wb-inland waterways and port rehabilitation project

As of September 1997 Cunrency Unit = Vietiiamese Dong VNDVND1 .0 = tISSo.} US$1i0Q = ND-l I 1600 WEIGHTS AND MEASURES ABBREVIATIONS AND ACRONYMS CIDA - Canadian International Developme

Document ofThe World Bank

Transport Sector Unit

East Asia & Pacific Region

(As of September 1997) Cunrency Unit = Vietiiamese Dong (VND)

VND1 0 = tISSo.(((()}

US$1i0Q) = ND-l) I 1600

WEIGHTS AND MEASURES

ABBREVIATIONS AND ACRONYMS

CIDA - Canadian International Developmeint Agency

EIA - Enviroiunental Impiact Assessmenit

EPC - Enviromnenital Protection Center

FFCTU - Faculty of Fisheries at Can Tho University

IWTC - Inland Watervay Transport Cost

JICA - Japan International Cooperation Agency

MOT - Ministry of Transport and Comuniuliications

MPI - Ministry of Planning and Investment

O&M - Operations and Maintenance

ODA - Overseas Development Administration (UK)

OECF - Overseas Economic Cooperation Ftund of Japan

PMSTE - Provincial Science, Tecilmologv and Envirolunmenlt Department PMU-SW - Project Management Unit of Southern Waterways

TDSI - Transport Development Strategy Institlute

Review-UNDP - United Nations Development Programmlie

Vinamarine - Vietnam Maritime Administration

Vinawaco - Vietnam Waterway Construction Corporation

VJWA - Vietlnam Inland Watervays Administration

VIWA/SD - Vietnam Inland Waterways Adminiistratioln/Soutleem Department

FISCAL YEAR

January 1 to December 31

SOCIALIST REPUBLIC OF VIETNAM INLAND WATERWAYS AND PORT REHABILITATION PROJECT

Credit and Project Summary

Project Management Unit - Southern Waterways,Vietnam Inland Waterways Administration

Terms: Standard IDA terms, with a maturity of 40 years including

10 years' grace

on-lent to Can Tho Port Enterprise for 20 years, including

5 years' grace, at a fixed interest rate of 13.2 percent,repayable in local currency

60 days after loan signing, less any waiver

(or US$65 million) of total project cost (excluding taxesand price contingencies) and ERR of 27 percent

SOCIALIST REPUBLIC OF VIETNAM INLAND WATERWAYS AND PORT REHABILITATION PROJECT

Contents

Page

1 SECTORAL CONTEXT 1

A ECONOMIC CONTEXT AND TRANSPORT DEMAND 1

B TRANSPORT INFRASTRUCTURE . 1

C TRANSPORT SECTOR INVESTMENT STRATEGY 4

D TRANSPORT REFORMS 5

E REMAINING CHALLENGES . 5 5

2 INLAND WATERWAYS OF THE MEKONG DELTA 7

A BACKGROUND 7

B INLAND WATERWAYS INFRASTRUCTURE 8

C INLAND WATERWAYS TRANSPORT 8

D INSTITUTIONAL FRAMEWORK 10

E CAN THO PORT 12

F KEY ISSUES 13

G LESSONS LEARNED 14

H RATIONALE FOR IDA INVOLVEMENT 15

3 THE PROJECT 17

A PROJECT OBJECTIVES 17

B PROJECT DESCRIPTION 17

C PROJECT COSTS AND FINANCING 2 1 D ENVIRONMENTAL ASSESSMENT 23

E RESETmEMENT 24

F PROJECT IIPLEMENTATION 26

G PROCuREMENT 26

H DISBURSEMENT 31

I ACCOUNTS AND AUDITING 31

J PROJECT SUPERVISION, REPORTING AND MONITORING 31

This report is prepared on the basis of an appraisal mission undertaken in April 1997 The task team comprised Messrs./Mmes Jitendra N Bajpai (Task Team Leader), Veronique Bishop (Financial Analyst), Carlos Escudero (Sr Counsel), Dieter Havlicek (Transport Economist, Consultant), Leonard Schiffinan (Transport Engineer, Consultant), Ronald Zweig and Scott MacKnight (Environment Specialists), Pramod Agrawal, Marla Huddleston, Deepali Tewari (Resettlement Specialists), Chander Ohri (Procurement Specialist), and Bobbie Brown (Task Assistant) Staff from the Resident Mission in Vietnam included Messrs Phan Ngoc Thach (Infrastructure Engineer) and Paul Stott (Operations Officer) The peer reviewers were Messrs Ismail Mobarek (Port Engineer) and George Tharakan (Transport Economist) It was cleared by Messrs Javad Khalilzadeh-Shirazi (Director, Former EAI) and J Shivakunar (Chief, Former EAIIN).

A ECONOMIC ANALYSIS 333 3

B FINANCIAL ANALYSIS OF CAN THO PORT IMPROVEMENT COMPONENT 37

C PROJECT RISKS AND MITIGATION MEASURES 39

5 AGREEMENTS REACHED AND RECOMMENDATION 41

ANNEXES

Annex 1: Vietnam Inland Waterways Organization and Annual Expenditures and

Budget Annex 2: Performance Monitoring Indicators

Annex 3: Outline Terms of Reference

A Technical Assistance in Port Operations, Marketing and Business Development for the Can Tho Port

B Consulting Services for Supervision of Construction and Provision

of Training Annex 4: Detailed Project Costs

Annex 5: Summary of Environmental Management Action Plan

Annex 6: Summary Resettlement Action Plan

Annex 7: Summary Project Implementation Schedule

Annex 8: Summary of Procurement Arrangements

Annex 9: Cumulative Disbursements

Annex 10: Project Supervision Plan

Annex 11: Economic Evaluation

Annex 12: Can Tho Port Financial Analysis

Annex 13: Selected Documents Available in the Project File

FIGURES

1.1 Historical and Projected Freight Traffic by Mode

2.1 Distribution of Mekong Delta GDP

Al 1 Organization of Vietnam Inland Waterways Administration and

Southern Department

TABLES

1.1 Transport Infrastructure Stocks by Region, 1994

3.1 Summary Project Costs and Financing Plan

3.2 Summary of Proposed Procurement Arrangements

3.3 Allocation and Disbursement of IDA Credit

4.1 Mekong Delta Freight Traffic Demand

4.2 Economic Evaluation of Waterway Improvements Under Base Case

4.3 Sensitivity Analysis

4.4 Financial Evaluation of Can Tho Port Component

4.5 Break-Even Analysis of Can Tho Port Financial Returns

1 SECTORAL CONTEXT

1.1 Vietnam is located in mainland Southeast Asia, stretching over 1,600 km from theChinese border in the north to the Gulf of Thailand in the south The country's land area

is approximately 330,000 sq km and the population exceeds 75 million

1.2 Vietnam's primarily agrarian economy is growing and diversifying rapidly.Although per capita income, at US$250 per year in 1995, is one of the lowest in theworld, Vietnam is committed to making the transition to a market economy, with the

introduction of an ambitious economic reform program (Doi Moi) in 1989 The result has

been an economic growth rate exceeding expectations, averaging 6.5 percent from 1990

to 1992, 8.1 percent in 1993, nine percent in 1994 and an estimated 10.0 percent in 1995.Growth rates of 8-10 percent a year are projected for the rest of the decade Agriculture,which involves over 80 percent of households, grew by four percent Construction wasthe fastest growing sector in 1994 at 19 percent, followed by industry at 14 percent andservices at 10 percent

1.3 Continued economic expansion is expected to generate growth in demand forfreight transport Total freight traffic in Vietnam, estimated at about 53 million ton-km in

1993, is forecast to grow 7-11 percent a year for the rest of the decade,' with road trafficincreasing most rapidly (Figure 1.1)

1.4 Transport infrastructure in Vietnam is in a poor state of repair due to war damagesand the subsequent years of economic stagnation; as a result, it cannot meet the expectedgrowth in demand Although budget allocations have grown in the 1990s, bothmaintenance and capital expenditures remain under-funded Indeed, to provide adequatetransport infrastructure, annual outlays would need to almost double, to 2-3 percent ofGDP (about 2.4 percent for capital investment and 0.6 percent for maintenance), and kept

at this level for the next 10-15 years.2

I The World Bank, Vietnam: Transport Sector; Serving an Economy in Transition Report No.

12778-VN August 8, 1994, page 18.

2 Recommended expenditure is US$ 3.3 billion, of which capital expenditure is US$2.5 billion; periodic maintenance, US$0.8 billion; and routine maintenance, US$0.7 billion.

Figure 1.1: Historical and Projected Freight Traffic by Mode

Table 1.1: Transport Infrastructure Stock by Region, 1994

('000 km)

1.6 Roads The country's roads are in poor condition and are deteriorating rapidly

due to increasing truck traffic and inadequate maintenance, which, together, are strainingthe foundations and surfaces that were not designed for high-axle loads According to a

1996 survey, only nine percent of national and provincial roads were considered in "good"

3

-condition, while 67 percent were "poor" or "very poor."3 Only 53 percent of the totallength (11,084 km) is paved Based on World Bank estimates, actual expenditures onroad maintenance represent only 27 percent of the amount required As a result, vehicleoperating costs are about 40-80 percent higher than for well-maintained roads

almost all populated areas and industrial zones Of this amount, about one-quarter cansupport year-round transport, and one tenth (4,000 kin) have sufficient drafts to carrylarge commercial vessels Twenty-three major river ports handle bulk cargo andnumerous small, private facilities (typically landing stages or "gang-and-plank") handlesmaller loads

1.8 Waterway capacity and safety have declined in recent years due to several factors,including the silting of channels, inadequate navigation aids (navaids), sharp bends and

other obstacles Severe silting has resulted from a dredging backlog estimated at 25

million cubic meters (10 million in the north and 15 million in the south)4 Inadequate

navaids make day navigation treacherous and night navigation unsafe for barge convoys.

The absence of night navaids has lowered fleet productivity by an estimated 40 percent or

more Over 50 sharp bends in the southern waterways hamper the use of convoys in the main waterway corridors Obstacles such as low overhead clearances, encroaching

houses, shipwrecks, uncontrolled anchoring and fishing traps further impede navigation.These factors have raised waterway transport costs and caused the inland waterways to beunderutilized

Danang) and about 30 other seaports.5 In general, port operations are inadequate due toobsolete facilities and antiquated cargo handling equipment The Asian DevelopmentBank (ADB) and other bilateral donors are addressing these issues in Saigon andHaiphong

1.10 Railways It is estimated that the 2,500-km rail network is about four timeslarger than required Its condition is unsatisfactory, several sections of track are subject toflooding, and gauges differ between some provinces Moreover, operating speeds are lowdue to track, bridge and tunnel deterioration as well as the poor condition of rolling stock.1.11 Airports Vietnam has 18 airports, of which three are international (Hanoi, Ho

Chi Minh City, and Da Nang) and only six are served on a regular basis Although air

Scott Wilson Kirkpatrick, Study of Investment and Maintenance Strategy for National and Provincial Roads: Vietnam January 1996.

4 To maintain a least-available depth (LAD) of 2.4 meters (standard for Vietnamese Class III waterways), it is necessary to dredge about 2.5 million cubic meters each year (1.5 million cu.m in the north and I million in the south).

S These include seven national seaports, about 20 provincial/municipal seaports and a number of specialized ports operated by the Ministries of Energy and Agriculture and by the Navy.

traffic is low, it is expanding at 30 percent a year As a result, international airportfacilities in Hanoi and Ho Chi Minh City (HCMC) are becoming congested.

C TRANSPORT SECTOR INVESTMENT STRATEGY1.12 To meet the anticipated growth in demand, Vietnam will need to ensure that itskey transport infrastructure is adequate Investments should therefore focus in themedium term on restoring, modernizing and maintaining principal roads, waterways andports where demand is strong but deterioration poses serious bottlenecks Once thenetwork has been improved to a condition that can be maintained, long-term investments

in regional road links, new ports and urban public transport could be considered Suchinvestments will require a deeper understanding of the evolving demand for transport.1.13 To identify priority investments, comprehensive studies have been carried out forroads, urban transport, rail, inland waterways and other transport modes, as recommended

in a World Bank sector review.6 A road sector study financed by ODA developed amedium-term investment strategy, and the government has already obtained financingcommitments from ADB, IDA and others for key investments in highways and rural roads

An urban transport management study recommended investments in traffic managementand urban roads to accommodate the rapid growth in traffic; IDA is coordinating withother donors to finance these investments A railway study identified rail bridges andtunnels that urgently need to be rehabilitated; it is expected these will be funded by OECF.For the coastal shipping sector, JICA is helping VINAMARINE formulate a master plan

To ensure sectoral and cross-sectoral coherence in the Government's overall developmentprogram, UNDP reviewed public expenditures and donors have coordinated their efforts

in the sector The following studies were completed and investments identified for theinland waterways:

* A Master Plan for the Mekong Delta sponsored by the Government, the

World Bank, the Mekong Commission and UNI)P7 helped identify theproposed project covering priority investments for rehabilitating the maininland waterways of the Mekong Delta as well as a regional port

* A similar study completed for the Red River Delta defined major commercialwaterways and river ports needing rehabilitation in the north, and an ADBproject is being prepared

* In cooperation with the Mekong Commission, Belgium is financing a feasibilitystudy for improving the entrance channel to the Bassac River

* CIDA has proposed a technical assistance program in cooperation with the

Bank and ADB to promote commercial practices in waterway management andoperations

6 The World Bank, idem.

7 NEDECO, State Planning Committee of Vietnam; World Bank; Mekong Secretariat; United

Nations Development Programme, Master Plan for the Mekong Delta in Viet Nam, May 1993.

5

-D TRANSPORT REFORMS

1.14 In line with Doi Moi, important reforms have been undertaken in transport,

notably:

* Eliminating the allocation of cargo to specific modes;

* Liberalizing tariffs for road and inland waterway freight transport;

* Decentralizing fare-setting and route-allocation power for urban passengertransport to the provincial People's Committees;

Lifting entry controls by easing licensing restrictions and allowing privatetransport enterprises and own-account operators (including military) toprovide both cargo and passenger transport;

* Commercializing state transport enterprises and abolishing their directoperating subsidies;

* Allowing the establishment of private transport enterprises and privateparticipation in transport infrastructure investment and operations;

* Reorganizing the Ministry of Transport and Communications (MOT) intomodal administrations; and

* Improving the cost recovery of state transport infrastructure

E REMAINING CHALLENGES1.15 These reforms will improve the efficiency of transport operations and are expected

to spur the growth of the private market for transport Additional measures should betaken to ensure adequate sector investment, strengthen the public institutions responsiblefor providing fixed infrastructure, promote regulatory reforms to stimulate private sectoroperations, and design pricing and taxation policies that will generate revenue andefficiently allocate demand across modes Specifically, the reform agenda for the nextdecade should include the following:

* Increasing annual capital expenditure for transport infrastructure to 2.5percent of GDP in real terms;

* Increasing operations and maintenance (O&M) expenditures to about 0.6percent of GDP (twice 1995 levels) and introducing modern maintenance andmanagement techniques;

* Coordinating investment planning among various levels of government;

* Privatizing commercially viable transport services (e.g., trucking, shipping,port services);

* Gradually eliminating remaining restrictions on entry and competition intransport markets (including subsidies), and replacing them with a regulatoryframework and institutions;

* Realigning transport user charges for commercial public services to fullyreflect their economic costs;

* Continuing to strengthen transport institutions; and

* Modernizing transport training and upgrading skills

1.16 The proposed project would introduce specific actions to support the abovemeasures in the inland waterways sector, including an increase in O&M expenditures,capital investment for the rehabilitation of commercial routes, capacity enhancement tomainly promote commercial barge traffic, and strengthening of public institutionsresponsible for sector management In this endeavor, the Bank will continue to promotethe full cooperation of the active and interested donors (see para 3.53).

2 INLAND WATERWAYS OF THE MEKONG DELTA

2.1 The Mekong River Delta covers about 39,000 sq km at the southern tip ofVietnam (see Map) Eighty-five percent of its 16 million residents live in rural areas, with

an average density of about 400 inhabitants/sq km in 1993 (varying from 193 inh./sq km

in Kien Giang province to 660 inh./sq km in Vinh Long province)

2.2 Most of the Delta's population is engaged in small-scale agriculture, with 63percent of total land area under cultivation and average land holdings of about onehectare In recent years (1990-1994), the region has generated roughly one-quarter of thenation's GDP, one-third of its agricultural production and half of its rice production Theregion's rice products contribute significantly to export earnings, accounting for 85percent of Vietnamese rice exports in 1990.1 Upland crops such as soy and mung beans,and perennial crops such as coconut, pineapple and sugarcane, also are cultivated in theregion, and aquaculture is increasing Industrial activities include agro-processing (such assugar, rice mills and fisheries) and cement production (e.g., the Kien Luong Plant).Figure 2.1 presents a breakdown of regional output by sector

Fi2ure 2.1: Distribution of Mekong Delta GDP

B INLAND WATERWAYS INFASTRUCTURE

Its 26,900 km of rivers, canals and irrigation channels reach virtually every settlement.There are about 4,800 km of navigable routes of which 1,578 km have sufficient depth tosupport commercial traffic (LAD of 2-4 m) The main rivers (Dong Nai, Mekong andBassac) can accommodate seagoing vessels up to 4.5 m draft under normal conditions.The strength and direction of the currents change with the seasons and the tides (hightides of up to 4.5 m amplitude enter twice a day from the Eastern/South China Sea and amuch weaker tide of 1 m amplitude enters once a day from the Gulf of Thailand) There is

a serious backlog in dredging, estimated at about 12 million cubic meters The annualmaintenance dredging requirement is estimated at an average 1.5 million cubic meters

cargo annually The largest is Binh Dong in HCMC (0.5-0.7 million tons p.a.) The port

of Can Tho in the center of the Delta (see map) handles some 0.2 million tons p.a and canaccommodate seagoing ships up to 10,000 dwt, whereas the other river ports can supportvessels of only 1,000-2,000 dwt Small facilities serve the remainder of the region's cargotraffic

and lights which indicate shipping channels and obstacles There is a severe shortage ofnavaids in the region Only about 400 navaids exist on the main shipping channels one-fifth of the number required for safe day and night navigation Most navaids needrehabilitation and none are lighted As a result, day navigation is risky and nightnavigation is dangerous

needed to manage and maintain the waterways The effective dredging capacity is onlyabout 30 percent of the amount required, and the entire southern network has only twomotorized patrol boats, both outdated A typical waterway maintenance station has onlyone 5-dwt wooden boat, and no modern hydraulic and hydrographic measuring equipment

or dedicated communication system Measurements are carried out using level rods andlead line, and the antiquated local public telephone system is used for internalcommunication

C INLAND WATERWAYS TRANSPORT

commodity cargoes such as paddy, rice, cereal, fertilizers, construction materials, cementand petroleum products In 1994, inland waterways carried about 6.8 million tons offreight traffic in the Delta, representing about 65 percent of the total recorded traffic in theregion (10.5 million tons) In addition, waterways carry a significant amount of informalfreight and passenger traffic Agricultural products, construction materials and timber

9

-represent more than 80 percent of all commodities transported on these waterways.2About three-quarters of recorded Mekong waterway freight had its origin or destination inHCMC; about 17 percent consisted of imports or exports and less than 10 percentcomprised intra-Delta traffic Two corridors carried 60 percent of waterway freight:HCMC - Cho Lach - Kien Luong and Cho Lach - Can Tho- Ca Mau (see Map) Long-haul cargo (about 70 percent) is predominantly transported by 50-150 dwt vessels

dwt, of which the long-haul fleet accounts for about 220,000 dwt.3 The long-haul fleetconsists of barges (250-300 dwt; 47 percent of capacity), self-propelled wooden countryboats (50-150 dwt; 46 percent) and self-propelled steel vessels (200-600 dwt; 7 percent).The conventional barge train consists of two or three 250-dwt barges pushed by a 200 HPtug, with a draft of 2.20 meters4 Over one-third of fleet capacity is made up of self-propelled vessels of about 60 dwt, with a draft similar to that of barges The fleet isgenerally old, dating to the 1970s, 1960s or earlier, and has shrunk steadily by some 3-5percent per annum Cargo transport has been operating at almost 80 percent of itscapacity, a relatively high figure that indicates capacity shortages could develop soonunless the system is made more efficient

2.9 The predominance of the artisanal mode in the south contrasts with that in thenorth, where the prevailing mode of operation is industrial scale, in convoys of barges with

an average size of 200 dwt and a pusher tug

2.10 Waterway fleets are operated by cooperative, state, provincial, and private bodies.Cooperatives own the largest share, while state companies own about 20-30 percent Anumber of provinces also have fleets and passenger ferries which are controlled byprovincial MOT departments Many river craft are privately and/or owner-operated Thepassenger fleet is mainly owned and operated by provincial administrations Since 1989,

to encourage commercialization, greater autonomy has been granted to state andprovincial river freight transport companies and subsidies to state-owned shippingcompanies have been eliminated, forcing them to seek private and foreign partners Inaddition, several cooperatives/state enterprises have been privatized since 1989

2.11 Costs Vessel operating costs on Delta waterways are estimated at about 2 to 4

US cents per ton-km5, which compares favorably with road transport costs (about 5 to 7

US cents per ton-km), particularly for long distances This is consistent with internationalestimates

2 During 1986-90 rice and other agricultural products comprised, 41.2%; construction materials, 29.5%; timber and timber products, 9.5%; and fertilizer, 9.1%.

3 NEDECO, Inland Waterways and Port Modernization Project, Main Report, p 14, para 2.10.

4 Ibid, p 14, para 2.12.

5 Barge convoys with average trip lengths exceeding 100 km would incur the lowest costs, while convoys with short trip lengths or on canals in a poor state of repair (e.g., Xa No-Ca Mau) would experience the highest costs Self-propelled vessels are in between, with a 10-15 percent cost advantage over barge convoys on short distances and a cost disadvantage on long distances Source: NEDECO, ibid.

D INSTITuTIONAL FRAMEWORK

2.12 Policy and Oversight The Vietnam Inland Waterways Administration (VIWA)

was established in 1993 under MOT to oversee inland waterways, river ports and shipping(see organization chart, Annex 1, Figure Al 1).6 VIWA is responsible for formulating andadministering sector policies and regulations; planning and funding waterwayinfrastructure investments; and overseeing waterway safety and training While VIWA hasindependent legal status, its own budget and accounts with the State Treasury, itsautonomy is limited in that: (a) it reports to MOT; (b) its budget is reviewed by MOT andapproved by the Prime Minister; and (c) its chief executive is appointed by the chairman ofthe Council of Ministers on the recommendation of the Minister of Transport

2.13 MOT has established a Project Management Unit of Southern Waterways SW) to manage foreign-financed development projects for the main waterways (HCMC-Cho Lach-Kien Loung and Cho Lach-Ca Mau) The Unit consists of five sections(Technical, Planning, Administration and Organization, Finances, and Resettlement,including Environment) Its Director General has been seconded from VIWA and issupported by a Deputy Director General and 28 staff PMU-SW reports to MOT andVIWA

(PMU-2.14 Waterway Operations and Maintenance VIWA has sole responsibility for the

administration, management, maintenance, standards and safety of state-controlledwaterways and, with MOT oversight, for planning, designing and implementing all majorcapital works

2.15 VIWA delegates its duties related to maintenance, enforcement, and routineoperations and management of the Mekong Delta waterways to the Vietnam InlandWaterways Administration/Southern Department (VIWA/SD), established in 1993 andsituated in HCMC.' VIWA/SD manages about 2,327 km of rivers and canals in the south,including the project waterways It also is responsible for: regulating waterbornetransport and facilities (in cooperation with central authorities); enforcing rules andregulations pertaining to the waterways; issuing permitsAicenses for vessels; andmaintaining, imnproving and developing river transport infrastructure

2.16 Responsibility for operations and management is subdivided into geographicaldivisions, of which there are five in the Mekong Delta Each division supervises 4-5stations, which perform day-to-day functions such as waterway inspection (cargo, crew,etc.), traffic enforcement, routine checks and monitoring of water levels, navaids,obstructions, pollution, etc., and public communications

6

Decree 08/CP of January 30, 1993.

Decree No 1477/QN/TCCCB-LN of July 23, 1993, issued by MOT.

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-2.17 Plans for annual maintenance dredging and salvage and clearance of obstacles areprepared by VIWA/SD staff and submitted to VIWA and MOT for review and clearance.Once approved, MOF appropriates the funds to VIWA/SD for further distribution to itssubsidiary entities

2.18 VIWA/SD has a staff of about 330, including 29 professionals at its central office

in HCMC A typical area division is staffed by 14 persons; a typical station, by 8 persons.2.19 The ability of VIWA/SD and its subsidiaries.to perform effectively is hampered bylack of modem equipment, facilities and trained staff Even core functions such as channelverification, supervision of riparian structures, law enforcement, search and rescue, andpublic updates on conditions, are carried out in a rudimentary fashion

2.20 Dredging Dredging activities in Vietnam are overseen by three entities:

(a) Vietnam Waterway Construction Corporation (VINAWACO), a state company underMOT consisting of three separate companies; (b) Dredging Company No 1 andDRECONT under the Ministry of Water Resources; and (c) VIETDREDGE, a jointventure between all Vietnamese dredging companies and the Netherlands Port and DeltaConsortium These companies are considered financially autonomous and are permitted tocompete for public tenders Each company has the capacity to undertake over five millioncubic meters per year of dredging In anticipation of an increase in capital andmaintenance dredging, these companies recently began to overhaul their dredging fleets.2.21 State Enterprises in the Sector VIWA administers two groups of state-owned

companies in the waterways sector: one in the north (Union of Enterprises No 1) and asecond in the south (Union of Enterprises No 2) The southern group includes a rivertransport company, three shipyards, one river port, a workshop and a navigation trainingcenter Provincial authorities also manage a few companies, and some governmentministries and state-owned enterprises have their own fleets and ports In addition, thereare several state-owned sea-and-river transport companies

2.22 Supporting Institutions There are several institutions and facilities underVIWA that support the staff needs of sector agencies, including two inland navigationschools, one of which, situated in HCMC, serves southern Vietnam After years ofneglect and under-funding, the transport training schools have inadequate facilities; as aresult, under 10 percent of river pilots in the south have pilot certificates To help meettraining needs, the Government of Vietnam (GOV) is seeking bilateral assistance fromvarious sources

2.23 Other transport sector organizations include the Service of Maritime Safety(SMS), part of MOT's maritime department, which is responsible for the operation ofseaport access channels, and the Transport Development Strategy Institute (TDSI), aMOT institute for socioeconomic research

2.24 Sector Revenues and Expenditures The inland waterway sector generates two

main types of revenues: fuel taxes and registration fees Fuel taxes include a 15 percent

diesel tax collected at the pump8 and a transport surcharge of VND 300 per liter on dieselfuel.9 Fuel taxes are set uniformly for all modes of transport They are collected by the

Ministry of Finance (MOF) and applied to the general budget Registration fees, set and

collected by VIWA, are levied on river craft of 5 dwt or more 10 A regional breakdown ofthese revenues is not available but they are estimated at about VND 25 billion (US$2.3million) from inland waterway transport in the Mekong Delta, including VND 24 billion(US$2.2 million) from the diesel tax in 1994

2.25 Expenditures are budgeted through the central government's normal procedures.VIWA prepares both recurrent and capital budgets under MOT's guidance The recurrentbudget is reviewed by the MOF and the capital budget by the Ministry of Planning andInvestment (MPI), prior to the MOF and the Office of the Government's final approval.2.26 The provincial departments of MOT are funded entirely by the central government.Although sector revenues appear adequate to fund operations and maintenance, budgetallocations have been insufficient A breakdown of sector expenditures and budgets forVIWA and for VIWA/SD is provided in Annex 1

2.27 Can Tho Port is located in the center of the Delta and 70 km upstream from themouth of the Bassac River Its main business is transshipping bulk cargoes, primarily riceand paddy, from small vessels to barges In its present state, the port has a throughputcapacity of about 250,000 tons per annum Its throughput reached 200,000 tons in 1996and demand is expected to exceed capacity by the year 2000 The Government recentlydesignated the port as an international seaport and plans to develop it as a regional hub.However, the port's ability to carry seagoing traffic is limited by (a) silting of the BassacRiver channel leading to the Eastern/South China sea (which limits ship drafts);(b) impending throughput constraints of the port itself, (c) a lack of commercialorientation; (d) poor financial management; and (e) constraints on the marketing andexportation of rice, which hamper the full realization of the port's comparative advantage(Annex 1 1, page 7) An ongoing study seeks to determine the feasibility of a sustainablesolution which might permit Can Tho Port to attract traffic from the congested ports ofHCMC In addition, the proposed project includes investments to preserve port capacity

as well as assistance to promote private participation and improved commercial andfinancial management (paras 3.15 to 3.18)

8 Decision 542 TC/QD/TCT of July 1, 1996

9 Decree No 186-CP of December 7, 1994 This replaced channel fees

10 Decision No 1032/QD.KHKE/TCKT of July 4, 1994, issued by MOT There are two components: (a) annual fees of VND 800 (US$.08) per dwt and (b) a first-time registration fee ranging from VND 1,450 per dwt (for vessels over 100 dwt) to VND 1,650 per dwt (for vessels up to 20 dwt).

- 13

-2.28 Can Tho Port Enterprise, a state-owned business entity", is responsible for theoperation and maintenance of the Port The Port has 13 managerial staff to coveroperations, finance, ship services, maintenance and personnel functions However, keycommercial functions such as marketing, financial planning and plant management are notstaffed The existing financial reporting system is inadequate for port management;however, a new financial accounting system will be introduced this year

2.29 Restoration of System Capacity and Efficiency The three key components of

the Mekong waterways system - waterways, fleet and cargo handling - require immediateattention Otherwise, their capacity constraints will affect the regional and nationaleconomy and divert significant traffic to higher-cost roads For long-haul bulk traffic,waterways remain the most economical, energy-efficient and environmentally desirablemode of transportation Hence, the need for sustaining the desired balance between roadand waterways use is critical in the Mekong Delta

Waterways: Chronic neglect of dredging in rivers and canals, inadequate navaidsand other impediments to navigation have led to under-utilization, rising unit transportcosts and declining safety of inland waterways The Government is determined to reversethis trend This will require: (a) eliminating the dredging backlog; (b) preparing mainroutes for the use of large vessels and barges, including canal widening, maintenance ofrequired water depth, overhead clearances, provision of locks for navigation andattenuating sharp bends; (c) improving navaids for safe day and night operations; and(d) improving waterway operations through modernization of equipment, betterenforcement of rules and adequate navigation information The proposed project isdesigned to address these requirements (see Component A in Chapter 3)

Fleet Modernization: The existing fleet is operating at its maximum carryingcapacity The fleet capacity required for the projected cargo demand of 7.3 million tons inthe year 2000 exceeds current capacity by about 80,000 dwt The present project willincrease the productivity of the existing fleet by permitting night navigation and reducingtravel time Moreover, it will offer indirect incentives to operators to renew and/orexpand the fleet The proposed expansion of waterway capacity and improved operationswill permit the use of larger vessels that will more efficiently meet the emerging demandfor long haul bulk freight in the Delta Since restrictions on entry have been lifted, newvessel owners or operators will be attracted, and new joint venture companies may enterthe barge business

Cargo Handling: Despite physical constraints on larger seagoing vessels, Can ThoPort's prime location shows potential to handle substantial Delta traffic while restrainingtraffic diversion to HCMC ports In order to maintain and expand its role, Can Tho Portneeds to improve cargo handling efficiency while adopting commercial business practices

"Decision No 1393/QD-UBT92 of the Can Tho Province, Nov 28, 1992, and Decision No 1828/KH DT of the MOT, Sept 17, 1993.

The proposed project will address critical needs in these areas in tandem with on-goingreforms in the sector (paras 3.15-3.18).

2.30 Sustaining Adequate Maintenance Recognizing the importance of operations

and maintenance, the Government increased its recurrent expenditures six-fold from 1991

to 1995, from VND 2 million (US$184) per km to VND 12.9 million (US$1,169) per km.However, this amount is still far short of the approximately US$2,000 per year per kmthat is needed (see Annex 1) The Government is committed to addressing this issue inconjunction with the implementation of the project (para 4.25)

2.31 A competitive, reliable and stable dredging industry is essential to regularmaintenance activities The domestic dredging industry has shown positive signs ofdevelopment in recent years (para 2.20) The increase in maintenance expenditures andthe implementation of major waterways rehabilitation projects (including this project andthe future ADB project in the north) will offer the domestic dredging industry anopportunity to flourish through an infusion of capital in new equipment and transfer ofknow-how via joint ventures

2.32 Human Resource Management and Development VIWA and VIWA/SD are

under-staffed, under-trained and lack the necessary equipment for efficient waterwaymanagement; they cannot adequately carry out their assigned responsibilities Inparticular, additional staff needs to be recruited and trained in areas including contracting;dredging (planning and supervision), environmental and resettlement monitoring, soil andwater sampling, civil works supervision, operation and maintenance of navaids, andwaterway administration (including planning, programming and budgeting techniques).The project will begin to address skill-building needs in the priority areas listed above(paras 3.19 and 3.22, and Annex 3) Moreover, it will perrnit the Bank to coordinatefuture efforts of interested bilateral donors CIDA has already approached the Bank withthe design of a technical assistance program for promoting commercial management andoperations practices in VIWA

2.33 Lessons from Previous IDA Projects This project is the first in the Vietnamese

inland waterways sector IDA experience with other projects in Vietnam is still limited,but a recent Country Implementation Review identified three areas of incipient problems:(a) non-codified procurement procedures, as government procedures are cumbersome andagencies are unfamiliar with Bank guidelines; (b) allocation of counterpart funds; and(c) resettlement policy Recent experience with the implementation of the HighwayRehabilitation Project (Credit 2549-VN) shows that a multi-layered bureaucracy and over-centralized decision-making slow implementation further In general, governmentagencies lack familiarity with IDA procedures, have inadequate legislation and practices(particularly in procurement and resettlement) and suffer from scarcity of funds andexperienced staff

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-2.34 Various cross-sector and sector-specific initiatives by bilateral and multilateraldonors (such as assistance with drafting legislation on procurement, resettlement and othermatters) and the reforms planned or undertaken by the Government will begin to resolvethese issues However, it is clear that it will take time for Vietnam to develop its projectabsorption capacity in specific sectors

2.35 The proposed project will benefit from these initiatives and will initiate capacitybuilding for project formulation and implementation in the inland waterways sector

2.36 Lessons from Bank Experience Bank experience in inland waterways projects

in Asia (Bangladesh, China, Myanmar and Thailand) suggests that the viability of inlandwaterway projects depends critically on the waterways' ability to maintain a comparativeadvantage over competing modes of transport and thus promote waterway use This, inturn, depends on three criteria: (a) maintaining adequate drafts by managing water useand navigation aids to accommodate vessels; (b) retaining a cost advantage over trucking;and (c) attracting bulk traffic that is not time-sensitive Moreover, these projects haveindicated the need for technical assistance to improve the imnplementation and supervisioncapabilities These requirements have been met by the project design and the proposedimplementation arrangements (Chapter 3)

2.37 IDA's Country Assistance Strategy for Vietnam (CAS, discussed at the Board onOctober 25, 1995; and a progress report reviewed by the Executive Directors onDecember 23, 1996) promotes investment in key infrastructure to support broad-based,sustainable development and poverty reduction The country's dilapidated and obsoleteinfrastructure, including transport, has been identified by the Government, IDA andprivate investors as a critical constraint to rapid, sustained and geographically broad-based economic development IDA's strategy in the Vietnamese transport sector is toassist in rehabilitating the basic transport network, promoting regulatory reform andstrengthening the public sector institutions responsible for infrastructure provision andmanagement

2.38 The proposed project is consistent with these strategies and fulfills the

recommendations of the Mekong Delta Master Plan The project supports the urgent

need for the restoration of two key existing waterway routes in the Mekong region tomaintain a balanced use of road and waterway transport modes while promoting economicgrowth in a largely rural, poor region Improving waterways will open the region toeconomic activities (mainly agribusiness and trade), improve its access to the country'slargest city (HCMC) and the region's central port (Can Tho), and promote exports fromthe region to international markets Furthermore, by promoting the most econoniic,energy-efficient and environmentally desirable mode of transporting low-value, bulkcargoes, the project will benefit public and private vessel operators as well as farmers interms of reduced transport costs and resulting gains in fleet productivity Thus, theproject will form a critical element in the Bank's efforts to help Government improve theliving conditions of the rural population and promote private-sector activities

2.39 Because this is the first donor-assisted major project in the sector, IDA has beeninstrumental in transferring know-how about project identification and development,including the technical design and evaluation of related economic, social andenvironmental aspects The project is a prototype of the comprehensive package ofactions and improvements required to modernize inland waterways Furthermore, throughthe project, IDA will support the introduction of modem technology and implementation

of efficient methods of waterway management and operations (through training andtechnical assistance)

these objectives, the following indicators will be monitored annually duringimplementation and after completion: (a) increase in average daily cargo traffic at selectedlocations along the project waterways; (b) increase in throughput of the Can Tho Port;(c) financial performance of Can Tho Port, in terms of increased operating profits; and(d) staff-weeks of training and the number of VIWA and VIWA/SD staff trained under theproject (Annex 2) In addition, a set of indicators has been defined to measure progress

on project works (Annex 7B), resettlement activities (Annex 4) and environmental impactmitigation (Annex 5) Monitoring will also establish the progress of projectimplementation and effectiveness

B PROJECT DESCRIPTION3.3 To achieve these objectives, the project will comprise three components:(a) Waterway Improvements (US$56.3 million; 82 percent of base costs); (b) Can ThoPort Improvements (US$1.56 million; two percent of base costs); and (c) InstitutionBuilding (US$10.65 million; 16 percent of base costs)

Component A: Waterway Improvements

3.4 This component will improve the two main inland waterway routes of the MekongDelta, which total 546 km (see map) These two routes are: (a) HCMC to Kien Luong inthe northwest, via Cho Gao, Cho Lach, Sa Dec, Lap Vo and Rach Gia; and (b) Cho Lach

to Ca Mau in the southwest via Mang Thit, Can Tho, Xa No and Thoi Binh Theimprovements will permit safe daytime and nighttime, year-round, two-way navigation;depth and air clearances will accommodate the design convoy consisting of three 300-dwtbarges.1

deepened through excavation and dredging (250 kin) The least available depth (LAD)will be a minimum of 2.7 meters at lowest low water level (LLWL) The lowest width willvary from 22 to 30 meters based on projected traffic density as shown below:

* HCMC to Cho Gao (69.5 km) will have a minimum width of 30 meters,conforming to the requirements of a Class III canal under Vietnamesestandards;

* Cho Gao to Cho Lach (42.3 km), largely along the northern branch of theMekong River (Pha Rach Mieu), will maintain a minimum width of 30meters;

* Cho Gao via Sa Dec, Lap Vo and Rach Gia to Kien Luong (216.2 km) willmaintain a minimum width of 26 meters;

* Cho Lach via Mang Thit to Can Tho (84.8 km), a heavily traveled section,will also be widened, where needed, to a minimum width of 26 meters; and

* Can Tho via Xa No to Ca Mau (133.6 km), which has less traffic, will have aminimum width of 22 meters (however, provisions will be made for futurewidening to 26 meters once the traffic level justifies it by acquiring sufficientright-of-way)

3.6 To avoid major resettlement and related costs within the densely populated town

of Rach Gia, an 8 km canal bypassing the town will be built (see map), which will meet thesame standards as the existing canals to which it will connect To improve safety andnavigation, nine bends with insufficient radii (less than 300 m) will be improved (see map),and river training works will be carried out at four intersections of canals with the BassacRiver at Lap Vo, Cai San, Tra On and Can Tho, at the Mekong River and the Sa Deccanal, and at the confluence of the Mekong and Mang Thit Rivers (see map) To abatedangerous cross-currents and reduce the velocity of water flow at three canal confluencesalong the Rach Gia to Kien Luong section of the waterway (see map), these canalintersections will be widened and deepened

3.7 Canal widening will require dredging of approximately 10 million m3 of materialusing cutter suction dredgers, grab dredgers and barges The method of dredging,disposal and environmental treatment will depend on the type of soil dredged (para 3.28).Delta soils consist predominantly of Holocene marine sediments, of which some of thebrackish water and marine sediments contain potentially pyritic or Acid Sulfate Soil(ASS); particularly along the Rach Gia-Ha Tien canal and the Xa No, Tat Cay Tram and

I The design vessel is a three unit towing convoy consisting of a 200 BP (=150 kW) tug with a draft of 2.20 m, towing three barges of 300 dwt, each with a width of 8.5 m, length of 38 m and draft of 1.6 m The total length of the convoy is approximately 140 m and design speed is 8.5 km/hr.

-

19-Trem Canh Den canal sections When it is dredged, ASS material requires specialtreatment in order to minimize the release of acid when exposed to air All dredgedmaterial will be placed in areas contained by dikes (about 2 to 2.5 m high) with drainagefacilities Special environmental measures will be taken for the containment, treatment andmonitoring of ASS (para 3.28) Adequate arrangements have been made for selectingdisposal sites and compensating farmers for any loss of crops or land (paras 3.33-3.36).3.8 Component A-2: Bridge Improvements To permit safe and efficient two-way

passage for vessels at high water, the bridges along the waterways should provide aminimum of 30 m horizontal and 7 m vertical clearances All new bridges will adopt thesestandards Of the existing bridges, 10 have substandard clearances With suitablenavigation aids, three could accommodate some traffic growth but at slow speeds Fivebridges will be replaced or improved (at Sa Dec, Kien Luong, Trinh Huu Ngia, VinhThuan and Doan Ket; see map) The remaining two will be demolished due to their closeproximity to other bridges (Cai San and Thoi Binh)

trapezoidal shape with vegetation on wet berms to provide aquatic habitats and stable sideslopes Side slopes will be placed at an angle varying from the equivalent of 1 vertical to 2horizontal (1:2) to 1 vertical to 3.5 horizontal (1:3.5) depending on the type and strength

of the excavated soil and the likelihood of vehicle or other loading activities being placedadjacent to them The project will treat canal side slopes where needed (about 10 km)with proper surfacing materials (riprap, reno mattress and gabions) to afford stability andprevent erosion caused by rainfall, currents or waves

3 10 Component A-4: Navigation Aids To ensure safe day and night navigation in

two directions, the existing system of navigation aids (navaids) will be rehabilitated andnew navaids will be installed for the following waterways: (a) HCMC to Cho Lach;(b) Cho Lach to Kien Luong; (c) Cho Lach to Ca Mau; and (d) the Bassac River betweenCan Tho and Cai San The proposed navaid system integrates a maritime buoyage systemfor main sea-going routes (LALA based) and the SIGNI-based markings for the inlandwaterways The navaids will consist of large and small light buoys, high and low beacons,canal bank lights, bridge and pier lights and appropriate channel, bank, shoal andobstruction markers and instruction signs

3.11 Component A-5: Landing Stage and Relocation of Markets Extending the

improved Xa No waterway section into the densely-populated area of the town of Ca Mauwould have serious implications in terms of cost, environment and resettlement Becausedistributing goods from Ca Mau would require that they be transferred to trucks in anycase, the canal improvements will stop at the town's outer limits, and a landing stage(cargo transfer facility) of 100 m by 20 m will be constructed at this location, withberthing, mooring and apron facilities and an access road (see map)

3.12 Markets located on the waterways in Cai San and Vi Thanh (see map) pose ahazard to river traffic These markets will be relocated to suitable nearby sites away fromthe main navigation channel

,,i Component A-6: Navigation Lock The Government (Ministry of Agriculture)

to build an anti-salinity weir at Thoi Binh (near Ca Mau) to limit salinity intrusion

io the Mekong Delta (see map) As this weir would have obstructed waterway traffic, a'oX- approximately 14.5 meters wide and 117.0 meters long, with a pedestrian overpass,

b co.nstructed to both limit salinity intrusion and permit the passage of barge convoys.d fom Ca Mau

314 Component A-7: Land Acquisition and Resettlement Dredging works will

require resettling people living in areas to be widened and the disposal of dredged soil.Residents affected will be resettled and/or compensated according to an agreedT"eCsettlement Action Plan (RAP) (see paras 3.33-3.36)

oannponent B: Can Tho Port Improvement

1 Under this component, Can Tho port will be rehabilitated to support the

ar ricipated growth in cargo over the next five years

3A65 Comiponent B-1: Infrastructure Port infrastructure improvements will consist

of: replacing the existing fenders with an improved system along the berth (144 m) and,provRing for the collection of vessel bilge water and any chemical spills

3.17 Component B-2: Equipment To improve cargo flow and reduce waiting time,

the project will also provide to the Can Tho Port Enterprise cargo handling equipmentir uding one 40-ton mobile crane, six 40-foot trailers and two yard tractors

Component B-3: Strengthening of Port Management Consultant services and

s -raining will be provided to the Can Tho Port Enterprise in the areas of marketing,

ia-71cial management, business development and port management (see outline terms of-erence, Annex 3A)

, 'nponent C: Institution Building

3 1 C Tinder this component, equipment and technical assistance, including training, will

.nrovided to VIWA/SD and PMU-SW to ensure timely and satisfactory project.paementation and to improve waterway operations and maintenance

3.20 Component C-1: Equipment for Waterway Operations and Maintenance.

irnprove waterway maintenance, policing and safety, VIWA/SD will receive fivebuyge vessels, five large patrol boats, 20 small speed boats and one salvage boat To

°., Rn r maintenance and environmental monitoring during and after project

-, eying and sampling equipment/instrumentation will be provided to

I ti- 3i a,dr PMU-SW To improve maintenance and repair of navaids, workshop

oi zu pnent, machinery and tools will be furnished to VIWA/SD's navaids workshop in

HCMIC Finally, to ensure effective management of project waterways, office andconaunications equipment (radio communications, computers, fax machines, printers,etc.) and four pick-up trucks will be provided to VIWA/SD

21

-3.21 Component C-2: Waterway Management Specialists will be engaged t6o

amEr-VIWAISD to develop staff skills in waterway management including dredging, navaidsmaintenance, and traffic enforcement and safety

3.22 Component C-3: Project Implementation and Management PMUSWJ

-engage consultants to help them carry out procurement (including tender docurneS:preparation, contractor pre-qualification, bid evaluation and contract award), disbursemeh L5

applications and arrangements, project supervision and quality control for all works,goods and services to be procured under the project (see outline terms of reference,Annex 3B) Funding will also be provided to PMU-SW for its daily operations includ&ngadministration, transport, and technical advisory services for the monitoeing ofenvironmental and resettlement activities

3.23 Total project cost is estimated at US$84.9 million equivalent (including taxes,duties and contingencies) of which the foreign exchange cost is US$41.4 ni.,.o;.equivalent or 49 percent of the total Costs have been estimated at June i997 prices Frnfd

at an exchange rate of US$1.00 is equal to 11,600 Vietnamese Dong Phy sica.contingencies were estimated at 10 percent of the base cost of civil works Duties ald;taxes, including consultants' taxes (to be borne by the Borrower) are estimated to beUS$4.0 million equivalent Price contingencies have been calculated on the basis tifexpected rates of foreign and local inflation Foreign inflation is estimated as 2.3 percen^f.

per annum in the period 1997-2002, and local inflation is estimated as 7.0 percent in 199and 6.0 percent per annum through 1998-2002 On the basis of implementation over -years (1998-2002), price contingencies are estimated at 16 percent of base costs -p-;physical contingencies Table 3.1 present summary project costs and Annex 4 conriaL 2detailed cost estimates for each of the project components

3.24 The proposed IDA credit of US$73.0 million equivalent would cover albout - ;percent of total project costs (90 percent of project costs net of duties and taxes) T l7e

Government of Vietnam is expected to fund US$11.9 million equivalent (14 project costs) During negotiations, Government agreement was obtained on the adequ.a.ieand timely provision of the necessary counterpart funds (para 5.1 (b))

percen-3.25 For the Can Tho Port component, the Government of Vietnam will relend the proceeds for equipment (US$1.1 million) to Can Tho Port Enterprise, at a conmercia'rate As civil works represent the deferred maintenance which currently affects the K ;,safety and environmental aspects of the port, out of the proceeds of the JIDA

par+-US$0.5 million for civil works will be made available to Can Tho Port Enterpl se as grant The IDA credit will also support the technical assistance (US$0.16 millios) to ,made available to Can Tho Port Enterprise as a grant If bilateral grants can be securee.for the technical assistance, the proceeds of the credit earmarked for technical assistK awill be canceled or reallocated to finance other expenditures under the project, if need be

Table 3.1: Summary Project Costs and Financing Plan

Local Foreign Total Local Foreign Total as a % Base

of Total Cost

A Waterway Improvements Component

1 Dredging and Spoil Treatment 81,439 190,024 271,463 7,021 16,381 23,402 70

C Institution Building Component

1 Waterway Operations & Maintenance Eq 11,567 47,296 58.863 997 4,077 5,074 80

Exchange Rate 11600 I1ND/USS

Local Foreign Total Local Foreign Total (a) Total

23

3.26 This is a Category A project An environmental assessment (EA) was carried out

in July 1996 for the Waterway Improvements Component and an environmental analysiswas conducted for the Can Tho Port Component

3.27 Impacts For the Waterway Improvements Component, the key short-term

impacts would be: (a) disturbing habitats along canal banks; (b) increasing the acidity ofcanal water due to the excavation of pyritic soil; and (c) re-suspending polluted sediments.These factors could adversely affect agriculture, fisheries, and other aquatic life Themedium- and long-term impacts may include: (a) erosion of canal banks, and (b) increasedsalinity in coastal areas due to higher water flows However, the increased water flow willalso improve water quality in areas where pollution is caused by organic compounds andnutrients For the Can Tho Port, the major impact would be an increase in ship wastes.3.28 Mitigation Major measures during implementation of the Waterway

Improvements Component would include:

(a) Dredging those areas severely affected by pyritic soils during the wet seasonwhen canal flow is at its highest, thereby diluting the acid and metal ionreleases into the canal water as much as possible;

(b) Dredging only on one side, which would leave the biota on the opposite siderelatively untouched;

(c) To the extent possible, selecting areas to deposit the dredged spoil that havebeen previously used for this purpose Confined disposal facilities (CDF)would be located at suitable sites selected by the PMU-SW, ProvincialDepartments of Science, Technology and Environment (PDSTE), and localPeople's Committees The CDF's would be engineered with surroundingchannels to direct run-off and any seepage water back to the canals;

(d) Developing a monitoring program which would identify any adverse impacts

to fisheries and aquatic life, for which guidance standards have beenprovided, and which would lead to adjusting dredging methods;

(e) Restoring canal banks in high erosion areas and VIWA/SD would regularlymaintain them; and

(f) Controlling potential increases in salinity intrusion, (in areas where thegreatest adverse impact to agriculture could occur), by establishing salinityweirs or other structures designed not to inhibit fish migrations throughthem

3.29 The major mitigation and improvement measures during implementation of the CanTho Port component would include:

(a) Installing an oil separator for ships' oily bilge water to comply withinternational MARPOL conventions;

(b) Provisions to collect any spills of toxic chemicals at the Port;

(c) Capacity to manage additional solid wastes generated from increased shipand road traffic serving the Port for disposal at Can Tho municipal facilities;and

(d) Muffling noise from equipment operation to meet national standards

3.30 An Environmental Management Action Plan (EMAP) dated August, 1997,

specifies the actions, monitoring indicators and institutional arrangements required tomitigate potential environmental impacts during the construction and operations.Administrative arrangements have also been established between PMU-SW, contractorsand local authorities (including local NGOs and provincial PCs dealing with environmentalissues) to ensure that all required environmental mitigation actions would be implemented.Specifically, the contractor will be responsible for transporting, preparing the sites andcarrying out environmental mitigation actions for all dredged material, and will bemonitored by PMU-SW, the Science, Technology and Environment agency of thePeople's Committees (PCs) and the Environmental Protection Center (EPC) in HCMC, anindependent environmental monitoring agency EPC will regularly report on theenvironmental status based on site visits, public consultations, water and soil coresampling and testing A summary of the EMAP is provided in Annex 5

3.31 The project would include international and domestic training for PMU-SW andPDSTE staff, respectively, for related environmental mitigation techniques The EPCwould be contracted by PMU-SW to coordinate the training, conduct baseline surveys ofenvironmental conditions, and monitor the implementation of required environmentalmitigation requirements The PMU-SW would also contract the relevant PDSTEs fortheir assistance with monitoring The estimated base cost for monitoring and training isUS$180,000

3.32 During negotiations, agreement was obtained from the Government thatestablishment of an environmental unit within PMU-SW will be a condition of crediteffectiveness During project implementation, PMU-SW will implement environmentalmonitoring and take adequate steps to mitigate any adverse impacts on the basis of theEMAP (para 5.1(d))

E RESETTLEMEENT3.33 Waterway widening, deepening and related disposal of dredge spoil will require theacquisition of land and other assets of affected households settled along the canal banks.PMU-SW has prepared a Resettlement Action Plan (RAP) dated August, 1997, with the

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-participation of the PCs of the five affected provinces The RAP is consistent with World

Bank Operational Directive 4.30, Involuntary Resettlement, and with Vietnamese law.

The RAP was approved by the Prime Minister's Decision No 4162/KTN dated August

20, 1997, and by the Minister of Transport and Communication's Decision No.2141/CGD dated August 28, 1997

3.34 The RAP (summarized in Annex 6) identifies a total of about 5,000 affected families (PAFs), of which only about 1,300 are expected to require resettlement.Very few PAFs belong to ethnic minorities.2 PAFs will be compensated for affected land,structures, crops and other assets In most cases available unused government land will beutilized for dredged spoil but where acquisition of agricultural land can not be avoided theland owners will be compensated in accordance with the policy An estimated 1,320 hawill be required for the deposit of dredged spoil Severely affected PAFs requiringresettlement will be given a choice between land-for-land or cash compensation in addition

project-to rehabilitation assistance If all eligible PAFs choose resettlement, about 13 ha would beacquired and improved (including infrastructure services) for resettlement PAFs will alsoreceive training and employment opportunities, building materials, and compensation forsubsistence and moving expenses The total resettlement cost (including the cost of landacquisition for resettlement and compensation to PAFs) is estimated at US$11.4 millionexcluding contingencies

3.35 To minimize the project's resettlement impact, the design parameters of canalimprovements were revised in heavily populated areas These revisions included:(a) reducing the design width of waterways; (b) widening on only one side of waterways,where possible; (c) constructing a canal at Rach Gia that bypasses the center of the city,and (d) terminating waterway improvements before the town of Ca Mau

3.36 Four of the five affected provinces have already identified relocation sites for theresettlement of PAFs These sites will be further evaluated for their suitability forrelocation as well as its acceptability by the PAFs Re-confirmation of PAFs' preferences,and further refinement of data of affected structures set forth in the 1995/96 DetailedMeasurement Survey (DMS), will be carried out during project implementation A pilotproject for training and testing of implementation procedures has already been carried out.During negotiations, agreement was obtained from the Government that resettlement will

be in accordance with the RAP and in a manner satisfactory to IDA, including provision ofsemi-annual resettlement monitoring reports commencing July 31, 1998, and a finalevaluation on completion of resettlement activities (para 5.1(e)) As a condition ofeffectiveness, PMU-SW will retain an independent monitoring agency with qualified andexperienced staff, under terms of reference satisfactory to IDA, to monitor and report onresettlement activities (para 5.2(a))

2 Ethnic Khmer, Chinese and Cham are located in Kien Giang and Can Tho provinces Theycomprise less than 5% of PAFs in each province and are fully integrated, socially and economically, with the local Kinh population.

F PROJECT IMPLEM:ENTATION

3.37 Responsibility MOT will be the executing agency while the PMU-SW will be

responsible for overall project implementation MOT will maintain PMU-SW at all timesduring the project implementation period, with an adequate budget and qualified, full-timestaff (including a project manager) to supervise and coordinate all project activities (para.5.1 (f)) These activities will include overseeing contractors, consultants and otheragencies providing services to the project, and reviewing/managing environmentalmonitoring and resettlement activities in coordination with the provincial PCs ForComponent B of the project, PMU-SW will enter into an Implementation Arrangementwith the Can Tho Port Enterprise for the procurement of works, goods and services(condition of effectiveness, see para 5.2(c)) Commencing October 31, 1998, PMU-SWwill annually submit to IDA, for its concurrence, proposed training programs for itsforthcoming fiscal year, and that training will be carried out in accordance with proposedtraining programs satisfactory to IDA (para 5 1(g))

3.38 Schedule The project will be implemented over five years on the basis of aProject Implementation Plan (PIP) prepared by the GOV Annex 7 presents (a) asummary Project Implementation Schedule, which provides the baseline against whichprogress have been monitored, and (b) Monitoring Indicators for Project Works Theproject completion date is expected to be December 31, 2002 and the loan closing date isscheduled for June 30, 2003

G PROCUREMENT

3.39 All goods, works and consultant services to be financed under the IDA credit will

be procured by PMU-SW in accordance with World Bank guidelines.3 All works andgoods procured under International Competitive Bidding (ICB) will use the Bank standardbidding documents Similarly, the Borrower will be required to use the Bank StandardForm of Contract for Consultant Services and the Standard Bid Evaluation Form forevaluation of bids Agreement was reached at negotiations that the Borrower's localprocurement procedures (Decree 43/CP dated July 16, 1996, as amended by Decree93/CP dated August 25, 1997, and the Guidelines issued by Circular 02/TTLB datedFebruary 25, 1997) will be used for National Competitive Bidding (NCB), with therequired revisions and clarifications for purposes of consistency with the Bank'sGuidelines for NCB set forth in a Supplemental Letter to the Development CreditAgreement These arrangements will encourage the participation of eligible qualified localcontractors (enterprises which are financially and managerially autonomous and havecapacity to undertake the proposed work) Table 3.2 summarizes the procurementarrangements and Annex 8 provides a summary Procurement Plan

3 The World Bank, "Guidelines - Procurement Under IBRD Loans and IDA Credits," January

1995, revised January and August 1996, and "Guidelines - Selection and Employment of Consultants by World Bank Borrowers", January 1997.

27

-3.40 Civil Works IDA will finance the contract packages for civil works for waterway

improvements (Component A) and Can Tho Port improvement (Component B) as well asthe Waterway Central Building (Component C) as listed in Annex 8 Civil worksestimated to cost more than US$2.0 million per contract will be procured under ICB ICBcontracts will include dredging works, bridges, and the navigation lock Bidders for ICBcontracts will be subject to pre-qualification Works for the navigation lock, accessbridges, and demolition of the bridge at Thoi Binh will be grouped into one packageestimated to cost US$4.70 million The bridges at Trinh Huu Ngia, Vinh Thuan and SaDec will be grouped into one package estimated at US$7.90 million The bids of pre-qualified domestic contractors will be evaluated with a 7.5 percent margin of preference.Contractors will be permitted to bid for one or more of the packages in order to provideattractive bidding opportunities for both international and local contractors

3.41 Contracts for civil works estimated to cost individually less than US$2.0 millioneach will be awarded under NCB procedures acceptable to IDA (see para 3.40; includinglocal advertising, public opening, clearly stated evaluation criteria, award to the lowestevaluated responsive bidder, and non-exclusion of foreign bidders if interested) Foreignand domestic companies will be permitted to bid jointly Civil works procured under NCBare estimated not to exceed an aggregate of US$8.7 million NCB contracts includeworks and bridges at Cai San, Doan Ket and Kien Luong, Can Tho port works, theWaterway Control Center, Ca Mau Landing Stage, slope protection works and marketrelocations Since resettlement works are small and widely scattered, they would becarried out by the provinces under force account The aggregate amount estimated forresettlement site preparation work is US$7.9 million Similarly, navaids will be assembledand installed by VIWA/SD under force account costing US$2.0 million in aggregate.These works will be implemented with the prior approval of IDA Both VIWA/SD andprovincial units are well organized and have the capacity to execute such works ateconomical prices However, reasonable unit basis will be established by PMU-SW forthe purpose of payment duly approved by IDA The invitation to pre-qualify or bid foreach contract estimated to cost US$10.0 million equivalent or more shall be advertised.There are sufficient numbers of experienced local dredging and construction contractors toensure satisfactory competition under NCB The proposed procurement plan considersthe status and capacity of the local construction and dredging industries and offers themthe opportunity to participate individually or in a consortia with local or foreigncompanies To this end, special consideration was given to factors such as size ofindividual packages, unit prices (e.g., unit rates for dredging) and market conditions interms of the level of competition, firms' financial health and quality of work completed inrecent years The project thus aims to strengthen and help build a reliable and healthylocal dredging and construction industry

Table 3.2: Summary of Proposed Procurement Arrangements

(US$ m equivalent)Procurement Method

ICB NCB Other (a) NIF Total

NIF: Non-Bank Financed

Note: Figures in parentheses are the respective amounts financed by IDA.

(a) Other methods of procurement include International and National Shopping, Force Account and UNDP-IAPSO (b) Consultant services financed by IDA will be procured under QCBS and Consultants' Qualifications in accordance with World Bank "Guidelines for Selection and Employment of Consultants by World Bank Borrowers," January 1997 (c) Including compensation for lost structures and crops.

29

-3.42 Goods and Equipment Goods to be procured will include navaids components,

operations and maintenance equipment, and cargo handling equipment for Can Tho Port.Contracts for goods valued at more than US$100,000 will be let under ICB procedures.When bids are evaluated, domestic manufacturers will receive a margin of preference of 15percent of the CIF bid price of imported goods or the actual customs duties and exporttaxes, whichever is less International and national shopping will be used for goods valued

at US$100,000 or less per contract up to an aggregate value of US$400,000 equivalent

At least three quotations from qualified bidders from at least two countries would besought in the case of international shopping National shopping will be in accordance withprocedures acceptable to IDA Where feasible, vehicles for PMU-SW and VIWA/SD may

be procured through the UNDP Inter-Agency Procurement Services Office IAPSO)

(UNDP-3.43 Consultant Services Consultancies to be procured will include: construction

supervision services for all civil works; technical assistance, advisory and training servicesfor PMU-SW, VIWA/SD and Can Tho Port Enterprise; design, procurement andinspection services for vessel and equipment procurement; and environmental monitoring.Construction services under Component C (para 3.21-22), other than environmental andresettlement monitoring services procured under the Quality-Based Selection (QBS), will

be provided by qualified firms selected on the basis of Quality- and Cost-Based Selection(QCBS) The salient features of QCBS include: (a) mandatory advertising for contractsover US$200,000 in the national newspaper and in Development Business (IJNDB);(b) no mandatory associations between foreign and local consultants; and (c) restricted use

of sole-sourcing The construction supervision consultants will be responsible for localoperating expenses related to the project (including supervision, vehicles for localtransport, office supplies and travel expenses) estimated at US$0.8 million

3.44 Tender Documentation The Bank's standard bidding documents will be used

for all goods and works procured under ICB and for consultant services The standardNCB bidding documents the Government is preparing will be used for all goods andworks procured in this manner

3.45 Prior review thresholds and reporting requirements Prior review by IDA of

draft tender documents, bid evaluation reports and recommendations for award ofcontracts will be carried out for: (a) works estimated to cost the equivalent ofUS$200,000 or more; and (b) goods estimated to cost over US$100,000 This will covermore than 80 percent of procurement for civil works and goods For consultant services,the prior review threshold (for review of the terms-of-reference, cost estimate, selectioncriteria, consultant shortlists, requests for proposals and final contracts) are:(a) US$100,000 or more, but less than the equivalent of US$200,000 for each contract;and (b) each contract with consulting firms equivalent to US$200,000 or more and eachcontract for employment of an individual consultant which costs the equivalent ofUS$50,000 or more Selective post-review of contract awards or purchases where costsare below the thresholds listed above will be carried out by the Resident Mission in Hanoi

3.46 PMU-SW will provide procurement information to IDA in quarterly reportsindicating: (a) contract awards and purchases; (b) revised contract prices (if and whenincreases occur) giving reasons for the changes; (c) updates of the procurement processingschedule with explanations for any delays in project implementation; and (d) compliancewith prior-review threshold levels and aggregate limits on specified methods ofprocurement.

Table 3.3: Allocation and Disbursement of IDA Credit

Amount of Amount of % Expenditure

(SDR million) (USS million) by IDA

1 Civil Works'

(a) Waterways improvement and 27.9 37.93 90%

building

2 Goods and Equipment

(a) Waterways improvement and 8.11 11.03 100% of foreign

local expenditures factory cost) and 80%

(ex-of local expendituresfor other itemsprocured locally

expenditures 100% oflocal expenditures (ex-factory cost) and 80%

of local expendituresfor other itemsprocured locally

3 Consulting Services and

3.49 Disbursements would be made against statements of expenditure (SOE) prepared

by PMU-SW for all expenditures for (a) goods under contracts costing less thanUS$100,000; (b) works under contracts costing less than US$200,000; (c) training undercontracts costing less than US$25,000; (d) services by consulting firms under contractscosting less than US$100,000; and (e) services by individual consultants under contractscosting less than US$50,000 Documents supporting the SOEs will be retained by PMU-

SW and made available for IDA review during supervision missions Full documentationwill be required for all eligible expenditures

3.50 To facilitate withdrawal of funds, a special account will be established in a bankacceptable to IDA, and on terms and conditions satisfactory to IDA The account will beestablished in US currency with an authorized allocation of US$2.5 million initially limited

to US$1.0 million until the aggregate amount of withdrawals plus outstanding specialcommitments amount to SDR 4.0 million equivalent Based on satisfactorydocumentation, it will be replenished monthly or when drawn down by 30 percent of theinitial deposit, whichever comes first The minimum application size for payments directlyfrom the credit account or for issuance of special commnitments will be US$400,000

3.51 During negotiations, agreement was obtained from the Government that:(a) PMU-SW will maintain separate project accounts; (b) the special account and projectaccount, including documentation for SOEs, will be audited annually by independentexternal auditors acceptable to IDA and the Government, with the audit including aseparate opinion on the SOEs used as a basis for disbursements; and (c) the detailed auditreports will be submitted to IDA within six months of the end of each of theGovernment's fiscal years (para 5 1(i))

3.52 During implementation, the project will be supervised by Bank staff in the field and

at headquarters according to the Project Supervision Plan presented in Annex 8 Annualimplementation reviews with the Government will be carried out each November to assessproject progress (including project works, resettlement activities, and environmentalimpact mitigation) and the Government's expenditure plan for the inland waterways

system, with particular attention to funding for maintenance A mid-term review 2000) will be undertaken jointly with other donors to assess: (a) overall progress,including the experience with resettlement and environmental monitoring; (b) the sectorexpenditures and fiscal reforms; (c) results of the on-going studies including the BassacRiver study; and (d) the Government's overall plans and programs for the sector.

(mid-3.53 During negotiations, an understanding was reached that the Government will hold

a project launch workshop soon after the credit is declared effective, and agreement wasreached that the Government will hold annual implementation reviews (by September 30

of each year commencing in 1999) and a mid-term review (by September 30, 2000) (para.5.1(j)) The project launch workshop will be held in HCMC All implementing agencieswill be involved and representatives of project beneficiaries will be invited to attend IDAwill be represented by an appropriate team of specialists Supervision efforts will requireabout 69 staff-weeks over the life of the project, of which about 11 will be at headquartersand 58 staff-weeks in the field, as described in the Project Supervision Plan

3.54 Supervision efforts will require expertise in civil (port and waterway) engineering,procurement, financial analysis, specific areas of inland waterway management and inenvironmental and resettlement issues

3.55 Agreement was also obtained during negotiations that PMU-SW will prepare andfurnish IDA with consolidated quarterly reports on the project's physical and financialprogress, including procurement information, in a format acceptable to IDA (para 5.1(k)).The reports will be submitted no later than the 30th day of the month following therespective quarterly period, beginning July 31, 1998

Waterway Improvements Component

4.2 This component aims to reduce transport costs in the Vietnamese Mekong Deltaand to avoid freight traffic diversion to more costly and environmentally undesirable roadtransport Using regional freight traffic projections for the years 2000, 2015 and 2020under "low" and "base" economic scenarios, 15 project alternatives were considered.Seven of these were evaluated in detail and their estimated economic costs and benefitscompared to a "without project" scenario These alternatives are summarized inAnnex 11 The preferred alternative generated the highest economic net present value andcaused the least disruption to the environment in terms of resettlement and interferencewith other water control and aquaculture projects In addition, the selected alternativesupported the GOV's regional development strategy for the Delta which envisages CanTho as the geographic center connected by main commercial waterways to areas of higheconomic potential

4.3 The traffic forecasts were prepared taking into account socio-economic factorssuch as population growth rate, overall economic indices (e.g., regional GDP) and productstudies related to the major comnmodities produced and consumed in the Mekong Delta.Based on these studies, origin and destination matrices (including modal split) weredeveloped for base-case and low-case traffic scenarios, projected to the anchor years

2000, 2015 and 2020, and interpolated for the other years Under the project,

inland waterways are expected to retain more than half of the region's traffic well into thenext century Table 4.1 presents the traffic forecast for the selected project alternatives,under both the base-case and low-case traffic forecasts.

Table 4.1: Mekong Delta Freight Traffic Demand

(million tons; forecast with project)

Project routes w/navaids 4.1 5.5 7.0 9.4 10.9 11.3 13.2

Source: Mekong Delta Master Plan; Rehabilitation and Improvement of the Main Waterways in the

Mekong Delta; Ministry of Transport, Project VIE/87/031, May 1993; NEDECO Report,August 1996

4.4 Three categories of economic cost were considered: capital costs (includingresettlement); operating and maintenance (O&M) costs; and fleet operating costs based onprojected fleet composition Capital costs were approximated by multiplying the

estimated quantities of physical works (e.g., capital dredging, widening, resettlement,

navaids) by the unit economic costs of these works in international markets O&M costs

were estimated by assessing the cost of keeping the project waterways in optimal working

condition Vessel operating costs were estimated by using an inland waterway transport cost (IWTC) model developed by consultants for the Mekong Delta Master Plan Study.

4.5 Three types of economic benefits were quantified: reductions in vessel operatingcosts; avoided costs of diverting traffic from the inland waterways to roads; and gains in

fleet productivity resulting from night navigation Vessel operating cost reductions were calculated using the IWTC model The avoided cost of traffic diversion to roads was

measured as the difference between vehicle operating cost on roads (assuming typicalroads for the Mekong Delta, adjusted for improvements, where appropriate) and vesseloperating costs on the improved waterways Vehicle operating cost estimates wereadopted from the recently completed Bank project studies in the Mekong Delta and two

highway studies.' Fleet productivity improvements were estimated using the IWTC model

and assuming that about 50 percent of the barge fleet (23.5 percent of total fleet capacity)will use night navigation The analysis indicates that introducing night navigation wouldreduce transport costs from about US$4.8 per ton to US$3.9 per ton It would alsoreduce additional fleet capacity requirements by 10-15 percent (equivalent to 8,000 to12,000 dwt)

Scott Wilson Kirkpatrick, Study of Investment and Maintenance Strategy for National and Provincial Roads: Vietnam, July 1996.

Dessau - Experco, Second Highway Rehabilitation Project (HRP2), Highway No 1 between Vinhand Dong Ha, Feasibility and Engineering Studies, October 1995