Report and Recommendation of the President to the Board of Directors

Sri Lanka Project Number: 33307 November 2005

Proposed Loan Socialist Republic of Viet Nam: Greater Mekong Subregion: Kunming-Haiphong Transport CorridorNoi Bai-Lao Cai Highway Technical Assistance Project

CURRENCY EQUIVALENTS (as of 7 November 2005) Currency Unit D1.00 $1.00 = = dong (D) $0.000063 D15,895

ABBREVIATIONS AADT ADB ADF AP AusAID CFD DFID EA EIA EIRR EMDP EMP FIRR GDP GMS HIV/AIDS IA JBIC MOT NH O&M PIU PRC RP SDR SEDP SEIA TA VEC WACC WB annual average daily traffic Asian Development Bank Asian Development Fund affected person Australian Agency for International Development Caisse Franaise de Dveloppement Department for International Development executing agency environmental impact assessment economic internal rate of return ethnic minority development plan expressway master plan financial internal rate of return gross domestic product Greater Mekong Subregion human immunodeficiency virus/ acquired immune deficiency syndrome implementing agency Japan Bank for International Cooperation Ministry of Transport national highway operation and maintenance project implementation unit Peoples Republic of China resettlement plan special drawing rights Socio-Economic Development Plan summary environmental impact assessment technical assistance Vietnam Expressway Corporation weighted average cost of capital World Bank NOTE In this report, "$" refers to US dollars.

Vice President Director General Director Team leader Team members

L. Jin, Operations Group 1 R. Nag, Mekong Department (MKRD) J. Cooney, Infrastructure Division, MKRD Y. Tanaka, Transport Specialist, MKRD M. Huddleston, Senior Social Development/Resettlement Specialist, MKRD T. Kawano, Economist, MKRD S. Phanachet, Senior Financial Specialist, MKRD M. Sultana, Social Development/Poverty Reduction Specialist, MKRD S. Tu, Environment Specialist, MKRD N. Tuyen, Social Development and Gender Officer, MKRD

CONTENTS Page LOAN AND PROJECT SUMMARY MAPS I. II. THE PROPOSAL RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Performance Indicators and Analysis B. Analysis of Key Problems and Opportunities THE PROPOSED PROJECT A. Impact and Outcome B. Outputs C. Special Features D. Cost Estimates E. Financing Plan F. Implementation Arrangements PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS A. Project Benefits and Impacts B. Project Risks ASSURANCES A. Specific Assurances B. Conditions for Loan Effectiveness RECOMMENDATION 1 1 2 3 5 5 5 6 7 8 8 10 10 11 11 11 12 12 13 15 19 22 23 26 27 28 29 36 i

III.

IV.

V.

VI.

APPENDIXES 1. Design and Monitoring Framework 2. Sector/Subsector Analysis 3. Feasibility Study of the Noi Bai-Lao Cai Highway Project 4. External Assistance to the Road Subsector 5. Summary Poverty Reduction and Social Strategy 6. Cost Estimates and Financing Plan 7. Project Management Structure 8. Implementation Schedule 9. Outline Terms of Reference for Consultants 10. Consulting Services Contract Package

LOAN AND PROJECT SUMMARY Borrower Classification The Socialist Republic of Viet Nam Targeting classification: General intervention Sector: Transport and communications Subsector: Roads and highways Themes: Sustainable economic growth, regional cooperation, capacity development Subthemes: Fostering physical infrastructure development, institutional development, organizational development Category C. This technical assistance project has no adverse environmental impact. The ensuing investment project will be categorized at a later stage. The Greater Mekong Subregion: Kunming-Haiphong Transport CorridorNoi Bai-Lao Cai Highway Technical Assistance Project (the Project) is to assist the Government in preparing the ensuing Noi Bai-Lao Cai Highway Project. The scope of the Project will include: (i) detailed engineering design, (ii) updated economic and financial studies, (iii) social and environmental studies, and (iv) procurement assistance for civil works and construction supervision consulting services for the ensuing highway project. Viet Nams economy has grown over the past decade by an average 78% per annum. Based on the Governments forthcoming Socio-Economic Development Plan (SEDP) for 2006 to 2010, this rate of growth is projected to continue. Among the most important consequences of this soundly based and steady growth is a dramatic reduction in the countrys poverty rate, from 53% in 1993 to 25% in 2005. The SEDP estimates that the rate will fall to 1516% by 2010. However, Viet Nam will need to invest about 35% of gross domestic product (GDP) to achieve this, and basic economic infrastructure will receive a large share. Infrastructure bottlenecks are becoming apparent, especially in the transport and energy sectors. These will need to be addressed quickly if growth and consequent poverty reduction targets are to be met. The proposed Project will assist the Government in preparing one of its highest priority infrastructure investmentsa modern standard road link from Hanoi to connect at Lao Cai with the road network of the Peoples Republic of China (PRC). This link will serve two purposes. At the national level, it will connect the northwest region of the country, now very poor and isolated, with the economic centers that have developed around Hanoi and its port, Haiphong. At the regional level, it will link the rapidlyexpanding economy of PRCs Yunnan province with Hanoi and Haiphong, facilitating rapid expansion of cross-border trade and commerce.

Environment Assessment Project Description

Rationale

ii Impact and Outcome The proposed highway will contribute significantly to the development of the poor northwest region of the country, by improving national and regional transport linkages. It will also help reduce poverty levels in this region. The Project will facilitate achieving these objectives by providing the resources required to ensure that the highway is: (i) designed to the highest technical standards, (ii) cost-effective, and (iii) takes into account the unique environmental and social characteristics of the region it will pass through and impact significantly. The project cost is estimated at $8 million. The Asian Development Bank (ADB) will provide a loan of $6 million equivalent (75%) and the Government will finance $2 million equivalent (25%).

Cost Estimates Financing Plan

Loan Amount and Terms It is proposed that ADB provide a loan of $6 million equivalent, denominated in Special Drawing Rights, from its Asian Development Fund (ADF). The loan will have a term of 32 years, including a grace period of 8 years, an interest charge of 1% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions as are set forth in the draft Loan Agreement. Allocation and Relending Terms Period of Utilization Estimated Project Completion Date Executing Agency The Borrower will transfer the loan proceeds from the Government to the Implementing Agency through budgetary allocation. 2 years 31 March 2008 The Executing Agency will be the Ministry of Transport (MOT), and the Implementing Agency will be the Vietnam Expressway Corporation (VEC). MOT will have overall responsibility for project implementation, and formal correspondence with line ministries, the governments of the provinces through which the highway will pass, and ADB. VEC will be responsible for day-to-day project implementation under MOTs supervision. VEC will set up a project implementation unit headed by an experienced project director and suitable staff. Equipment will be procured in accordance with ADBs Guidelines for Procurement (2004).

Implementation Arrangements

Procurement

iii Consulting Services An international consulting firm will be recruited using quality and cost-based selection procedures, in accordance with ADBs Guidelines on the Use of Consultants (2005) and other arrangements satisfactory to ADB for the engagement of domestic consultants. About 90 person-months of international consultants and 240 person-months of domestic consultants will be required. The consultants will have expertise in project management, design of high standard highways, road safety, transport economics, financial analysis, environmental impact assessment, resettlement planning, social development (including indigenous peoples), and procurement assistance. The duration of the consulting services will be about 15 months. The proposed highway, to be constructed based on the outputs of the Project, will support Viet Nams poverty reduction program through enhanced economic growth and by providing access for currently isolated communities to economic and social services. It will also contribute to the efficient development of the Greater Mekong Subregion by strengthening connectivity with neighboring countries and increasing competitiveness. The Project will produce direct benefits such as: (i) preparing the subsequent highway project to high technical and safeguards standards; (ii) implementing the ensuing project without unnecessary delay; and (iii) substantially improving VECs capability for project management, detailed design of highways, procurement, and safeguard arrangements. The main risk for the Project is delayed implementation because of slow finalization of the single consulting services contract, which will implement the Project. This is being addressed through advance procurement action for the Projects consulting services, and by providing MOT and VEC with specialist support for the consultant selection process.

Project Benefits and Beneficiaries

Risks and Assumptions

I.

THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the Socialist Republic of Viet Nam for the Greater Mekong Subregion (GMS): KunmingHaiphong Transport CorridorNoi Bai-Lao Cai Highway Technical Assistance (TA) Project (the Project). II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

2. The proposed Noi Bai-Lao Cai Highway is an integral section of the GMS North-South Economic Corridor, connecting Kunming in Yunnan province of the Peoples Republic of China (PRC) with Hanoi and Haiphong port in Viet Nam. In Yunnan, the 400-kilometer (km) expressway from Kunming to the border with Viet Nam will be completed in 2008. However, in Viet Nam, most of the existing Hanoi-Lao Cai highway is narrow, contains a large number of bridges with limited capacity, and there is substantial ribbon development on most of its length. These factors severely limit its capacity and reduce the possibility of improving it to cater for the projected growth in traffic demand in the corridor. The section of the highway from Noi Bai to Hanoi and Haiphong has been improved under assistance from other external donor agencies. So, only the Noi Bai-Lao Cai section needs to be upgraded to complete the Kunming-Haiphong Transport Corridor. The project feasibility study confirmed the necessity and viability of a modern highway linking the existing highway network around Hanoi, at Noi Boi, with the border crossing at Lao Cai, covering about 260 km.1 The Project will build on the work undertaken in that study and will prepare a subsequent project, suitable for Asian Development Bank (ADB) funding, to construct the highway. A design and monitoring framework for the Project is in Appendix 1. 3. The total project cost for the highway is estimated at about $620 million. Such a largescale infrastructure projectinvolving substantial investment and social and environmental impactsrequires detailed design study, detailed economic and financial analyses, and safeguard arrangements. The proposed Project will provide the resources to undertake these studies and prepare the subsequent investment project. 4. The Vietnam Expressway Corporation (VEC) will play a critical role in preparing and implementing the Project, and will participate in the subsequent investment project. VEC was established in October 2004 as a state-owned enterprise under the Ministry of Transport (MOT). VEC manages expressway-related businesses, including: (i) technical consultancy on the development of national expressway networks, and feasibility study and design of each expressway project; (ii) investment and project management for expressway construction; (iii) operation and maintenance (O&M) of expressways; and (iv) commercial services for expressway users. To date, it has little experience in project management, financial management, procurement, and safeguard issues. Institutional capacity building through the Project will enable VEC to manage this and similar projects in the future.

A preliminary economic and financial study for the highway project was carried out under the Asian Development Bank (ADB). 2002. Technical Assistance to the Socialist Republic of Viet Nam for Preparing the Kunming-Haiphong Transport Corridor Project. Manila (TA 4050-VIE). It appeared that overall economic internal rate of return for the Project is 22.0% and financial internal rate of return for the Project is 8.7%, assuming that the toll rate for the highway is double the current toll rate. Details are shown in Appendix 3.

2 A. Performance Indicators and Analysis

5. The proposed highway will cross Hanoi, Pho Tho, Vinh Phuc, Yen Bai, and Lao Cai provinces. Together, these provinces have a population of about 13.3 millionabout 17% of the total population of Viet Namand were responsible for about 18% of gross domestic product (GDP) in 2003. Per capita GDP is $1,011 in Hanoi, but only $361 in Pho Tho, $254 in Vinh Phuc, $210 in Yen Bai, and $198 in Lao Cai provinces. 6. The proposed highway will reduce the travel time between Hanoi and Lao Cai from at least 10 hours at present, to about 3 hours. This decrease in travel time will encourage economic activities in the affected provinces, provide employment opportunities for the local population, and improve access to social services. Many ethnic minority groups live in Yen Bai and Lao Cai provinces. Most live below the poverty line, mainly due to poor accessibility to economic opportunities, and education and health services. This is largely caused by poor road infrastructure, particularly on the right bank of the Red River, since the existing highway travels along the left bank and there is very little cross-river traffic. The proposed highway will be located on the right bank because the terrain is easier and it will provide an immediate and significant benefit to communities in this area that have never had good road access. 7. In the context of the GMS and regional integration, economic cooperation between Viet Nam and the PRC has developed since the late 1990s. The trade volume between the countries has increased more than three times, from $1.3 billion in 1999 to $4.6 billion in 2003.2 Imports from the PRC grew by 47.9% (20022003) while exports to the PRC grew by 30.5%. Yunnan province is a major producer of tobacco, minerals, steel, and fertilizer. Viet Nam, on the other hand, excels in producing vegetables, fruits, seafood, crude oil, rubber, minerals, and light industrial goods (such as textiles and footwear). So, Yunnan province and Viet Nam have a complementary economic relationship through their border trade. The total trade value registered at the Hekou-Lao Cai border crossing points expanded by 36% in 2003 and 51% in 2004 to $336 million,3 which accounts for 80% of Yunnan-Viet Nam trade and 10% of PRCViet Nam trade in 2004. Almost 1 million tons of cargo is transported annually across the Hekou-Lao Cai border crossing points. Arrangements for initial implementation of the GMS Cross-Border Transport Agreement at the Hekou-Lao Cai border crossing points have been finalized; this is expected to be signed by the two governments in early 2006 and commence by 30 June 2006. In addition, agreement has been reached by the two governments to consider, at the earliest possible time, expanding the scope of the existing bilateral road transport agreement to include the entire Kunming-Hanoi-Haiphong transport corridor as an interim measure until the relevant annexes and protocols of the GMS Cross-Border Transport Agreement are ratified. This will facilitate the exchange of commercial traffic rights along the corridor, which would reduce the incidence of costly and time-consuming transshipment at the Hekou-Lao Cai border crossing points. 8. The passage of containerized freight is particularly important for the trading relationship. Forwarders of overseas container cargos in Kunming do not currently use the Kunming-HekouLao Cai-Hanoi-Haiphong route, partly because of the poor condition of the Lao Cai-Hanoi section in Viet Nam, inefficient custom control procedures at the Hekou-Lao Cai border, and the cost of transshipping containers at the border crossing. Instead, they send container cargos by rail or road to ports in Guangzhou province (PRC), which takes up to 6 days. The proposed Noi
2 3

National Bureau of Statistics of China. 2004. China Statistical Yearbook 2004. Beijing. ADB. 2005. Trade Flow and Logistics Analysis Study, Report on the Study of the Greater Mekong Subregion NorthSouth and East-West Economic Corridors. Manila.

3 Bai-Lao Cai Highway will allow forwarders in Kunming to reach Haiphong port, a large container facility, in 1 day. Once the proposed Noi Bai-Lao Cai Highway has been completed, and the ADB-supported border crossing operation is streamlined,4 a substantial number of containers originating in Kunming could be diverted to the Kunming-Haiphong route. Viet Nam would benefit from this, through transit and port fees, among others. 9. The Government is planning to expand the expressway and modern highway network throughout Viet Nam, in line with the outline of the expressway master plan (EMP).5 Appendix 2 contains analysis of the road subsector, focusing on expressways. VEC is responsible for the development of the expressway network, partly funded by revenues from expressway tolls. B. Analysis of Key Problems and Opportunities

10. Viet Nams economy has grown at 78% per annum over the past decade, and the Government estimates that it will continue, as reflected in the forthcoming Five-Year SocioEconomic Development Plan (SEDP) 20062010.6 While this growth has had a dramatic impact on the countrys poverty rate, which declined from about 59% in 1993 to an estimated 25% in 2005, it has severely strained the capacity of basic economic infrastructure, particularly power and transportation systems. The feasibility study of the Noi Bai-Lao Cai Highway Project has found that traffic is growing at about twice the rate of GDP and that this high growth rate is likely to continue beyond 2020, reflecting Viet Nams very low level of vehicle ownership. 7 Major outputs of the feasibility study are in Appendix 3. 1. The Governments Strategy

11. The Government is acutely aware of the impact of inadequate infrastructure on growth and poverty reduction. It is beginning to see the adverse impact of infrastructure bottlenecks on foreign investment and its desire to spread development more equitably with areas far from the major urban centers (Hanoi, Ho Chi Minh City, Da Nang, etc.). The Government is taking a dual approach to the road sector: (i) developing a network of high-capacity expressways and highways linking the main urban areas with (a) each other, (b) less-developed regions of the country and, (c) neighboring countries; and (ii) developing the institutions required to plan, design, implement, and manage this network. MOT is responsible for implementing this program. To date, it has developed a preliminary outline for the network and established VEC to oversee its further development and implementation. 12. The existing national road system was mainly constructed with two lanes and a small part with four lanes. Traffic management is rudimentary and the rate of traffic accidents is very high. Government studies have indicated that the main national highway network should be widened and new highways built to connect important economic zones, large urban centers and industrial zones, and international borders. Reflecting this need, the Government has directed MOT to prepare the EMP (para. 9). Its basic outline (all that exists at present) provides for 2 north-south expressways, 6 east-west expressways, and 14 outer urban circular expressways.

4 5 6 7

ADB. 1999. Technical Assistance for Facilitating the Cross-Border Movement of Goods and People in the Greater Mekong Subregion. Manila (TA 5850-REG). ADB. 2005. Technical Assistance for the Expressway Network Development Plan Project. Manila (TA 4695-VIE). Ministry of Planning and Investment. 2005. The Five-Year Socio-Economic Development Plan 2006-2010 (Draft). Hanoi. ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

4 The ADB TA (footnote 5) will assist MOT and VEC with developing this network, of which the proposed highway is an integral part. 2. Lessons Learned

13. Viet Nam Country Portfolio Review Missions have noted that there have been implementation delays in previous road projects, in particular during the project start-up phase. Project designs have required that project supervision consultants prepare detailed designs and bidding documents for civil works, meaning that the initial 13 years of the loan period are devoted to these essential but low-disbursement activities. The bulk of the loan remains undisbursed during this period, which causes the Government to incur substantial commitment and other financing costs, especially for ordinary capital resources loans. Delays in recruiting consultants or preparing detailed designs have led directly to delays in award of civil works, exacerbating the situation. This is addressed in the design of the Project by: (i) using advance action for the selection of consultants, and (ii) incorporating all safeguard-related planning and procurement-related activities (for the subsequent investment project) in the scope of the Project. By the time the investment project loan has been processed and become effective (or the Government has found other means to finance the highways construction), land acquisition and resettlement should be ready for physical action, and all civil works and consulting services contracts will be ready for award. 3. ADBs Strategy

14. In ADBs Country Strategy and Program Update (20062008) approved in August 2005, key development challenges for the next 5 years include the following: (i) sustain high economic growth and poverty reduction; (ii) create jobs for new labor market entrants; (iii) reduce inequity through targeted poverty reduction; (iv) support social development by improving health and education services, gender equality, and social inclusion; (v) protect the environment; and (vi) improve governance to ensure these challenges are sufficiently and efficiently addressed. Viet Nam has contributed significantly to enhancing connectivity, increasing competitiveness, and promoting a greater sense of community in the GMS. The subsequent highway project is fully supportive of this strategy, at both national and regional levels. The Project is also in the lending pipeline of the Regional Cooperation Strategy and Program Update (20062008)8 as it forms a high-priority section of the Kunming-Hanoi-Haiphong transport route of the GMS NorthSouth Economic Corridor. 4. External Assistance

15. Since lifting the embargo on external financing in 1993, there have been many projects supporting the road subsector in Viet Nam (Appendix 4). Initially, these projects focused on rehabilitating National Highway 1, which runs along the east coast of Viet Nam and acts as the central spine for the road network.9 Subsequently, integral parts of the GMS economic corridors

8 9

ADB. 2005. Regional Cooperation Strategy and Program Update (20062008) The Greater Mekong Subregion Beyond Borders. Manila. ADB. 1993. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Road Improvement Project. Manila (Loan 1272-VIE); ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Second Road Improvement Project. Manila (Loan 1487-VIE); and ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Third Road Improvement Project. Manila (Loan 1653-VIE).

5 in Viet Nam were improved under ADB-funded projects.10 As the work on improving national highways is drawing to a close, projects are increasingly focusing on other parts of the road network. ADBs Provincial Roads Improvement Project is upgrading provincial roads in 17 provinces in the northern uplands and Red River Delta regions.11 The upgrading of rural roads in 18 provinces was addressed under ADBs Rural Infrastructure Sector Project,12 and rural roads are being improved in 40 provinces across the country with funding from the World Bank and the United Kingdoms Department for International Development (DFID) under the Rural Transport II project.13 ADB is currently processing the Central Region Transport Networks Improvement Sector Project, which will address the removal of transport constraints on economic and social development in the rural areas of 19 provinces in central Viet Nam.14 III. A. Impact and Outcome THE PROPOSED PROJECT

16. Construction of the Noi Bai-Lao Cai Highway will be based on the outputs of the Project. The current travel time between Kunming and Haiphong is more than 2 days. Transport between Kunming and Haiphong will be 1 day upon completion of the highway. Due to the substantial reduction in travel time and much improved transport conditions, industries clustered around Hanoi and Haiphong will be able to expand to the very poor northwest of the country, bringing employment, better access to social services, and other benefits. In addition, some of the freight transport in Yunnan province which is currently moving to ports in the PRC could be diverted to Haiphong port. Viet Nams ability to export agricultural and maritime products to Yunnan province, already a rapidly growing trade, will also be substantially enhanced. B. Outputs

17. The feasibility study for the subsequent highway project (footnote 1) confirmed its economic and financial viability. The Project will provide the Government with preparatory work for the highway project. The scope of the Project will include: (i) detailed engineering design; (ii) updated economic and financial studies based on the detailed engineering designs and costs; (iii) social and environmental studies, including environmental impact assessment (EIA), and resettlement and ethnic minority development plans; and (iv) procurement assistance for civil works and construction supervision consulting services required for the subsequent highway project, so that related contracts will be ready for award when project loans become effective. Procurement will be undertaken in line with ADBs Anticorruption Policy (1998), Guidelines on the Use of Consultants (2005), and Guidelines for Procurement (2004). A secondary output of
10

ADB. 1998. Report and Recommendation of the President to the Board of Directors on Proposed Loans to the Kingdom of Cambodia and to the Socialist Republic of Viet Nam for the Greater Mekong Subregion: Phnom Penh to Ho Chi Minh City Highway Project. Manila (Loan 1660-VIE); and ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Lao Peoples Democratic Republic and a Proposed Loan to the Socialist Republic of Viet Nam for the Greater Mekong Subregion: East-West Corridor Project. Manila (Loan 1728-VIE). 11 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Provincial Roads Improvement Sector Project. Manila (Loan 1888-VIE). 12 ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Rural Infrastructure Sector Project. Manila (Loan 1564-VIE). 13 World Bank. 1999. Project Appraisal Documents on a Proposed Credit in the Amount of SDR 74.7 Million (US$ 103.9 Million Equivalent) to the Socialist Republic of Vietnam for a Rural Transport II Project. Washington. 14 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Central Region Transport Networks Improvement Sector Project. Manila (Loan 2195-VIE).

6 the Project would be a significantly strengthened VEC, able to manage the subsequent highway project, and develop and manage similar projects in the future. C. Special Features

18. The proposed highway will pass through two quite different geographical and social environments. Closer to Hanoi, between Noi Bai and Yen Bai (about 120 km), the terrain is flat to rolling, traffic volume is high and growing quickly, population density is relatively high, and the proportion of ethnic minorities is low. From Yen Bai to Lao Cai (about 140 km), the terrain changes from rolling to mountainous, existing and projected traffic is relatively low, population density is very low (particularly on the right bank of the Red River where the highway will be located), and the proportion of ethnic minorities is very high. The configuration of the proposed highway, to be reflected in its detailed technical designs and subsequent operation, will reflect these differences. Briefly, the Noi Bai-Yen Bai section will be designed as a high standard dual carriageway facility, with grade-separated interchangesin essence, an expressway. It will be tolled as a closed system, with tolls being used for O&M and debt service for the entire facility. It will be constructed with four traffic lanes initially, with provision for two additional lanes at a later date (when justified by the growth in traffic). The Yen Bai-Lao Cai section, on the other hand, will be constructed initially to a much simpler configuration, essentially as a two-lane single carriageway rural highway, with at-grade intersections and an open barrier tolling system that will allow local traffic to use the road without payment; only traffic passing through the Yen BaiLao Cai section will pay. However, the design of this section will include provision for a second carriageway and grade separation, if traffic volumes increase to require additional capacity. Based on the feasibility study (Appendix 3), it is unlikely that this would occur for at least 10 years after the opening of the initial two-lane facility. To ensure maximum utilization of both sections of the highway and maximum distribution of its benefits, the Project will include the development of linkages to the existing road networkin particular to the existing highway between Noi Bai and Lao Cai located on the opposite bank of the Red River. Bridges will be built over the Red River to connect to the existing highways. 19. The highway will require a six-lane structure for the Noi Bai-Yen Bai section and a fourlane structure for the Yen Bai-Lao Cai section, in about 1020 years. Right-of-way for the highway will be acquired based on these lane configurations. The detailed design work to be undertaken under the Project will determine the positions of these additional lanes and related structures to: (i) ensure that the highways subsequent expansion can be undertaken with as little impact as possible on the highway in service and the traffic using it, and (ii) define the land acquisition boundaries for the ultimate configuration. 20. In April 2004, the governments of the six GMS countries reached agreement on the Road and Bridge Design and Construction Standards and Specifications (GMS Highway Standards), Annex 11 of the GMS Cross-Border Transport Agreement. In principle, the highway will be designed to GMS Highway Standards. Detailed design and technical specifications will be formulated through the detailed design study and technical coordination meetings between Viet Nam and the PRC. Access-controlled highways that provide appropriate modality of longdistance traffic and restrict accessibility of local people along highways are necessary for safe road transport if vehicle ownership rises at twice the rate of per capita GDP in Viet Nam (para. 10). A road safety audit will be carried out to identify accident-prone areas and propose adequate road safety improvement measurements for access roads to existing roads. The percentage of motorcycles in traffic volume is very high for the following sections of the existing road: Hanoi-Viet (25%), Viet Tri-Yen Bai (33%), and Yen Bai-Lao Cai (44%) (footnote 7). Due to traffic safety and efficiency, a modal mix between motorcycles and non-motorcycle traffic should

7 be avoided on the highway. The detailed design study will determine the most appropriate lane configuration and traffic regulations for motorcycle traffic. 21. The highways construction will involve large excavation, acquisition of residential and agricultural lands, and some resettlement of project-affected people, although the final alignment will be developed to ensure that resettlement is kept to a minimum, as required by ADBs Policy on Involuntary Resettlement (1995). In addition, the highway will pass through areas that have a high proportion of ethnic minorities. Since the social and environmental impacts of the highways construction are likely to be significant, the following reports will be prepared as part of the Projects scope, in accordance with ADBs safeguard policies: (i) an EIA, (ii) a full resettlement plan (RP), and (iii) an ethnic minority development plan (EMDP). The highway project may increase the exposure of local population to HIV/AIDS 15 during the construction and post-construction periods. The social assessment will include information on the present HIV/AIDS and human trafficking situation, as well as the potential increase in HIV/AIDS cases and human trafficking in the project area, including the border area. The EMDP and gender strategy will also include prevention and mitigation measures. Details on the social assessment and gender strategy included in the Summary Poverty Reduction and Social Strategy are in Appendix 5. D. Cost Estimates

22. The total cost of the Project is estimated at $8.0 million equivalent, including the cost of consulting services, equipment, incremental administration, interest during implementation, taxes, and contingencies. Cost estimates are shown in Table 1 and details are in Appendix 6. Table 1: Cost Estimates ($000) Item A. B. C. D. Consulting Servicesa Equipment Incremental Administration Cost Contingencyb Total Base Cost Foreign Exchange 2,400.0 350.0 0.0 200.0 2,950.0 100.0 3,050.0 Local Currency 4,400.0 0.0 150.0 400.0 4,950.0 0.0 4,950.0 Total Cost 6,800.0 350.0 150.0 600.0 7,900.0 100.0 8,000.0 Percentage 85.00 4.38 1.88 7.50 98.75 1.25 100.00

E. Interest during Implementation Total Project Cost

a b

Includes taxes, estimated at $1,000,000. Includes physical contingency only. Source: Asian Development Bank estimates.

15

Human immunodeficiency virus/acquired immune deficiency syndrome.

8 E. Financing Plan

23. The Projects financing plan is shown in Table 2 and details are in Appendix 6.16 ADB will provide a loan of $6 million equivalent (75% of the total cost), and the Government will finance $2 million equivalent (25% of the total cost) comprising 25% of the consulting services cost, 30% of the equipment and the incremental administration cost, and all taxes. Table 2: Financing Plan ($000) Item Asian Development Bank Government Total
Source: Asian Development Bank estimates.

Foreign Exchange 2,945.0 105.0 3,050.0

Local Currency 3,055.0 1,895.0 4,950.0

Total Cost 6,000.0 2,000.0 8,000.0

Percentage 75.00 25.00 100.00

24. The loan will be denominated in special drawing rights (SDR) from ADBs Asian Development Fund (ADF) Special Funds resources, with a term of 32 years including a grace period of 8 years, an interest charge of 1% per annum during the grace period and 1.5% per annum thereafter. The Borrower for the Project will be the Socialist Republic of Viet Nam. The Ministry of Finance will be responsible for repayment of the loan and will provide counterpart funds to MOT through budgetary allocations. MOT will provide the loan and the counterpart funds to VEC through budgetary allocations. F. Implementation Arrangements 1. Project Management

25. The Executing Agency (EA) for the Project will be MOT and the Implementing Agency (IA) will be VEC. MOT will have overall responsibility for project implementation and formal correspondence with the line ministries, provincial governments, and ADB. VEC will have responsibility for day-to-day project implementation under MOTs supervision. VEC will set up a project implementation unit (PIU) headed by an experienced project director and suitable staff. The project management structure is in Appendix 7. 2. Implementation Period

26. The overall implementation schedule for the Project is in Appendix 8. This illustrates the linkages between the Project and the subsequent highway project. Consultant recruitment will start in January 2006. Implementation of the Project will commence by July 2006 and be completed before September 2007. Construction of the highway should commence in late 2007 and be completed by the end of 2010, subject to: (i) the outcome of the Project, (ii) ADBs approval of a subsequent highway project, and (iii) completion of procurement, land acquisition and resettlement, and other pre-construction activities.

16

The allocation of loan proceeds in the Loan Agreement will be presented in the equivalent of SDR 4,209,000, with reference only to total expenditure, in accordance with the policy on Cost Sharing and Eligibility of Expenditures for Asian Development Bank Financing: A New Approach.

9 3. Procurement

27. The Project will not require civil works procurement. Procurement of equipment will be undertaken in accordance with ADBs Guidelines for Procurement (2004). Since the items required will be small and few in numbermainly vehicles, computers, design software and equipment, testing and survey equipment, and similar itemsprocurement will follow local competitive bidding or direct purchase procedures. 4. Consulting Services

28. The consulting services will be implemented by an international consulting firm in association with domestic consultants. The consultants will have expertise in project management, design of high standard highways, road safety, road traffic information system, transport economics, financial analysis, EIA, resettlement planning, social development (including indigenous peoples), and procurement assistance. Outline terms of reference are in Appendix 9. The consulting services will include amounts for surveys of all types, aerial photography, equipment, and other inputs essential for effective and timely project implementation. The duration of the consulting services will be about 15 months, although much of the last portion of this period will be for procurement assistance and will require relatively few inputs. The bulk of consulting services inputs and related expenditure will be during the initial 9 months of the project period. 29. VEC will recruit an international consulting firm for the consulting services using quality and cost-based selection procedures, in accordance with ADBs Guidelines on the Use of Consultants (2005), and other arrangements satisfactory to ADB for the engagement of domestic consultants. Full technical proposals will be used. The contract package is described in Appendix 10. 5. Anticorruption

30. ADBs Anticorruption Policy was explained to and discussed with the Government of Viet Nam, MOT, and VEC. Consistent with its commitment to good governance, accountability and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project. To support these efforts, relevant provisions of ADBs Anticorruption Policy are included in the Loan Regulations and bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the EA, the IA, and all contractors, suppliers, consultants, and other service providers as they relate to the Project. 6. Disbursement Arrangements

31. Loan disbursement will be in accordance with ADBs Loan Disbursement Handbook (2001), and detailed arrangements between the Government and ADB. The loan proceeds will be disbursed directly to the consultants, based on an approved contract under the direct payment procedure. Payments for equipment and the incremental administration cost will be made from an imprest account held at a commercial bank acceptable to the Government and ADB, under ADBs imprest account procedure as shown in ADBs Loan Disbursement Handbook (2001). The initial deposit to the imprest account will be based on estimated expenditures for the first 6 months of the project implementation or $300,000, whichever is lower. The statement of expenditure procedure will be used to reimburse eligible expenditures

10 and liquidate advances to the imprest account to facilitate project implementation. The ceiling for each payment under the statement of expenditure procedure is $50,000. 7. Accounting, Auditing, and Reporting

32. MOT will ensure that VEC maintains separate financial records and accounts adequate to identify financing resources received and project expenditures, including goods, works, and services financed out of the loan proceeds and local funds. The loan accounts and related financial statements will be audited annually in accordance with sound auditing standards by an auditor acceptable to ADB. MOT will submit annual audited reports and related financial statements to ADB within 6 months after the end of each fiscal year. 8. Project Performance Monitoring and Evaluation

33. VEC will have responsibility for day-to-day project implementation and managing the consulting services, including timely submission of reports through the consultants project manager. 9. Project Review

34. ADB will conduct at least three defined review missions, and numerous special review missions. First, an inception review will be carried out to address issues that MOT, VEC, and the consultant are encountering and are about to encounter, immediately after the consultants inception report is submitted. Second, a midterm review, which will also be the Fact-Finding Mission for the subsequent highway project, will be undertaken to assess overall progress in project implementation and achievements, when reports of the detailed design study, economic and financial studies, and social and environmental studies are completed. Third, a project completion review mission will be fielded about 1 year after project completion. There will also be special reviews as required to address issues that arise during project implementation. IV. A. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

Project Benefits and Impacts

35. The proposed highway, to be constructed based on the outputs of the Project, will support Viet Nams poverty reduction program through enhanced economic growth and by providing access for currently isolated communities to economic and social services. It will also contribute to the efficient development of the GMS, by strengthening connectivity with neighboring countries and increasing competitiveness. The highway will greatly facilitate transport between Kunming and Haiphong, and create a new freight transport link between Yunnan province, Hanoi, and Haiphong port. 36. The Project will produce direct benefits such as: (i) preparing the subsequent highway project to high technical and safeguards standards; (ii) implementing the subsequent project without unnecessary delay; and (iii) substantially improving VECs capability for project management, detailed design of highways, procurement, and safeguard arrangements. 37. Resettlement for the subsequent highway project could have an adverse impact on the affected people, specifically on ethnic minority groups, who are vulnerable to change. The project activities could bring significant social and economic change, which could be both positive and negative. Once the highway is completed, HIV/AIDS and trafficking of women and

11 children could become more prevalent. Appropriate prevention and mitigation planning will be incorporated in the Project to address issues related to HIV/AIDS and human trafficking. B. Project Risks

38. The main risk for the Project is delayed implementation because of slow finalization of the single consulting services contract, which will implement the Project. This is being addressed through advance procurement action for the Projects consulting services, and by providing MOT and VEC with specialist support for the consultant selection process through another TA project (footnote 5). 39. During the construction phase, HIV/AIDS risks could increase in the areas around labor camps and the core project area. Short and long-term planning to prevent and mitigate HIV/AIDS during the construction and post-construction periods will be incorporated in the Project. V. A. Specific Assurances ASSURANCES

40. In addition to the standard assurances, the Government has given the following assurances, which are incorporated in the legal documents: (i) MOT will cause VEC to prepare an EIA and a Summary EIA (SEIA) for the subsequent highway project, which will include an environmental management plan with adequate public consultation, in accordance with the requirements of ADBs Environment Policy (2002), and submit them to ADB for approval. MOT will ensure that the contract documents for the subsequent highway project include specific measures as indicated in the SEIA and EIA and in accordance with ADB's Environment Policy to mitigate negative environmental impacts caused by the construction and to give due consideration to prevention of damage to the natural environment in the design, construction, operation, and maintenance of the highway facilities. MOT will cause VEC to prepare an RP for the subsequent highway project in accordance with the requirements of ADBs Policy on Involuntary Resettlement (1995), and submit the RP to ADB for approval. MOT will cause VEC to prepare and implement an EMDP for the subsequent highway project if impacts on the ethnic minorities living in the project area are significant. The determination whether the EMDP is needed and its preparation will be in accordance with ADBs Policy on Indigenous Peoples (1998). During project implementation, MOT will ensure that VEC has in place sound financial management, financial reporting, internal controls and internal auditing systems acceptable to ADB.

(ii)

(iii)

(iv)

12 B. 41. Conditions for Loan Effectiveness The following are conditions for loan effectiveness: (i) (ii) the Government approves its internal feasibility study of the Noi Bai-Lao Cai Highway Project in accordance with Government regulations; and VEC has completed the establishment of the PIU headed by an experienced director and suitably staffed. VI. RECOMMENDATION

42. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan in various currencies equivalent to Special Drawing Rights 4,209,000 to the Socialist Republic of Viet Nam for the Greater Mekong Subregion: Kunming-Haiphong Transport CorridorNoi Bai-Lao Cai Highway Technical Assistance Project from ADBs Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Joseph B. Eichenberger Vice President 24 November 2005

Appendix 1

13

DESIGN AND MONITORING FRAMEWORK

Design Summary Impact 1. Promotion of economic growth in the project area and GMS by strengthening connectivity with neighboring countries and increasing competitiveness 2. Reduced poverty in the project area Performance Targets/Indicators Average per capita income in Pho Tho, Vinh Phuc, Yen Bai, and Lao Cai provinces will reach the national average by 2015 Total trading volume with PRC will double by 2015 Poverty rate is aimed to drop 1518% by 2015 Outcome 1. Enable the Implementing Agency (VEC) to construct the Noi Bai-Lao Cai Highway 2. Enable 1-day transport between Kunming and Haiphong upon completion of the highway between Noi Bai and Lao Cai 3. Generate revenue for VEC through income from the highway 4. Create a new freight transport link between Yunnan province, PRC, and Hanoi-Haiphong port 5. Strengthen VECs project management capability Data Sources/Reporting Mechanisms National statistics on population, income, trade, and industry Provincial statistical reports Household living standard survey Assumptions and Risks Assumption Streamlined crossborder operation and no barriers to trading and mobility Risks Reduction in economic growth Barriers for decentralization of social and economic activities, and public sectors services Assumptions The highway is constructed based on the outputs of the TA ADB finances the highway project Lao Cai-Hekou border is operated based on GMS Cross-Border Transport Agreement Trade and transport security in destination countries is ensured Counterpart financing and human resources are available to carry out the Project Risks Construction of the highway is delayed Toll revenue is lower than expected due to low traffic demand or lower than expected toll rates Trafficking of women and children and prevalence of HIV/AIDS are expanded through the project highway Assumptions Consultants deliver highquality output Adverse social and environmental issues are

Civil works contracts to be awarded will be ready when the ensuing loan becomes effective The highway will be completed by 2010 EIRR of the highway project will be higher than 12%, and project FIRR in real terms after tax will be higher than WACC A substantial proportion of freight originating in Kunming going to ports in PRC will be diverted to the KunmingHaiphong corridor

Reports of review missions Progress reports made by construction supervision consultants Financial statement, audit report, and financial projection of VEC Custom and immigration statistics Traffic count and origindestination surveys Interview with forwarders in Kunming and Haiphong Port Authority

Outputs 1. Detailed design of the highway and related facilities

Detailed design documents will be completed by March 2007

Reports of review missions Inception, monthly progress, and project

14

Appendix 1

Design Summary 2. Update of detailed economic and financial analysis of the Project and financial assessment of VEC 3. Planning for environmental mitigation measurements, land acquisition and resettlement, and social development 4. Procurement documents for civil works and assistance in procurement exercise 5. Preparation of investment loan for the highway 6. Provision of training in highway design, procurement, and safeguard arrangements for PIU

Performance Targets/Indicators Economic and financial viability of the Project and financial capability of VEC will be confirmed; safeguard plans will be approved by ADB by April 2007 Procurement of civil works will start by March 2007 and bid evaluation will be approved by ADB by December 2007 Pre-physical activities for land acquisition and resettlement will be fully completed by March 2008 Loan for the investment project will become effective before March 2008

Data Sources/Reporting Mechanisms completion reports prepared by consultants Consultation with project stakeholders, including MOT, VEC, provincial governments along the highway, and project affected peoples Review of EIA, SEIA, RP, EMDP, procurement documents, and prequalification and bid evaluation reports

Assumptions and Risks mitigated Financial and project management capacity of VEC is developed

Risks Land acquisition and resettlement are delayed Procurement of civil works and construction supervision consultants for the investment project is delayed

Activities with Milestones 1.1 Engineering surveys (by Sep 2006) 1.2 Detailed design of road alignment and structures and information system, cost estimate and contract packaging (by Jan 2007) 1.3 Drawings of the Noi Bai-Lao Cai Highway (by Mar 2007) 2.1 Economic and financial assessment of the Project (by Mar 2007) 2.2 Financial capability analysis of VEC (by Mar 2007) 3.1 EIA, SEIA, RP, and EMDP (by April 2007) 3.2 Update of the RP (by Oct 2007) 4.1 Procurement documents for civil works (by Jan 2007) 4.2 Prequalification evaluation (by Apr 2007) 4.3 Bidding evaluation (by Sep 2007) 4.4 Contract award (by Oct 2007) 5.1 Consultant recruitment documents for construction supervision services for the investment project (by Mar 2007) 5.2 Selection of construction supervision consultants (by Oct 2007)

Inputs ADB: 75% of cost of consulting services (about 90 personmonths for international consultants and about 240 person-months for domestic consultants); engineering, traffic, social, and environmental surveys; and 70% of equipment and incremental administration cost. MOT and VEC: 25% of cost of consulting services, all taxes, and 30% of equipment and incremental administration cost (including full-time counterpart staff)

ADB = Asian Development Bank, EIA = environmental impact assessment, EMDP = ethnic minority development plan, FIRR = financial internal rate of return, GMS = Greater Mekong Subregion, HIV/AIDS = human immunodeficiency virus/acquired immune deficiency syndrome, MOT = Ministry of Transport, PIU = project implementation unit, PRC = Peoples Republic of China, RP = resettlement plan, SEIA = summary environmental impact assessment, TA = technical assistance, VEC = Vietnam Expressway Corporation, WACC = weighted average cost of capital.

Appendix 2

15

SECTOR/SUBSECTOR ANALYSIS A. Growth of Economy and Traffic Demand

1. Per capita gross domestic product (GDP) in Viet Nam increased to $482.6 in 2003 from $374.5 in 1999, at an average growth rate of 6.5%. The industry and construction sector accounts for 40.0% of GDP and is the most rapidly developed sector, growing by 17.3% in 2003. In the Northern Economic Triangle Areaincluding Hanoi, Hai Duong, Haiphong, and Quang Ninh provincesheavy industries (e.g., steel and shipbuilding) and light industries (e.g., textiles, footwear, machinery, and wooden products) are developed. The main driving forces behind the rapid growth are domestic private companies and foreign-invested companies in export-oriented businesses. The service sector, accounting for about 38.2% of GDP, grew by 12.3% in 2003. This growth was mainly driven by wholesale, retail, transport, and postal services, which accompany improved living standards, especially in large cities. The tourism industry is also being developed by easing visa requirements for foreign tourists. The agriculture, forestry, and fisheries sectors, accounting for about 21.8% of GDP, grew by 7.1% in 2003, largely due to higher export prices. Overall, this sector has an international comparative advantage in Viet Nam. To continue stable and strong economic growth, a high-standard road network connecting cities and linking with neighboring countries and ports must be developed. 2. Table A2.1 shows the estimated number of vehicles registered in the project area, based on data from the Viet Nam Registration and National Transport Safety Committee. Ownership of vehicles (including trucks) in the project area has sharply increased at a much higher rate than GDP growth. Elasticity of the growth rate of car ownership in the project area with respect to per capita GDP is 37, except in the case of coach/bus in 2002. Table A2.1: Estimated Number of Vehicle Registered in the Project Area
Type of Vehicle Car Coach/bus Truck Item Number of vehicles Growth rate Number of vehicles Growth rate Number of vehicles Growth rate 1999 16,069 4,582 15,327 2000 20,151 25% 5,469 19% 18,245 19% 2001 28,674 42% 9,219 69% 34,661 90% 2002 36,305 27% 7,068 (23%) 42,333 22% 2003 48,424 33% 13,307 88% 54,396 28% 2004 60,358 25% 15,345 15% 62,159 14%

Sources: Viet Nam Registration and survey by Asian Development Bank.

3. Table A2.2 shows the growth rate of annual average daily traffic (AADT) in passenger car units for National Highway 2. Traffic has increased considerably over recent years, with average growth rates of 18% for passenger traffic and 22% for freight traffic. Elasticity of the AADT growth rate in the project area with respect to per capita GDP is 34. Table A2.2: Growth Rate for Annual Average Daily Traffic of National Highway 2 (Hanoi-Viet Tri) (%)
Type Passenger Freight Year Average 19981999 19992000 20002001 20012002 20022003 20032004 Growth Rate 19 15 10 43 7 13 18 51 12 4 60 (1) 5 22

Sources: Viet Nam Road Administration and survey by Asian Development Bank.

16

Appendix 2

B.

Road Safety

4. The Asian Development Bank (ADB) and development partners have provided financial assistance to the road sector in Viet Nam, and the national road network has been improved. However, the number of fatalities from traffic accidents has increased rapidly since 2000 and reached 13,000 in 2003. The major causes of traffic accidents on the improved roads are speeding and recklessness of drivers and motorcyclists, as well as local peoples unchanged road use. Also, the mixture of different vehicle types in road traffic is cause of the lack of road safety and inefficient road traffic management. The Government established an interministerial National Traffic Safety Program to address road safety initiatives and allocate roles and budget to each ministry concerned. It is also promoting traffic enforcement, a road traffic safety campaign, and regulation on the sale and use of motorcycles to reduce traffic accidents, but there have been no tangible effects to date. 1 Full access-controlled highways (essentially expressways) that provide high modality of long-distance traffic and restrict accessibility of local people to the highways are necessary for safe road transport if vehicle ownership rises at twice the expected rate of economic growth and income increase in Viet Nam. C. Expressway Master Plan

5. The existing national road system was mainly constructed with two lanes, and a small part with four lanes. According to the government traffic estimate, which the transport development strategy until 2020 was based on, traffic jams are inevitable on main national roads. To support sustainable economic development, these roads should be widened or new roadways constructed to connect with important economic zones, large urban centers, industrial zones, and international borders. The Government assigned the Ministry of Transport (MOT) to prepare a master plan for development of the expressway network. The basic outline of the expressway master plan (EMP) proposes 2 north-south expressway axes, 6 east-west expressway axes, and 14 centripetal expressway axes. To complete development of EMP, MOT needs to improve its knowledge of planning expressway networks and construction, institutional development, financial mobilization and debt management, and operation and maintenance (O&M) from other countries. 6. In the draft EMP, a 1,346-km expressway will be constructed during the first stage (20052015) and a 1,357-km expressway during the second stage (20162025). The Noi BaiLao Cai Highwaypart of this networkis planned in the first stage. The capital investment requirement for construction of the planned expressway network is D205,767 billion ($13 billion): D111,012 billion ($7 billion) for the first stage and D94,755 billion ($6 billion) for the second stage. The estimated construction cost per year is about $600 million$700 million. 7. ADB will provide MOT with advisory technical assistance (TA) on the Expressway Network Development Plan Project.2 The TA comprises development of a business plan for the Vietnam Expressway Corporation (VEC), the EMP, and public-private partnership. The EMP component will include developing proposals for: (i) policy and criteria for expressway construction; (ii) route (origin-destination); (iii) priority (20062015, 20162025, and 2025 onwards); (iv) technical specifications; (v) road services and administrative facilities; (vi) cost estimates at pre-feasibility level (construction, land acquisition and resettlement, and O&M); (vii)

1 2

Japan Bank for International Cooperation. 2003. Final Report of Social Republic of Vietnam Transport Sector Survey. Tokyo. ADB. 2005. Technical Assistance for the Expressway Network Development Plan Project. Manila (TA 4695-VIE).

Appendix 2

17

economic and financial viability assessment (assuming an appropriate toll); and (viii) preliminary social and environmental assessment. D. Vietnam Expressway Corporation

8. In October 2004, VEC was established as a state-owned enterprise under MOT. VEC business lines include: (i) (ii) (iii) (iv) investment, construction project management, maintenance, and toll collection of the national expressways; developing and trading in such services as rest houses, restaurants, gas stations, advertisements, and construction materials along expressways; technical consultancy on transportation and communication, such as study of the development of national expressway networks, and feasibility study and design of each expressway project; and study and development of service forms in areas adjacent to expressways.

9. The Ministry of Finance provided VEC with equity amounting to D1,000 billion ($63 million) in the form of: (i) transfer of D50 billion ($3 million) from the state budget to VECs account, and (ii) selling toll fee collection right at Gie Bridge and Phu Dong toll plazas during the 10-year period after 1 January 2005, amounting to D950 billion ($60 million). With 60 employees (as of May 2005), VEC has established financing and accounting, planning and business, project technical, and administration divisions. VECs first expressway project (Cau Gie-Nin Binh) has a total project cost of D5,422 billion ($341 million). VEC financed this project by using all its equity ($63 million) and issuing a government-guaranteed bond amounting to D4,422 billion ($278 million). 3 Since all VECs equity will be spent on the first expressway project, it has to request additional equity from the Government for subsequent expressway projects to secure its financial sustainability. To generate funds for investment in expressway projects, VEC issues a government-guaranteed bond and wishes to receive loans from donor organizations. However, VEC has yet to secure the budget for expressway construction and complete its business model, which ensures financially sustainable expressway projects. 10. The business model development component under the TA on Expressway Network Development Plan Project, will review the: (i) government policies, laws, regulations, decrees, circulars, and charters relevant to VEC; (ii) current organizational structure of VEC, with due consideration given to role and responsibilities of each department and division of VEC, segregation of duty, staffing, etc.; and (iii) VECs future organizational development plan. With the objectives of promoting institutional efficiency and good governance in VECespecially regarding financial management, accounting system, and auditingthe study will recommend: (i) necessary reforms of the legal and regulatory frameworks; and (ii) appropriate institutional setup, including mission, objectives, functions of departments and divisions, regional branches, and performance specifications and targets. E. Toll Setting

11. The current toll level for national highways is shown in Table A2.3, based on the principle that toll revenue is used for road maintenance works only. Subject to approval by the Ministry of Finance, the toll level for expressways will be set at not more than double the current toll level for general highways, based on a new concept that the toll revenue from expressways
3

VEC has issued a bond in the amount of $230 million to date, but has not yet received loans from external donor organizations.

18

Appendix 2

will be used for maintenance works, recovery of the capital cost (including interest repayment), and expansion of the expressway network. However, it is still unclear whether this toll level can cover those expenses. Therefore, the toll level for expressways should be reexamined in the light of financial requirements and toll sensitivity of potential expressway users. Table A2.3: Current Toll Level for National Highways (D per km) Vehicle Motorbike/Lambretta Tourist Car/Jeep Small Coach (<25 seats) Big Coach (>=25 seats) Light Truck (<2.5 tons) Medium Truck (>=2.5 tons, 2 axles) Heavy Truck (>3 axles) Container
D = dong, km = kilometer. Source: Ministry of Finance.

Toll 10,000 10,000 10,000 15,000 15,000 22,000 40,000 80,000

Unit Toll Rate 333 333 333 500 500 733 1,333 2,667

12. A survey on the toll sensitivity of road users was carried out under TA 4050-VIE.4 Table A2.4 shows percentage of use of the Noi Bai-Lao Cai Highway, which will be of expressway standard, under the different toll rates. For the Noi Bai-Yen Bai section where travel time reduction is low, elasticity of the percentage of highway use with respect to toll level is high. For the Yen Bai-Lao Cai section where travel time reduction is high, elasticity is low. If the toll level for expressways is set as double the current toll level for general highways, 50% of traffic on the existing roads will be diverted to the expressway for the Noi Bai-Viet Tri section, 60% will be diverted to the Viet Tri-Yen Bai section, and 85% will be diverted to the Yen Bai-Lao Cai section. There is little relevance of the elasticity of the percentage of highway use with respect to the distance reduction. Table A2.4: Percentage of Use of the Noi Bai-Lao Cai Highway Item Distance of existing highways Travel time of existing highways Distance of the highway Travel time of the highway 1.5 times the current toll level 2 times the current toll level 3 times the current toll level Noi Bai-Viet Tri Section 51.0 km 1.3 hours 53.4 km 0.5 hours 60% 50% 30% Viet Tri-Yen Bai Section 91.0 km 2.3 hours 64.6 km 0.6 hours 80% 60% 50% Yen Bai-Lao Cai Section 169.0 km 4.0 hours 138.0 km 1.7 hours 90% 85% 80%

km = kilometer. Source: ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

ADB. 2002. Technical Assistance to the Socialist Republic of Viet Nam for Preparing the Kunming-Haiphong Transport Corridor Project. Manila.

Appendix 3

19

FEASIBILITY STUDY OF THE NOI BAILAO CAI HIGHWAY PROJECT 1. Considering that the average growth rate of per capita gross domestic product (GDP) was 6.5% in 19992003, the feasibility study assumed that growth in Viet Nam could average 5.4% for 20052015, 5.0% for 20162025, and 4.0% for 20262040. The feasibility study applied elasticity of 2.0 for passenger growth against GDP growth and 1.51.0 for freight. Table A3.1 summarizes the traffic growth rate for the feasibility study. Table A3.1: Traffic Growth Rate (%) Type of Traffic Passenger Freight 20052015 10.8 8.1 20162025 10.0 6.0 20262040 8.0 4.0

Source: ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

2. The traffic demand forecast for the Noi Bai-Lao Cai Highway consists of: (i) natural growth traffic, (ii) traffic generated by construction of the highway, and (iii) traffic diverted to the Kunming-Hanoi-Haiphong route from other routes because of the highways construction. The natural growth traffic increases from baseline traffic in 2005 in accordance with the traffic growth rate in Table A2.5. The generated traffic is assumed as 15% of the natural growth traffic, based on the existing study. The major shippers in Kunming, Yunnan province currently use Shenzhen and Guangzhou ports in Guangdong province, and Fancheng, Qinzhou, and Beihai ports in Guangxi province, Peoples Republic of China (PRC). The annual container output to and from Kunming in 2005 is 213,000 20-foot units. As a result of an interview with the major shippers, 10% of the container cargos would be diverted to the Kunming-Hanoi-Haiphong route due to reduction in the travel distance. Table A3.2 shows the forecast daily traffic volume for the three sections of the highway under the assumption that the toll level will be double the current level. Table A3.2: Traffic Demand Forecast for the Noi Bai-Lao Cai Highway (passenger car unit per day) Section Noi Bai-Viet Tri Viet Tri-Yen Bai Yen Bai-Lao Cai 2005 9,646 6,633 974 2015 28,822 20,420 3,117 2025 64,091 45,909 7,075 2035 122,163 88,375 13,690

Source: ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

3. The length of the Noi Bai-Lao Cai Highway is 256 km. Based on the above traffic volume forecast, lane configuration for the Noi Bai-Viet Tri and Viet Tri-Yen Bai section is initially four lanes but expandable to six lanes as traffic increases; and initially two lanes but expandable to four lanes for the Yen Bai-Lao Cai section. The total project cost for the initial highway construction is estimated at about $620 million, including construction cost, consulting service cost, land acquisition and resettlement cost, and physical and price contingencies. 4. Economic and financial analysis was undertaken by comparing the with highway project and without highway project scenarios. The economic internal rate of return (EIRR) for the highway project is about 22.0%. The net present value of the highway project, using the social discount rate of 12%, yields $349 million. Table A3.3 summarizes the result of the economic sensitivity analysis. Delay in project implementation has the most impact on the economic viability. However, even if there is a concurrent 10% increase of project cost, 10% decrease of

20

Appendix 3

traffic demand, and 1 year delay in project implementation, the EIRR for the highway project is higher than 12%. Table A3.4 summarizes the results of the financial sensitivity analysis. Assuming that 72% of the project cost is funded by ADBs ordinary capital resources and other loans, and the remaining 28% is funded by the Government of Viet Nam, the weighted average cost of capital (WACC) for the highway project is 6.0%. Similar to the economic viability, even if there is a 10% increase in project cost, 10% decrease in traffic demand, and 1 year delay in project implementation, at the same time, the financial internal rate of return (FIRR) is still higher than the WACC. The highway project generates enough profit to recover the entire loan within 14 years. It is concluded that the economic and financial viability of the highway project is robust. Table A3.3: Economic Sensitivity Analysis (%) Item 1. Base case 2. 10% increase in project cost 3. 10% decrease in traffic demand 4. 1 year delay in project implementation 5. Combination of 2, 3, and 4 EIRR 22.0 20.4 19.9 19.7 16.7

EIRR = economic internal rate of return. Source: ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

Table A3.4: Financial Sensitivity Analysis (%) Item 1. Base case 2. 10% increase in project cost 3. 10% decrease in traffic demand 4. 1 year delay in project implementation 5. Combination of 2, 3, and 4 Project FIRR 8.7 7.9 7.9 8.2 6.7 Owner FIRR 16.5 13.6 14.8 14.7 10.5

FIRR = financial internal rate of return. Source: ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

5. As shown in Table A2.4 of Appendix 2, the traffic demand is affected by the toll level. Figure A3.1 indicates the impact of the toll level on EIRR and FIRR. The current toll level for passenger cars is D1,000 per 30 km. EIRR rapidly declines as the toll increases, and falls below 12% when the toll level is over four times the current level. The current toll level yields FIRR lower than WACC, therefore the highway project is not financially viable. From the financial perspective, the toll level of D2,000D4,000 per 30 km is appropriate and the optimal toll level is D3,000 per 30 km. Taking both economic and financial perspectives into account, a range of D2,000D2,500 per 30 km is the best toll level to operate the Noi Bai-Lao Cai Highway.

Appendix 3

21

Figure A3: Impact of the Toll Level on EIRR and FIRR

30
EIRR EIRR, FIRR, and WACC

25 20 15 10 5 0 1,000 2,000 3,000 4,000

Project FIRR Owner FIRR WACC

5,000

Toll Level (D per 30 km)

D = dong, EIRR = economic internal rate of return, FIRR = financial internal rate of return, km = kilometer, WACC = weighted average cost of capital. Source: ADB. 2005. Economic and Financial Study for the Kunming-Haiphong Expressway Project (Hanoi-Lao Cai) (draft). Manila.

22

Appendix 4

EXTERNAL ASSISTANCE TO THE ROAD SUBSECTOR

Project A. National Highway and Provincial Roads Network Loan 1272 Road Improvement Project Loan 1487 Second Road Improvement Project Loan 1564 Rural Infrastructure Sector Project Loan 1653 Third Road Improvement Project Implementation Project Cost External Funding Schedule Source ($ million) Completed Completed 19972005 19992003 141.0 237.0 150.0 239.0 ADB: 120 million ADB: 120 million JBIC: 64 million ADB: 105 million CFD: 15 million ADB: 130 million JBIC: 60 million

GMS: Phnom Penh to Ho Chi Minh City Highway Loan 1660 Completed 144.8 ADB: 100 million Project Loan 1728 GMS: EastWest Corridor Project 20002005 30.0 ADB: 25 million Loan 1888 Provincial Roads Improvement Project 20022006 100.0 ADB: 70 million Highway Rehabilitation Project II and III Completed 416.6 WB Road Safety Project 20052009 25.0 WB NH1 Bridge Rehabilitation Project Completed 162.2 JBIC NH1 Bridge Rehabilitation Project (2) 19992006 211.0 JBIC NH1 Bridge Rehabilitation Project (3) 20032009 80.1 JBIC NH5 Improvement Project (1), (2), and (3) Completed 326.3 JBIC NH10 Improvement Project (1) 19982007 161.3 JBIC NH18 (1) 19982006 107.8 JBIC Transport Infrastructure in Hanoi 19982006 113.7 JBIC Hai Van Tunnel Construction (1), (2), and (3) 19982008 372.4 JBIC NH18 Widening Projects (2) 20002007 232.0 JBIC Can Tho, Thanh Tri, Bai Chay, Binh Bridge 20002005 882.0 JBIC Construction NH10 Improvement Project (2) 20002007 116.3 JBIC Red River Bridge Construction (1), (2), and (3) 20022010 179.1 JBIC Saigon EastWest Highway Project (1), (2), and (3) 20002008 919.9 JBIC NH1 Bypass Road Construction Project 20012006 76.3 JBIC Transport Sector Loan 20042010 86.7 JBIC My Thuan Bridge Completed 79.3 AusAID Subtotal (A) 5589.8 B. Rural Roads Network (District and Commune Roads)a Rural Transport Project Completed 60.9 WB Rural Transport II Project 20002005 145.3 WB/DFID Rural Access Project 19982000 1.3 DFID Rural Infrastructure Development and Living Completed 133.0 JBIC Standard Improvement Project (Loan II)b Subtotal (B) 340.5 Total 5,930.3 ADB = Asian Development Bank, AusAID = Australian Agency for International Development, CFD = Caisse Franaise de Dveloppement, DFID = Department for International Development, GMS = Greater Mekong Subregion, JBIC = Japan Bank for International Cooperation, NH = national highway, WB = World Bank. a Excludes ADB-financed rehabilitation of rural roads as specific components of rural infrastructure projects. b Amount of project cost is only for the road component. Sources: Viet Nam Road Administration, Ministry of Transport, and Asian Development Bank estimates.

Appendix 5

23

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis
Yes No Is the sector identified as a national priority in country poverty partnership agreement? Yes No

Is the sector identified as a national priority in country poverty analysis?

Contribution of the sector or subsector to reduce poverty in Viet Nam: Viet Nams record in poverty reduction has been impressive in the last decade. The proportion of the population below the poverty line has declined from around 59% in 1993 to 25% in 2005. The proposed target for the Five-Year SocioEconomic Development Plan 20062010 is to reduce poor households to 15%16% by 2010. While significant in terms of magnitude, progress in poverty reduction remains fragile, with a significant number of near poor clustered just above the poverty line. To support the Government in pursuing balanced economic growth and poverty reduction, the Country Strategy and Program Update 20062008 for Viet Nam and the Poverty Partnership Agreement between Viet Nam and ADB emphasize regional cooperation through cross-border trade and access to markets within the region. Viet Nam and Yunnan province in the PRC are experiencing rapid economic growth, centered on exports to world markets, and through increasingly bilateral trade in agriculture, aquatic, mining, and industrial products. Sustained development requires modernization and improvement of physical infrastructure and associated services infrastructure that accommodates bilateral trade and international transit traffic. The Kunming-Haiphong Corridor is recognized by Viet Nam and the PRC as a strategic asset that enables accelerated economic growth based on bilateral trade and transit traffic. The corridor is perceived as a cornerstone in developing the economies in Yunnan province and northern Viet Nam. The Greater Mekong Subregion: Kunming-Haiphong Transport CorridorNoi Bai-Lao Cai Highway Technical Assistance Project (the Project) will help to develop the subregional transport system and improve inter-sectoral linkages through the development of an economic corridor. Remoteness and disconnection have been identified as factors for poor peoples inability to benefit from economic growth. Improved transport infrastructure is critical for sustained rapid economic growth and poverty reduction, and will also contribute to regionally balanced and equitable economic growth by stimulating agriculture production, increasing access to employment opportunities, and facilitating better access to social services.

B. Poverty Analysis
What type of poverty analysis is needed?

Targeting Classification: General intervention

Following ADBs Enhanced Poverty Reduction Strategy (December 2004), projects classified as general intervention no longer require project level poverty assessments. However, social assessments will be prepared for resettlement, ethnic minority groups, HIV/AIDS, and human trafficking, as they represent significant risks for implementation of the Project. In addition to social and economic data related to resettlement plan and an EMDP (Appendix 9), social assessment data will include: (i) the potential impact of the Kunming-Haiphong highway on social change for various ethnic groups in the project area, (ii) employment opportunities, (iii) movement of goods, (iv) reduction of transport costs associated with transportation on the provincial road networks, (v) change in family farm production and its potential impact on women, and (vi) access to social service delivery. Social analysis will include the potential negative impact of resettlement on various ethnic groups, risks of HIV/AIDS spreading, and human trafficking. Trafficking of women and children has become a serious problem since the 1990s. In the provinces located in Red River Delta, trafficking of women has increased due to a number of road links and commune border with the PRC. Assessment of HIV/AIDS and human trafficking will include: (i) the present situation of HIV/AIDS and human trafficking in the project areas; (ii) type and level of vulnerability of the population along the proposed highway to HIV/AIDS and human trafficking (disaggregated by gender, ethnicity, age, type of occupation, mobility, etc.); and (iii) recommendation for activities to prevent and mitigate the impacts. The social assessment will also: (i) review existing anti-HIV/AIDS and anti-trafficking programs of the Government, donors, and nongovernment organizations and recommendation for relevant linkages; and (ii) assess the capacity building training needs of relevant agencies for anti-HIV/AIDS and anti-trafficking (law enforcement authority in the boarder areas). The social assessment will also focus on the environmental issues and possible negative impacts on the livelihood of the poor and ethnic minority groups, whose lives largely depend on the forest and its products. The core analysis will be prepared from both primary and secondary data. Primary data will be collected from selected project areas through sample survey and participatory appraisal. Secondary data will include existing data such as census, national socioeconomic surveys, and available HIV/AIDS and human trafficking related data.

24

Appendix 5

C. Participation Process
Is there a stakeholder analysis? Yes No

During the early stage of feasibility study of the Kunming-Haiphong Transport Corridor Project (TA 4050-VIE), consultations were held with ethnic minority groups and various government agencies. During the fact-finding for the TA project, discussion was held with the executing agency and stakeholders from other relevant agencies. Is there a participation strategy? Yes No

A participatory stakeholder analysis will be an integral part of the economic (distributional assessment), social, resettlement, EMDP, and gender analysis. The stakeholder analysis under the economic and social assessments will be both quantitative and qualitative. For land acquisition and resettlement issues, individual and group consultations will be undertaken with affected people at the village, hamlet, and commune level. Separate consultation will be undertaken with affected minority groups with regard to resettlement issues. The stakeholder analysis will include assessment of human trafficking and HIV/AIDS. The participatory strategy will include a grassroots level mechanism for public information disclosure of compensation and resettlement issues, and grievance procedures for affected persons from various ethnic groups.

D. Gender Development
Strategy to maximize impacts on women: The socioeconomic data will be disaggregated by gender and various ethnic groups. Data on resettlement and ethnic minority groups and data on HIV/AIDS and human trafficking will be disaggregated by gender. A project specific gender strategy will be prepared and gender related strategies will be incorporated in the resettlement plan and EMDP. Socioeconomic assessment will examine the extent to which the expressway would have an impact on womens social and economic condition in the project area. Data on social assessment will include information on: (i) the extent to which land acquisition and relocation will impact on womens social condition and economic activities, and (ii) available social services and womens access to social services (by various ethnic groups). The capacity of the Executing Agency and leaders of the commune and Womens Union will be assessed in terms of implementation of a gender strategy and programs related to HIV/AIDS and human trafficking. The gender strategy will include specific activities to ensure project benefits for women. It will ensure that: (i) women do not become more vulnerable because of relocation; (ii) women are involved in the consultation process for preparation of loss of inventory, and the grievance process on resettlement and compensation issues; (iii) women retain access to land or land title during resettlement; (iv) potential social problems in the projects are addressed; and (v) women fully participate in programs related to HIV/AIDS prevention and human trafficking. A relevant capacity building training program will be developed for men and women officials of the Executing Agency; leaders of the communes; and provincial, district, and commune level Womens Unions, to ensure effective implementation of the resettlement plan and EMDP, and monitoring of project activities. The gender strategy will include activities to increase womens participation in community level monitoring of implementation resettlement activities, EMDP, HIV/AIDS and human trafficking related program activities. Community level monitoring and consultation for land acquisition, compensation price, and relocation and implementation of the EMDP will include mechanisms for community involvement and participation, as outlined in the government decrees on regulation for participatory investment supervision, and grassroots democracy. Gender disaggregated monitoring indicators by various ethnic groups will be developed to assess the impact of resettlement and the expressway. Monitoring indicators will also include monitoring of HIV/AIDS and trafficking activities in the project area. Has an output been prepared? Yes No

Appendix 5

25

E. Social Safeguards and Other Social Risks

Item Significant/ Not Significant/ None Significant Resettlement Not significant None Significant Affordability Not significant None The highway project will not have direct impact on labor Yes retrenchment. It will create wage employment Labor opportunities during construction. The construction Not significant No contract award will include provision of fair wages, equal wages for men and women for equal work, and basic None facilities in the construction camp. The presence of various ethnic minority groups in the Significant Yes mountainous area is one of the main characteristics of the Indigenous project area. Ethnic minority groups are mainly Not significant EMDP will be Peoples concentrated in Yen Bai and Lao Cai provinces where prepared for they account for 50.4% and 66.9% respectively of the None the investment population. Ethnic minority groups are present, especially loan in the uplands, but also on the plain, on the right and left bank of the Red River and along National Highway 70. No Ethnic minority groups are vulnerable to change. Project activities could bring significant social and economic change, which could be positive and negative. The resettlement of the highway project could have an adverse impact on ethnic minority groups. The EMDP will be prepared to mitigate the adverse impact and ensure that they can cope with changes and improve their livelihood in the new settlement area. The highway might increase cross-border trafficking of Significant Yes Other Risks girls/women. The highway could become a new pathway and/or for the diseases. Mobile groups (such as drivers and Not significant The HIV/AIDS Vulnerabilities guides of tour buses, truck drivers, and workers) are and trafficking particularly vulnerable to sexually transmitted diseases None issues will be and HIV/AIDS, and are also a conduit for these diseases. addressed During the construction phase, HIV/AIDS risks can through EMDP, increase around the construction camps and in the core gender project areas. Specific activities will be incorporated in the strategy, EMDP and gender strategy, as well as a mass and capacity targeted awareness campaign on human trafficking and building HIV/AIDS, to address trafficking and HIV/AIDS issues. A training community mobilization strategy for awareness campaign activities and will be incorporated in the campaign. A capacity building awareness training program will be designed for the relevant campaign. stakeholders to implement HIV/AIDS and trafficking related activities. After completion of the highway No construction, a road safety education campaign will be required for local people to avoid traffic accidents. ADB = Asian Development Bank, EMDP = ethnic minority development plan, HIV/AIDS = human immunodeficiency virus/acquired immune deficiency syndrome, PRC = Peoples Republic of China, TA = technical assistance. Significant The highway project will promote economic growth in the north-south economic corridor. Affordability will increase through improved economic opportunities. Strategy to Address Issues A full resettlement plan acceptable to ADB will be prepared. Plan Required Full Short None Yes No

26

Appendix 6

COST ESTIMATES AND FINANCING PLAN ($000)

ADB Item A. Consulting Services 1. Remuneration and Per Diem 2. Surveys 3. Others 4. Taxesa Equipment 1. Vehicles 2. Office Equipment Foreign Exchange 2,400 2,000 0 400 0 245 210 35 0 100 200 Total 2,945 Local Currency 2,700 550 2,100 50 0 0 0 0 105 0 250 3,055 Total 5,100 2,550 2,100 450 0 245 210 35 105 100 450 6,000 Foreign Exchange 0 0 0 0 0 105 90 15 0 0 0 105 Government Local Currency 1,700 0 700 0 1,000 0 0 0 45 0 150 1,895 Total 1,700 0 700 0 1,000 105 90 15 45 0 150 2,000 Foreign Exchange 2,400 2,000 0 400 0 350 300 50 0 100 200 3,050 Total Local Currency 4,400 550 2,800 50 1,000 0 0 0 150 0 400 4,950 Total 6,800 2,550 2,800 450 1,000 350 300 50 150 100 600 8,000 Percentage of ADB Financing 75.0

B.

70.0

C. Incremental Administration Cost D. Interest during Implementation E. Unallocated

b

70.0 100.0 75.0 75.0

ADB = Asian Development Bank. a Value-added tax and contractor tax imposed on consulting services. b Includes physical contingency only, 10% of the basic cost for the consulting services. Source: Asian Development Bank estimates.

Appendix 7

27

PROJECT MANAGEMENT STRUCTURE

Office of the Government Ministry of Finance

Ministry of Transport (EA)

Asian Development Bank

State Bank of Viet Nam Ministry of Planning and Investment Ministry of Natural Resource and Environment Vietnam Expressway Corporation (IA) Project Implementation Unit

Provincial Governments

Consultants

EA = executing agency, IA = implementing agency. Source: Asian Development Bank.

28

Appendix 8

IMPLEMENTATION SCHEDULE
Activity
2005
1 2 3 4 1 2

2006
3 4 1 2

2007
3 4 1 2

2008
3 4 1 2

2009
3 4 1 2

2010
3 4

A. Preliminary Feasibility Study B. TA Loan Project Processing C. TA Loan Project Implementation 1. Consultant Selection 2. Project Implementation a. Detailed Design b. Resettlement Planning and Implementation c. Procurement to Investment Project D. Investment Project Processing 1. Loan Processing 2. Loan Approval 3. Loan Signed 4. Loan Effectiveness E. Investment Project Implementation 1. Civil Works Contracts Signed 2. Construction F. Opening of the Highway TA = technical assistance. Source: Asian Development Bank.

Appendix 9

29

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS A. Objectives

1. The objectives of the consulting services under the Greater Mekong Subregion (GMS): Kunming-Haiphong Transport CorridorNoi Bai-Lao Cai Highway Technical Assistance (TA) Project (the Project) are to: (i) produce a detailed design document on the highway from Noi Bai to Lao Cai; (ii) undertake a detailed economic and financial assessment of the ensuing highway project and financial capability assessment of Vietnam Expressway Corporation (VEC); (iii) undertake social assessment and gender analysis; prepare a resettlement plan (RP), ethnic minority development plan (EMDP), and gender strategy (including HIV/AIDS 1 and human trafficking awareness programs); mainstream the gender strategy into project documents; and carry out an environmental impact assessment (EIA); and (iv) assist the Executing Agency (EA) and the Implementing Agency (IA) for the Project in undertaking procurement of the civil works. The outputs from the consulting services will be used to prepare the ensuing highway project that could be funded by the Asian Development Bank (ADB). They include: (i) technical specifications on the geometric and structural design of the highway, (ii) drawings, (iii) procurement documents for the civil works, (iv) economic and financial assessment of the highway project, (v) RP and EMDP, (vi) gender strategy, and (vii) EIA reports. Therefore, all economic and social analyses, RP and EMDP, gender strategy, EIA reports, and procurement documents must meet the requirements of ADBs policies and guidelines, and with consideration to the requirements of the Government. The Project, as presently formulated, will cover the whole highway section between Noi Bai and Lao Cai. If a portion of the highway is funded by another agency, the scope of consulting services could be adjusted to accommodate this. B. Scope of Works and Terms of Reference

2. The highway will ultimately have a six-lane structure for the Noi Bai-Yen Bai section and four-lane structure for the Yen Bai-Lao Cai section. The right-of-way for the highway will be acquired based on these lane configurations. However, the first phase will construct four lanes access-controlled for the Noi Bai-Yen Bai section and two lanes open-access for the Yen BaiLao Cai section. 3. The geometric and structural design of the highway must be consistent with: (i) Road and Bridge Design and Construction Standards and Specifications, Annex 11 of the GMS Cross-Border Transport Agreement; (ii) international best practice; and (iii) laws, regulations, and technical standards of Viet Nam. It must also be suitable for road traffic in Viet Nam. Crossborder facilities will be prepared in accordance with the GMS Cross-Border Transport Agreement. The consultants will undertake the following engineering studies, including but not limited to: (i) (ii) Carry out all necessary topographical, hydrological, and geotechnical investigations, including centerlines, geological, and flood surveys for the proposed highway corridor, to provide a reasonable basis for the detailed design and cost estimates. Coordinate with Yunnan provincial government and agencies concerned in the Peoples Republic of China (PRC) to establish detailed design and technical specifications for the highway, as part of the GMS Kunming-Haiphong Transport Corridor.

Human immunodeficiency virus/acquired immune deficiency syndrome.

30

Appendix 9

(iii)

(iv) (v)

(vi)

(vii) (viii) (ix)

(x)

(xi)

Determine the horizontal and vertical alignment of the highway, based on the results of the above engineering investigations and environmental investigations. Determine the location of interchanges, in consultation with the Ministry of Transport (MOT) and provincial governments along the highway. Draw the alignment and interchanges on the topographical maps. List the civil works required for linkage to cities, towns, and villages along the highway. Identify roadside infrastructure (irrigation, cables, pipelines, etc.) where permanent or temporary relocation is required, and prepare detailed plans for relocation in cooperation with the infrastructure owners concerned. Carry out necessary hydraulic and hydrological studies to determine roadside and cross-drainage requirements, highway finished levels, and slope protection works. Develop designs of bridges, culverts, viaducts, and tunnels based on the results of the topographical, hydrological, and geotechnical investigations. Develop cost-effective pavement designs based on traffic and geotechnical conditions. Identify locations where road disasters such as erosion, landslides, and slope collapse may occur, and prepare designs for disaster prevention works. Develop road traffic safety improvement measures, taking into consideration that the percentage of motorcycle traffic is very high, and include them in the geometric and structural designs, as appropriate. Undertake a road safety audit to identify accidentprone areas, develop adequate road safety improvement measures, and make recommendations for improving safety on the project roads. Develop preliminary designs of environmental mitigating measures on the highway and its immediate vicinity, as recommended in the EIA. Prepare detailed technical documents for each work item with drawings and data, and calculate quantities for all the work items for the first phase of the highway (para. 2), to which will be used for procurement documents of the ensuing highway project. Prepare detailed cost estimates for each work item, taking into account works undertaken for other similar projects in Viet Nam and elsewhere. Set appropriate percentage of the physical and price contingencies. Produce final detailed and summary cost tables in accordance with ADBs standard practice. Review the existing cross-border facilities at Lao Cai and determine the needs for these crossings for them to operate as international crossings under the GMS CrossBorder Transport Agreement. Prepare work packages and cost estimates for undertaking any improvement works, based on directions from coordination meetings between the governments of Viet Nam and the PRC, and between Lao Cai provincial government and Yunnan provincial government. Develop a road traffic information system for the highway to enhance road and traffic safety and monitor road traffic conditions. Provide technical requirements for the digital communication hardware to run the road traffic information system, taking into consideration use of the communication hardware for telecommunication businesses that may be conducted by private sector. Estimate cost for the road traffic information system.

4. The consultants will undertake the following economic evaluation of the ensuing project, according to the Guidelines for Economic Analysis of Projects (1997), by comparing with and without project scenarios, including but not limited to: (i) Prepare an economic analysis model of the ensuing highway project based on the highway development and management model (version 4) by (a) reviewing existing traffic data; (b) conducting traffic counts, origin-destination, and axle-load surveys; (c) forecasting traffic for the highway project; (d) analyzing traffic data and obtaining

Appendix 9

31

(ii)

(iii)

(iv) (v)

(vi)

information on the traffic patterns by vehicle type and transport mode in the project area; and (e) assessing the capacity of the road network in the project area. Calculate the vehicle operating costs by vehicle type for with and without project scenarios, based on estimated changes in road surface roughness, and evaluate them on the existing road and the proposed highway (including benefits in terms of time saving generated from reduced congestion and travel distance, road maintenance savings, traffic accidents, etc). Value project costs and benefits in economic prices. Calculate the net present value of each project component using a discount rate of 12%. Undertake sensitivity analysis by identifying the most critical factors and determine the impact of such factors on the economic internal rate of return, including varying project costs, benefits, toll rates, implementation period, traffic, and a combination of these factors. Calculate switching values. Carry out a risk analysis by considering the possible values for key variables based on past records, and their occurrence probability, in accordance with ADBs Handbook for Integrating Risk Analysis in the Economic Analysis of Projects (2002). Identify (a) types of traffic that will benefit the poor, (b) a systematic way to track down project benefits to the poor, and (c) linkages between the ensuing project and poverty reduction. Carry out distribution analysis of project benefits and calculate the poverty impact ratios for the highway project in accordance with ADBs Guidelines for the Economic Analysis of Projects (Appendixes 25 and 26) and Handbook for Incorporating Poverty Impact Analysis into Economic Analysis of Project (2001). These tasks will be carried out in collaboration with the social and poverty analysis. Undertake appropriate risk and sensitivity analysis of the poverty impact ratio. Analyze how improved road transport facilities and services will contribute to the social and economic development of the project area, in terms of a share of benefits accruing to the poor (monetary value and headcount ratio). Examine structural and other constraints that inhibit inclusive growth and how they may be addressed in the highway project in promoting international trade, developing domestic markets, and generating direct and indirect employment opportunities. Propose monitoring and evaluation schemes, including major monitoring indicators.

5. In accordance with the Guidelines for the Financial Governance and Management of Investment Projects financed by the ADB (2001), the consultants will undertake detailed financial analysis of the subsequent highway project and the executing agency/operating agencies. The consultants will undertake the following tasks, including but not limited to: (i) Justify and propose appropriate toll rates by type of vehicle, taking into consideration the ongoing study under the TA for Expressway Network Development Plan Project2 and the Governments policies laws, regulations, decrees, circulars, and charters relevant to toll structure and existing toll setup methodology. Prepare the detailed financial projection for the proposed highway. Conduct financial cost-benefit analysis that involves the financial internal rate of return on the highway project and for the owner, based on anticipated traffic, proposed toll rates, and weighted average cost of capital. Identify key risks to the highway projects financial performance and conduct relevant sensitivity analyses against these variables, (including, for example, lower toll rates, cost overrun, delay in construction, and lower demand).

(ii)

ADB. 2005. Technical Assistance for the Expressway Network Development Plan Project. Manila (TA 4695-VIE).

32

Appendix 9

(iii) (iv) (v)

Prepare a financing plan for the ensuing highway project, including proposed ADB lending, any prospective cofinancing, and appropriate counterpart funds. Prepare financial projection of VEC and assess its financial viability and sustainability, including projection of its debt service coverage ratio and working ratio. Undertake a financial management assessment of the executing and implementing agency, including planning and budgetary control, financial and management accounting practices and procedures, internal control, and auditing. Identify procedures to strengthen financial management of the entities and efficiently carry out project implementation. Suggest appropriate financial covenants to monitor financial soundness of the entities.

6. The consultants will undertake the following environmental studies, in accordance with ADBs Operation Manual-F1 on Environment (2003), Environment Policy (2003), and Environmental Assessment Guidelines (2003), and the Governments environment policy: (i) Conduct field survey along the proposed alignment and areas in the vicinity of the highway to identify anticipated environmental impacts, including potential cumulative and regional impacts. Conduct comprehensive environmental analyses on alternatives of the highway project. Propose alternatives, and make a comparative economic assessment between the highway project and the alternatives. Develop an environmental management plan that includes institutional requirements, environmental monitoring program, and mitigation measures; and estimate their cost. Prepare detailed EIA and summary EIA reports, including the following elements: (a) description of the highway project, (b) description of the environment, (c) anticipated environmental impacts and mitigation measures, (d) alternatives, (e) economic assessment, (f) environmental management plan (including institutional requirements and environmental monitoring program), (g) public consultation and disclosure, and (h) conclusion. Closely follow the format and content detailed in ADBs website. Reflect necessary environmental mitigation measures in the procurement documents to minimize adverse impacts during construction or thereafter.

(ii) (iii)

(iv)

7. The consultants will undertake the following resettlement studies, in accordance with ADBs Operation Manual-F2 on involuntary resettlement (2003): (i) Undertake social analysis in line with ADB's Policy on Involuntary Resettlement (1995), Handbook on Resettlement: A Guide to Good Practice (1998), and Handbook on Poverty and Social Analysis (2001). Review and assess impacts of land acquisition or loss of land use on project affected persons (APs), in terms of loss of homes, agricultural and other lands, or loss of access to current income-generating activities, and in terms of impacts caused by permanent or temporary acquisition. Prepare an RP for the highway project, suitable for implementation, to be endorsed by the EA to ADB for approval. Preparation should involve full stakeholder participation, including executing and implementing agencies. Estimate cost for the land acquisition and resettlement. Prepare an information brochure to be distributed to APs by the EA. This should contain a brief description of the highway project, the types of impacts, basic compensation policy and entitlements, implementation schedule, implementing organizations, public consultation mechanisms, and grievance procedures. Carry out detailed measurement survey for land acquisition and resettlement after ADB approves the RP, and prepare update of the RP.

(ii)

(iii)

(iv)

Appendix 9

33

(v)

Assist the EA in the land acquisition and resettlement planning process, and monitor information disclosure to APs in compliance with ADBs Public Communications Policy (2005) and in consultation with the AP.

8. The consultants will undertake the following social studies in accordance with ADBs Operation Manual-F3 on indigenous people (2004), and in coordination with the resettlement studies described above. Conduct survey of asset inventory and lost of asset, and a socioeconomic survey of ethnic minority groups affected by land acquisition and resettlement. Prepare sociocultural characteristics of the ethnic minority groups. Assess the extent to which resettlement will change the livelihood activities of the ethnic minority groups, and the socioeconomic influence of the dominant ethnic group(s) on the ethnic minorities in the project areas. Develop monitoring indicators for the RP by ethnic groups. (ii) Identify government policies in relation to ethnic minorities. Develop strategies and mechanisms for ethnic minority groups in the following areas: (a) livelihood strategies, (b) local level consultation process, (c) information disclosure process, and (d) grievance process. (iii) Prepare EMDP, including specific measures and approaches to be taken to address ethnic minorities concerns. The EMDP will be prepared in accordance with ADBs Policy on Indigenous Peoples (1998) and in full consultation with the EA. Ensure the participation of ethnic minority groups in the preparation of the EMDP and livelihood activities. Estimate budget of the EMDP and prepare its implementation schedule. (iv) Identify areas for institutional strengthening of the EA in implementing the EMDP and recommend capacity building training of EA staff. (v) Assess the impact of land acquisition and resettlement on women (by ethnic groups) from the affected households, and the impact on women-headed households to prepare a gender strategy for the people affected by land acquisition and resettlement. Develop livelihood program relevant to womens current occupation, and a mechanism to ensure womens access to livelihood programs, fair compensation, and access to land title. Identify gender-sensitive consultation process and grievance mechanism. (vi) Collect data (disaggregated by gender, ethnicity, age, type of occupation, mobility, etc.) on the present situation of HIV/AIDS and human trafficking in the project areas; assess the type and level of vulnerability of the population along the proposed highway to HIV/AIDS and human trafficking; review government, donors and nongovernment programs on HIV/AIDS and human trafficking; assess capacity building training needs of the relevant stakeholders for implementing and monitoring activities related to HIV/AIDS and human trafficking; review ADB tool kits on HIV/AIDS and roads, and recommend activities for the EMDP, gender strategy, and capacity development training to prevent and mitigate the impact of the highway project on HIV/AIDS and human trafficking; develop strategies for mass and targeted awareness campaign and community mobilization on HIV/AIDS and human trafficking; recommend possible linkages with existing programs in other agencies; and determine budget. (vii) Identify capacity building training needs of provincial, district, and commune level Womens Unions for preparation and implementation of RP and EMDP. Identify training needs of the EA and the IA in implementing the gender strategy of the highway project. (viii) Assess the extent to which the economic growth potential of the project area will have an impact on womens economic opportunity and livelihood system (by ethnic minority groups). Develop gender-based monitoring indicators. (i)

34

Appendix 9

(ix)

(x)

(xi)

Conduct poverty survey and participatory appraisal with focus on the impact of the highway project on the provision of social services, movement of goods, people, and poverty. Prepare descriptions of causes and incidence of poverty in the project area by various ethnic groups. Analyze the extent to which the highway project will reduce poverty. Prepare impact poverty matrix for ethnic minority groups. Identify potential barriers for the poor to benefit from economic growth and recommend interventions that may included in the highway project to maximize its impact on poverty reduction for poor households, ethnic minority groups, vulnerable groups, and poor women. Prepare the impact of the highway project on access to social services, increase in essential services, movement of goods, wage employment during construction work, employment opportunities, and mobility in the project areas. Prepare poverty impact monitoring indicators by ethnic groups.

9. As a result of the above studies, the consultants (i) will recommend the scope, objectives, and rationale of the highway project; (ii) develop a draft logical framework for the highway project (including impacts, outcome, outputs with corresponding measurable performance indicators/targets, monitoring mechanisms, and risks/assumptions); (iii) present economic and financial assessment of the highway project, and (iv) prepare draft terms of reference for a construction supervision consultant to be engaged during the implementation of the highway project. 10. The consultants will undertake the following assistance to the EA and the IA in procurement of the civil works, in accordance with ADBs Guidelines for Procurement (2004). (i) Prepare prequalification document, prequalification evaluation document, and bidding documents for the civil works, including the road traffic information system. The bidding documents will include bill of quantity items for environmental mitigation measures, and HIV/AIDS awareness and prevention program for contractors workers. The bidding documents will also include provisions regarding any aspects of the gender strategy that should be included, and employment opportunities for ethinic minority groups in the construction phase. Assist the EA and the IA in (a) evaluating prequalification of potential bidders in line with the prequalification evaluation document approved by ADB, and prepare a prequalification evaluation report; (b) evaluating bids, and preparing a bid evaluation report; and (c) answering inquiries from contractors during the prequalification and bidding exercise. Required Expertise

(ii)

C.

11. The consulting services will be undertaken by an international consulting firm for about 330 person-months (90 person-months of international and 240 person-months of domestic consulting services). The consultants will have expertise in highway design of alignment, pavements, bridges, culverts, tunnels, information systems, road safety, road traffic information systems, transport economics, financial analysis and assessment, environmental impact assessment, resettlement, and social issues. The international consultants will include a team leader/highway engineer, structural engineer, pavement engineer, hydrologist, road safety specialist, information system engineer, procurement specialist, transport economist, financial specialist, resettlement specialist, environmental specialist, and poverty reduction specialist. The domestic consultants will include a local team leader/highway engineer, five highway engineers, four structural pavement engineers, two pavement engineers, procurement

Appendix 9

35

specialist, transport economist, financial specialist, three resettlement specialists, environmental specialist, two ethnic minority specialists, social development and gender specialist, and two translators. D. 12. Schedule and Reporting Requirements The consulting services will last for 15 months from July 2006 to September 2007.

13. The consultants will prepare the following documents and reports, and submit them to MOT, VEC, and ADB. An inception report will be submitted 1 month after commencing the consulting services. The report will highlight problems encountered or anticipated, and will recommend solutions. (ii) Progress reports, brief and generally in graphical format, will be submitted monthly during the whole consulting services period. The reports will include consulting services undertaken in the reporting month, and identify matters that require the attention of MOT, VEC, and ADB. (iii) An EIA report, summary EIA report, RP, EMDP, and social assessment report will be submitted by the end of the tenth month after commencing the consulting services, or such later time as agreed with MOT and ADB, to reflect the overall project implementation schedule. Update of the RP, including outputs of the detailed measurement survey, will be submitted immediately after the detailed measurement survey is completed. (iv) An engineering report. (v) An economic and financial report. (vi) Procurement documents for civil works and construction supervision, to a schedule that will allow procurement to be carried out within the project period, so that contracts for civil works and construction supervision will be ready for signing prior to the end of the project period. (vii) A project completion report, which will present all aspects of the study results, including surveys, findings, recommendations, suggested approaches to implementation, and all other matters necessary to prepare the subsequent highway project. (i)

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Appendix 10

CONSULTING SERVICES CONTRACT PACKAGE Contract Details A. Consulting Services 1. Project Preparationa Total Approximate Value ($ million) 6.80 6.80 Procurement Mode

ADBs Guidelines on the Use of Consultants (recruitment of consulting firm)

Includes taxes; excludes physical contingencies. Source: Asian Development Bank.