Study on Private-Initiative Infrastructure Projects. in Developing Countries in FY2008. System in the Socialist Repubic of Viet Nam SUMMARY

Transcription

1 Study on Private-Initiative Infrastructure Projects in Developing Countries in FY2008 Study on the PPP Project Formation for Hanoi Water Supply System in the Socialist Repubic of Viet Nam SUMMARY March 2009 Tokyo Engineering Consultants Co., Ltd. Ebara Corporation

2 (1) Background and Necessity of the Project 1) Background of the Project The significance of application of PPP in water supply projects was recognized and in January 2006, with the support of the Ministry of Economy, Trade and Industry, Asia PPP Promotion Conference was organized. To progress in this direction, PPP forum in Japan and Vietnam has been held twice since 2006, and understanding and the policy dialogue related to PPP have progressed in the water service subcommittee meeting. In the first Forum it was expressed that discussions on PPP should be continued in future also. As a result, the Second PPP Forum was held in March 2008 in Hanoi (under co-sponsorship of METI, MPI, and OECD). It was participated by the experts from EBARA Corporation, Pacific Consultants Co., Ltd., Aqua Partners Co., Ltd.. In this meeting, the necessity to explore the possibility of PPP in future water supply projects was proposed. One of the best possible candidate water supply projects to adopt PPP is Duong River project using surface water as source of water. The project has already brought the outline plan by VIWASEEN, which is a former government company, and is integrated into the Hanoi City development plan. With the aim of making this project to be the first PPP water supply project under partnership of Japan and Vietnam, examination has been carried out through discussion and cooperation of VIWASEEN. 2) Necessity of the Project The existing water treatment plant in Hanoi is using groundwater as source and therefore treatment is easy. However, the subsidence and the water quality deterioration are reported as the amount of the water demand increases. With this background, the shift from groundwater source to the river water that is abundant in quantity, as source of water supply is planned, through the experience of water treatment technology in Japan. The entire metropolitan area of Hanoi is divided into two regions, the north and the south, by Red River. There exists Da River water treatment plant, operated and managed by VINACONEX. The water treatment capacity of the water supply network in the Da River is planned to be increased. The source of water being ground water, the expansion of existing water treatment plant in the northern part of Red River is difficult. On the other hand, several industrial estates are under construction along national highway and these development will result into increase in water demand that essential to address.

3 In present situation only about 60 percent of the water demand could be supplied and generation of 300,000 m3/day of water supply capacity through this project has a great potential. The government promotes the use of private resources for sound water supply services in the city, and encourages foreign join ventures and privatization schemes (PPP) with overseas agencies. (2) Basic Policy Regarding Contents Decision of the Project 1) Organization of the Water Policy The proposed project (Dong River water supply project) under this Study is located in Hanoi, and the Government of Vietnam shall take all the decisions related to implementation of this Project. The Government of Vietnam is managing the water resources in the country. For the use of river water as a source of water supply, permission should be obtained from the Ministry of Agriculture and Rural Development or district level People s committee. Organization chart of the agencies related to water supply and their relationship is illustrated in Figure S.1 below.

4 Figure S.1 Relationship chart for the Ministries related to Water Supply Services Prime Minister Decision of policy and orientation Final approval of major investment projects Approval of an investment plan, a water supply plan and a business plan Ministry of Construction Line ministry of the nation control of water supply activity in a city and nation industrial area Research and formulation of system and policy Preparation of policy/plan for the water supply development for the approval of the Prime Minister Proclamation of normalization rule, standard and economic technology model Guideline, guidance, inspection Ministry of Agriculture and Rural evelopment Control of the state level regarding the water supply activity in the rural area Research and formulation of system and policy Preparation of policy/plan for the water supply development for the approval of the Prime Minister Proclamation of normalization rule, standard and economic technology model Guideline, guidance, inspection Ministry of Health Control of public health Ministry of Planning and Investment Research and formulation of vitalization and induction policy of domestic and foreign investment regarding a water supply business Induction of ODA regarding the water supply development according to the order of priority that was approved by the Prime Minister Ministry of Finance Financial control of ODA Guidance of the price formation principle and method cooperating with the Ministry of Construction and the Ministry of Agriculture and Rural Development, Proclamation of the price frame, Inspection and supervision of implementation Provincial and Hanoi City People s Committee Contract entity with a water supply businessman entities The following line department becomes the consultant with regard to the control of the state to the People s Committee. Department of Construction Department of Traffic Planning and Investment, Transportation and Urban Public Works Service (TUPWS) Department of Planning and Investment Hanoi Water Business Company Business enforcement entities 2) Approval Process for Privatization of Water Supply Project To obtain the approval for projects on privatization of water supply projects in Vietnam, discussions have been made with many local authorities. The implementation of this Project should also follow the prescribed procedures for project approval. The legislative framework concerning corporate method, the investment method, and the BOT contract (No.87 of the government ordinance) and other water supply project is provided, and it is assumed that the problem on the legislative framework for implementation of this project can be solved by formulating the PPP Project technique(figure S.2) on the basis of Project methodology followed in BOT projects in Vietnam.

5 Figure S.2 Flow Diagram of Approval Process for Privatization of Water Supply Projects as per Government Ordinance No. 37 Preparing List of Potential BOT Projects of the People's Committee and relevant ministries and their review Composition of the Council for competitive bid, prepare the bidding documents. MPI s specific tender procedure Review of the basic plan of projects by MPI and send back the comments to relevant ministries Selection of the Investors by the Council Establishment of MPI study group within the ministry. MPI and its other related ministries to comment within 30 days Investors prepare investment proposals according to the Construction Law. Investment proposals to be evaluated. MPI-related ministries to consider and agree on comments by the relevant ministries and groups. Council of People's Committee and relevant ministries to promote the project list. Council instructs to prepare proposals and documents related to the private sector. Submitted to the Government to obtain the guarantees necessary for the evaluation of projects The Council leads the negotiations of the necessary support agencies Private Sector Project Proposal are submitted Evaluation of the project proposal by the Council Investors project documents submitted to the MPI MPI sends Investors project documents within three days to collect comments from other government agencies Agencies to submit comments to the MPI within 15 days MPI has 15 days to guarantee the investment decision, and issue an investment license

6 (3) Outline of the Project Ⅰ.Basic Policies of Duong River Water Supply Project 1) Overview of Population and Water Demand Projections Hanoi is the capital of Vietnam, and it is becoming the heartland of politics, administration, culture, science, education, economy, and international trade. The Comprehensive Urban Development Programme in Hanoi Capital City (HAIDEP) was prepared as a part of city planning by Japan International Cooperation Agency (JICA) in March, In this study, the water service plan is prepared for target year 2020, and according to this Report The population is estimated to increase to 4.5 million, and corresponding DMD is estimated as 1.8 million m3/day. Moreover, there is a long-term plan Hanoi metropolitan area water service plan prepared in June 2007 by NIURP of MOC which also includes the population and DMD estimates for the Hanoi northern part and its satellite cities. 2) Water Demand Estimates The planned amount of water required for each stage of Don River water supply project is presented in Table S.1. Table S.1 Planned Volume of Water of Duong River Treatment Plant 2015 (Phase 1) 2020 (Phase 2) 150,000 m 3 /d 300,000m 3 /d Ⅱ. Outline of the water supply project 1) Scope of Investment in Water Supply Project This water service is water supply that sells the volume of water contracted to the region for the water supply. To achieve this objective through utilization of river water for water supply, it is essential to construct and maintain the intake from river, water treatment plant, and conveyance main pipes along the national highway routes. This PPP project is proposed for construction of water treatment plant and associated facilities with a capacity of 300,000 m3/d and target year ) Planning Stage of this Project The gradual spread in service area of this Project is shown in Figure S.3. The gray area in figure shows area that is supplied water from existing water treatment plant. The White area in Figure

7 shows the area not yet covered under the scope of Duong River treatment plant. The amount of the water demand increases as the investment in the industrial parks along Route1 and Route5 increases gradually. However, demand could not be met with existing water treatment plant (indicated by pink color in Figure). Figure S.3 Phased increase in service area of water supply Current Situation Phase 1(2015) Phase 2(2020) Notes Off the subject area Object area, Unscope of supply in water treatment plant Object area, Scope of supply in water treatment plant Supply area in another water treatment plant

8 3) Location Plan of Water Treatment Plant Three possible candidate sites have been selected along Duong River near the Route1 for location of water treatment plant and are shown in the Figure below. 1 st Candidate Site Figure S.4 Location Plan of Candidate Sites for Water Purification Plant 2 nd Candidate Site 3 rd Candidate Site (Source: Google Earth) 4) Target and introduction of technology in water treatment plant The proposed water treatment plant is expected to be the second water treatment plant in Hanoi, that uses river water as source of water, and will the first treatment plant using high turbidity water as source. Therefore, this plan will become the model case for all the future water treatment plants using surface water as water source. Responding to global environmental problems, the introduction of superior technology and know-how of water treatment plant has been proposed, considering objectives of environmentally sound, leverage the technical know-how, safety and maintenance. Figure S.5 shows the overall plan of the Water Treatment Plant.

9 Figure S.5 Layout of Water Treatment Plant

10 Ⅲ. Overview of Environmental and Social Consideration 1) Natural Environment As expressed even in the foregoing paragraph, when the new water treatment plant is completed under this project, it is expected that there is little environmental impact because 300,000 m 3 /day of water will be withdrawn from the river. It is expected that the implementation of a new water treatment plant shall provide not a little negative impacts to the natural environment through improvement of water environment of the Duong River. It is desirable to execute the analytical simulation of river flow for the influence to the waters environment which accompanies the decrease of the volume of water by water-intake. There are no sensitive areas such as national parks, nationally-designated protected areas (coastal areas, wetlands, areas for ethnic minorities or indigenous people, and cultural heritage, etc); Natural environment such as primary forests in tropical areas, habitats of important ecological values (coral reefs, mangrove wetlands, etc.), habitats of rare species, areas in danger of salt-accumulation or soil erosion, areas with remarkable tendency towards desertification, etc.; and areas with unique archaeological, historical or cultural values, etc., in and around the site of candidate proposed area for facilities to be undertaken in this Project. During the construction stage, construction works may result in some negative impacts on the natural environment. However, these impacts are just temporary and could be mitigated through appropriate construction methods. There are no protected areas or sensitive ecological areas in or around the project site. However, during the implementation of the EIA, it would be advisable to further scrutinize in this respect. 2) Social Environment Through new construction of water treatment plant in this project, the project is expected to improve social environment in the form of improved water supply conditions in the Hanoi city and its suburb districts. In addition, the project will result into improved sanitary and living conditions, and better health to the beneficiaries. The proposed Project site does not include any socially sensitive area such as areas with unique archaeological, historical, or cultural values; or areas inhabited by ethnic minorities, indigenous peoples or nomadic peoples with traditional ways of life and other areas with special social value. 3) JBIC (JICA) Guidelines for Environmental and Social Review Through confirmation of Environmental and Social considerations, the JICA confirms that project

11 proponents are undertaking appropriate environmental and social considerations to prevent or minimize the impact on the environment and local communities that may be caused by the proposed projects to avoid bringing unacceptable effects and thereby, contribute to sustainable development. The result of the environmental review based on the JICA Guidelines is presented in the main report. (4) Implementation Schedule The entire Construction duration of the project is 10 years to be taken in phase 1 and phase 2, including the maintenance period of 50 years (2010 ~ 2060).

12 Figure S.6 Project Implementation Scheduel Beginning year of Phase1 Beginning year of Phase2 Beginning year of Phase3 Item Content Water Intake and raw water transmission facility Water Civil and treatment Architecture works Mechanical and facility Electrical works Water supply facility Water pipe DN1.80m Water pipe DN1.80m Water pipe DN1.60m Water pipe DN1.50m Water pipe DN1.35m Water pipe DN1.20m Water pipe DN1.10m Water pipe DN1.00m Water pipe DN0.80m Water pipe DN0.60m Water pipe DN0.50m Water pipe DN0.40m Flow meter room Indirect works Securing of site Measurement, geological, and water Design Construction period Supply capacity Management period Phase1(15 万 m3) Phase2(15 万 m3) Phase3(30 万 m3) 150,000m3/day 300,000m3/day (600,000m3/day) 40 years

13 (5) Feasibility Concerning Implementation of this Project This project is not yet approved by the Prime Minister s Office, but it is placed as Hanoi City Comprehensive urban development plan (HAIDEP). The water service plan of HAIDEP up to 2020 is settled based on the government notice No.50 (Declares that the water source of the Hanoi metropolitan area in the future shifts from past underground water to the river surface water), Hanoi metropolitan area plan of the Ministry of Construction decision and Strategy concerning the environmental protection until 2010 and vision for 2020 of Natural Resources Environment Ministry decisions. The water demand in the Hanoi metropolitan area is presumed to increase from present level of 550,000 m3 to 1.6 million m 3 /day by 2020, and the demand of northern part/southeastern region in the Hanoi metropolitan area where this project included is 530,000 m 3 /day. This project is placed as an important project to meet demand. Therefore, it is thought that the feasibility of the execution of this project is high. However, it will be decided from the relation to other water source development plans placed by HAIDEP for the development volume of water in the future (6) Technological Advantages of Japanese Companies Japanese water services has a history of 120 years since Yokohama water service (1887) was started, and is supposed to have the accumulation of the highest level of technology and information in the world. Besides the above-mentioned technology, there are technologies that have been improved through long duration research and practices in Japan and overseas, such as technology on water leakage investigation, leakage control measures, etc. In this project, Duong River surface water with high turbidity is proposed as the water source, and the water processing technology of surface water with high reliability is indispensable. Hanoi City does not have the experience of construction, operation and management of large-scale filtration plant using water with high turbidity and from a large-scale river. Therefore, the Japanese experience, which is available in sufficiency, can be used in the interest of this project specially in water treatment process. In the filtration technology recommended in this project, there is a natural equilibrium siphon type of the energy-saving model that doesn't use power (back wash pump and blower), and it is adopted in case of 560 filtration plants in Japan. The process uses river water sources and total quantity of water treated is more than 18 million m 3 /day. (This technology has also been applied in foreign

14 countries). Moreover, the supervision and control system that introduces the SCADA system described in the later paragraph is enumerated as the feature of the technology in filtration plant equipment proposed this time. That is not an original technology of Japan itself, but Japanese companies are good in this field to construct an energy saving, a resource saving, and highly efficient supervision and control system. Moreover, the huge operation data of the filtration plant that are collected and accumulated can be properly analyzed by introducing this system. It is also expected that it can contribute very much to plan the surface water treatment plant that will be constructed in the future as well as achieve the stabilization and the optimization of water treatment in filtration plant. It is obvious that with existing results, the technology, and the maintenance management ability of Japanese Firms, we can contribute very much in the water services system construction corresponding to the water demand for Hanoi City that increases rapidly. (7) Concrete Schedule until Achieving this Project and the Risk Preventing Steps 1) Overview of risks and solutions The plan of large-scale water treatment plant which uses surface water as water source is included in Water Service Plan in the Hanoi Metropolitan Area up to 2020, which is waiting for the approval of the Prime Minister s Office. The priority level and the scale of this project could change by the plan of other filtration plant, the water-supply area, and the demand forecast, etc. In these circumstances, the possibility of the project implementation will be realized depends on the level of understanding about the significance of the project and the two ministries. In addition, VIWASEEN (private general contractor concerning the water supply Project of the MOC subsidiary) has been approved by the Prime Minister Office as a performance period of a project concerned in August this year. Upon approval of the Prime Minister Office, the F/S for this Project shall be undertaken. Study Team propose the VIWASEEN to understand the roles and significance of PPP in water supply projects in Vietnam, and collaboration for the implementation of this Project is an important point to be agreed. 2) Specific Steps to be undertaken for Project Realization Schedule of specific steps to get the approval on privatization of water supply project, shall be based on the Figure S.2 presenting the approval process for privatization of water supply Project as per Government Ordinance No. 37.

15 3) Presence of Legal and Financial Restriction of the Host Country For execution of the PPP Project in Vietnam, matters related to legal frameworks, administrative procedure, certification and project investors, and selection criteria, etc. are still not clearly defined. However, the legislative framework concerning corporate method, the investment method, and the BOT contract (No.87 of the government ordinance) and other water supply project is provided, and it is assumed that the problem on the legislative framework for implementation of this project can be solved by formulating the PPP Project technique on the basis of Project methodology followed in BOT projects in Vietnam. In terms of Finance, as has been mentioned earlier, it would be difficult to implement this Project by Vietnam on its own, considering the severity of the government budget. Although, the financial market is developing, the means and method to finance long term project through financial market financing method (50 years is assumed as the implementation period of project) does not exist in Vietnam. Moreover, due to high economic growth in the Country, there exists high inflation rate and high interest rate. The project cost being high, it could become the limiting factor for project implementation. In order to raise funds for project management, the possibility of using Country s existing financial system and other sources shall be explored. The above was assumed to use the function of VDB. 4) Necessity of the Detailed Analysis of Additional Issues a) Legal Framework For the realization of the Project from consideration of the challenges in Legal System, the following points should be considered. 1 The current status of legal system representing privatization approach under PPP Project (The definition on legal system related to PPP project is included.) 2 Implementation guideline concerning procedure of business recognition and permission concerning PPP Project and development of guideline 3 PPP Project Selection and the selection criteria for the selection of Investors. 4 Decision method of PPP project to deal with various complaints of participation subject and development of organization 5 Maintenance of specific of guarantee of government to PPP business and giving method and giving organization

16 b) Finance 1 Development of long-term fund procurement system 2 Development of means and environment for avoiding high interest rate 3 Development of means to control and avoid inflation rate 4 Development of the means to avoid exchange rate risk c) Water Tariff Level 1 Introduction of raising water tariff with the change in inflation 2 Introduction and setting of Standard water rate based on affordability 5) Supposed Participation Types (Investment, Machine Supplies, O&M of Facility) of Japanese Companies As mentioned in the Japan-Vietnam water services PPP Project scheme (Figure S.7), Japanese companies can invest through SPC that becomes the execution body of the project and participates in the supply and O&M management of the equipment that Japan is expected to assist technically. Figure S.7 PPP Project scheme (plan) Japanese Government Existing local company (State own company or administrative organ) VIWASEEN Foreign investor (Japanese enterprise ) Government guarantee JICA etc. User (Citizen, Industrial Complex) VDB J.F Financing contract/investment etc. Use contract Investment Water business company SPC (None Capital share regulation ) Treatment water purchased contract Off take contract Existing Vietnam water supply and management company (WSC) Support Investment Infrastructure Investment Funds (Revenue Bond) Trust contract Individual Investor Japanese side Vietnam Government In order to promote the realization of this PPP water supply project and to promote the participation of Japanese companies in this project, the following measures should be undertaken:

17 1 The implementation of the policy dialogue with the government of Japan in Vietnam, the country will promote mutual understanding of the PPP concept 2 Establishment of institutional and financial system to maximize the effective use of long-term financial and capital markets definitive public funds in Japan 3 EPC companies not only to introduce products of Japan, but the Japanese company has the potential to form PPP based project management 4 In order to promote the investment of the formed project, financial markets and product forms of cooperation can be a long-term funds and postal savings and pension funds to enable the long-term investment (Revenue Bonds) development. 6) Necessary Policies to promote the Participation of Japanese Companies To realize as the first Japanese-Vietnam PPP water service project, to stand dominant more than the rival in the foreign country, to attempt mutual understanding of PPP that Japan aims to achieve, the maintenance or the system of financial system in effective use of the long-term capital investment in a public fund and a capital market in Japan is needed together through discussion about the policy of Japanese government and Vietnamese government.

18 (8) Location Map of the Study Area Figure S.8 Location Map Duong River