draft final procurement and financial management manuals were cleared by the Bank prior to negotiations. These will be finalized and approved by the Bank, MARD, and the Ministry of Finance before effectiveness. The Project EIA has been cleared by the Bank and approved by the Ministry of Natural Resources and Environment (MONRE). Project Management: Key personnel for all project management units, including DWR, PMO, SIOs, and PMUs have been identified and involved in project preparation. The PMUs will be formally established only after negotiations. A period of intensive management training for the PMO, SIOs and PMUs will take place prior to effectiveness as outlined in the 46

53 financial and procurement action plans in PAD Annexes 7 and 8, respectively. Terms of reference for key consultancies, including technical assistance, were prepared at appraisal. Dam Safety Start-up Works: Dam safety activities in Component 1 have been selected as the priority start-up works under VWRAP because they: i) mainly involve standard civil works; ii) require no land acquisition; and iii) will be implemented by existing and experienced MARD SIOs. Annex 8 contains a detailed two-year procurement plan for these activities. In total, there will be eight construction packages covering seven dams, with an estimated total cost of approximately US$lO million. Terms of reference for consulting services to prepare detailed designs for each of the eight packages were prepared at appraisal, and MARD has used the CQ selection method to select the consultants quickly. Tendering for works should be beginning in mid - to late-2004, with construction starting in early Consulting services can be cost-shared retroactively, as detailed in Annex 8. A dated covenant i s included in the DCA requiring all tender documents for start-up works to be prepared by December Irrigation Modernization Works: Lrrigation modernization is more complex than dam safety works from an engineering and social perspective. The first step will be to mobilize a projectwide Technical Assistance (TA) team immediately after effectiveness. The TA team will assist MARD in preparing TORs and procuring consultants for detailed design. Using the QCBS method of selection, the consultants will be mobilized by early-2005 and tender documents completed by mid Land acquisition will be managed by provincial governments, starting as soon as detailed designs are completed. Construction will begin by late Dam Safety: MARD s dam safety unit (DSU) will be operational by end The DSU s first tasks will be to assist the Irrigation Management Companies (IMCs) under Component 1 to prepare dam safety management plans. The DSU will also identify additional dams to be upgraded under VWRAP, and support the design and implementation of the remedial works. The DSU, with VWRAP financial and technical assistance, will develop a dam safety regulatory system for dams managed by MARD. Thu Bon Basin: The TA team will help MARD to prepare TORs and procure consultants for engineering design of the Quang Hue river works (project Component 3). Using the QCBS method of selection, the consultants will be mobilized in early-2005 and tender documents completed by mid Tendering works will take approximately 4-5 months and construction will start in Once the Quang Hue river works are in progress, Component 3 will focus on wider issues of Thu Bon River basin planning and management, and preparation of feasibility studies for other high priority works. Disbursement Rates: Disbursement will be low in the first two years of implementation when consultants are selected, detailed designs made, and civil works tendered. In the outer years, disbursements should increase rapidly as construction accelerates. The PIP identifies the critical path for effective implementation and accelerating disbursements. 47

54 Project Milestones: Key project milestones are identified in the table below. The dated covenants focus mainly on institutional development actions needed to implement the project and achieve the objectives of irrigation modernization and dam safety. All the milestones have been discussed and agreed with MARD. Summary WRAP Implementation Program meral Project Management Finalize Financial and Procurement Manuals Training for PMOIPMUsISlOs TAiTraininglENV Consultants Procurement Assignment )mponent I: Irrigation Modernization Dam Safety Works Detailed Design Tendering Construction Phase 1 Canal Works Consultant Procurement Detailed Design Tendering Construction Phase 2 DesigniTenderiConstruction Phase 3 DesigniTenderiConstruction ~mponent 2: Dam Safety Hoa Binh Dam Safety Instrumentation Detailed Design Tendering Installation Additional Dams: Designn'enderingIConstruction 3mponent 3: Thu Bon Basin Quang Hue Works Consultant Procurement Detailed Design Tendering Construction Basin and Investment Planning I I I mject Milestones iegotations )oard Effectiveness Aid-Term Review X X ey Dated Covenants ila Approval 'ender Documents 'A Mobilization )am Safety Panel 'raining Program )am Safety Unit jtralegic Env. Plans.hu Bon Committee MC Plans )am Safety Coordination X x x x x x x x 48

55 Country Issues Annex 7: Financial Management and Disbursement Arrangements VIETNAM WATER RESOURCES ASSISTANCE PROJECT The Bank issued the Country Financial Accountability Assessment for Vietnam on October 15, This report states that at present, there is a clear degree of fiduciary risk in the use of public resources, given that the budget process is not yet transparent, public access to government financial information is limited, and effective legislative oversight is not fully in place yet. Institutions responsible for ensuing financial accountability are also weak, auditing findings are not publicly available, and the reporting system does not support effective ongoing monitoring of public resources. Overall, fiduciary risk will be manageable, however, provided that the Government takes the steps outlined in the CFAA as well as those to which it is committed under the public expenditure review. Implementation Ai-rangem ent The Ministry of Agriculture and Rural Development (MARD), through the PMO in the Central Project Office (CPO), will be responsible for overall financial management and control the single special account. Since the EVN component will have only one turnkey contract and one minor consultancy, EVN expenditures will be reimbursed through direct payment by IDA. At the MARD subproject level, provincial Project Management Units (PMUs) and MARD Sub-Implementation Units (SIOs) will be employers for NCB contracts, but payment of the IDA percentages of the contract invoices will be made by the PMO after verification of the work by PMUs or SIOs. Counterpart payments will be either from the MARD or provincial government accounts based on whether the contract was signed by MARD or the PMU. This arrangement is intended to decentralize project implementation while still providing centralized financial management. A financial management review and analysis of the Project was conducted in June 2003, updated in October 2003, and it concluded that the proposed arrangements for VWRAP could meet the minimum requirement of the Bank s OP/BP10.02 after fulfilling the Action Plan on financial management (see Attachment 1). The Project will adopt the standard disbursement method and produce quarterly financial monitoring reports. Risk Analysis Multiple implementation agencies at central, regional and provincial level increase the risk of slow approval, reporting and disbursement process, potentially causing the delays in project progress. Risk mitigation will be achieved through clear documentation of operating authorities and procedures, recruitment of qualified staff and extensive training, and also more intensive financial supervision by the task team - esp. by the project FMS. Inadequate accounting information could lead to vulnerability in overall reconciliation of statement of expenses at PMO level verses the actual expenditures in the field. A separate code for VWRAP would be set-up in the current accounting software in CPO, so that PMO of 49

56 VWRAP could use this to record project transaction separately. For PMUs, the same software would be installed to ensure compatibility and integration between PMO, PMUs, and SIOs. Strengths and Weaknesses CPO has managed approximately ten donor-financed projects, among which two of them are IDA-financed projects (Irrigation Rehabilitation Project-closed FY03 and Mekong Delta Water Resources Development Project-closing FY03), and is therefore familiar with IDA disbursement procedures and financial reporting requirements. The accounts of these two IDA projects have been audited by international auditing firms in accordance with international auditing standards and the independent auditing regulations of Vietnam. The Auditor s Opinion for these two ongoing projects is unqualified. Some of the PMUs and SIOs have experience with IDA and other foreign financed projects, but in general, staffing levels are low and capacity is weak, which will need to be bolstered through training and recruitment of additional qualified staff. Current CPO controls, as per Vietnamese construction law, ensure that no payment can be made to a contractor without a certificate from the Director of the SI0 or PMU depending on who is the employer, and the supervision consultant. The certificate can only be approved once a physical check of quality and quantity work is done. Systematic verification by independent parties contracted by the PMO will take place prior to final payment and handing over of work. In addition, the work is usually verified and reconfirmed by an independent financial controller/auditor hired by the GOVN. Most of the provinces do not have accounting software to generate project specific reports, which makes it difficult to produce required quarterly financial reports for CPO consolidation and review. The present manual accounting system used by the provinces does not have accounting codes for classification of disbursement by component/subcomponent and expenditure categories. Although SI0 416, SI0 414 and SI0 408 are very experienced in managing donor funded projects, especially with IDA financial management requirement through IRP, they only submit annual financial reports, which makes accurate quarterly financial reporting impossible. The accounting software at the CPO, SIO, and PMU levels will be improved under the project. The MARD PMO, SIOs, and PMUs will carry out an Action Plan (see Attachment 1) to strengthen their financial management systems. As a condition of credit effectiveness, the Borrower will fulfill the following tasks: (i) adopt a Financial Management Manual acceptable to IDA; (ii) appoint two project accountants for CPO and at least one project accountant for each PMU/SIO acceptable to IDA; and (ii) complete appropriate training on financial management and accounting software for staff at PMO, PMUs/SIOs. Accounts and Funds Flow At the national level in Hanoi, MARD shall maintain a Counterpart Funds Account to receive GOVN counterpart funds for payments allocated to the Central Government under the project and a Special Account to receive IDA credit funds. MOF will agree to the total allocation of 50

57 ~~ counterpart resources allocated to the Central Government on an annual basis. Funds shall be retained at the State Treasury Office and shall be released upon receipt of: (i) MOF approval of annual allocation; and (ii) PMO worwprogram agreements with MARD. All contract payments, except for non-eligible IDA expenses such as land acquisition, shall be made by the PMO from the Special Account. At the provincial level, each PMU shall maintain a Counterpart Funds Account at the Provincial Treasury Office to receive funds from the provincial finance department for noneligible IDA expenses, such as land acquisition. The provincial counterpart funds shall receive money released by provincial treasury offices from time to time and based on work program agreement between PMU/SIO and PMO. All payments from Counterpart Funds for contracts for civil works shall be made by PMU and S I0 at the provincial level. The IDA share will be made directly to the account of the contractor by PMO in Hanoi. For small payments, the PMU may also make payments directly to the contractor from the provincial account and then seek reimbursement for the IDA share from the MARD Special Account. The general funds flow for MARD is diagrammed below: ContractorlConsultant Pavments for PMU & SI0 Contracts Counterpart share/ Contractor/ /v\ Consultant Statement Performance Of \ Payment IDA Share v IDA-Special Verification and Approval Request for Payment 4 Verification Approval The Prime Minister has approved the general cost sharing and financial arrangements for the project in a Jan. 8,2004 Decision reference number 70/QD-TTg. Under the Decision, IDA funding for canals serving 10 hectares command area or more will be provided to the provinces on an 80% grant basis and 20% as a budget advance. Canals serving less than 10 hectares command area shall be funded by farmers themselves at their own contribution. Counterpart funding for resettlement for construction of canals serving less than 150 hectares command area shall be provided by project provinces. For headwork, excluding Hoa Binh 51

58 Dam safety instrumentation work, funding shall be fully provided by Central government budget. The provinces have provided MARD written confirmation that they will accept this arrangement. MOF and the subproject provinces will enter into a Memorandum of Understanding (MOU) detailing the terms, conditions and mechanisms for provincial repayment prior to the initiation of canal works. MOF has proposed a repayment maturity of 10 years, with five years grace, zero percent interest, no service charge and five equal installments. The MOUs will be finalized no later than December 3 1, Disbursement of IDA funds will be based on Withdrawal Applications with the use of Summary Sheet, Statement of Expenditure, or Direct Payment Applications. The PMO shall prepare Withdrawal Applications to be submitted to IDA. The Governor of the State Bank of Vietnam informs IDA of the authorized signatories on Withdrawal Applications. The common practice has been for the authorized signatories to be representatives of the project management office and representatives of the designated service bank. IDA has been informed that in the future the practice will probably change, and the authorized signatories will be representatives of the PMO and representatives of the Ministry of Finance. Sta fflng CPO has a pool of eight accountants and two suitably qualified accountants from this pool have been assigned to the PMO. SIOs and PMUs will appoint project accountants, satisfactory to the Bank, before the project becomes effective to ensure adequate training before funds start to disburse. Training and on-going monitoring and supervision of PMU and S I0 financial staff shall be carried out by CPO Chief Accountant and PMO accountants as necessary. Computerized Accounting System The financial management system operational at MARD for the Bank-supported Mekong Delta Water Resources Development Project, will be adapted subject to modification to generate Financial Monitoring Reports (FMRs) for V WW. A separate code for VWRAP project will be opened to keep track separately for VWRAP transactions. The computerized accounting system will have functions to track project progress by disbursement categories, project components/activities, sources of funding, location of project activities and will facilitate financial management and consolidation of financial statements. The computerized accounting system will be established at both the PMO and PMU/SIO levels to capture the transactions of the respective accounts. The proposed accounting system contains the following features: (a) application of consistent principles of accounting for documenting, recording, and reporting financial transactions; (b) suitable method of accounting; (c) a double entry accounting system; and (d) the production of annual/quarterly financial reports acceptable to the World Bank and GOVN. Reporting and Monitoring Annual project financial statements will be prepared by MARD following their accounting system with suitable modifications to meet Bank reporting requirements. For project monitoring purposes, MARD will prepare and submit quarterly Financial Monitoring Reports 52

59 (FMRs) jointly developed between client and the World Bank. These FMRs will be tailored to meet practical monitoring requirement of the project. MARD will submit to the World Bank the FMRs on a quarterly basis. The FMRs will comprise of the following reports: o Sources and Uses of Funds by expenditure categories; o Uses of Funds by project activities/components; o Special Account Statement; o Implementation Progress by contract (combination of Implementation Progress & Contract Monitoring); and o Procurement Process Monitoring. Supervision Plan The MARD PMO will conduct field review trip to SI0 and PMU at least twice per year. Field observation report shall be prepared to address the issued identified and actions to be taken. The project financial management specialist will join the World Bank supervision mission to review the project financial management system and conduct the random review of the supporting documents to the SOEs. Quarterly FMR reports will be reviewed regularly through the year where financial; procurement and contract management issues will be reviewed. Audit Arrangements The proposed project account will be audited annually to intemational auditing standards by an independent extemal firm of public accountants. The audit will be carried out in accordance with TOR satisfactory to the Bank. The Auditor shall be appointed within 6 months of the first disbursement. The auditor's report will be submitted to the Bank no later than six months after the close of each fiscal year. A management letter addressing intemal control weaknesses of implementation agencies will also be provided by the auditor together with the audit report. Auditing fees for the project are incremental expenses and are to be covered by the Consultant's service category. Allocation of Credit Proceed Disbursements of the Credit proceeds would be made against expenditure categories as shown in the table below. The proposed IDA credit of US$157.8 million equivalent will be disbursed over a period of seven years. Use of Statement of Expenditures Reimbursement will be made on the basis of Statements of Expenditure for the following: (a) works under contracts each costing less than US$200,000 equivalent; (b) goods contracts valued at less than US$lOO,OOO (c) consultants' services under contracts awarded to consulting firms each costing less than US$lOO,OOO equivalent; (d) consultants' services under contracts awarded to individual consultants each costing less than US$50,000 equivalent; 53

60 (e) training; and (q incremental operating costs. Project Financing and Allocation of Credit Proceeds Amount in US$ Expenditure Category million Financing Percentage IDA Credit GOVN 1. Works $ % $125.6 $ Goods 3. Services $16.2 Foreign: 100% $13.8 $2.4 Local: 75% $ % for Domestic Indv; 93% for all other Services $14.7 $1.0 $ % $1.7 $0.0 $2.8 70% $2.0 $ Training 5. Incremental Costs 6. Non-IDA Financed $7.6 0% $0.0 $7.6 The total IDA financing percentage for the project is 89%, which is consistent with recent World Bank financed projects in the rural sector. A financing percentage of 95% for civil works is justified for the project as provincial governments will be making most of the counterpart payments to civil works contractors. Given budget constraints, it would be very difficult for provincial governments to provide a larger share of counterpart support. The inability to pay counterpart expenses poses a risk to the project implementation, and thus it is prudent to have a high IDA financing percentage. The documentation will be made available for the required audits as well as to the World Bank supervision missions, and will be retained by CPO for at least four years after receipt by the Bank of the audit report for the year in which the last disbursement was made. For contracts above these amounts, Withdrawal Applications would be supported by full documentation and signed contracts. Special Account To receive IDA credit funds, MARD shall maintain a Special Account in USD at commercial bank acceptable to IDA and on terms and conditions satisfactory to IDA, including appropriate protection against set off, seizure and attachments. The Special Account will cover the IDA shares of eligible foreign and local expenditures in all disbursement categories. The MARD Special Account will have an authorized allocation of US$lO.O million (equal to IDA financed average expenditure for 4 months) with an initial deposit of US$5.0 million to be withdrawn from the credit account and deposited in the Special Account. Withdrawal Applications for replenishment of the Special Account would be submitted regularly, preferably monthly or whenever the Account has been drawn down by about 30 percent of the initial deposit, whichever occurs first. Advance Contracting and Retroactive Financing will be used for procurement of engineering design services for start up works and training. There will be an estimated 9 54

61 small CQ contracts for a total of $700,000, and training expenses of approximately US$lOO,OOO. The procurement procedure shall be in accordance with the Bank requirements in order for these contracts to become eligible for retroactive Bank financing. Any of these expenditures incurred after November 1,2003 will be eligible for retroactive financing when the project becomes effective. The start-up procurement plan is presented in Annex 8. 55

62 Attachment 1 to Annex 7 Financial Management Action Plan Action Responsibility Completed by Financial Management Manual - Finalize and adopt the Financial Management Manual, including staff responsibility, detailed fimds flow arrangement, project chart o f account and reporting requirements. PMO Effectiveness Staffing - Appoint two project accountants for CPO and at least one project accountant for each PMUlSIO with aualifications accedtable to IDA Accounting software - Complete enhancement o f computerized financial management system, including establishment o f separate code for VWRAP in the existing computerized accounting system for PMO and install the same software for SIOs and PMUs. This software would have capability to: (i) classify the disbursements by componentlcomponents, expenditure categories (ii) record and analyze the transactions in Special Account and Direct Payments, (iii) consolidate the SIOs and PMUs financial information into the project accounts and (iv) to meet the reporting requirements o f IDA and GOV. Training - Complete training of SI0 and PMUs/SIOs staff on the Financial Management Manual, IDA disbursement procedure, and the accounting software. Others - Appoint independent auditors acceptable to IDA - Start the annual action plan and budget preparation process by JulyiAugust every year to provide inputs to GOV national budget. PMO/PMUs PMOlPMUlSIO PMO/SIOslPMUs PMO/SIOslPMUs Effectiveness Effectiveness Effectiveness 6 months after Is' disb. Every year 56

63 Annex 8: Procurement VIETNAM WATER RESOURCES ASSISTANCE PROJECT Summary of Procurement Arrangement Procurement of civil works and goods financed by IDA shall be on the basis of the Guidelines: Procurement under IBRLI Loans and IDA Credits dated January 1995, and revised in January and August 1996, September 1997, and January Selection of consultants shall be on the basis of the Guidelines: Selection and Employment of Consultants by World Bank Borrowers, dated January 1997 and revised in September 1997, January 1999, and May The latest versions of Bank s Standard Bidding Documents, Standard Request for Proposals, Standard Bid Evaluation Report and Standard Consultant Selection Evaluation Report shall be used as applicable. Sample Bidding Documents (in Vietnamese) for NCB for Works or Goods, sample Documents for Procurement of Small Works prepared by World Bank Office in Vietnam are recommended. Overall project costs by type of expenditures and procurement arrangements are shown in Table A. Consultants selection arrangements are presented in Table B. The Bank s thresholds for procurement methods and prior reviews are summarized in Table C. A start up procurement plan is presented in Table D. For any contract to be eligible for financing from the credit, the procurement shall be done in accordance with the procedures set out in the Credit Agreement. These procedures include criteria for packaging of contracts, the various methods of procurement that may be used, the thresholds within which those methods apply and arrangements for prior and post review of procurement documentation and decisions. The Borrowers (Vietnam Ministry of Agriculture and Rural Development and Electricity of Vietnam and their respective Project Management Units) shall be responsible for all procurement actions necessary to implement the project. The Bank shall supervise the work of the PMUs to ensure that all procurements under Bank financing are carried out in accordance with agreed procedures as defined in the Credit Agreement. All procurements shall be conducted in accordance with a detailed procurement plan agreed with the Bank. Civil Works is the largest part of the project accounting for about $132.2m or 75 percent of the project cost. International Competitive Bidding shall be used for procurement of civil works estimated to cost $2.0 million or more per contract. One ICB contract has been identified - Cat Hai Water Transfer which is estimated at $5.0m. National Competitive Bidding will be the main method of procurement for civil works under the project, primarily for canal strengthening and dam safety works. The aggregate amount of NCB contracts is approximately US$115.6 million, and NCB will be applied for all contracts estimated to cost more than US$50,000 and less than US$2.0 million. The selection of the method for lining existing canals is a major construction and design issue, due to the potential service interruptions in critical water supply services, particularly in large main 57

64 canals. Diverting water through temporary diversion canals is a costly solution and requires compensation to farmers for temporary occupation of lands. The alternative solutions are to: i) close the canals for approximately two months during the wet season which makes construction problematic; or ii) close canals for short periods outside of the wet season-for example after every 10 days of operation the canals would be shut for 10 days for construction. The specific solutions will depend on the climatic situation in each region and preferences of the local people. Given the short periods available each year for construction, intermittent nature of the work, small value of contracts and political complexities of canal closures, it is most likely that only local contractors will be willing to undertake the works. The works on large and medium main canals would be packaged into lots of about $500k and $200k each respectively to suit the above conditions. Ln addition, lots of this size match the capacity of local provincial and new private contractors. Depending on their capacity, contractors would be allowed to bid for any lot or any combination of lots. Procurement of Small Works may be the suitable method for works on very small canals such as secondary and tertiary improvements that are scattered over a wide areas of each irrigation system and not be big enough for packaging into contracts suitable for NCB. This method may be used for an aggregate of approximately $1 1.6m of works, and applied for all civil works expected to cost less than US$50,000. During project implementation, when detailed engineering designs are available, repackaging into larger contracts should be considered where appropriate. Goods account for about $16.2 m or 9 percent of the project costs. International Competitive Bidding (ICB) shall be used for procurement of goods estimated to cost $150,000 or more per contract. There are 12 identified ICB goods contracts accounting for about $15.6m. These include contracts such as turnkey dam safety instrumentation for the Hoa Binh dam ($1.O m); turnkey Canal Regulation and SCADA systems for Dau Tieng ($3 m) and Cu Chi ($1 m) systems; Geo-membrane for Dau Tieng ($4 m); drainage pump stations for Cam Son subproject ($1.2 m) and others. The canal lining with geo-membrane to minimize water losses is a major project activity. Two options on implementation of this activity are being considered: (1) geo-membrane to be supplied and installed by the canal work contractors as part of the contracts; and (2) geomembrane to be bulk-purchased under ICB from a single supplier. As the quality of the geomembrane lining is critical for successful seepage control, MARD is considering having one contract for the geo-membrane work for the largest subproject - Dau Tieng Irrigation System to ensure quality control. For other subprojects following Dau Tieng, geo-membrane supply may be included in the bidding documents for canal works. The final decision on whether to have a separate geomembrane supply contract will be made during implementation. National Competitive Bidding (NCB) may be used for procurement of goods estimated to cost more than $50,000 but less than $150,000 per contract, where the goods are normally available locally at competitive prices. NCB procurement of goods is not anticipated to be used frequently, as typical goods such as sluice gates, motors, and lifting units are normally included in the civil works contracts. The current estimate in Table A is that no goods will 58

65 be procured using NCB method, but actual packaging and cost estimates of these goods will be available only after completion of the engineering designs Shopping may be used to procure goods estimated to cost less than $50,000 per contract. These include office equipment, computers, software, vehicles, etc. and account for about $570,000. During the review of actual procurement plan, the Bank may require repackaging some of these goods into contracts for NCB or ICB if possible. Consultants Services account for about $1 5.7m or 8.9 percent of the project costs. Quality and Cost Based Selection (QCBS) will be the main method for contracts greater than $100,000 each. There are expected to be approximately 14 QCBS contracts with a total amount of about $14.2m. There is expected to be one large technical assistance contract, approximately $3.0m, to provide overall engineering, construction management, procurement, resettlement, and environmental management international expertise for the project. Other contracts include various engineering designs for irrigation modernization works and dam safety consultancy. Selection Based on Quality Based Selection (QBS): For some highly complex dam safety works, it may be preferable to select the most highly qualified firm to undertake the design and investigation work. One such contract has been preliminarily identified for Dau Tieng/Da Ban works with an estimated cost of approximately $250,000. This is still under consideration by MARD and be considered during implementation. Selection Based on Consultants' Qualifications (CQJ may be used for contracts less than $100,000 each. There are an estimated 20 CQ contracts for a total of about $900,000, mainly for local firms to prepare engineering designs for start up works and assist with project management and training. Individual Consultants (IC) may also be required to assist the project implementing agencies for specialized tasks such as dam safety instrumentation. The selection will be on a competitive basis. The total amount for this type of services is estimated at about $100,000. Single Source Selection The Project includes an approximately US$500,000 contract for "irrigation modernization training and participatory irrigation management support." OPRC has provided clearance to sole source the MARD-affiliated Vietnam Institute of Water Resources Research (VIWRR) as the lead institute for this assignment. Given the importance of language and local knowledge to the assignment, a Vietnamese organization should take the lead role. The VIWRR has unique and exceptional skills for the assignment with the requisite expertise in irrigation modernization, participatory irrigation management, and research facilities. The involvement of the VIWRR is critical to project implementation, and there are no obvious suitable alternatives from the private sector. The VIWRR will probably associate with the MARD-affiliated Water Resources University, which has expertise in curriculum development and training delivery. It is expected that VIWRR will also enter into a subcontract with an international irrigation-training expert. 59

66 Training ($1.7m) and Incremental Operating Costs ($2.8~~) There will be a large and extensive training program including in-country training such as workshops, seminars and training courses and other miscellaneous costs related to operations of the project offices. Consultant services for training purposes must be procured using the allowed consultant procurement methods. The training programs shall provide for IDA S review the objectives, criteria for selection of participants, venue and/or institute selected, period of activity and estimated costs such as conference hall renting, translation service, office supplies etc. Eligible activities for incremental operating costs include travel costs, travel per diem, office consumable, communications expenses, but excluding salaries. Purchase of goods for incremental operating costs purposes should be procured using the allowed goods procurement method. The plan for expenditures on incremental operating costs shall in general follow the relevant Government norms and be subject to review by the Bank. Advance Contracting and Retroactive Financing will be used for procurement of engineering design services for start up works and training. There will be about 9 small CQ contracts for a total of $700,000 and estimated training expenses of US$lOO,OOO. The procurement procedure shall be in accordance with Bank requirements in order for these contracts to be eligible for retroactive Bank financing. Any of these expenditures incurred after November 1,2003 will be eligible for retroactive financing when the project becomes effective. Eligibility of Dependent SOEs to bid for Bank--named contracts The Bank is committed to aggressively implementing its SOE eligibility policy in Vietnam as of January 2003 and as announced to the government in November The Bank has made significant, although difficult, progress in the transport sector. The Bank will continue to enforce the SOE policy while recognizing that minor and temporary modifications may be necessary to keep the Borrowers engaged without compromising the principles. Under the policy, commercially oriented SOEs are allowed to bid for Bank contracts, provided they are not dependent on the employer agency. Dependency is the key issue in determining SOE eligibility. Major MARD-dependent SOEs used to be the contractors employed for most major works managed by MARD, such as construction of dams, water reservoirs and major canals and structures such as spillways, sluices etc. It should be noted that since the Government introduced competitive bidding in 1996, the territory once reserved for MARD-dependent contractors has been steadily shrinking. Pressure in that direction has been increased following the Bank formal confirmation to the Government in November 2000 that the Bank requirements on eligibility criteria for Borrower s SOEs will fully apply from The Company Law of 2000 has promoted establishment of many new private firms including civil works contractors. SOEs under other ministries such as construction, transport and those under provincial governments have expanded their business to gradually cover water resources construction. Within MARD, the SOE policy requires that only essential SOEs should remain under MARD supervision. As the result, a number of MARD SOEs have been equitized (privatized). 60

67 Works and Goods Contracts. There are many private and non-mard-dependent SOEs capable of undertaking the civil works under VWRAP, including provincial construction companies. Thus, no MARD-dependent contractors are eligible for bidding on Bank-financed contracts. Likewise, for each province which has a VWRAP subproject, no construction company owned by the province would be eligible for bidding. Service (Engineering) Contracts, The MARD-dependent engineering companies contain the largest pool of hydraulic engineers in Vietnam, and their exclusion from consulting assignments could potentially result in a lack of competitive bidding. The Bank's Operational Procurement Review Committee (OPRC) has granted an exception to the Bank's SOE policy to allow these firms to participate in Bank-financed contracts as sub-consultants, provided the subcontract does not exceed 50% of the total contract amount. OPRC has also approved an exception for provincial engineering companies dependent on the provincial government, provided the subcontract amount will not exceed 20% of total contract amount. University/Research Institutes. As noted in the sole source section above, the Project includes an approximately US$500,000 contract for "irrigation modernization training and participatory irrigation management support." OPRC has provided clearance to sole source the MARD-affiliated Vietnam Institute of Water Resources Research (VIWRR) as the lead institute for this assignment. The VIWRR will probably associate with the MARD-affiliated Water Resources University, which has expertise in curriculum development and training delivery. The table below indicates prior review thresholds. Prior review would be required for all: (i) (ii) (iii) (iv) (v) (vi) contracts for works that are estimated to cost US$200,000 or more; contracts for goods that are estimated to cost US$lOO,OOO or more; contracts for consulting firms and NGOs, estimated to cost US$lOO,OOO or more; contracts for individual consultants, estimated to cost US$50,000 or more; single-source contracts; and contracts with dependent SOEs. 61

68 Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Method' Exenditure Category ICB NCB Other2 N.B.F.3 Total Cost 1. Works Goods Services Miscellaneous Total Figures in italics are the amounts to be financed by IDA. All costs include contingencies 2. Includes small works, shopping, consulting services, training and incremental costs 3. Non-Bank Financed includes land acquistion and resettlement costs Table B - Project Costs by Consultant Procurement Arrangements (million US$) Selection Method CQ QCBS Other NIF Total 1. Engineering 0.9 $10.74 $ Technical Assistance 0.0 $3.50 $ Total 0.9 $14.24 $ Number of Contracts

69 Table C: Thresholds for Procurement Methods and Prior Reviews Categovy 1. Works 2. Goods 3. Consulting Services 4. Training 5. Incremental Costs Contract Value Procurement Method Prior Review >2000 ICB All 1 ;?--!:Contract for each PMOiPMUiSIO > 150 ICB All > 50 to <150 NCB >loo < 50 Shopping None Firms > 100 QCBS All Firms < 100 CQ TOR All sss Individual > Cost EstimatesiPlan --- Cost EstimatesiPlan Total value of contracts subject to prior review: $133.6 million or 79 % of total project cost (excluding non-ida financed land acquisition) Post Review Ratio Contracts not covered by prior review shall subject to post review. The post review ratio will be one in five contracts. Overall Procurement Risk Assessment: High Frequency of procurement supervision missions proposed: One every 6 months 63

70 dd* *dd ZZZ ZZZ

71 Attachment 1 to Annex 8: Procurement Summary of Agency Procurement Capacity Assessment and Action Plan to Strengthen Procurement Capacity of the Project Implementing Agencies An assessment of the capacity of various MARD project management units (PMO, PMUs, and SIOs) was carried out in accordance with World Bank procedures (dated July 15,2002). The assessment involved a review of the procurement policies and procedures adopted by MARD and took into consideration the experience in the implementation in two other IDAfinanced water resource projects (Irrigation Rehabilitation Project-closed FY03; and Mekong Delta Water Resources Project-approved FYOO), as well as the findings and recommendations of the Vietnam Country Procurement Assessment, October Legal Framework. Vietnam has gained valuable experience from implementation of the first public procurement regulation (Decree 43CP) issued in 1996 and its subsequent revisions - Decree 88CP of 1999 and most recently, Decree 66CP of June 12,2003 and now fully convinced on the benefits that could be brought by a competitive process. Vietnam has also realized that the current regulations need further improvement and has been working since 2000 on further system reforming under a Bank-sourced IDF Grant completed in August Another technical assistance project has been approved to move the reform further in accordance with the October 2002 CPAR Action Plan. While MARD and EVN follow external donor procurement procedure for contracts funded by those donors, they are expected to follows the Government procedure (Decree 88CP and 66CP) for contracts funded by domestic resources. While procurements conducted by the SIOs to date include contracts funded by the Bank under the Irrigation Rehabilitation and Mekong Delta Water Resources projects, those conducted by PMUs are funded by mostly by domestic resources following the Government procurement procedure. As discussed in the CPAR, Decree 88CP contains a number of provisions that should be waved and/or modified in case of NCB. The new Decree 66CP of June 12,2003 amending a number of provisions of the Decree 88CP has also been reviewed by the Bank. For these decrees to be acceptable for NCB procurements under the project, provisions for a revised and updated Supplemental Letter for NCB are attached as annex to this document. Procurement Capacity. The MARD PMO, which will be under the supervision of the MARD s Central Project Office, has considerable experience in implementing Irrigation Rehabilitation Project (IRP) and the on-going Mekong Delta Water Resources Project. The PMO s staff would mainly come from current CPO s staff and additional technical and managerial staff from MARD. Given the potential complexity of VWRAP, the PMO s technical and managerial capacity will be strengthened by technical assistance, including procurement support from international and national consultants. MARD Sub-Implementing Offices (SIOs) possess significant employer experience in civil works, especially complex headwork and larger canals accumulated over the years of managing projects funded from the state budget using the GOVN procurement procedures. 65

72 All SIOs (except the SI0 403) were involved in the IRP and/or the Mekong project and have gained valuable experience on NCB procurements funded by the Bank. While SI0 403 has no past experience with Bank procurement, it does have considerable procurement experience under the recently completed Red River Delta Irrigation project funded by the Asian Development Bank. The PMUs also have long experience managing construction of simple civil works using local procurement procedures. Some provinces, such as Bac Giang or Tay Ninh have some limited experience with external donor s procurement procedures, such as ADB or the AFD. Both SI0 and especially PMUs procurement capacities will be strengthened through procurement training organized by PMO and supported by Bank procurement specialists and national consultants. The procurement training plan will be outlined in the Project Implementation Plan. The Procurement Manual will be a good tool for training purposes. It is recommended that SIOs provide procurement technical assistance to the respective PMUs located in the same subproject area and working on the same subproject. The EVN Procurement Department has considerable experience with World Bank ICB procurement of Goods gained from managing several Bank-funded power development projects since 1995 and thus is fully capable to implement procurement of the EVN small component which consists of a single $1.Omn contract for supply of dam instrumentation. Risk Assessment. Although MARD and EVN have extensive procurement experience, much of the procurement will take place at the sub-implementation level through SIOs, which are less experienced in the Bank procurements and PMUs which have experience on Government procurement procedure only. Given the country s general procurement environment as reported in the Country Procurement Assessment Report, and lack of experience at the sub-implementation level, the overall procurement risk is rated as high. To overcome these constraints, MARD has agreed to take the following actions: Procurement Action Plan Organization: MARD will propose a streamlined procurement review process for review by the Bank by May Regulation: MARD will issue an instruction on procurement procedure to be followed for VWRAP by July Staffing: i) Appointment of 2 full-time procurement specialists at PMO by March 2004; ii) Appointment of 1 full-time procurement specialist each at SI0 and PMU by April Training: Procurement training for SIOs/PMUs to be provided by PMO with assistance fi-om WB procurement specialists - 2 workshops to be conducted during the period March-June Procurement assistance by SIOs to respective PMUs located in the same subproject area to be provided on a continuous basis during the first year of respective subproject implementation. 66

73 Documents: Completion of all bidding documents first year works no later than December, Project Procurement Manual finalized and formally adopted by effectiveness. The Manual shall be used for all agencies and staff involved in various steps the procurement process including MARD, DARDs, PMO, SIOs, PMUs and IMCs. In addition, World Bank procurement specialists from Hanoi and Washington will provide support and supervision during implementation. Estimated date of Project Launch Procurement Workshop: August Estimated date of Publication of General Procurement Notice: January Are bidding documents for the first year ready by negotiations? No. The first set of bidding documents is expected to be ready by July Is there procurement subject to mandatory SPN in Development Business? Yes. Domestic Preference: Yes, if requested by MARD or EVN. Advance procurement: Yes. Retroactive Financing: Yes. 67

74 VIETNAM: Mandatory Provisions for NCB Attachment 2 to Annex 8: Procurement In order to ensure economy, efficiency, transparency and broad consistency with the provision of Section I of the World Bank Procurement Guidelines, the procedures normally used for public procurement in the country of the Borrower shall be modified in accordance with the following provisions: Participation in bidding and preferences (i) For clarification purposes, it is understood that the last sentence of the amended Paragraph (c), Section 2, Article 2 of Decree 88CP which states that "All the procedures for submission, appraisal and approval of bidding results and bidder selection results shall follow the Procurement Regulation" means "Approvals of draft bidding documents, bid evaluation reports and proposals for award shall be obtained in accordance with the relevant rules and procedures of the Procurement Regulation". (ii) Government-owned enterprises in Vietnam shall be eligible to participate in bidding only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the Borrower or the procuring entity. Military or security units, or enterprises which belong to the Ministry of Defense or the Ministry of Public Security shall not be permitted to bid. (iii) Foreign bidders shall be eligible to participate in bidding under the same conditions as local bidders, and local bidders shall be given no preference (either in the bidding process or in bid evaluation) over foreign bidders, nor shall bidders located in the same province or city as the procuring entity be given any such preference over bidders located outside that city or province. (iv) Bidders shall be allowed to participate in bidding without being listed in the Government Database on Bidder Information. (v) Foreign bidders shall not be required, in order to participate in bidding, to enter into a joint venture with a local bidder, or to subcontract part of their contract to a local bidder. (vi) If there is prequalification, all prequalified bidders shall be invited to bid. (vii) If there is limited bidding because there are only a limited number of bidders who can meet the requirements of the bidding documents, all of these bidders shall be invited to bid. (viii) Bidders shall not be required, as a condition of participation in the bidding, to provide suppliers' credits. 68

75 Advertising time for bid preparation (ix) Invitations to bid shall be advertised in at least one widely circulated national newspaper. In addition, the Borrower is encouraged to advertise in the Government Public Procurement Bulletin when established and on a free and open access website. Standard bidding documents (x) The Borrower s standard bidding documents shall be acceptable to the Bank. The bidding documents shall provide clear instructions on how bids should be submitted, how prices should be offered, and the place and time for submission of bids. A minimum of 30 days for the preparation and submission of bids shall be provided. Bidders shall be allowed to submit bids by hand or by mail. Qualification criteria and evaluation criteria (xi) Qualification criteria shall be clearly specified in the bidding documents, and all criteria so specified, and only criteria so specified, shall be used to determine whether a bidder is qualified. Qualifications of a bidder found to meet the specified qualification criteria shall not be taken into account in the evaluation of such bidder s bid. (xii) Evaluation criteria shall be clearly specified in the bidding documents, and evaluation criteria other than price shall be quantified in monetary terms. All evaluation criteria so specified, and only evaluation criteria so specified, shall be taken into account in bid evaluation. Merit points shall not be used in bid evaluation. Bid evaluation and award of contract (xiii) Bids received after the deadline for bid submission shall be returned to the bidders unopened. (xiv) A bid containing material deviations from, or reservations to, the terms, conditions or specifications of the bidding documents shall be rejected as not substantially responsive. A bidder shall not be permitted to withdraw material deviations or reservations once bids have been opened. (xv) Evaluation of bids shall be made in strict adherence to the criteria specified in the bidding documents, and contracts shall be awarded to the qualified bidder offering the lowest evaluated and responsive bid. (xvi) A bidder shall not be required, as a condition for award, to undertake obligations not specified in the bidding documents, or otherwise to modify the bid as originally submitted. (xvii) There shall be no post-bidding negotiations with the lowest or any other bidder. 69

76 Annex 9: Economic and Financial Analysis VIETNAM WATER RESOURCES ASSISTANCE PROJECT Introduction The investments made under VWRAP will result in direct benefits in poverty alleviation and economic development. These benefits will mainly accrue through irrigation modernization investments (Component 1) which will improve water distribution and thus increase the area which can be reliably irrigated. The economic and financial analysis analyze the impact of project investments in the following areas: 0 Increased agricultural production and revenues from increase in irrigated area, diversification, and yields; Lower production expenses due to reduction of farmers private pumping and labor to bring water to fields; Increase in IMC revenues and financial viability from expanded collection area due to better service; and Non-quantified benefits: reduced risk of dam and main canal failures; improved transport from new canal roads; greater reliability for municipal and industrial water users. Economic Analysis (Detailed assessments are in the project file) Approach. The project viability is based on the economic rate of return and net present value of the measurable, incremental benefits and directly-related costs of the project using the present without-project and future with-project criteria. The major benefits used are those which are measurable reliably in monetary terms, Le. the aggregate incremental net returns from irrigated farming within the irrigation command area of sub-projects, and, where projections are based on existing demand andor committed investment from outside the project, incremental value of water supply. Potential benefits from incremental water supply where existing demand cannot be quantified, are not included in the analysis but represent a potentially important project benefit. Due to the difficulty in realistically estimating the timing, probability and impact of dam deterioration or failure in the main canals of the irrigation scheme for a future without-project scenario, these avoided costs were not modeled. Dam safety investments were subject to a leastcost analysis needed to achieve design safety standards. Following the Bank s Handbook on Economic Analysis of Investment Operations and revised Template and Guidelines for the Project Appraisal Document, costs during construction for mitigating potential negative environmental impacts and for compensating farmers for land lost are included. Project Benefits. Economic benefits result from improved irrigation which enables farmers to achieve higher yields, diversify, and intensify their land use. Farm budgets are based on typical three-season cropping patterns dominated by irrigated paddy rice (two crops per year) with subsidiary or rice-break crops including maize, beans, vegetables, sugarcane and others. The cropping index (CI) for each crop, that is the relative percentage of farm area planted in a crop, has been estimated for the present and with-proj ect situation based on surveys of farms, industry 70

77 and market trends in each site. These cropping indices are used in the calculation of economic and financial rates of retum. The project will improve the utilization efficiency of the water resource in each sub-project basin, resulting in more water reliable, flexible, equitable, and responsive service to users, both farmers and municipal and industrial (M&I). Irrigation modernization is expected to increase land area under full gravity-serviced irrigation, reducing present areas of land which have no irrigation or where unreliable irrigation service requires farmers to supplement it by pumping water themselves. It will provide farmers with the opportunity to intensify and/or diversify their present cropping pattems as a result of improved irrigation. For instance, irrigation allows increased planting of winter-spring and summer-autumn rice and reduces the need to grow it during the rainy monsoon season. The advantage to farmers is from the fact that monsoon season rice provides relatively lower yields, requires higher pesticide inputs and is more prone to losses due to storm damage. Crop diversification with peanut and soybean will increase, not only providing farm income increases from their higher financial value but also economic benefits in terms of contributing to soil fertility and reduced pest and disease load by breaking the cycle of grain cropping. The expected diversification into higher value and higher retum crops is evident in the increased cropping of maize, vegetables and sugarcane. There are other significant benefits not quantified. First, the project will support a long-term increase in municipal and industrial (M&I) water supply. However in most sub-projects, except Yen Lap and Vu Gia-Quang Hue, the near term additional M&I demands or very low or nonexistent and thus not taken into account. Second, village roads constructed alongside canals will improve access for goods, services and social benefits. Third, without the project further deterioration of many canals and control structures is highly likely, resulting in significant farm land potentially taken out of production due to insufficient water control. Fourth, improved dam and canal safety reduces chances of catastrophic losses in future. While these benefits are not quantified in the analysis due to their complexity, they do improve the robustness of the economic rate of return. Pvojecr Cosrs. Cost estimates have been drawn from the feasibility study of each sub-project and adjusted during the (Pre)Appraisal mission based on studies and agreements reached on engineering, environmental mitigation and compensation issues. BeneJit-cost analysis shows the investment is justified based on an overall estimated rate of return of 14.7% with sub-projects ranging from 11.0% to 33.7%. The robustness of the ERR is demonstrated since this analysis is conservative in two ways: (i) it does not include the very real, but difficult to assess, future without-project situation in which benefits are declining as the irrigation system continues to deteriorate; and (ii) increased M&I water supply is not included where it cannot be clearly imputed to the project. Both factors would tend to increase the ERR substantially, For calculation of the net present value (NPV), a conventional Social Discount Rate of 10% is used to discount future values back to the present. Nippon Koed Royal Haskoning, June

78 Table A9.1. Summary of Economic Analysis Results Indices Overall Cam Sonproject Dau Tieng Da Ban Ke Go Phu Ninh Cau Son Yen Lap Quang Hue Economic Rate of Retum I 14.7%1 11.9%1 12.5%1 11.8%) 11.0%1 22.3%1 33.7%1 19.4% Economic NPV (milvnd) I 479, , , , , , , ,775 Project Risks A sensitivity analysis assesses the robustness of the economic rates of retum of the project and individual schemes to wide ranging deviations from the base case assumptions. The major risks associated with the project relate to: (i) increased investment costs due to implementation inefficiencies or costs under-estimation; (ii) benefits decrease due to poor scheme performance or lower crop prices, and; (iii) delays in implementation. The results of the sensitivity analysis to reflect these risks are presented in Table A9.2. Fin an cia1 Analysis Financial rate of retum (FRR) ranges from 7.2% to 28.3%. The financial rate of return of the whole project is estimated at 12.5% generating net incremental benefits of VND 280 billion. An SCF of 0.90 is applied to convert financial costs to economic costs. Overall Cam Son- Indices project Dau Tieng Da Ban Ke Go Phu Ninh Cau Son Yen Lap Financial Rate of Retum 12.5% 10.6% 7.4% 9.1% 7.2% 21.0% 28.3% Financial NPV (mi1,vnd) 279,561 26,370-16,921-12,084-42, , ,776 Quang Hue Farm budgets have been prepared from the existing without-proj ect situation and future withproject scenario. Crop yields and production costs used in the farm budgets are based on observed existing practices and performance of farmers and the varieties they use. For each subproject area, farm budgets show different improvements related to: (i) reduction of farmers irrigation expenses (e.g. replacing farmers own water lift costs and labor with fees to an IMC); (ii) increased crop yield; (iii) diversification into higher value crops. Table A9.4, Netfarm incrementaljinancia1 benefits shows this project will contribute significantly to improved farm 19.0% 50,243 72

79 incomes. Farmers report2 irrigation-related income benefits may be used to finance incremental productive services (e.g. contract mechanization of farm operations, or fees for incremental irrigation service), and farm-based investment (e.g. for diversification into higher value crops, livestock or processing). Table A9.4. Net Farm Incremental Financial Benefits (lo6 VND/ha) BeforeiWithout Project Aftermith Project Incremental Farm Benefits Ke Go Phu Ninh Yen Lap Da Ban Dau Tieng Cam Son - Cau Son Quang Hue OO 0.9 Farmers capacity to pay. Comparison of farm budgets with and without the project indicate that incremental net farm revenues will exceed incremental irrigation charges. As a result of the project, incremental financial returns per farm hectare from the typical cropping pattern range from VND 0.9 million in Quang Hue up to VND 3.48 million in Cam Son - Cau Son (Table A9.4). This farm financial benefit is robust enough to improve farmers willingness to enter into irrigation service contracts and pay water fees. Moreover, irrigation service fees are not expected to increase, rather irrigation service coverage will increase. Since farmers who receive good irrigation service typically pay, it is reasonable to assume that farmers who have their service upgraded will also be willing to pay. Typical irrigation fees, taxes and crop production costs are less than 50% of gross crop revenue. The most significant agricultural tax is land tax (10% of production). Combined with other charges levied such as local roads levy, social security contribution, etc. the irrigated farm pays fees and taxes totaling around 20% - 25% of production. These are well within the calculated farm budget margins. IMCfinanciaZ viability. Increased revenues to IMCs are expected from (i) increase in area under contract irrigation service; and (ii) improved rate of irrigation water fee collection. Currently, the collection area averages 40% of the command area in the sub-projects. Raising the collection efficiency rate and the contracted area is critical to ensure the longer term sustainability of the system infrastructure. In a virtuous circle, increased revenues will ensure required O&M is carried out and systems do not deteriorate and threaten service quality and water users willingness to pay fees. In assessing the financial viability of IMCs, three factors need to be considered: 1) the total contracted area that would serve as the revenue base for water collection; 2) the collection efficiency of water charges; and 3) the total O&M requirement for the irrigation system. Hence, the financial analysis of IMCs future performance is conducted based on with-project projections using the following assumptions: * NIAPP study in Tay Ninh pilot area, Dau Tieng sub-project. 73

80 Contracted area to area increases to 75% of command area, with a collection rate of 90%. Staff expenditures do not change. Actual maintenance expenditures reach national standards, estimated at US$ 1 O/ha in the command area at the end of the project period. Maintenance requirement will be reduced from US$ 15/ha to US$ 10/ha during the project period as the system infrastructure is rehabilitated. Currently, all IMCs except Da Ban show a poor performance with net losses requiring government subsidies and significant deferred maintenance. Assuming required maintenance of 225,000 Dong/ha (US$ 15/ha) due to the degraded condition of the system infrastructure, actual O&M expenditures fall below required levels by 50 to 70% while actual maintenance expenditures represent only 15 to 30% of maintenance requirements. Despite the low allocation of funds to maintenance, subsidies from provincial governments remain high due to insufficient IMC revenues from water fees. The only exception is Da Ban where more efforts are made to collect water fees and generate higher revenues. Under the after project scenario, IMCs should not require government operational subsidies and achieve general national maintenance standards of approximately 150,000 Donglha (US$1 O/ha). The exception is Cau Son-Cam Son where the use of drainage pumps to drain waterlog areas induce additional fuel and electricity expenses of approximately VND 1.7 billion annually. These costs are usually subsidized by the Bac Giang provincial Government because they provide regional drainage services. Nevertheless, the subsidies needed to cover O&M costs, including drainage costs, in Cau Son-Cam Son will be significantly reduced from VND 2.3 billion to VND 0.5 billion under the after project scenario. The development of asset management plans under the project will specify with more precision the actual maintenance needs for each subproject, and adjustments in irrigation fees can be made accordingly. IMC financial sustainability - in terms of cost recovery and financing O&M -would be at risk if IMC performance were weak in delivering upon irrigation service contracts, and following up by collecting water fees. This should be closely monitored and supervised during implementation. Table A9.5 provides a summary of the modeled IMC financial positions: Fiscal impact on the provincial government is expected to be approximately neutral. Tax revenues will increase due to incremental farm production, and the elimination of subsidies to IMCs will reduce provincial expenditures. Land tax is the major agricultural tax revenue instrument and is levied on farmers at a rate of 10% of the paddy-equivalent value of production and is collected by commune authorities. For example in the Dau Tieng sub-project the projected annual incremental State tax revenue of VND13.8 billion (US$0.9 million) annually. In addition, increased revenue from water fees will help reduce or eliminate subsidies to IMCs and generate, in all sub-projects except Cau Son-Cam Son, positive net cash-flows to the provinces. Provincial governments, however, will be required to repay approximately 20% of all project costs to the Central government. Although the exact terms and conditions of the repayment are still not finalized, the financial analysis assumes a 15-year repayment period at a 0.75% interest rate starting in Year 4 of the project. The increase in tax revenues, combined with IMC surpluses, approximately cover the debt service costs. Alternatively, the provincial governments could reduce the tax rate and charge higher water fees to cover the debt service costs. During project implementation detailed financial management plans will be developed for each IMC. 74

81 Annual loan repayment and total expected incremental revenue at provincial levels are presented in Table A9.6. Sub-project Yen Lap: Before project After project Cam Son Before project After project Ke Go: Before project After project Phu Ninh: Before project After project Da Ban: Before project After project Tay Ninh: Before project After project, IMC Subsidies Total budget O&M Deferred O&M Budget revenues needs2 surplus 3, ,055 4,427 1, , ,343 3, ,444 2,299 5,143 10,077 4, , ,362 8, , ,370 7,173 3, , ,751 5, , ,300 7,416 3, , ,202 6, ,103 2, ,218 3,301 1, , ,825 2, ,151 4,358 3,863 8,220 16,875 8, ,015, o 14,075 12,831, 0 1,204 Annual loan repnyment are estimated based on the nssumption thnt provincinl government nre responsible for the reimbursement of 20% ofthe.$ total cost ofirrigation modernization investment. Annuities are calculated at on interest rate ofo.75% over a 15-year period starting from Yenr 4 of the project. ajer n 3-yenr grace period for principle and interest. 75

82 Annex 10: Safeguard Policy Issues VIETNAM WATER RESOURCES ASSISTANCE PROJECT Summary The project environmental screening category is A (full assessment); and the policies triggered are listed below. [ 10 1 Projects in Disputed Areas (OP/BP/GP 7.60) 1 No The EIA studies were carried out for the six subprojects under Component 1 and the Quang Hue- Vu Gai subproject under Component 3. The studies commented that according to the nature of the activities, mostly rehabilitation and upgrading of existing schemes, the negative impacts would be similar to those of the category B type and no adverse impacts that are irreversible are anticipated. Most of the impacts can be mitigated through effective implementation of the environmental management plans. Feasibility studies and preliminary engineering designs have been completed for first phase of works which cover: Component 1 -dams, main canals, and 20% of the command areas; Component 2-Hoa Binh dam instrumentation; and Component 3-Quang Hue river works. The following activities, however, have not been fully formulated during project preparation, and thus were not subject to full environmental assessment: i) subsequent phases of irrigation upgrading under Component 1 ; and ii) remedial safety works for dams to be identified in the MARD Dam Safety Program in Component 2. The impacts of the unidentified investments are expected to be relatively small and similar in nature to those identified in the EIA. In order to address this issue, an Environment and Social Safeguard Framework (ESSF) has been prepared and will be applied to all investments identified during the follow-on phases. A number of other related reports i.e. Consultation Report, Social Assessment Reports, Resettlement Action Plan, Resettlement Policy Framework, Ethnic Minority Development Plan were also prepared and submitted to the Bank. Safeguard-Related Risks: Dam safety is the most important safeguard-related risk, and the issue was addressed extensively during the project design. A dam safety review was carried out by an international consultant and a number of recommendations were incorporated in the design of the project. All the dams 76

83 involved in the project were reviewed for safety conditions and the priority actions were included in the project. An independent panel of dam safety experts will be formed under the project to guide the development of the overall dam safety program in Vietnam. Other safeguard risks associated with the project are unexploded ordnances (UXO), loss of natural habitats, and degradation of water quality. However, mitigation plans have been prepared and will be implemented and monitored closely. Consultations A number of consultations with concemed agencies and affected population were carried out during the preparation of the EIAs/SIAs and RAPs. The first round consultation was made during the initial stage of the EIAs/SIAs/RAPs through questionnaires and selective meetings and discussion with the local authorities, identified project affected people, and relevant stakeholders of the pilot areas. The second consultation was carried out through a workshop atdo Son, Haiphong province in July 2003 when the draft final EIAs/RAPs were available. Additional consultations at each subproject were made in late August 2003 to discuss the EIA findings, and the respective RAPs with the local authorities and communities. The consolidated consultation results are presented in a Consultation Report which is a volume in the EIA report. Specific Safeguard Issues OP4.01 EAs/SAs. While the project is classified as category A, result of the EIA suggested that the scale and magnitude of the potential impacts are more like category B. Most of the impacts are site-specific, none are irreversible. Direct impacts on environmental sensitive areas such as wetlands, forests, or other natural habitat is very limited, and will be compensated as much as possible. The EMP for the project includes the actions to mitigate the impacts during preconstruction and construction stages as well as those to reduce the incremental impacts from other non-irrigation uses. The investment activities to be identified and carried out during the follow-on phase of the project will be subject to Environmental and Social Safeguards Framework (ESSF), Resettlement Policy Framework (WF, and Ethnic Minority Development Plan (EMDP) as needed. OP 4.04 Natural Habitat. There will be a small loss of natural habitat, no more than 10 ha, in the Yen Lap Watershed Protection Forest from the construction of an emergency spillway, which will be compensated for by reforestation in the Yen Lap Watershed Protection Forest. For other subprojects, there may be loss of natural habitat due to extraction of construction materials and excavation of soil for earth-fill. Enforceable contract provisions governing the transport, as well as the sources of construction materials, are specified in the EIA. Bid documents and construction contracts will require the acquisition of construction material (sand, gravel and other materials) to meet stipulated environmental management standards, and only existing authorized borrow pits and licensed quarries are to be used. Measures for site stabilization and erosion control, rehabilitation and restoration to original are included in the EMP. The definition of natural habitats will include protected areas, known natural habitats, or established or proposed critical habitats as defined under the policy. OP 4.30 Pesticide Management. The project will not finance the purchase of any pesticides or herbicides. Under current cultivation practices, pesticides are used extensively, and it is 77

84 estimated approximately two-thirds of the farmers in the project area have not received training in integrated pest management (IPM). Modemization of irrigation schemes would increase crop diversification and cropping intensity, which could lead to increased pesticide use. A national Integrated Pest Management program already exists and is being implemented in each subproject province. During implementation, each subproject province will prepare a plan for IPM activities and submit a report to IDA describing the extent of the problem, training program, and recommendations for improvements. If justified, the project will provide supplemental funding to support the IPM program. OP3.36 Forestry. About 10 ha of watershed protection forest will be lost due to the construction of a new emergency spillway at Yen Lap and there may be some loss in the Duong Minh Chau and Boi Loi Nature Reserve after completion of the canal systems. The recommendations included reforestation of 20 ha within Yen Lap Protected Forest and reforestation of the local natural reserve if protected land will be lost. These losses will be mitigated under the Natural Habitat Policy above, and thus the Bank s East Asia Safeguard Unit has determined that Forestry Safeguard policy is not triggered. OPN Cultural Property. Applied for Cua Son-Cam Son due the presence of an historic hydraulic structure constructed in the early 1900s. Safeguard screening will be made during the implementation to ensure that this policy will not be triggered for other subprojects Involuntary Resettlement. Seven Resettlement Action Plans have been prepared for Phase I activities, and a Resettlement Policy Framework has been formulated to guide resettlement planning in subsequent phases during implementation. These resettlement action plans and policy have been reviewed and cleared by IDA. The Prime Minster s Office in Vietnam has approved the Resettlement Policy Framework, and MARD has approved the specific subproject RAPS. The total estimated amount of affected land in Phase 1 is 272 has, affecting 10,896 households. Over 99% of the affected households have less than 20% of their land holdings affected, and more than half of these households will only experience temporary land acquisition needed for construction purposes. All feasible efforts to reduce resettlement impacts were adopted during project preparation. Only 10 households in the Yen Lap subproject will need to be relocated, and only 45 households will lose more than 20% of their land. The summary table on the impacts is presented below: 78

85 Subprojects Resident I Perm(m2) Temp (m2) Summary of Land Impacts (Phase 1) CauSon CamSon Phu Ninh KeGo Yen Lap DaBan Dau Tieng Quang Hue Total 6, ,858 20,369 1,078 41,113 32, ,680 3,068 93,954 1, ,577 Agriculture Aquaculture Forest/Orchard Total Land loss Perm (m2) Total Land loss Temp (m2) Total Impact on Land Perm (m2) 30,018 10,487 35, ,333 29, , ,918 1,030,632 Temp (m2) 198,043 26, , , , , ,209 1,490,244 Perm (m2) 2,565-5,828 1,880 3,057 13,330 Temp (m2) 6,171-3, ,057 13,610 Perm (m2) 1,260 1,260 Temp (m2) 5,340 5,340 39,468 10,860 35, ,019 52, , ,918 1,086, ,595 26, , ,l , , ,209 1,641, ,063 37, , , , , ,127 2,728,107 OP 4.37 Safety ofdams, Applied for all subprojects, except for Quang Hue river works. The dam safety aspects have been integrated in the Project and dam safety activities will be implemented in the Project. An independent panel of dam safety experts will be formed under the project to review dam safety works financed by the Project, and advise on the national dam safety program as requested. OP 4.20 Indigenous Peoples. Social assessment exercises have been carried out in the project areas to identify and assess project impacts on them. There are ethnic minority groups in the project areas and they are expected to benefit from the project. There are ethnic minority groups in Phase I areas for the Cam Son subproject, and an ethnic minority development plan has been prepared. A policy framework for ethnic minority people s development has been prepared to guide planning of investment activities in Phase 11. OP7.60 Projects in Disputed Areas. Not triggered since none of the activities would involve disputed areas. OP 7.50 International Waterways. Not triggered as none of the water bodies or their tributaries associated with the irrigation schemes of the VWRAP form a boundary between, or flow through the territory of another country. The Hoa Binh reservoir is located on the Da River, which originates in China and then flows into Vietnam. The dam safety instrumentation financed under the project will not, however, impact the flow regime. Mitigation Plans Environmental Management Plans (EMPs), Resettlement Action Plans (RAPS), and Ethnic Minority Development Plans (EMDPs) were prepared for the lst phase investments. Impacts on resettlement, land acquisition, and indigenous people will be reduced through effective implementation of the agreed RAPS and EMDP. For subsequent phases, an Environmental and Social Safeguard Framework (ESSF), a Resettlement Policy Framework, and Ethnic Minority 79

86 Policy Framework have been prepared and reviewed by the Bank. Where appropriate, additional EMPs and RAPS will be prepared for subsequent phases. The estimated total cost of VWRAP EMP is US $1.1 million, and the RAP for Phase 1 is US$3.0 million. Based on extrapolation, RAP costs for subsequent phases under Component 1 are roughly estimated at US$4.2 million, but will need to be confirmed after engineering designs and field surveys are completed. These costs have been included in overall project cost. EMP costs will be financed with the IDA credit, while land acquisition costs will are the responsibility of the GOVN. The EMP lays out the necessary mitigation and monitoring measures. Impacts during construction will be reduced through specific planning in consultation with water users; good construction and work camp practices; and close monitoring of the contractor s compliance. Enforceable contract provisions governing the transport, as well as the sources of construction materials, are specified in the EIA. Bid documents and construction contracts will require the acquisition of construction material (sand, gravel and other materials) to meet stipulated environmental management standards, and only existing authorized borrow pits and licensed quarries are to be used. Measures for timely site stabilization and erosion control are included in the EMP. To address impacts caused by irrigation scheme operation, each province will develop Strategic Environmental Action Plan that analyzes the following issues in so far as they relate to irrigation scheme operation: (a) Design of Water Quality Monitoring Program; (b) Aquaculture; (c) Municipal and Industrial Pollution Control; (d) Reservoir Watershed Management; and (e) Other issues, The Action Plan will identify immediate actions necessary to address identified problems, and also prepare funding request for VWRAP support. The on-going Integrated Pest Management (LPM) program in each province will be assessed, and if justified, provided with supplemental funding through the project. Resettlement Legacy Issues Since VWRAP finances dam safety works on seven existing dams, resettlement legacy issues were examined. The ESSD Safeguard Unit provided guidance on this issue, and advised that: i) a rapid assessment of legacy issues associated with any dam should be undertaken during preparation; ii) if there is a resettlement legacy issue and the construction of the dam was originally financed by the World Bank, then a resettlement rehabilitation program should be financed under the project; and iii) if there are resettlement legacy issues, but the Bank did not finance the construction of the dam, then the Bank will consider requests by the Government to finance a resettlement rehabilitation program. A rapid assessment was undertaken to assess the extent of resettlement legacy issues. O f the seven sub-projects areas, only Dau Tieng was financed by the World Bank. This project was approved in 1978 and construction took place during the early-1 980s. The assessment indicated that there are no outstanding resettlement problems associated with Dau Tieng, mainly because the reservoir area was essentially uninhabited because of wartime conflict in the area throughout most of the 1960s and 1970s. Of the other six sub-project areas, only Hoa Binh and Phu Ninh, the most recently constructed dams, have legacy issues. 80

87 Approximately 1,200 households moved in to make way for the Phu Ninh reservoir, all of them from the majority Kinh group. According to the social assessment, the living standards of the resettled people have been restored to the pre-project conditions, but since the new communities are outside the Phu Ninh irrigation system command area, the villagers lack access to irrigation water. Provincial officials have requested assistance from MARD in the construction of small-scale irrigation systems under the project, and that proposal will be appraised by MARD and IDA during implementation.. More than 200 km long and with a surface area of 208 square kilometers, Hoa Binh is the largest reservoir in Vietnam. VWRAP will finance dam safety monitoring equipment and will not impact on people resettled from the dam. Over a period of 16 years, around 9,000 households, including approximately 50,000 mostly ethnic Tai Dam people, were displaced without an adequate resettlement program. There are significant resettlement legacy issues associated with Hoa Binh. As of 1998, approximately 30-40% of the dislocated households, live in poverty with food insecurity, and there is a general lack of educational and health facilities in the region. The GOVN recognizes these problems and recently initiated poverty reduction programs in Hoa Binh province. The IDA financed Northem Mountains Poverty Project (FY02), although not targeted directly at displaced people from Hoa Binh, is providing support to approximately 60 communes and 140,000 people, 98% of whom are ethnic minorities and many of whom were dislocated by the reservoir. Institutional Arrangements The PMO will be responsible for overall EMP management. The PMO will be assisted by at least one Environmental Consultant, selected from the qualified national organizations in Viet Nam. The Environmental Consultant will be responsible for guiding and preparing the provincial Strategic Environmental Action Plans, acting general contractor for primary data collection surveys, preparing various compliance and effects monitoring assessment reports, and providing training and support for PMO, SIO, and PMU environmental staff. The PMO will have two environmental specialists who will take on substantial implementation tasks for the EMP: (i) a national environmental specialist seconded from a nationally-recognized environmental management institution; and ii) an intemational environment specialist contracted through the TA package, as necessary. PMUs and SIOs will supervise and control the quality of construction and physical implementation of the individual subproject EMPs. Each PMU and SI0 will also have an environmental staff member. MONRE and provincial/city environmental units will be responsible for regulatory reviews and approvals in accordance with the national legal framework for environmental protection and management. The implementation of resettlement activities requires the involvement of agencies at the national, provincial, district and commune level. The Ministry of Agriculture and Rural Development (MARD) will be responsible for the overall implementation of RPF and RAPS. Resettlement committees shall be established at the provincial, and district level according to the provision of Decree CP 22/1998. The provisions and policies of the RPF and the RAP will form the legal basis for the implementation of resettlement activities in the VWRAP. 81

88 An annual report on the implementation of the mitigation plan (EMP) will be prepared and submitted to IDA for comment. An external monitor will be recruited to carry out independent monitoring of RAP implementation. Environmental and Resettlement consultants will be hired to assist the implementation units carry out these tasks. The progresses as well as implementation issues will be discussed and monitored periodically by IDA. Key En vironm en tal Actions Before construction, MARD/PMO and PMUs/SIOs will complete resettlement and land acquisition, prepare construction plan in consultation with local authority and water users groups. Close consultation with the local authority and communities will be maintained through out the project. During construction stage, PMUs/SIOs will ensure that the Project s contractors are aware of their environmental obligations and ready to comply before signing the contracts. Field engineer will monitor the environmental performance of the contractors. Records must be kept in the monitoring file. The Environmental Consultants will review the monitoring records and monitor the environmental condition, including the borrowing pits, and submit the monitoring reports. The monitoring plan will be prepared in line with the construction plan. To address operational issues, each province, with the assistance of the Environmental Consultants, will develop a Strategic Environmental Action Plan that analyzes the following issues in so far as they relate to irrigation scheme operation: (a) Design of Water Quality Monitoring Program; (b) Aquaculture; (c) Municipal and Industrial Pollution Control; (d) Reservoir Watershed Management; and (e) Other issues. The Action Plan will identify immediate actions necessary to address identified problems, and also prepare funding request for VWRAP support. The on-going Integrated Pest Management (IPM) program in each province will be assessed, and if justified, provided with supplemental funding through the project. During follow-on phases, PMO assisted by the Environmental Consultant will undertake screening process as described in the ESSF. If the impacts are significant, consultation with IDA will be necessary and assistance from international consultants may be required. Monitoring of the agreed mitigation plans will be carried out through out the project. Key Resettlement Actions P Information Dissemination Prior to Detailed Design. Prior to the commencement of detailed design, PMUs/SIOs will provide information about the Project throughout the project area. Information meetings will be held in all potentially affected commune to inform the communities about (i) the project scope, (ii) impacts, (iii) entitlements for all categories of loss, (iv) schedule of activities beginning with the detailed design survey, (iv) institutional responsibilities, and (v) the grievance mechanism. The project information brief will be prepared and distributed to all affected communities during the meetings. 82