Study on Private-Initiative Infrastructure Projects. in Developing Countries in FY2008. Study on the Improvement Project of Rail Freight

Transcription

1 Study on Private-Initiative Infrastructure Projects in Developing Countries in FY2008 Study on the Improvement Project of Rail Freight Transport for Hanoi - Hai Phong in the Socialist Republic of Viet Nam SUMMARY March 2009 JAPAN TRANSPORTATION CONSULTANTS, Inc. Japan Railway Technical Service NOM Co. Ltd. Monohakobi Technology Institute ALMEC Corporation The Japan Electrical Consulting Co.,Ltd.

2 1. Background/Necessity of Project A rapid development of the Vietnamese economy has led to the greater than three-fold increase in the amount of container freights handled at the northern ports during the period of 2002 to The amount of container freight handled at the Hai Phong Port accounts for 60% of the total amount. According to the JICA report on the Comprehensive Urban Development Program in Hanoi Capital City (HAIDEP), the container transportation volume was forecasted 4.6 times greater in 2020 than it in Most of the containers are used in export and import industries. Currently, more than 40 industrial parks exist in the regions around the route from Hanoi to Hai Phong. In addition, there are many industrial parks which are either under construction or planning. Most industrial parks are located along the National Roads No. 2, No. 5 which plays an important role as the main road connecting between Hanoi, Hai Phong and National Road No. 18. In Hanoi and its suburban area, many industrial parks exist in the northwest. The large industrial park, Thang Long, is located in this area and almost all of the plants in this park are Japanese-owned companies. Most of the containers are transported by truck only except in the case of long distance such as between Lao Cai - Hai Phong, With the economic growth in recent years, the number of vehicles and the volume of traffic on the above roads have been increasing significantly. As a result, the number of traffic accidents, especially of fatal accidents, is increasing. Given the anticipated growth, it therefore follows that road traffic volume is forecasted to increase rapidly along with the increase in containers handled. In 2007, the Vietnam Infrastructure Development and Finance Investment Joint Stock Company started the construction of the Hanoi - Hai Phong expressway (total length: km) by utilizing the BOT (Build-Operate-Transfer) method, and it is planned to be completed in It is expected that the traffic circumstances between the capital city, Hanoi and the major northern ports will be drastically improved by this new expressway. However, with oil prices soaring on a worldwide scale, the cost of road transport has been increasing. Furthermore, oil prices are expected to continue increasing in the future. The resulting increase in road transportation cost can be a big problem for logistics customers, and also cause a serious limitation on maintaining their international competitiveness and establishing more plants in industrial parks. In addition, we need to consider the global for demand to reduce green house gas. Since the energy consumption per ton-kilometer of railway freight transportation is about 14.3% of

3 that of road freight transportation, soaring oil prices heightens the need for railway container transportation. Also, the number of railroad accidents is smaller than the road and decreasing. Because of this background, it is required not only to build the infrastructure which fully satisfies the increasing transportation demands for the economic growth but also to establish an efficient railway container transportation system that can reduce the impact of the continuously soaring oil price. The establishment of a low-cost and efficient physical distribution system will not only provide a lot of benefit for transportation companies and many companies which have plants in industrial parks, but also can be a explosive diffusion of promoting private investments and development in the regions along the railway. The purpose of this project is to build an efficient container transport system utilizing the existing Hanoi - Hai Phong railway line to fulfill the following objectives: - Upgrade of the investment environment by the improvement in the physical distribution and reduction of transportation cost; - Reduction of road maintenance cost; - Construction of a project model by Public Private Partnership (PPP); and - Contribution to the development of the regions along the railway. An alternative of large volume of container transportation with high punctuality and safety can be provided for the companies located in the environs of Hanoi City and around the existing Hanoi - Hai Phong railway line by implementation of this project. VNR can utilize the existing facilities effectively, acquire a new source of revenue, and have opportunities to expand similar businesses throughout the nation based on the experience of this project. Furthermore, the local communities along the line can implement urban development projects based on an efficient use of land integrated with the railway. Also, reducing CO 2 emissions and alleviating traffic jams and decreasing of traffic accidents can be expected by the modal shift of transport from truck to railway. 2. Basic Policy on Determination of the Details of the Project VNR plans to apply a electrified standard track gauge to all lines and double-tracking for major routes as their long-term strategy. The line between Hanoi and Hai Phong, which is the target line of this project, is positioned as one of the most important routes in the northern area of Vietnam, therefore, earlier improvement is expected. The improvement plan for the sections targeted by this project is included in the Development Investment Plan No.621/QD-TTg that was approved by the Prime Minister in May of 2007, and it is a high priority issue for Vietnam and VNR.

4 In order to realize efficient container transportation, this project is planning to adopt the electrified standard gauge and double-tracking. As this project not only agrees with the improvement policy of VNR but also accelerates the improvement schedule, VNR expects realization of this project a lot. In addition, capital participation in PPP companies is supported positively by VNR, who is considering this approach as the model for future construction of their infrastructure. The Vietnam government is also showing a keen interest in the PPP which can be a new infrastructure construction method and appears to expect this project as a good pilot case. The basic policy of the VNR and the government for this project is described below: - Construction of railway infrastructure (including rolling stock, maintenance facilities, etc.), Railway Freight Terminal (RFT) and Inland Container Depot (ICD) should be developed utilizing yen loan, and they will become the state-owned assets. - Double-tracking using standard gauge track and electrification should be promoted. - The container transportation services of this project and passenger and freight transportation services by VNR should be provided by using the target line of this project. - The container transport company should be established by PPP scheme. The company should be capitalized by VNR and private enterprises that should be chosen by competitive bidding and provide comprehensive container transportation service. - The container transport company should outsource the train operation to VNR by a contract. - VNR should establish a 100% subsidiary or a joint company with a private company for the above contracted operations. - The container transport company should provide the services with utilizing the comprehensive container transport management system which should be implemented by yen loan. Container-handling equipments should be prepared by self-procuring funds. 3. Outline of Project Implementation of the Project using the PPP method - The Vietnam government should construct the railway infrastructure necessary for this project using yen loan. - The land for ICD construction should be provided by the People's Committee of Hanoi city and Bac Ninh province, and that of RFT construction should be provided by the People's Committee of Hai Phong province. - The container transport company should borrow the railway infrastructure, ICD and RFT and pay for the lease fee of them.

5 - The container freight liner company should lease the rolling stocks and the workshops for rolling stock maintenance procured or constructed through the yen loan, repay the loan, conduct operation and maintenance of container trains on its own responsibility and bear the cost. - The container transport company should pay 8% of the container transportation revenue as the lease fee of the railway facilities to the government according to the Prime Minister Decision 84/2007/QD-TTg Dated November 6, The proposed schemes of the container transport company using the PPP method are shown in the Figure S-1. Fig. S-1 Proposed Schemes of the Container Transport Company using the PPP method Container Transportation using the Comprehensive Container Transport Management System Container transportation services should be managed and operated by the container transport company that would be established under the PPP method. A railway container transportation and handling system which strongly coordinates cargo handling and transport operations should be developed and implemented for the higher efficiency and better customer services. Train operation should be entrusted to VNR. The RFT should be constructed near the Dinh Vu port on the Hai Phong side, and two ICDs should be constructed near two railway stations on Hanoi side, where the existing industrial park is located near one station and construction of a new industrial park is planned near other. The railway should be used for container transportation between the RFT at port and the ICD, and trucks should be used for container transportation from the ICD to the final destination. For railway container

6 transportation between the RFT and the ICD, the Hanoi - Hai Phong section, Hanoi - Lao Cai section and the Hanoi - Dong Dang section of the existing railway should be partly used. For connection from the existing railway to Dinh Vu port, a new dedicated railway line should be constructed. Meanwhile, as the freight trains will not be able to run through the Gia Lam - Yen Vien section after completion of the ongoing Track Elevation Project of Hanoi City Urban Railway Line No. 1, part of the Hanoi East Loop Railway Line which is proposed in Hanoi Comprehensive Urban Development Program (JICA) should be constructed as part of this project for connection from the existing railway on Hanoi side to the two ICDs. The service of railway container transportation is between the Dinh Vu port and the two ICDs at Bac Hong and New Lim. The distance between the Dinh Vu port and Bac Hong is approximately 140 km and the distance between Dinh Vu port and Hew Lim is approximately 139 km. In the RFT, container loading and unloading tracks and container cargo-handling/storage yard should be constructed. Transport of containers from the ports to the container storage yard in the RFT should be operated by the port operator. The container transport company should conduct the successive whole process of container transportations. In order to realize competitiveness against truck transportation, comprehensive container transport management system that ensure high-quality, efficient and economic transportation and handling should be developed. This system is envisaged to utilize; GPS, active tag and e-seal technologies that would be provided by suitably qualified and experienced Japanese suppliers. The use of such technologies can substantially improve; the efficiency of physical distribution including container transport between berths and RFT, efficient storage of container before transportation, container handling before loading on freight car, coordination of the train reservation system and cargo handling operation. 1) Scope of the Project and Total Project Cost The scope of the project is indicated in Table S-1 and the project cost is in Table S-2.

7 Table S-1 Scope of the Project Item Investor Debtor Maintenance and management Government (yen PPP Existing infrastructure Railway infrastructure loan) company maintenance company PPP RFT, ICD construction sites People's Committee - company RFT, ICD land development, PPP PPP company PPP company building, facilities company Government (yen Locomotives, freight cars VNR VNR loan) Workshops for locomotives Government (yen VNR VNR and freight cars loan) Comprehensive container transport management system Government (yen loan) PPP company PPP company Construction & Equipment Cost Price Escalation, Contingency, Taxes, etc. Table S-2 Project Cost Foreign Money (million yen) Domestic Money (million VND) Yen equivalent (million) US$ equivalent (million) Civil and bridges 5,148 4,123,660 27, Track 11,833 2,401,408 25, Container handling site 0 229,785 1, OCC 1,625 2,050 1, Signal 9, ,422 10, Tele-communication 6,587 7,841 6, Electric facilities 15, ,946 19, Workshop and depot ,731 2, Rolling Stock and Equip. 12,583 12,881 12, Container handling software 1, , Sub-total 64,771 7,990, , , Reserve fund for price escalation 4,393 1,129,854 10, Reserve fund for physical emergency 3, ,029 5, Consultant fee 7, ,974 10, Land expropriation cost 0 1,566,341 8, Import tax 0 434,997 2, Consumption tax 0 2,466,748 13, Consultant fee tax 0 283,040 1, Interest rate during construction Bank charges Sub-total 16,571 6,927,983 54, Grand Total 81,342 14,918, , , A container train consists of a locomotive and 26 freight wagons. One freight car is loaded with 2 TEU, and 1 train transports containers of 52 TEU and its traction weight is 1,300 tons. Table S-3 indicates the number of cars required assuming daily operating time of 20 hours and the number of operating days annually is 339.The number of container train services is 32 for both ways in 2019 that is the proposed year for commencement of operation, and 66 for both ways in Ten locomotives and 260 container freight cars are needed at the start of operation. The transportation time between RFT at Dinh Vu port and ICD at New Lim (139 km) is about 3.5 hours.

8 Year Table S-3 Number of Containers, Train Services and Cars by Year No. of railway transport. containers (TEU) No. of total containers in the project area (TEU) Share of railway transport. (%) No. of train services (both ways /day) No. of Main line Locos. No of shunting locos No. of container freight cars ,000 1,723, ,170,000 2,480, ,346,000 3,701, ) Overview of Preliminary Financial and Economic Analysis Results Financial Analysis The financial analysis of several alternative investment cases was conducted. The calculated FIRR (Financial Internal Rate of Return) as the financial appropriateness index of the whole project exceeds 5%, which was defined as the standard value for appropriateness. Table S-4 indicates the FIRR calculation result for the whole project together with the sensitivity analysis. Table S-4 Financial Analysis Result (whole project) Base case Case-1 Case-2 Case-3 Case-4 Change in investment amount + 10% +10% Change in operation maintenance management cost + 10% +10% Change in profits -10% FIRR for the whole project 8.8% 7.9% 7.8% 6.7% 5.8% When the standard value is 4% as the financial evaluation index for a large investment and in consideration of the London Interbank Offered Rate (LIBOR) (the rate that is often used by international investment institutions), investment in the project can be regarded as appropriate and that the project is a sound investment. Furthermore, the financial analysis of the project under the PPP scheme was conducted. In this case, the project is divided into roughly two parts, and the financial analysis is conducted assuming an integrated project as described below. <PPP scheme-1> This PPP scheme assumes that the public transport (VNR) owns the railway tracks, locomotives, trains, maintenance facilities and the infrastructures of the RFT and the ICD. It is also assumed that a private company owns the container handling equipment and operates the RFT and the ICD. Furthermore, a private transportation company manages the movements of all containers as well as operation of container trains. <PPP scheme-2a> This PPP scheme assumes that the VNR owns the railway tracks and trains and

9 leases all infrastructures, including trains to a container freightliner company. It is also assumed that the container transport company is a private transportation company. <PPP scheme-2b> This PPP scheme assumes that the VNR owns the infrastructures of RFT and ICD and leases them to an RFT/ICD operating company. The calculation results for each FIRR are indicated in Table S-5. Assumption condition Table S-5 FIRR Calculation Result PPP scheme-1 Leasing all assets to private company scheme 2A Operation service of freight railway PPP scheme-2 scheme 2B ICD operation Lease period (year) Annual lease amount (million US$/year) Percentage of lease fee in the annual sales 30% 40% 8% FIRR of asset owner 2.6% 5.3% 15.1% FIRR of service and operation company 5.0% 5.3% 15.1% The FIRR of the asset owner in the PPP scheme-1 is 2.6%, which is below the standard value of 5% defined as the lowest acceptable FIRR value for investment in a project. The source of the profits in the PPP scheme-1 is limited to those of the container transportation and not included the profits from passenger and other freight transportation. If the freight railway project is realized, other schemes for the railway project become feasible. Then, the profits of the asset owner are expected to constantly increase. Under this arrangement, the FIRR of the asset owner is expected to increase to 5% or more. Taking these conditions into account, all of the above forms of PPP described in Table S-5 indicate that the project is financially sound. Economic Analysis The economic analysis was based on the economic benefits obtained by subtracting the economic transport costs when the project is implemented from the economic transport costs when the project is not implemented. Furthermore, the benefits obtained by the reduction in CO 2 emissions are added to the total benefits. The Economic Internal Rate of Return (EIRR) of the project is indicated in Table S-6.

10 Table S-6 Economic Analysis Result EIRR Cost effectiveness Present value Rate reduced 21.5% 1.57 US$ 883 million 12% The social opportunity cost of Vietnam is 12%, which is the method international financing institutions often use to conduct the economic evaluation of infrastructure development project investments in Vietnam and other ASEAN countries. Therefore, 12% should be defined as the criterion on which to determine the economic appropriateness of the project. The EIRR of this project is 21.5%, the cost effectiveness is greater than 1, and the present value is greater than zero. Accordingly, from a national economic viewpoint, it is concluded that this project is a sound investment. 3) Environment and Social Impact Assessment Environmental Improvement Effect by Implementation of the Project The environmental improvements that derived from the implementation of the project are as follows; - A reduction in energy consumption and therefore environmental loads, given that the energy consumption of railway freight transportation per ton-kilometer is about 14.3% of that of road freight transportation; - A reduction in carbon dioxide emissions as a result of a modal shift from truck to railway are 18,700 tons in 2020 and 72,800 tons in 2030; - An increase in the standard of living through the job creation for people living in the project regions would be expected; and - Stimulation for the industrializing of the regions and acceleration of economic growth can be expected through the efficient physical distribution of container freight. Expropriation of Land and Social and Environmental Considerations - When the government expropriates land for the purposes of national defense, national security and public interest (for example, construction of road, railway, bridge, water supply and sewerage, market, hospital, port, etc.), according to Article 36 of Government's Decree No. 181/2004/ND-CP and No. 197/2004/ND-CP, compensation must be made. Compensation includes providing job training for people who are affected by resettlement, securing a stable life, transfer of jobs associated with relocation, etc. - As the existing railway line has sufficient space for modifying the single-track sections to double-track, the number of people who need to move will be limited. Both the new line of

11 the East Loop Railway Line on Hanoi side and that connecting the Dinh Vu port in the southern part of Hai Phong city and the existing railway line in the northern suburbs of the city will run right across mainly the farm area. Therefore the number of people who are affected by the construction of the new lines will be limited. - Table S-7 indicates the costs for land expropriation, resettlement and compensation and also the required areas. Table S-7 Land Expropriation, Resettlement and Compensation Costs and Required Areas Location Agriculture Land Non-Agriculture Land Land for Housing Area (m 2 ) Amount ('000VND) Area (m 2 ) Amount ('000VND) Area (m 2 ) Amount ('000VND) Hanoi New Dong Anh ICD 306, ,230, ,640 52,476, ,713 51,594,328 Land required for track 113,034 51,741, ,370 95,839, ,937 80,992,805 Bac Ninh Province New Lim ICD 274, ,825,483 77,711 35,572,157 39,498 18,080,064 Land required for track 166,983 76,436,041 50,095 22,930,812 48,489 22,195,850 Hung Yen Province Land required for track 85,097 38,952,982 81,886 37,483,058 46,562 21,313,896 Hai Duong Province 0 Land required for track 80,922 37,042, ,153 46,302, ,355 51,888,312 Hai Phong Province Dinh Vu RFT 305, ,936, ,623 60,707,856 32,112 14,699,239 Land required for track 210,013 96,133, ,377 75,701, ,698 75,848,071 Sub-total 1,542, ,298, , ,012, , ,612,564 House and Other structure (25% Land for compensating) 176,574, ,753,220 84,153,141 Total 1,542, ,873, , ,766, , ,765,706 Grand Total of all land 3,211,202 1,837,404,828 Environmental and Social Effects of Construction and Operation in the Project - Construction of the railway container transportation system between the ports and the ICDs may cause one or more of the following; atmospheric and water pollution, noise, vibration, land subsidence, waste disposal, contaminated water discharge, radio wave hindrance, relocation, etc. However, these problems can be addressed through detailed construction work planning, operation of appropriate construction machines and careful management of processes and the actual work. - About 2/3 of the planned railway is the existing line, the remaining 1/3 is a new line. A new line has been planned to avoid passing through the residential area taking into consideration of noise and vibration caused by the running of container trains. To investigate this issue, it is indispensable to carry out an Environmental Impact Assessment (EIA). However, the implementation of an EIA is not possible due to the facts that technical data on the Project are limited, and baseline data on both natural environment and socio-economic environment are not available at this stage.

12 - Therefore, instead of conducting an EIA, a thrashing out environmental issues has been done, based on secondary data and information collected from various reports on the operation of the railway. In the thrashing out, a study on the potential impacts those would be caused by the Project has been done by using the Scooping Checklist and the Environmental Checklist in light of the former JBIC Guidelines for Confirmation of Environmental and Social Considerations. - There are no public utilities or archaeological remains within the site(s) proposed for the planned railway line, and there are no temples or shrines that will need to be relocated. Overview of Vietnam's Environment Related Laws and Regulations and Measures required to observe Them In the future, detailed environmental assessments and measures according to the Vietnamese laws such as EIA will be required. To implement the project, the project implementation organization must hire at least one full-time expert possessing a basic environmental license and at least three-years experience in construction projects. The role of this expert will be to conduct the following operations: a) Environnemental Management Program - The project owner should assume the responsibility for surveys and monitoring during the railway construction period. The survey results should be checked by the consultant and the local natural resources environment agency in the project region, subjected to monitoring, and compared with the indices indicated in the report. - The construction company should conduct monitoring to assess whether the measures proposed to protect the environmental in the EIA report have been undertaken and are effective. b) Environmental Monitoring Work - Monitoring should be conducted to evaluate the environmental effects of the construction works associated with this project. - Environmental monitoring should be based on the requirements of the EIA. Monitoring work should be undertaken to ensure that the status of reduction measures are checked and monitored.

13 Implementation Schedule The implementation schedule based on the estimated working period and the experience of previous construction work is shown in Figure S-2. Loan contract : June of 2010 Selection of consultants : 12 months from the loan contract date Land acquisition : 36 months Survey and detail design : 18 months Selection of contractors : 20 months Open of L.C. Construction Test run : 1 month : 45 months : 6 months Start of service : April of 2018 Year/Month Activity Loan Agreement Investment Decision & Selection of Consultant Land Acquisition and Resettlement Detailed Design Environmental Impact Assessment Study Selection of Contractors Improvement of Railway (Standardization of Existing Track) Double Tracking Electrification/Signal/Telecommunication Work Construction of New Workshop and Depot Procurement of Rolling Stock and Machinery Construction of Railway Freight Terminal (RFT) Construction of Inland Container Depot (ICD) Establish of PPP company Developemnt of Container Transport Management System (CTMS) Trial Run and Starting Train Operation Improvement and Trial Use of CTMS Monitoring of and Countermeasure for Environmental and Social Consideration Start of the Service Note: Red line (starting time of the track elevation construction between Gia Lam and Yen Vien), Yellow line (completion time limit of this project) Fig.S-2 Implementation Schedule Commence of Work for Gia Lam-Yen Vien (HURT Line 1) Feasibility on Project Implementation Outlook for Project Financing <Study of Source of Funds and Financing Plan> Concerning the infrastructure construction works (application of the standard gauge track, electrification, double-tracking and construction of the RFT and the ICD) identified in this project, the Vietnamese side expects to introduce a yen loan or STEP loan. For the container transport company established by the PPP method, funds are planned to be raised

14 from the investment by the VNR and private companies, consisting of mainly Japanese companies. In addition, long-term, low-interest loan applied to national projects in Vietnam and private financing are envisaged. <Feasibility of Financing> This project is designed as the first PPP project for the transportation sector in Vietnam and the modernization project for the most important railway route in the northern economic zone, also an improvement project of logistics. Therefore, there is a high possibility that it is regarded as a national priority project. As a consequence, there is a good chance that it has access to the use of public, long-term, low-interest funds. 6. Superiority of Japanese Companies in Technological Aspect Japanese companies have superiority in the technological aspects as mentioned below: <Comprehensive Physical Distribution System> - Japanese comprehensive physical distribution systems involve a container transportation location information system with the combined use of GPS and active tag and a high-speed and high-density mass container transportation system having high added value to meet the needs of cargo owners. Those are key technologies for implementing the comprehensive container transport management system to be introduced in this project. - Japanese companies have their vast experience in the operation of the above system, and have strong technical capability to implement the system proposed, including selection of suitable hardware, integration of the various technologies and simplification of the international physical distribution works and customs clearance. <Railway Technologies as System> - For the first container train operation in Vietnam, the existing line should be renovated by new specification such as electrified standard gauge double track. Japanese companies have the capabilities to apply the railway technologies as a system including track work, railway civil structures, signal/telecommunication, train control facilities, maintenance facilities for electric locomotives and large numbers of freight wagons and the procurement of electric locomotives and freight cars. - STRASYA (Standard Urban Railway System for Asia) is a system for urban railways and it is expected that this will be introduce in the track elevation projects of HCMC UMRT Line No.1 and Hanoi City Urban Railway Line No.1 for which provision of yen loan has already been decided. The system foundations are based on common technologies, and it is possible

15 that STRASYA will be introduced for this project. Japanese companies have a great deal of experience in the provision of this system, not only in the Southeast Asian countries, but also in the USA and the Middle Eastern countries and can utilize these experiences in the introduction of signal and telecommunication, train control, electrification, workshop and rolling stock as a system. 7. Specific Schedule toward Realization of the Project and Risks which may interfere with Realization of the Project After completion of this study, the feasibility study (FS) will be implemented by the local consultant and approval on the study will be obtained from the MOT who are the governmental supervising agency. Following this, the project will be approved by the prime minister, once approved an application of yen loan or STEP loan will be filed. A risk that may hinder the implementation of this project is the delay in final approval of the candidate site for the ICD. Delay in approval may result in a subsequent delay in the construction work. 8. Map indicating the Project Implementation Locations in the Study Target Country Fig. S-3 Project Location Map