Study on Economic Partnership Projects. in Developing Countries in FY2009. Study on Ho Chi Minh Elevated Railway Project in Socialist

Transcription

1 Study on Economic Partnership Projects in Developing Countries in FY2009 Study on Ho Chi Minh Elevated Railway Project in Socialist Republic of Viet Nam SUMMARY March 2010 Japan Transportation Consultants, Inc. Japan Railway Technical Service JR East Consultants Company The Japan Electrical Consulting Co., Ltd. ALMEC Corporation Koken architects, Inc

2 (1) Project background and necessity Although Vietnam s largest city, Ho Chi Minh, has been steadily developing as the center of the Vietnamese economy, the growth of the economy has caused a concentration of economic activities and population in the city, resulting in the occurrence of traffic jams, environmental pollution, noise and vibration, and traffic accidents. Accordingly, as a measure to prevent traffic jams from occurring at level crossings, the city authorities have been restricting the passing of trains of the North-South reunification line in the city in the mornings and evenings. This is not only causing a major problem for the train operations, but means that the railway is not being used for commuter transportation and trains are not stopping at intermediate stations inside the city. In the future, it is expected that there will be an increase in demand for transportation and an evolution towards longer commuting distances, which will reduce the city s functions and productivity as well as further worsening the city environment. The HCMC PC (Ho Chi Minh City People s Committee), the MOT (Ministry of Transportation), and the former VNR (Vietnamese National Railways) recognized that the development of the city s public transport is an extremely important policy target from the economic and environmental points of view, and the elevation of the existing railway inside Ho Chi Minh City (this project) was determined based on the city overall development plan formulated in A F/S (Feasibility Study) was completed in December 1999, and a funding allocation directive was given by the Prime Minister to the related institutions. On the other hand, the JICA Urban Transportation Investigation (HOUTRANS) implemented in 2004, stated that the priority order of subway construction was high, and a Yen Loan was granted for the Subway No.1 Line in However, since the Subway No.1 Line by itself would not be sufficient as an urban transportation network, the HCMC PC once again turned its attentions to this project, and in July 2008 approval was obtained from the Prime Minister for its implementation.

3 As funding for the project, the Vietnamese government is aiming to receive a yen loan, and is currently preparing the application for this project. However, for the F/S there was only the old study implemented in December 1999 which no longer matched the actual situation. Accordingly, it was necessary to update the F/S, and in April 2009 an application for funding cooperation for the F/S review was submitted to the Ministry of Economy, Trade and Industry. In addition, one of the background factors which rapidly increased the priority order of this project inside the Vietnamese government was a Prime Ministerial decision to extend the high speed railway that uses Japanese technology into Ho Chi Minh City. Because there is a section of around 10 km of the route of the extension into the city that exactly overlaps the route of this project, and since the terminus is also the same Hoa Hung Station, delays in formulating the planning of this project would obstruct the realization of the high-speed railway project implementation. With the increase in awareness of environmental and energy conservation considerations, countries around the world are planning many railway projects, and the advanced railway nations backed by their governments are competing ruthlessly to receive construction orders. However, among these nations, due to the three outstanding Japanese technological points of <1> high-speed railways that safely transport large numbers of people, <2> urban railways that enable ultra high-density operations, and <3> development methods that form a pillar of urban planning through jointly using the same stations for long-distance and urban railways, this project will be a highly appropriate subject for the application of Japanese technology and know how. Further, from the point of view of railway management, in contrast to other advanced railway nations in which railway operations are supported through subsidies with policy targets, Japan is advanced from the point of view of securing railway operation funds by promoting railway related businesses maintaining railway operation as their core business. The spread of this business model in areas where urban railways will be developed in the future will not only contribute to the sustainable operation of railways, but also to contribute to lessening the financial burden placed on the public sector.

4 (2) Basic policies for project formation This study started out based on update of the F/S conducted in 1999 in consideration of the environmental changes that have occurred in various areas since then. In addition to the changes in the external environment including the creation of new road and railway plans particularly concerning the high-speed railway, the increase of industrial estates, growth of urban areas, enlargement of the economy and population, and increase in the number of automobiles, there have also been changes in the administrative environment in which VNR became independent from the organization inside the MOT as one part of the reorganization of state-run companies, and that the organization was further separated into a large number of operational core units corresponding to each function, such as railway operations and maintenance management. In this way, the environmental changes over the past 10 years have been extremely large, resulting in major revisions being added to the existing F/S. A listing of the main revision items gives the following. 1. Extension of a high-speed railway between Ha Noi and Ho Chi Minh, and sharing of the terminal station 2. Coexistence of railways with new standards conforming to the new Railway Law with existing long-distance and freight railways 3. Measures for making it easier to configure future urban railway networks 4. Appearance of new urban railway plans and confirmation of their integration with this project 5. Reconfiguration of stations and depots in response to the growth of industrial estates and urban areas 6. Minimization of the interference on citizens lives and on other transportation during the construction work period 7. Consideration on the railway operation system after project completion 8. Proposal of policy to realize a modal shift to railways 9. Proposal of business development measures for sustainable railway operations 10. Facilities design that considers the environment and energy conservation 11. Adoption of barrier-free policy 12. Facilities design that considers the future electrification of related lines 13. Application of Japanese railway standards 14. Full-scale implementation of social and environmental considerations, and investigation of CDM (Clean Development Mechanism) credit possibilities 15. Proposal of PPP (Public Private Partnership) models According to VNR, the Vung Tau Line which adjoins this project (T-shaped line from Vung Tau to

5 New Bien Hoa and Trang Bom) is due to be completed around Consequently, out of the section that was initially planned to be constructed between Hoa Hung and Trang Bom, it will now not be necessary to construct the section between New Bien Hoa and Trang Bom in this project (demand can be anticipated from the Trang Bom direction). Further, because it was also considered that the construction costs will become large even in this situation, in this study the implementation possibilities were investigated concerning the following two cases. Case 1: km section between Hoa Hung and Di An Case 2: km section between Hoa Hung and New Bien Hoa (However, the section between Hoa Hung and Di An will begin operations in advance to the full operation) (3) Project overview 1. Project total costs As shown in the following tables, the total amount of the construction work costs in local and foreign currency is approximately billion yen for Case 1 (between Hoa Hung and Di An), and approximately billion yen for Case 2 (between Hoa Hung and New Bien Hoa). Further, the total amount of the construction work costs in local and foreign currency including the land expropriation cost, consultant expenses, taxes, administration costs, price escalation, and physical contingencies is approximately billion yen for Case 1 and billion yen for Case 2.

6 Case 1 Case 2 (Units: Million yen) (Units: Million yen) Foreign currency Local currency Total Bridges Viaducts 16,364 13,774 30,138 Long bridges 1,713 1,285 2,998 Roadbed 1,960 1,469 3,429 Tracks 4,121 4,121 8,242 Station Hoa Hung 1, ,300 construction Other 8,146 7,254 15,400 Rolling stock depots and work shops 6,748 5,920 12,668 Signal facilities 6, ,412 Telecommunications facilities 4, ,632 System facilities 4, ,698 Sub station facilities 3, ,724 Overhead contact line facilities 1, ,891 Electric power supply facilities 1, ,295 Power transmission facilities Rolling stock costs 20,064 20,064 Maintenance vehicle costs 3,000 3,000 Construction costs total 86,094 35, ,243 Land acquisition costs 73,800 73,800 Consultant services 7,778 3,835 11,613 Taxes 12,359 4,090 16,449 Administration costs 1,161 1,161 Price escalation 19,730 17,023 36,753 Physical contingencies 6,298 6,753 13,051 Total project costs 132, , ,070 Foreign currency Local currency Total Bridges Viaducts 23,897 19,424 43,321 Long bridges 3,342 2,506 5,848 Roadbed 3,742 2,874 6,616 Tracks 5,457 5,457 10,914 Station Hoa Hung 1, ,300 buildings Other 9,879 8,672 18,551 Rolling stock depots and work shops 6,748 5,920 12,668 Signal facilities 6, ,133 Telecommunications facilities 5, ,686 System facilities 5, ,465 Sub Station facilities 3, ,985 Overhead contact line facilities 2, ,669 Electric power supply facilities 1, ,635 Power transmission facilities Rolling stock costs 23,712 23,712 Maintenance vehicle costs 3,000 3,000 Total construction costs 107,567 46, ,855 Land acquisition costs 93,700 93,700 Consultant services 9,866 5,277 15,143 Taxes 15,464 5,420 20,884 Administration costs 1,514 1,514 Price escalation 26,662 25,503 52,165 Physical contingencies 7,978 8,885 16,863 Total project costs 167, , ,124

7 2. Overview of results of preliminary financial and economic analyses a. Analytical framework Taking the IRR (Internal Rate of Return) together with the NPV (Net Present Value) as the measurement indicators, analyses and evaluations were carried out relating to the implementation of this project concerning the business core financial profitability together with the efficiency of scarce capital allocation (allocative efficiency) in the national economy. The main preconditions at this time were taken as follows. <1> The project period was to be 30 years. <2> The construction periods for Case 1 and Case 2 was set to be 10 years and 13 years respectively. <3> The initial investment cost total amount according to the estimated models of international financing institutions was set to be billion yen and billion yen in Case 1 and Case 2 respectively (fiscal 2009 prices), and out of this the foreign currency portion costs was set to be 43.9% and 42.9% respectively. <4> The financial costs used in the IRR analyses was set to be the costs described above excluding the price contingency, making them billion yen and billion yen respectively. Out of these, the portion equivalent to 90% was taken as external funding from government financial expenditures, and the FIRR was estimated as the profitability with regard to VNR s owner equity. <5> The operation and maintenance expenses ratio was taken as an amount equivalent to 3% of the initial investment amount in both the financial analysis and the economic analysis, and also from the meaning of project ownership, this was assumed to be VNR owner s equity. <6> The SCF (Standard Conversion Factor) in the economic analysis was set as 0.9 in reference to recent World Bank loans in Vietnam. <7> The economic cost total amounts consisting of the financial costs excluding relocation items (land acquisition costs and taxes and other public charges) in Case 1 and Case 2 was set to be 133 billion yen and billion yen respectively, and out of these the foreign currency cost portions was set to be 72.1% and 71.1% respectively. In the economic analysis, in addition to the EIRR analysis according to the individual benefit accumulation, for reference IRR estimation was also carried out based on the LRMC (Long-run Marginal Cost) price which assures the maximization of the resource allocation efficiency. The capital recovery factor utilized in the LRMC price estimation was set as 0.09 according to the project period together with the social discount rate.

8 The financial benefit will be the additional fare revenue following the increase in demand after the start of operations, and the situation in which the current passenger fare system (initial fare 29.5 yen, with 2.9 yen for each subsequent kilometer) is maintained, and for reference the situation where a 5% fare revision based on the real price is implemented each five years in the future, were assumed. In addition, the non-railway income out of the development of railway related businesses was also investigated as a part of the financial benefit (amount equivalent to 20% of the railway business income referring to ongoing Asian Development Bank projects). The following items were considered. as the economic benefits. <1> Road user time-saving value stemming from alleviation of traffic congestion and railway level crossing congestion <2> Automobile operation cost savings <3> Life-saving value portion stemming from the reduction in numbers of deaths and injuries due to the reduction of traffic accidents <4> Reductions in carbon dioxide emission amounts due to the conversion to railways, together with income of foreign currency stemming from CDM credit trading As the investment appropriateness quantitative judging standards (cut-off rates) in the financial and economic IRR analyses, 8.5% and 8% (environmental projects) respectively were utilized based on the opportunity cost of capital in Vietnam at the point of time of September 2009 and the social discount rate generally utilized by the World Bank and JICA. b. Analysis results and evaluation The financial benefit during project life period totaled in Case 1 and Case billion yen and billion yen respectively, and the FIRR was estimated as not available (NA) (NPV was billion yen) and 7.6% (NPV was -2.3 billion yen) respectively. Further, in the situation where fare revisions have been made, the FIRR was not available (NA) (NPV was billion yen) and 9.8% (NPV was 3.5 billion yen) respectively. From these estimated values, although Case 2 has relative advantage over Case 1 from the point of view of financial profitability, it was judged to be inferior under the current fare system when compared with the opportunity cost of capital (8.5%). However, if there is a possibility of revising the net fares in the future, Case 2 can be judged as having investment appropriateness at present (although this will also depend on the changes in the net value of capital in the Vietnamese capital markets in the future). The economic costs in Case 1 and Case 2 are billion yen and billion yen respectively,

9 and the additional benefit total amounts were estimated at billion yen and billion yen respectively, while the EIRR was estimated from the 30-year cash flow as 4.1% (NPV was billion yen) and 7.3% (NPV was billion yen) respectively. Although Case 2 also has relative advantage over Case 1 in the economic analysis, there is some inferiority due to the social discount rate (8.0%) that was set. However, in projects such as this one which aims to achieve environmental improvement and socioeconomic welfare improvement through urban railway development, the EIRR is generally low, and even in World Bank financed cases funding is not impossible in the range of 6-8%. Accordingly, in the same way even Case 2 can not be evaluated as an inappropriate. Further, because the EIRR found using the LRMC method are 5.8% and 6.0% respectively, in the situation where the cases are considered only according to the capital allocation efficiency there will be no great divergence in the investment appropriateness between Case 1 and Case 2. Accordingly, it is believed that both cases can be judged as appropriate for public assistance. c. Sensitivity analyses The sensitivity analyses, which estimate the changes in the investment appropriateness (IRR) according to variations in the project conditions, were carried out giving the following changes referring to the standard models. (1) Situation where the costs have risen by 10% (2) Situation where the benefits have reduced by 10% (3) Situation where the construction period has extended by one year As a result, the FIRR in Case 1 and Case 2 were found to be (NA, NA, and NA) and (5.5%, 5.3%, and 6.9%) respectively. Further, the EIRR was similarly estimated at (3.2%, 3.1%, and 3.5%) and (6.5%, 6.4%, and 7.2%) respectively. From this result, although it can be judged that basically the IRR variations in both cases will be small (robust) in response to changes in the conditions, it will be necessary in particular to pay attention to project cost management together with the securing of benefits. 3. Environmental and social effects In the transportation infrastructure particularly, under the circumstances where the economy has been developing rapidly while the development of mass public transportation measures has been left untouched, the movement of people and goods has become brisk, and there has been a conspicuous increase in the amounts of motorbike and automobile traffic. As a result, traffic jams and automobile accidents are commonplace throughout the area, and in addition the atmospheric pollution caused by automobile exhaust gases is worsening. Accordingly, there is a pressing need regarding the necessity of adopting swift environmental improvement measures. For example, this

10 study shows that the CO 2 reduction as a result of implementation of this project would be 53,000 tons annually in 2020, and 69,000 tons in Regarding the environmental and social effects by the project implementation, the items given below can be identified. a. Social environment The land acquisition volume required for implementing the project is approximately 180 ha, and the number of houses that would require relocation is expected to be approximately 3,200, so that the effect on the social environment coming from the project implementation will be significant. However, on the other hand, catalytic impact to the development of local economy and elimination of regional divisions can be expected due to the elevation of the railway, the increase in the number of stations, and the greater train operation frequency. During the construction work, measures to minimize the negative impacts will be required including countering traffic jam, waste products, work-related accidents, and the spread of HIV. b. Natural environment Although no influence on precious flora and fauna will be incurred due to the planned route since it passes through urban districts, suburban housing areas, and rural communities that have already been developed, because the project subject region consists of Mekong River alluvium, foundation subsidence of the weak ground will be expected. In addition, it will be recommended to pay attention to the structural designs with aesthetic point of view to be in harmony with the landscapes of the region. c. Living environment Because it is expected that exhaust gas pollution, noise and vibration will be caused by traffic jams during the construction work, together with noise, vibration and radio wave interference during the operations, it will be necessary to take countermeasures. The first thing that must be done by the Vietnamese side in order to facilitate this project the on implementation track will be to urgently carry out an EIA (environmental impact assessment) of the area along the project route for submission to the MONRE (Ministry of Natural Resources and Environment), from which approval must be received. The priority items to be included in the EIA are extracted in this report. Further, because the land acquisition and resident relocation will be vital, it will be necessary to compile an outline of land acquisition and resident relocation plan document (GLARAP). At this time, adequate information exchange and discussions must be

11 Main line training period Start of operations carried out with the People s Committees in Ho Chi Minh City, Binh Duong Province and Dong Nai Province. For the smooth implementation of the project, consensus building of the people in the project area will be vital, and it will be important to carry out public relations activities such as announcing project information to ordinary citizens via appropriate newspapers and television channels. (4) Project implementation schedule As shown in the three tables described below, in Case 1 (between Hoa Hung and Di An) the main part construction work start will be around the end of 2013, with completion in the first quarter of 2019 and start of operations in In Case 2 (between Hoa Hung and New Binh Hoa), although the main part construction work start, completion and start of operations between Hoa Hung and Di An will be the same as in Case 1, regarding the section between Di An and New Binh Hoa, the main part construction work start will be 2016, completion will be 2021, and start of operations will become Case 1 Case (Between 1 (Between Hoa Hung Hoa and Hung Di and An) DiaAn) Type of construction work 2013 Viaducts Long bridges Roadbed Tracks Stations Rolling stock depots and work shops Signal and communications facilities Sub stations Electrification facilities including overhead contact lines Training line (Binh Trieu to Thu Duc) Rolling stock Training using training line Land acquisition Consultant services Inspections Design Bidding support Construction implementation management Preparation for start of operations

12 Main line training period Start of operations on all lines Main line training period Initial period start of business Case 2 (Initial operations start section: Between Hoa Hung and Di An) Case 2 Initial period operations start section (between Hoa Hung and Di An) Type of construction work Viaducts Long bridges Roadbed Tracks Stations Rolling stock depots and work shops Signals and communications facilities Sub stations Electrification facilities including overhead contact lines Training line (Binh Trieu to Thu Duc) Rolling stock Training on training line Land acquisition Consultant services Inspections Design Bidding support Construction implementation management Preparation for start of operations Case 2 (Second period operations start section: Between Di An and New Bien Hoa) Case 2 Secondary period operations start section (Between Di An and New Bien Hoa) 2012 Type of construction work 2013 Viaducts Long bridges * ** Roadbed Tracks * Stations Rolling stock depots and work shops Signal and communications facilities Sub stations Electrification facilities including overhead contact lines ** Rolling stock Land acquisition Consultant services Design Bidding support Construction implementation management Preparation for start of operations Inspections

13 (5) Debt sustainability analysis in connection with fund raising including Yen Loans 1. Analytical framework and indicators The Yen Loan provision scheme with regard to this project was considered as follows. The Yen Loan will be provided starting the year 2011 with every two years under a quaternary time sliced scheme in which the maximum total amount of the loan is limiting to be 200 billion yen (Each time 15 billion yen, 60 billion yen, 65 billion yen, and 60 billion yen). As the loan conditions, there are three types consisting of <1> Tied to Japanese technology use type loan (STEP: Special Terms for Economic Partnership), <2> Climate change conscious STEP type loan, and <3> Conventional type Yen Loan for LDC (Least Developed Countries), and the interest rates and repayment periods (included the grace period) are set as <1> 0.2% over 40 years (10 years), <2> 0.1% over 40 years (10 years), and <3> 1.2% over 30 years (10 years) respectively. The loan disbursement will be assumed at five years in each case, and the debt payments will be the servicing of both interest and principal in equal installments at each half-year period including the loan disbursement period. Note that in a difference from international funding institutions, there is no commitment charge. As the indicators for quantitatively measuring the financial impact and the debt servicing capacity due to the annual debt servicing, <1> the central government annual revenue, <2> the financial conditions of VNR as the project implementation agency, and <3> the project revenue estimated from the IRR analysis (DSR: Debt Service Ratio) were used. As the benchmarks for the debt servicing capability evaluation, the central government was assumed to be 0.5% and VNR as 20.0%. 2. Conclusions and implications from a policy point of view The financial costs (interest payments) total amounts against the 200 billion yen total amount quaternary time sliced Yen Loan that will start in 2011 in the case of the STEP loan, climate change conscious STEP loan, and conventional Yen Loan for least developed countries will be billion yen, billion yen, and billion yen respectively. Further, the maximum annual debt servicing amounts (interest and principal total payments) will in all cases occur in the 22 nd year (2032) when the principal servicing will begin based on the four L/A (Loan Agreements), and will be billion yen, billion yen and billion yen respectively. Each of the debt repayment amounts will change using roughly these amounts throughout the remaining period. On the other hand, as described in Chapter 7 (1) 3, the fiscal 2008 annual revenue and gross earnings, and the net profit of the implementing agency (VNR) was billion yen and billion yen respectively (1 dollar = 86.8 yen), and in addition the annual revenue amount of the borrower (central government) in the same fiscal year was trillion yen. Accordingly, the cut-off rates

14 according to the benchmarks described above were billion yen and billion yen respectively, and the DSR for the central government and VNR for each of the loan types described above was (0.3%, 0.3%, and 0.6%) and (23.0%, 22.4%, and 39.2%) respectively. From these results, while assuming that the debt borrowing and repayment, the annual revenue and annual expenditures, and the other various conditions will be fixed in the current situation and in the future, with regard to VNR the DSR is in the danger area concerning the debt servicing capacity. Additionally, considering VNR s current accumulated debt ( billion yen in fiscal 2008), it is believed that it will be extremely difficult for it to implement the project unassisted. On the other hand, when only considering the DSR, the central government is believed to have loan servicing reserves for the future, limited to extreme concessional loans such as STEP loans. Accordingly, the positive and large-scale financial assistance of the central government will be required for the smooth implementation of this project, and as practical measures the borrowing of an extreme concessional loan by the central government and the grant assistance of the whole or part of the construction funding to VNR as the implementing organization can be considered. Further, in order to enhance the financial health of VNR in the future, it will be highly desirable to have positive investment and financing or provision of capital-in-kind such as management, technology, and debt guaranteeing from the private sector through schemes such as private and PPP in railway and related businesses. (6) Advantages of Japanese companies from technological and other viewpoints Regarding urban railways in Japan, since the start of operations of the Tokyo subway Ginza Line in 1927, subways have also been developed in the major cities nationwide. As private railway and JR (Japan Railways) lines have also been fully developed, it is no exaggeration to say that Japan is a world-leading urban railway empire. The development, operations management, and maintenance management of these large-scale urban railway lines is supported by many Japanese enterprises, and the technological capabilities and know-how stretching over many years is accumulated in these companies. It is precisely this factor that is the reason why Japan boasts the leading technology in urban railway transportation, and is maintaining its superiority from a technological point of view. In addition, regarding the overseas expansion of Japanese urban railways, as a result of an investigation into overseas strategies carried out in 2004 by the Ministry of Land, Infrastructure, Transport and Tourism centered on rolling stock manufacturers, the STRASYA (Standard Urban Railway System for Asia) standards were created, and efforts are starting to be made to promote

15 Japan s outstanding standards overseas. Further, a large reason for the excellence of Japanese railways is the high quality of the human resources who are supporting the technology. In particular, knowledge and know-how has been accumulated not only at the construction stage, but also in operations management and maintenance management after the start of operations, and the application of this know-how will provide a weapon for promoting Japanese railway technology overseas going forward. Increasingly in the future, support will be sought from the companies who are actually operating urban railways in Japan, including the various JR companies and Tokyo Metro. In the following table, the specific technological items relating to the project this time are described. Field Subject Contents Hardware elements Know-how elements Construction work Tracks Integrated management systems Operations management systems Signal and telecommunication facilities Stations Electrification facilities Trains Integrated development with urban planning Diverse operation services Human resource development and training Through operations among operators PPP Construction of high quality structures by using various new technologies relating to concrete structures, steel structures, and embankment structures. Reduction in maintenance costs and lessening of noise due to the utilization of ballastless track with direct-connect PC elastic sleepers. Centralized system and IC ticketing that not only manages the operations, but also administers the maintenance management and management information. CTC (Centralized Traffic Control) operations management system that is effective for high speed, high frequency operations together with the swift recovery of train scheduling after disturbances in operations. Prevention of human errors, precise operations control of dual gauge tracks, and automatic train stopping control at station platforms using ATS-P (Automatic Train Stop - Pattern Type). Detailed passenger information display systems, automatic ticket checking and introduction of information technology, implementation of barrier-free policy, and methods for changing trains using the same platform. AT power feeding method using commercial frequencies, and use of catenaries that enable high-speed, high-frequency operations. Energy conservation and maintenance-saving through train body weight reduction and electric power regeneration brakes. Improvement of connection convenience with other railway operators through integrated development of station plaza and access roads, and increasing of non-railway revenue due to station development as a part of urban planning. Diverse operation train services to support the needs of passengers, such as trains stopping at every station and rapid trains. Education and training systems for making employees proficient in technology relating to high-speed and high-frequency operations, electric train rolling stock and electric power facilities maintenance technology, and technology relating to new types of tracks. Using mutual extensions between lines operated by different operators, realize provision of full transportation network, more efficient rolling stock operations, reduced scope repair depots, and more compact terminal stations. Real estate development business in response to the expansion of residential area as a result of providing high-speed and frequent train services, and business development making use of the land around stations and below viaducts.

16 (7) Specific schedule, and risks impeding to the project realization As explained in the background in Chapter 3, although an approach was made unofficially in April 2009 concerning a Yen Loan for this project, for the reason that there was no F/S that satisfied the conditions required for JICA appraisal, the project is not a subject for JICA fact-finding. Because this project is strongly related to the North-South high-speed railway which is a top priority project for the state, by completing the pre-f/s at this time it is believed that the project will be included in the most recent Yen Loan request shortlist. However, in Vietnam, pre-f/s such as this one carried out by overseas consultants are not utilized as they are, but have a pre-f/s review carried out once again by VNR as the implementing agency. Obtaining the approval of VNR means that the F/S is considered to have been completed and procedures are being implemented for the Yen Loan. Further, due to the change concerning Yen Loans for Vietnam made in the previous fiscal year to a more flexible system allowing provisions to be made two times per year, the future schedule in the normal scenario is expected to be as shown below. March 2010 Completion of this study report, and submission to VNR April 2010 Based on this study, VNR starts reviewing the F/S June 2010 VNR begins the EIA production September 2010 Completion of F/S review by VNR September 2010 VNR applies for the Yen Loan to the MPI (Ministry of Planning and Investment) through the MOT October 2010 JICA dispatches a fact-finding mission October 2010 Japanese government dispatches a government mission, and creates annual aide policy November 2010 JICA dispatches an appraisal mission December 2010 EIA completion March 2011 Loan agreement signing May 2011 Loan agreement comes into effect, and procurement procedures start As the risks associated with the realization of the above scenario, the following can be cited. 1. Establishment of technical specifications In the current situation, the Vietnamese side is hoping to receive a STEP condition Yen loan, but it is possible that there may be resistance even to these favorable conditions as an intention of the Vietnamese side to deliberately change the technical specifications from those of the Subway No.1

17 Line to use the European specifications to form a competitive environment in the urban railway market. Further, in the current economic slump, there is a trend among Japanese general contractors to withdraw from overseas business, and recently there have been few Japanese companies making bids, so that sometimes there are conditions where it would not be possible to realize bidding under the STEP conditions. Accordingly, if a conventional Yen Loan is requested rather than one with STEP conditions, it is possible that the Japanese technical specifications will not be employed. 2. Early production of the EIA In the pre-f/s for this project, due to time and funding constrain, a full-scale EIA has not been produced. Accordingly, a separate EIA must swiftly be produced, and the key to the project realization will be whether the EIA can be completed in time before making the Yen Loan request. Because there are special cases in the past Yen Loans where it is considered acceptable if the EIA is completed by the time of the L/A signing, if it is applied in this project this would be the latest possible scenario. 3. Land expropriation Although the land acquisition area in this case of modernizing an existing line is less than in the case of constructing a brand new line, there are sections where the existing right of way requires to be widened and the issue of land acquisition cannot be ignored. Although the responsibility of the implementation of land acquisition is on the local people s committees, because the land subject to the project lies in a long line along the railway, the number of people s committees involved will also be large. Due to the risk that this situation may prevent smooth implementation of the project, JICA may be cautious about providing the Yen Loan. However, according to VNR the Ho Chi Minh People s Committee is already accumulating a 30m wide Land Fund along the railway, so that there will be no major problem when only considering the first phase construction work. 4. Recognition of the project to comply with global warming prevention As an example of a pure railway project in which CDMs (Clean Development Mechanisms) have been applied, there is only the case of the regeneration brakes in the Delhi Subway. (A case in Bogota concerned the Guideway Bus.) In this project, because it is a modernization of an existing line rather than building a new line, it is believed it will be easier to apply CDMs, but this will not be certain due to the small number of examples of applications in railway projects. In order to realize the project profitability and economic efficiency sought in this investigation, it will be necessary that CDMs will be applied.

18 5. Demand forecast In Ho Chi Minh City, in addition to the Subway No.1 Line there are many other urban railway lines being planned, including those operated by VNR. Regarding the development periods of each of these lines, there are many undefined elements that will make the passenger demand distribution of each line different, and at present it is anticipated that there might be a risk of large amount of demand forecast error of this project. However, considering only the first phase construction work, there will be little influence from the other projects, and the uncertainty will be small. 6. Consistency with the high-speed railway project The high-speed railway construction project is currently proceeding in the government giving top priority. Partly due to this, the priority order of this project has also risen. Therefore in the situation where the priority of the high-speed railway project eventually drops there will also be a political effect on the priority order of this project. However, the political effect of the high-speed railway project is not considered in this study, and when considering the current situation of the transportation in Ho Chi Minh City there will be no change in the importance of this project as a commuter railway. 7. Consistency with existing long-distance trains At the stage where the high-speed railway starts operations, it is planned that the existing long-distance railway will be used as a medium-distance regional railway, and that New Binh Trieu Station will become the terminus in the surroundings of Ho Chi Minh City. In the situation where the high-speed railway plan is delayed and the existing long-distance train terminal station remains at Hoa Hung instead of New Binh Trieu, there will be an increase in the project expenses of around 5-10 billion yen, which will also affect the economic aspect of this project. 8. Geological conditions Regarding the main rivers, although there is a geological survey which was implemented in 1999, it is insufficient and no other reports are available to determine the foundation type for building structures. Additionally, there are no record of carrying out geological surveys along the part of the line that is to be newly constructed, so that if the ground conditions greatly differ from the estimated condition, the project costs will also change. However, this will not necessarily cause an increase in costs, since the opposite may also be the case. Contrary to the risks that may impede the realization of this project, the project realization will be urgently required in consideration of the current transportation situation in Ho Chi Minh where the

19 urgent start of operations of commuter lines is required. In order to support this requirement, the following proposals have been made in this study. The rolling stock maintenance for the existing line is being carried out in the current Saigon locomotive maintenance depot, which means that it will not be possible to start the viaduct construction work until the depot relocation construction work has been completed. If this relocation work can be carried out using funds on hand rather than with the Yen Loan so that the relocation work to New Binh Trieu can be completed while carrying out the Yen Loan application procedures, consultant employment procedures, basic designing, and the main part construction work bidding, it will be possible to carry out operations of the existing line using New Binh Trieu Station as the terminus. However, for the maintenance depot after the relocation, rather than rebuilding the same facilities as they are right now, it is necessary to modernize the facilities by introducing the advanced maintenance equipments in order for the Japanese specification electric trains that will be introduced in this project to be effectively maintained. Due to the introduction of facilities such as electric trains and electronic automatic signals in Vietnam, where there is no experience of using them, the education and training of the human resources for operating the new railway system will be a vital issue. For example, the education and training of drivers requires approximately one year even in Japan. Because there will be a problem from the point of view of cost to educate and train all the personnel in Japan, it will be practical to carry out education and training of driver instructors in Japan for around six months, and then have these instructors implement the education and training of the actual drivers using the training line after they return to Vietnam. Although the training line will be required to implement this, we propose preparing the line extension section between New Binh Trieu and Di An for this use. That is, by setting the extension part as the first phase construction work subject section following the provision of the Yen Loan and using it as the training line, it will be possible to maintain the existing single line train operations in the section concerned even during the construction period. Then after the training, the existing single line train operations can be carried out using the newly constructed line while implementing the track modernization construction work on the existing line side.

20 (8) A map to know the project location in the host country Lao Cai Lang Son Ha Noi Hai Phong Vinh Hue Legend Laos Da Nang Existing meter gauge lines Mixed meter/standard gauge lines Standard gauge lines High-speed railway Medium-speed railway New lines Project implementation area Loc Ninh Cambodia Ho Chi Minh Vung Tao