adb-ho chi minh city water supply project-france

CURRENCY EQUIVALENTS as of 30 April 2008 Currency Unit – dong D ABBREVIATIONS ADB – Asian Development Bank AFD – Agence Française de Développement cmd – cubic meters per day GIS – geogr

Technical Assistance Report

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature

Project Number: 41070

June 2008

Socialist Republic of Viet Nam: Preparing the Ho Chi Minh City Water Supply Project

(Financed by the Government of France)

CURRENCY EQUIVALENTS

(as of 30 April 2008) Currency Unit – dong (D)

ABBREVIATIONS

ADB – Asian Development Bank

AFD – Agence Française de Développement

cmd – cubic meters per day

GIS – geographic information system

HCMC – Ho Chi Minh City

HIFU – Ho Chi Minh City Urban Infrastructure Investment Fund

ISO – International Organization for Standardization

JICA – Japan International Cooperation Agency

ODA – official development assistance

MOU – memorandum of understanding

SAWACO – Saigon Water Corporation

SCADA – supervisory control and data acquisition

PPTA – project preparatory technical assistance

TECHNICAL ASSISTANCE CLASSIFICATION Targeting Classification – General intervention

Sector – Water supply, sanitation, and waste management

Subsector – Water supply and sanitation

Themes – Sustainable economic growth, private sector development, capacity

development

Subthemes – Developing urban areas, public–private partnerships, institutional

development

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December (ii) In this report, "$" refers to US dollars

Vice President C Lawrence Greenwood, Jr., Operations 2

Director General A Thapan, Southeast Asia Department (SERD)

Director J Cooney, Infrastructure Division, SERD

Team leader H Jenny, Senior Urban Development Specialist, SERD

Team members E Cudilla, Senior Project Assistant, SERD

J Everett, Infrastructure Specialist, SERD Y-L Feng, Principal Environment Specialist, SERD

R Frauendorfer, Senior Urban Development Specialist, SERD

M Huddleston, Senior Social Development/Resettlement Specialist, SERD

A Kunth, Young Professional, SERD

A Mehta, Financial Management Specialist, Regional and Sustainable Development Department

H Nhat Do, Project Implementation Officer, Viet Nam Resident Mission, SERD

M Sultana, Social Development Specialist, SERD

Y Tsujiki, Financial Analysis Specialist, SERD

I INTRODUCTION

1 During the 2007 Country Programming Mission and the water financing conferences held September 2006 in Manila and March 2007 in Hanoi, the Government of the Socialist Republic of Viet Nam requested the Asian Development Bank (ADB) for assistance to prepare the Ho Chi Minh City Water Supply Project Viet Nam is one of the five target countries for ADB's water financing program, which aims to double ADB lending in the water and sanitation sector by 2010 The proposed Project addresses provision of a sustainable supply of potable water for Ho Chi Minh City The Project is directly linked to the agenda of supporting infrastructure development and public–private partnerships in infrastructure, as set out in the Country Strategy and Program (2007–2010) The Project contributes to Goal 7 of the Millennium Development Goals, to "Ensure environmental sustainability", and specifically to Target 10:

“Halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation.”, and to the corresponding Viet Nam Development Goals

2 An ADB mission visited Ho Chi Minh City (HCMC) in May 2007 to undertake fact-finding for a project preparatory technical assistance (PPTA) for the proposed Project Agreement was reached on the impact, outcome, outputs, implementation arrangements, cost, and financing arrangements for the PPTA The design and monitoring framework for the PPTA1 is provided in Appendix 1

II ISSUES

3 HCMC is Viet Nam’s largest city, and its most important commercial and industrial center Its population of 7.9 million is growing at about 2.1% per annum, and is likely to reach 13.5 million in 2020 While Viet Nam’s economy is growing at more than 8% per annum, HCMC’s economy is growing substantially faster, at around 12% per annum This growth rate is placing very serious strains on the city’s already inadequate infrastructure, and not least on its water supply system

4 In response, the HCMC People’s Committee is preparing a master plan for the HCMC water system up to 2025 This provides for an increase in urban water supply coverage (from the present 76% of the city’s population to 100%), corresponding to an increase in capacity from 1.2 million cubic meters per day (cmd) to 3.2 million cmd of treated water Based on this development plan, the World Bank has financed a feasibility study on nonrevenue water (NRW),2 which divides the city water supply network into six hydraulic zones and about 500 district metered-areas (DMAs), and proposes to reduce actual water losses in two of the six zones.3 The Government of France has financed a pilot project to determine the components and characteristics of water losses in the city's An Dien–An Phu area

5 Two large wastewater projects are currently being implemented in HCMC, financed by the Japan Bank for International Cooperation (JBIC)4 and the World Bank.5 These projects address the difficulties faced by the city as a result of sharp increases in the volume of industrial effluent and domestic wastewater, which stems from rapid industrialization and urbanization in the absence of investment in wastewater treatment plants or rehabilitation of the city's 30-year old sewer network The JBIC-financed project will increase the city’s sanitation coverage and treatment capacity to over 60% by providing wastewater treatment plants with 470,000 cmd

1

The TA first appeared in ADB Business Opportunities on 4 December 2007

2

NRW represents all the water produced that is not sold

3

This corresponds to a total of about 200 DMAs in zone 1 and zone 2

4

The Second Ho Chi Minh City Water Environment Improvement Project

5

The World Bank also implemented the HCMC Environmental Sanitation Project

2

capacity, sewer interceptors, combined sewers, and pumping stations The World Bank-supported wastewater treatment project covers about half of the city center or about 25% of HCMC’s population

6 HCMC’s water supply operations are managed by the Saigon Water Corporation (SAWACO), which was established in 1874, and most recently restructured in 2005 As of

end-2006,6 SAWACO had about 3,500 staff, 2,800 of whom worked in water operations, with the balance working in affiliated consulting and contracting companies SAWACO has an approximately 3,000 kilometer (km) distribution network, with 570,000 connections Overall, SAWACO has five staff per 1,000 connections, a very low and efficient ratio SAWACO delivers continuous service with a residual chlorine test of 97%, corresponding to drinking water quality The company has annual revenues in excess of D1,000 billion (about $70 million) and an average operating ratio of below one The average water tariff per cubic meter of $0.28 is below the national average, but sufficient to cover operating expenses allowing SAWACO to generate

a positive cashflow About 93% of the water production comes from three surface water treatment plants (Thu Duc, Tan Hiep and Binh An); the latter operated under a operate-transfer (BOT) contract The ongoing extension of the Thu Duc production plant under a build-own-operate (BOO) contract is structured with the participation of the HCMC Urban Infrastructure Investment Fund (HIFU) as equity holder and mostly local currency financing The remaining production comes from groundwater

7 SAWACO faces several challenges in the areas of profit generation, financial management, management of costs and service delivery, and institutional structure Better tariff structures7 and reduced NRW levels (currently at about 40%) need to be implemented to improve the company’s financial and operating performance The company has a number of subsidiary entities that need to be consolidated to maximize efficiency Some subsidiary entities have an element of private sector participation, but a more coherent plan for both strategic and financial participation by the private sector in the overall group is needed

8 Under the new Water Supply Decree 117/2007/ND-CP of 11 July 2007, full cost recovery is now mandatory SAWACO is under growing pressure to (i) improve and modernize its service and sustainably supply all HCMC residents (i.e., achieve 100% coverage) with potable water by 2025, (ii) increase public–private partnerships and private sector participation, and (iii) provide and deliver water to the city in a sustainable manner Given these challenges, accessing finance for future capital expenditure from a broader base of fund providers as well

as the capital markets will require significant reforms in the institutional structures of both SAWACO and related governmental bodies

9 Accordingly, SAWACO has approached ADB to finance a portion of its expansion program, specifically (i) implementing a NRW management project over the four hydraulic zones not covered by ongoing World Bank and other financing, including a supervisory control and data acquisition (SCADA) system and a geographic information system (GIS); and (ii) strengthening and expanding the city transmission and primary network, including reservoirs, pumping stations and about 90 km of pipeline of various sizes An institutional strengthening program to be implemented as part of the ensuing project will address SAWACO’s most critical institutional issues This will be identified and prioritized as part of project preparation The proposed technical assistance will focus primarily on water supply, given that attempts to address HCMC’s wastewater and drainage issues have already been undertaken under projects funded by other donors (refer to para 5)

6

Communication from SAWACO management and extracted from Southeast Asia Water Utility Network 2007

Data Book of Southeast Asian Water Utilities

7

Water tariffs in HCMC are officially set at a level to achieve cost recovery

III THE PROPOSED TECHNICAL ASSISTANCE

A Impact and Outcome

10 The impact of the Project will be to improve urban livability and competitiveness in HCMC through development of water supply infrastructure

11 The outcome of the PPTA will be the design of a project to increase the level of water service by (i) extending and rehabilitating a portion of HCMC’s water distribution network, including booster pumping stations and reservoirs, to increase the coverage and provide potable water to all city residents by 2025; (ii) improving the level of service and SAWACO’s financial performance by reducing NRW in four of the city’s six hydraulic zones; and (iii) overall strengthening of water operations in the city An initial poverty reduction and social analysis for the project is provided in Appendix 2

B Methodology and Key Activities

12 The PPTA will prepare a project to be implemented in three parts, as set out below

(i) Part I—NRW Based on work now being done under the World Bank-financed

project, this part of the PPTA will study the remaining four hydraulic zones to establish a methodology to reduce NRW The NRW component will be implemented through performance and/or management contracts, for which terms of reference will be prepared as part of the PPTA SAWACO will use its own funds to finance the feasibility study for the GIS and SCADA systems that will form part of the ensuing project The PPTA will coordinate with the ongoing information technology projects and standards used by other agencies of the HCMC People's Committee to review and integrate the GIS and SCADA system with the project design

(ii) Part II—Strengthening and Expansion of the Transmission and Primary

Network Based on the objectives set forth in the master plan, the PPTA will

prepare a feasibility study for strengthening and expanding SAWACO’s transmission and primary pipe network over the service area to increase coverage and improve the security of distribution The project will install over 90

km of pipes, for the transmission and primary distribution system, with booster pumping stations and ancillary equipment SAWACO will finance the secondary distribution system in line with the city’s master plan The study will include a special focus on pipe material selection

(iii) Part III—Planning and Institutional Strengthening The PPTA will define a

framework for public–private partnerships and private sector participation, especially for the divestiture8 of SAWACO's holding company, its subsidiaries and affiliated companies This task will include (a) asset inventory and management; (b) a policy for water conservation through demand management; (c) a strategy for energy efficiency through an energy audit and a prioritized investment plan based on cost recovery, which could be included for financing as part of the ensuing project, and (d) a framework for optimizing the provision and the delivery of water supply services during the project, and certification under the International Organization for Standardization (ISO).9

8

Divesture is required under the new legislation with a recommended 30% divested to private investors

9

Certification under (i) ISO 9001 for all design, operation and maintenance activities, (ii) ISO 14001 for safety and environment, (iii) ISO 18001 for occupational health and safety in the operation, and (iv) the new ISO 24512 for the management of drinking water utilities

4

C Cost and Financing

13 The PPTA is estimated at $1,900,000 The TA will be financed on a grant basis in the amount of $1,500,000 equivalent by the Government of France and administered by ADB.10 SAWACO will finance $400,000 through in-kind contributions of (i) office space (for a maximum

of 20 consultants) and access to international phone and internet (the PPTA consulting firm will pay for communications costs), (ii) about 60 person-months of counterpart staff to support the PPTA, (iii) vehicles for site visits, (iv) feasibility studies for the SCADA system and GIS, and (v)

a topographic survey to confirm resettlement data and any other essential information that may

be identified during the TA The Government has been informed that approval of the TA does not commit ADB to finance any ensuing project A detailed cost estimate is provided in Appendix 3

D Implementation Arrangements

14 SAWACO will act as the executing agency (EA) for the PPTA with overall project responsibility and will establish a project management unit for day-to-day management of the PPTA For the duration of the PPTA, the project management unit will be run by full-time staff including a director, an English-speaking coordinator, and two to five counterpart personnel They will be responsible for day-to-day coordination work with the PPTA consulting firm’s personnel, other government agencies, and other stakeholders A steering committee composed of representatives from relevant agencies of the HCMC People's Committee and other relevant stakeholders will meet at least every 3 months to (i) review the progress of the PPTA, and (ii) provide strategic direction for the selection of investment proposals and related financing plans

15 The PPTA will be implemented by one consulting firm (see para 16) over 12 months from October 2008 to September 2009 Total consulting inputs will be about 130 person-months, consisting of 16 international consultants for 40 person-months and 15 national consultants for

90 person-months (including 19 person-months of unallocated national consultant services, which will facilitate policy dialogue with the central and local government, and address specific issues that arise during PPTA implementation) The scope of work, distributed between project investment and planning and institutional strengthening, is broadly as follows (outline terms of reference are provided in Appendix 4)

(i) Project Investment This task will be implemented over 9 months, to define and

prepare parts I and II of the PPTA, including environmental and social safeguards and financial and economic analysis to meet ADB requirements, and two local feasibility studies to meet the Government's approval requirements It is anticipated that 28 person-months of international consultant services and 73 person-months of national consultant services will be required for this part

(ii) Planning and Institutional Strengthening This task will be implemented over

the duration of the PPTA The consultants (about 5 person-months of international consultant services and 5 person-months of national consultant services) will work closely with SAWACO in defining the needs and requirement for the institutional strengthening program to be implemented as part of the ensuing project

10

Through the channel financing agreement (technical assistance program) between the Government of France and ADB

16 The consultants will be engaged by ADB as (i) an international firm in association with a local firm, recruited under fixed budget selection (FBS) through simplified technical proposals; and (ii) individual consultants FBS is appropriate inasmuch as the TA is limited to the production of two simple feasibility studies and an institutional strengthening program with detailed terms of reference, input consultant time, and deliverables clearly identified The firm

and the individual consultants will be recruited in accordance with ADB’s Guidelines on the Use

of Consultants (2007, as amended from time to time) Equipment will be procured in accordance

with ADB’s Procurement Guidelines (2007, as amended from time to time) All the equipment

purchased under the PPTA will be turned over to SAWACO at the end of the Project

17 The PPTA will include four workshops in HCMC at (i) the inception phase, (ii) the midterm completion of the preparation of the two investment components, (iii) the completion of the feasibility studies, and (iv) following the initial development of the institutional strengthening program The workshops will include representatives from the HCMC People’s Committee, central government agencies, civil society, and the private sector The reporting requirement will include an inception report, three progress reports and a final report In addition, the consultants will prepare two feasibility study reports for the investment components of the project (NRW and network strengthening and expansion), and a series of reports for each of the items for the planning and institutional strengthening component All the documents produced will be in English and in Vietnamese

IV THE PRESIDENT'S RECOMMENDATION

18 The President, acting under the authority delegated by the Board, has approved ADB administering technical assistance not exceeding the equivalent of $1,500,000 to the Government of Viet Nam to be financed on a grant basis by the Government of France for preparing the Ho Chi Minh City Water Supply Project, and hereby reports this action to the Board

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK Design

Summary

Performance Targets/Indicators

Data Sources / Reporting Mechanisms

Assumptions and Risks

Impact

Improved urban livability

and economic

competitiveness of HCMC

due to better quality and

more sustainable water

supply

• NRW is reduced in the project area

• Water supply coverage

in HCMC increased from 76% to 90% in

20151

• Water supply service is continuous, of drinking water quality, meets demand, and is financially sustainable

by 2015

• Positive change in the perception of the level

of water supply service

in the project area

Investment project completion report

Government demographic, economic, health and water sector statistics

Public feedback, public opinion surveys, citizen report card

ADB monitoring of baseline indicators

Assumptions

• The Government, SAWACO and other concerned agencies sustain best practices in water supply delivery beyond completion of the project

Risks

• Natural disasters or other catastrophes deplete fresh water resources

• Factors other than water supply severely affect the economic situation or health of the population in the project area

• Political interference prevents successful implementation of the institutional strengthening program and threatens the financial sustainability and competitiveness of the water supply system

Outcome

Agreed design of new

investments to extend and

rehabilitate the water

distribution network,

reduce NRW, and an

institutional strengthening

program to be

implemented during the

subsequent loan project

• Endorsement by HCMC of feasibility studies on (i) strengthening and expansion of distribution network, and (ii) NRW, by September 2009

• HCMC and SAWACO agree on the content of proposed institutional strengthening program,

by July 2009

• Recommended frameworks for the program are adopted

by HCMC and SAWACO by June

2009 and initial steps are taken towards implementation

ADB PPTA completion report Official reports and feedback from SAWACO and other agencies

Local government and water company policy papers

Assumptions

• Government, SAWACO, and other concerned agencies committed to timely and successful completion of the Project

Risks

• Differences between central and local government, or between local government and SAWACO significantly delay approval of the feasibility study and institutional strengthening program

1

Government’s target is 100% supply coverage by 2025

Appendix 1 7

Design

Summary

Performance Targets/Indicators

Data Sources / Reporting Mechanisms

Assumptions and Risks

Outputs

1 Part I—Nonrevenue

water: feasibility

study and

contractual

arrangement for

implementation of

NRW component in

subsequent

investment project

2 Part II—Plan for

strengthening and

expanding the

transmission and

primary network

3 Part III—Design of

institutional

strengthening plan

for implementation

during the

subsequent

investment project

• Completion by September 2009 of new feasibility study for NRW over four remaining zones, based on existing feasibility study and lessons from ongoing NRW projects

• Completion by September 2009 of feasibility study and project components for network extension consisting of an additional 90 km of new pipes

• Design by June 2009

of the various aspects

of the capacity building and institutional strengthening program are appropriate, timely, coherent and

compatible, including (i) framework for private sector participation, (ii) policy for water conservation, (iii) strategy for energy efficiency, and (iv) framework for ISO certification

Consultant working papers and reports, including feasibility study and progress reports

Workshops and stakeholder feedback from consultation activities and surveys ADB PPTA review missions and back-to-office reports

TA completion report HCMC government and SAWACO policy papers

Assumptions

• Good collaboration between the Government, SAWACO and the PPTA consultant throughout PPTA implementation

• Government successfully mobilizes various

stakeholders and secures counterpart contributions

• New decree on water supply will be enforced to allow for sustainable

operation

Risks

• Information and water sector data necessary to successfully undertake the feasibility study is not made available to the TA

consultant

1 Part I—Feasibility study, nonrevenue water (September 2009)

1.1 Review existing feasibility study and prepare new feasibility study for NRW that

incorporates lessons

1.2 Prepare TOR for a management contract for private sector participation

1.3 Make recommendations for implementation of the SCADA system and GIS as part

of a network management center

2 Part II—Feasibility study, network expansion (September 2009)

2.1 Prepare project summary and information on existing situation and services

provided (including water resources, supply, wastewater and drainage, distribution

and site information)

2.2 Undertake planning and demand forecasting for future development (includes

review of master plan)

2.3 Specify technical requirements for future development—distribution system and

selection of favored design options, control system, selection of equipment and

materials, cost estimates, drawings, and a procurement plan

Government of France:

$1.50 million

• Consulting services (40 person-months of international consultant services and 90 person-months of national consultant services): $1.23 million

• Travel, equipment, administrative and other costs: $0.27 million

SAWACO:

$0.40 million

• Counterpart staff (about