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Document o f
The World Bank
FOR OFFICIAL USE ONLY
Report No: 38504-VN
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 32.8 MILLION
(USS50 MILLION EQUIVALENT)
TO THE
SOCIALIST REPUBLIC OF VIETNAM
FOR A
H O CHI MINH CITY INVESTMENT FUND
FOR URBAN (HIFU)
DEVELOPMENT PROJECT
May 24,2007
Urban Development Sector Unit
Sustainable Development Department
East Asia and Pacific Region
This document has a restricted distribution and maybe used by recipients only in the performance o f
their official duties. I t contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
(Exchange Rate Effective May 3 1,2006)
Currency Unit = Vietnamese Dong (VND)
16,025VDN = US$1
1.51US$ = SDR1
FISCAL YEAR
January 1 - December31
ABBREVIATIONS AND ACRONYMS
AAA
AFD
BOT
BW
CFAA
CPRGS
CPS
DA
DAF
DNIF
DONRE
DPI
DPL
EIA
EMP
EMPF
ES
EVN
FI
FIL
FS
FSPP
GDP
GOV
HANIF
HCMC
HDP
HIFU
ICB
IDA
IEE
Analytical and Advisory Activities
Agence Franqaise de D6veloppment (France Agency for Development)
Build Operate Transfer
Borrowing Window
Country Financial Accountability Assessment
Comprehensive Poverty Reduction and Growth Strategy
Country Partnership Strategy
Designated Account
Development Assistance Fund
Dong N a i Investment Fund
Department o f Natural Resources and Environment
Department o f Planning and Investment
Development Policy Lending
Environmental Impact Assessment
Environment Management Plan
Ethnic Minority PlanningFramework
Environmental Safeguards
Electricity o f Vietnam
Financial Intermediary
Financial Intermediary Loan
Feasibility Study
Framework for Selecting Private Partners
Gross Domestic Product
Government o f Vietnam
Hanoi Investment Fund
Ho Chi Minh City
HIFU Development Project
Ho Chi Minh City Investment Fund for Urban Development
InternationalCompetitive Bidding
InternationalDevelopment Association
Initial Environment Assessment
LDF
LOC
MIC
MOF
MPI
NCB
NPL
ODA
OED
OLA
PC
PER
PER-FA
PMO
PMU
PPA
PPC
PPI
PPP
PRSC
PSP
RAP
ROE
SIL
SOCB
SOE
SPV
TA
TAF
TOR
USTDA
VDB
VDIC
VND
WBTC
Local Development Investment Fund
Line o f Credit
Middle Income Country
FOR OFFICIAL USE ONLY
Ministry o f Finance
Ministry o f Planning and Investment
National Competitive Bidding
Non-Performing Loans
Official Development Assistance
Operations Evaluation Department
On-lending Loan Agreement
People’s Committee
Public Expenditure Review
Public Expenditure Review and Integrated Fiduciary Assessment
Project Management Office
Project Management Unit
Project Preparation and Appraisal
Provincial People’s Committee
Private Participation in Infrastructure
Public Private Partnership
Poverty Reduction Support Credit
Private Sector Partner
Resettlement Action Plan
Return on Equity
Specific Investment Loan
State Owned Commercial Bank
State-Owned Enterprise
Special Purpose Vehicle
Technical Assistance
Technical Assistance Facility
Terms o f Reference
Unites States Trade and Development Agency
Vietnam Development Bank
Vietnam Development Information Center
Vietnam Dong
West Bus Terminal Co.
Vice President:
Acting Country Director:
Sector Director:
Task Team Leader:
James W. Adams
Martin Rama
Keshav Varma
KamranKhan
This document has a restricted distribution and may be used by recipients only in the performance o f
their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.
VIETNAM
HIFU Development Project
CONTENTS
Page
A
.
STRATEGIC CONTEXT AND RATIONALE
.......................................................................
1
1.
Country and Sector Issues ........................................................................................................ 1
2.
Rationale for Bank involvement ..............................................................................................
3
3.
Higher level objectives to which the project contributes .........................................................
6
.
PROJECT DESCRIPTION
B
.
2.
1
......................................................................................................
6
Lending instrument ..................................................................................................................
6
Project development objective and key indicators ...................................................................
6
.................................................................................................................. 7
4 . Lessons learned and reflected in the project design ................................................................ - 8
9
5 . Alternatives considered and reasons for rejection....................................................................
3.
C
.
Project components
IMPLEMENTATION
..............................................................................................................
10
1.
Partnership arrangements .......................................................................................................
10
2.
Institutional and implementation arrangements .....................................................................
11
3.
Monitoring and evaluation o f outcomes/results .....................................................................
11
4.
Sustainability ..........................................................................................................................
12
5.
Critical risks and possible controversial aspects ....................................................................
12
6.
Loadcredit conditions and covenants .................................................................................... 14
.
D
APPRAISAL SUMMARY
.......................................................................................................
15
1.
Economic and financial analyses .......................................................................................... -15
2.
Technical ................................................................................................................................
16
. .
3 . Fiduciary .................................................................................................................................
16
4.
Social ......................................................................................................................................
17
5.
Environment ..........................................................................................................................
-18
6 . Safeguard policies .................................................................................................................... 19
20
7 . Policy Exceptions and Readiness .............................................................................................
..............................................................
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...........
Annex 3: Results Framework and Monitoring..............................................................................
Annex 4: Detailed Project Description...........................................................................................
Annex 5: Project Costs.....................................................................................................................
Annex 6: ImplementationArrangements ......................................................................................
Annex 7: Financial Management and Disbursement Arrangements ..........................................
Annex 8: Procurement Arrangements ...........................................................................................
Annex 9: Economic and Financial Analysis...................................................................................
Annex 10: Safeguard Policy Issues .................................................................................................
Annex 11: Project Preparation and Supervision...........................................................................
Annex 12: Documents in the Project File .......................................................................................
Annex 13: Statement of Loans and Credits ...................................................................................
Annex 14: Country at a Glance.......................................................................................................
Annex 1: Country and Sector or Program Background
MAP Clearead by IBRD
21
30
31
35
49
50
52
63
70
85
90
91
92
95
VIETNAM
HO CHI MINH CITY INVESTMENT FUND FOR URBAN DEVELOPMENT (HIFU)
DEVELOPMENT PROJECT
PROJECT APPRAISAL DOCUMENT
EAST ASIA AND PACIFIC
EASUR
Date: M a y 24,2007
Country Director: Martin Rama (Acting)
Sector Director: Keshav Varma
Project ID: P104848
Team Leader: Kamran M. Khan
Sectors: Urban Development, Finance
Themes: Municipal Finance Category: F I
Safeguard Screening Category: Limited Impact
For Loans Credits and Others:
Total Bank Financing: (US$): 50 million
Governmentlsub borrowers Contribution: U S $ 3 0 million
BorrowerDXecipient
0.5
International
50.0
Development Association
Private Sector
30.0
Contribution
Total
80.5
Borrower:
SOCIALIST REPUBLIC OF VIETNAM
0.5
50,O
30.0
0.0
80.5
Responsible Agency: H o Chi Minh City Investment Fund for Urban Development (HIFU)
Address: 33-39 Pasteur, District 1, Ho C h i Minh City, Vietnam
Contact Person: Ms. N g o Kim Lien, General Director, HIFU
Estimated disbursements (FY/US$m)
FY
FYO8
FYO9
FYlO
Annual
5
7
15
Cumulative
5
12
27
Project implementation period: FY’08 - FY’12
Expected closing date: December 31,2012
Does the project depart from the CAS in content or other significant respects?
Does the project require any exceptions from Bank policies?
Have these been approved by Bank management?
I s approval for any policy exception sought from the Board?
FYll
15
42
[ ]Yes
[]Yes
[]Yes
[]Yes
[X ] N o
[XINO
[ IN0
[XINO
FY12
8
50
Does the project include any critical risks rated “substantial” or “high”?
Does the project meet the Regional criteria for readiness for implementation?
Project development objective: Refer PAD B.3
[XIYes
[XIYes
[ ] No
[ ] No
The project aims to develop HIFU as a model Local Development Investment Fund LDIF (in
terms o f internal policy and procedures for financial policy, sub-project appraisal, social and
environmental safeguards, and partnership with the private sector) and increase private sector
participation in financing municipal infrastructure in H C M C
Project description Refer PAD B.4
The project design envisages providing lending support as well as monitoring and
implementation support. Both project components will be managed by HIFU
Component 1: Investment Capital (US$ 80 million; IDA US$ 50 million)
Component 2: Technical Assistance (US$ 0.5 million; IDA US$ 0 million)
Which safeguard policies are triggered, if any? The project will not have any large scale or irreversible
adverse environmental impacts.
The project triggers the W o r l d Bank Safeguards Policies on
Environmental Assessment (OP/BP 4.01) and Involuntary Resettlement (OP/BP 4.12). The project i s
classified as environment Category “FI”.
Significant, non-standard conditions, if any?: None
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and Sector Issues
1.
The demand for municipal infrastructure in Vietnam i s increasing rapidly as the
country copes with rapid urbanization, decentralization and high rates o f economic growth.
There i s wide agreement that a significant investment gap exists vis-&vis municipal
infrastructure demand. Domestic and international commentary on the investment climate
in Vietnam i s beginning to increasingly cite the lack o f infrastructure in general and
municipal infrastructure in particular as a key bottleneck to investment and economic
growth. The heavy reliance on public budget i s an important reason for the slow pace o f
infrastructure development. W h i l e Vietnam has utilized Official Development Assistance
(ODA) very effectively over the last decade, the magnitude o f the infrastructure challenge
in the fast growing Vietnamese economy makes i t unlikely that the traditional approach
involving one ODA-funded infrastructure investment at a time will be sufficient. Vietnam
has to consider alternative models for financing infrastructure. Specifically, establishment
o f infrastructure finance models which involve local institutions and leverage private
capital must be an important element o f Vietnam’s strategy to become a middle-income
country.
2.
The mismatch between the long-term financing needs o f infrastructure investment
and the short-term deposits held by banks means that banks are not the ideal financing
institutions for infrastructure. Vietnam’s financial sector i s currently dominated by five
major state-owned commercial banks (SOCBs), accounting for about 80% o f the capital,
lending and assets o f the banking system. Over the past decade the SOCBs have evolved
from specialized policy-lending vehicles to more commercially oriented financial
intermediaries. However, much more needs to be done to reform the banking sector before
it can be appropriately utilized to finance urban infrastructure development. Infrastructure
enterprises have to date not borrowed large amounts from the SOCBs, with the exception
o f f i r m s in the transport sector.
3.
Overall the market for bonds i s poised for significant development but important
institutional reforms, addressing governance and transparency in particular, are required to
permit this potential to be realized. The national Government has been working to develop
the government bond market. I t plans to raise U S $ 4 billion by 2010 to be used mainly to
finance infrastructure projects. At the provincial level, the first municipal bonds were
issued by the H o Chi Minh City (HCMC) government in 2003, in the form o f a general
obligation bond, raising U S $ 127 million. The rules for issuance o f municipal bonds are
not yet clear, and they do not always provide the right incentives to the issuers. In
particular, there i s a need to further strengthen disclosure rules for the public offerings.
The stock o f sub-national government debt in Vietnam i s not currently a threat to fiscal
stability, but plans for increased investment are likely to see sub-national debt increase
significantly, requiring national oversight.
4.
The challenges facing Vietnam vis-a-vis financing o f municipal infrastructure are
further complicated by the following two important developments:
The
0 Vietnam i s fast transitioning towards a decentralized governance model.
responsibility for municipal infrastructure i s being devolved to the provincial
governments which have limited budgetary resources, and suffer from a combination
0
o f weak institutional capacity and policy uncertainties which will affect the flow o f
private CapitaVexpertise into municipal infrastructure development.
In the near to medium term the private financial markets in Vietnam are unlikely to
become adequately deep or broad to meet the fast growing municipal infrastructure
financing demand. W h i l e the acute demand for financing calls for immediate public
sector action, measures must be taken to ensure that actions taken in the interim
period take into account the risk o f private sector crowding-out in the medium to
long-term.
5.
The Government o f Vietnam (GOV) has actively encouraged the provincial
governments to take responsibility for financing municipal infrastructure. The 2001 Public
Administration Reform Master Program (for 2001-2010) lays the groundwork for putting in
place the regulations on decentralization o f administrative management and fiscal functions.
The two most significant components o f the emerging municipal finance framework include
permission to the provincial governments to: (i)
establish Local Development Investment
Funds (LDIFs), and (ii)
borrow up to 30% o f their annual state budget for development
investments - H o Chi Minh City (HCMC) and Hanoi are allowed to borrow up to 100% o f
annual budget - through revenue or general obligation bonds. LDIFs allow the provincial
governments to mobilize capital and enter into contracts with the private sector for the
development o f municipal infrastructure. The reliance o f provincial governments o n
LDIFs i s increasing very substantially as the decentralization process continues in Vietnam.
HIFU was the first LDIF established in June 1996. Since then, twelve other provincial
governments have established LDIFs with the approval and support o f the GOV. HIFU
remains by far the most financially viable and operationally successfbl LDIF in Vietnam.
6.
The LDIFs are expected to operate as commercial-oriented entities, raising private
capital and investing in municipal infrastructure projects which offer cost recovery. In
2004 the total charter capital o f LDIFs in Vietnam was approximately US$ 300 million; in
2006 it i s estimated to be approximately $400 million, with the top-seven LDIFs investing
approximately U S $ 100 million per year which accounts for an investment increase o f
118% for these funds over the 2002 level. The LDIFs currently also engage in short-term
borrowing on a roll-over basis from SOCBs and other SOEs. Hence, possible
mismanagement o f LDIFs carries the risk o f decreasing investment efficiency in municipal
infrastructure, increasing the contingent liabilities o f the GOV, and undermining financial
market development. There i s acceptance at the highest levels in the GOV that i t i s critical
that HIFU- the most advanced and leading LDIF - adopts an operational model which can
be replicated in the other LDIFs.
7. HIFU has a strong financial position, including a very l o w Non-Performing Loan (NPL)
ratio and excellent profitability and balance sheet strength (see Annex 9 for details). HIFU
i s in the initial stages o f corporatization, and significant progress made to date vis-a-vis
corporate governance includes:
0 HIFU operates under a legally binding Credit Statute o f the H C M C government that
mandates investment analysis to ensure cost recovery, and provides guidelines for
investment monitoring and workouts when necessary.
0 HIFU has a well developed internal appraisal and investment monitoring system, and
the decision making authority rests with HIFU staff.
2
HIFU prices i t s loans at market rates, and has an excellent track record o f investing
in cost recovery oriented infrastructure projects in partnership with the private sector.
0 HIFU maintains annual audited financial statements which are based on the accepted
accounting standards used by corporations in Vietnam. The financial statements
provide reasonably reliable data on the financial performance and portfolio quality.
0 HIFU is financially self sufficient and does not require any operational budget
support from the provincial government.
0 Majority o f HIFU staff are hired on private contracts, i.e., they are not provincial
government employees.
HIFU has a proven track record o f building major infrastructure projects - including toll
roads and a major B O T project in the water sector - in H C M C which are currently
operating on a financially viable basis and providing infrastructure services to H C M C
residents. Finally, HIFU has been selected based on a comprehensive qualification criteria
developed to establish a model for the participation o f other LDIFs in anticipated future
World Bank programs.
8.
The successful performance o f HIFU in financing municipal infrastructure is also a
critical national priority because H C M C is the largest city in Vietnam and a major
industrial and commercial center with a population o f 6 million. It i s a Category 1 city
reporting directly to the Central Government. The city has been in the forefront o f the
transition initiated by the economic reform “Open door” and “Renovation” policies which
have led to unprecedented growth for the country, particularly in the industrial sector. The
growth has been most pronounced in HCMC, which accounts for 35-40 percent o f the
national GDP. The annual growth rate o f the H C M C urban population is between 5-7
percent with the population in 2020 expected to equal approximately 10 million residents.
The increase in urban population and continued economic growth i s putting increased
pressure on the urban services o f the city. For example, i t was recently reported (Vietnam
News, 15 January 2007) that there has been an annual increase in the use o f public
transport in H C M C o f around 20 percent. The urban areas face similar problems in other
sectors such as water, education and health. It i s estimated that H C M C needs to invest
approximately $3 billion annually to meet the current infrastructure demand.
2. Rationale for Bank involvement
9.
The Bank’s infrastructure strategy involves engagements which focus on
improvement o f sector policies, provision o f public/ODA funds for critically needed
municipal infrastructure, and establishment o f models which can support the increase o f
private sector participation in infrastructure delivery.
10.
The Bank’s response to the GOV request for assistance to LDIFs included AAA
and an operational program. The AAA completed in 2005 produced a detailed Briefing
Paper which highlighted the relevant policy and operational issues involved in the
development o f LDIFs. The AAA established the Bank as the primary advisor to the
government and confirmed the commitment o f the G O V and key provincial governments to
the reform and development o f LDIFs.
3
The planned sequence o f World Bank Group (WBG) engagement with LDIFs will
11.
follow the below described proposed outline for the long-term development o f LDIFs.
Stage I
Stage II
Stage 111
12.
The Bank's operational engagement regarding the LDIFs involves helping the G O V
establish national policy and regulatory framework to support the development o f LDIFs,
develop a model LDIF vis-&vis operational standards and investment efficiency, and
provide credit to "Qualified" LDIFs. IDA financing will be used in the initial stage o f the
engagement because i t can contribute to make municipal infrastructure more available and
affordable to beneficiaries, Le., IDA financing i s expected to address the failure o f the
financial market to provide long-term financing for infrastructure investment. With its
financing IDA also brings technical expertise to support the operational reforms in HIFU.
Finally, the Bank's operational engagement with HIFU at this stage will provide a platform
for other donors interested in scaling-up their financial support to LDIFs based on the
lessons learned from the project.
13.
The HIFU Development Project (HDP) i s a split operation o f the national project
called Local Development Investment Funds Project (LDIFP). The LDIFP which focuses
on national policy and targets all LDIFs is currently under preparation for an expected
delivery in late FY08. The Bank has agreed to support the G O V request to proceed in
FY07 with a project (HDP) focused exclusively on HIFU because HIFU is ready to start
executing a pipeline o f projects in 2007, and HIFU Management and the H C M C Peoples'
Committee (HCMC PC) have committed to adopt the LDIF internal policy and operational
reform measures which have been prepared under the LDIFP. Proceeding more rapidly
with a targeted support to HIFU i s in line with the incentive framework envisaged under
the LDIFP. The LDIFP remains a high priority for the Bank and the GOV because i t will
provide the policy and institutional framework and the necessary technical assistance
which is critical to the long-term development o f HIFU and other LDIFs.
14.
WBG strategic aim o f operational engagement in the particular case o f HDP i s to
establish a road map for the LDIFs to become independent, competent and professional
infrastructure financing agencies which can leverage private capital in infrastructure
without distorting the market or creating contingent liabilities for the provincial and central
4
government. This will require a long-term operational engagement and utilization o f
multiple instruments available to the WBG in three stages.
15.
Stage One. The provision o f a relatively small IDA credit to HIFU i s the first,
modest step. The strategic approach via the IDA credit to HIFU i s to: (a) alleviate the need
for HIFU to rely upon short-term borrowing to finance long-term infrastructure
investments; (b) increase the affordability o f municipal infrastructure to the citizens by
providing long-term financing which i s currently not available in Vietnam; and (c) help
HIFU establish the appropriate systems and procedures to build a track record, including
the rules o f the game for partnering with the private sector, which can form the basis for
HLFU’s future borrowing from the market via bank loans or bonds. The identified and
agreed role o f I F C in this engagement i s to work with HIFU to co-finance some o f the
investments which are identified in the H D P subproject pipeline. The strengthening o f the
internal systems and institutional capacity o f HIFUwill also solidify and further expand the
corporatization o f HIFU from the municipal government structure. Indeed, the H C M C PC
has repeatedly confirmed that improvement o f HIFU’s institutional capacity will be the
strongest impetus for instituting additional corporate governance reforms, i.e., the level of
independence which HIFU can obtain depends upon continued improvement in HIFU’s
professional competence. The operational association with and provision o f technical
assistance from the WBG will further improve HIFU’s institutional capacity.
16.
Stage Two. The issuance o f an international standard, credit-based HIFU Bond will
be the most positive demonstration o f HIFU’s professional competence. The success o f the
H D P and continued progress o f LDLFP and national policy framework will be critical to
prepare HIFU (and the M O F as the regulator) for a “HIFU Bond” in the near future. The
next phase o f direct operational engagement o f the WBG with HIFU will therefore likely
involve credit enhancement o f a HIFU Bond or a credit based borrowing via the Subnational Finance Program o f WB/IFC. It has been discussed with HIFU that during the
implementation o f the HDP the task team will initiate discussions with a global credit
rating agency to help prepare HIFU for a credit rating.
Stage Three. The third stage o f WBG engagement with HIFU will probably be
17.
through I F C and MEGA. It is anticipated that in State Three more private players will be
active in the infrastructure finance market and HIFU will be transitioning towards it stated
long-term role involving secondary market functions, such as securitization.
18.
The Bank’s technical and operational approach to HIFU and LDIFs is based o n
substantial international experience in developing municipalhfrastructure finance systems
around the world. The task team has conducted a detailed review o f all the relevant and
comparable models pursued in the developed and developing countries. These experiences
are described in detail in the AAA report o f LDIFs. The task team has worked closely with
staff in FSPSD, PREM and the I F C to explore the avenues for the Bank’s operational
engagement with LDIFs before finalizing the approach which i s outlined in this PAD. The
task team has also employed the Bank’s knowledge tools to safeguard against possible
adverse cross-sector policy impacts, particularly on financial market development (please
see page 36 for details). Finally, the task team includes global experts in
municipalhfrastructure finance as well as senior staff who fully understand the technical
issues and have an excellent understanding o f the Vietnamese context.
5
3. Higher level objectives to which the project contributes
19.
A financially viable and sustainable HIFU will contribute significantly to reducing
the municipal infrastructure financing gap in the most economically important province in
Vietnam. Establishment o f HIFU as a successful model o f a financially sound, competent
and professionally independent institution will also contribute towards the development o f
other LDIFs in the country. Once HIFU has gained legitimacy vis-a-vis i t s role o f
efficiently and effectively mobilizing and managing infrastructure financing hnds - both
public and O D A - i t can at a later stage begin to leverage such competence towards
mobilizing significant private funds, both at the project level (the existing model) and also
at the funds’ equity capital and on-balance sheet debt level. This in turn i s expected to
bring about a significant increase in the current level o f private sector capital leverage, and
hence, will contribute significantly to reducing the municipal infrastructure financing gap.
20.
The Country Partnership Strategy (CPS) for Vietnam for the period 2007-2011
recognizes the development o f a vibrant capital market to support the financing o f
infrastructure in particular as an essential element in the reform o f the financial system
under i t s first pillar focused on improving the business environment. Under this pillar, i t
also emphasizes that making further progress in infrastructure development requires
diversijjing funding sources and improving transparency in resource mobilization, notably
at the local level. In this context, the increase in private share o f total financing o f
infrastructure i s one o f the selected outcomes to which the CPS is expected to contribute,
notably through the development o f municipal financial markets and non-subsidized
lending facilities in selected jurisdictions and H C M C in particular.
The HIFU
Development Project is instrumental for such results to be achieved.
B. PROJECT DESCRIPTION
1. Lending instrument
21.
The proposed instrument is a Financial Intermediary Loan (FIL) because i t i s the
most appropriate instrument for addressing the systemic issues associated with the
channeling o f funds for municipal infrastructure. The wholesale approach supported under
the project makes the Specific Investment Loan (SIL) instrument less relevant. Similarly, a
Development Policy Lending (DPL) would not have provided the appropriate platform for
a long term engagement which i s capable of: (a) strengthening the institutional capacity o f
HIFU and (b) providing the necessary detailed operational advice to HIFU.
2. Project development objective and key indicators
22.
The Project Development Objective is to develop HIFU as a model LDIF (in terms
o f internal policy and procedures for financial policy, sub-project appraisal, social and
environmental safeguards, and partnership with the private sector) and increase private
sector participation in financing municipal infrastructure in HCMC.
0 Evidence that private sector participation in financing municipal infrastructure in
H C M C i s improving will be measured by the increase in total number and amount o f
HIFU investment (debt and equity) per year in municipal infrastructure projects with
private sector involvement, as well as by the improvement in the leverage ratio (new
6
0
private capital / HIFU direct investment) in municipal infrastructure projects per
year.
Evidence that HIFU performs as a model LDIF will be measured by i t s continued
compliance with the Financial Covenants, as well as by i t s adherence to the Project
Preparation and Appraisal (PPA) and Private Sector Partners (PSP) selection
manuals. The satisfactory adherence o f projects funded by the line o f credit to these
manuals will be a major institutional development; the Bank and HIFU will also
assess the extent to which they are progressively used for other HIFU investments,
and regularly review lessons to be drawn from implementation, so as to help
streamline them in HIFUportfolio.
3. Project components
Component 1: Investment Capital (US$80 million; IDA US$50 million)
23.
A line o f credit will be provided to HIFU to invest in cost recovery oriented
municipal infrastructure investments in partnership with the private sector. A Project
Preparation and Appraisal (PPA) Manual governs how the HIFUinvestments under the line
o f credit will be identified, developed and appraised. A Private Sector Partner (PSP)
selection Manual describes the way private sector participants will be selected in Project
Enterprises financed under the line o f credit.
24.
HIFU will work with the Department o f Planning and Investment (DPI) and other
departments within the provincial government to identify investment needs in HCMC, as
described in H C M C master plan, which can be financed via public private partnerships.
HIFU will then work with the city departments to put in place effective project structures
and then invite private investors to participate in the projects.
A pipeline o f projects has been identified and confirms that HIFU can absorb the
25.
investment capital which i s being made available via the project. Two sub-projects to be
financed in year one o f project implementation have been appraised.
Component 2: Technical Assistance (US$0.5 million; IDA US$ 0 million)
26.
HIFU will finance the technical assistance to support the implementation o f
support to implement the PPA manual with on-the-job
operational reforms, including: (i)
chief advisor and technical specialist, as well as a social specialist and an environment
specialist; (ii)support to implement the PSP manual with on-the-job chief advisor and
private sector specialist; (iii)independent monitoring consultants for social and
environmental safeguards policies; and (iv) Financial Audits o f HIFU to International
Auditing Standards.
27.
Detailed set o f Terms o f Reference (TOR) for technical assistance consultants have
been prepared. The package o f TORs and the associated procurement plan has been
reviewed and approved by the H C M C PC as part o f the final H D P project approval. The
H C M C PC approval makes the implementation o f the procurement plan, including the
utilization o f an estimated $0.5 million HIFU capital for the assigned objective o f
recruiting international and local consultants in accordance with the TORs, a firm and
official mandate for HIFU. In order to ensure timely mobilization o f key consultants, the
mobilization o f consultants under three (3) o f the most critical TORs - including the TOR
7
for independent auditors to ensure compliance with safeguards policies - has been
established as a Condition o f Loan Effectiveness.
28.
The technical assistance will contribute to the institutional development o f HIFU.
Specifically, it will build upon the current practices o f HIFU and develop capacity in HIFU
to implement the PPA and the PSP manuals. The long-term institutional development plans
have been prepared in consultation with the Bank and are documented in the two manuals.
The capacity building o f HIFU is a part o f a broader initiative which involves AFD,
USTDA, the World Bank and other donors. The Bank team has worked very closely with
U S T D A to scope, prepare and provide capacity building technical assistance to HIFU. The
phase one (approximately $300,000) o f the U S T D A technical assistance was concluded in
2006. The planned phase I1to focus on internal operations i s currently being reviewed by
USTDA management. Similarly, AFD has approved a technical assistance package o f
approximately Euros 1.5 million which will provide significant technical assistance and
training to HIFU and its borrowers in financial management and other operational
functions. The technical assistance provided by AFD and U S T D A complements the IDA
credit and the associated HIFU-financed technical assistance. Further details o f the Bank’s
partnership strategy vis-&vis the development o f LDIFs is described on section C. 1.
4. Lessons learned and reflected in the project design
29.
Slow Disbursement in infrastructure portfolio. The disbursement level o f ODAfinanced investment portfolio in Vietnam, notably vis-&vis infrastructure projects, has
remained slow for many years. In reviewing the problems associated with slow
disbursements, the Government and the Bank agreed, inter alia, on the need to explore new
models o f doing business which are in line with the current decentralization process, and
involve select local institutions-“islands
o f competence” - which are performing in an
efficient and professional manner. HIFU has so far been relatively successful in leveraging
private investment in infrastructure in H C M C and building operational infrastructure
projects (e.g., toll roads and water BOTS). Moreover, HIFU involvement has helped to
improve the efficiency o f projects implemented through the H C M C line departments.
HIFU also has an excellent funds disbursement record, completing projects in significantly
shorter time frames than traditional investment projects. The decision o f the H C M C P C to
use HIFU as the lead implementing agency i s therefore fully supported by the Bank.
30.
Financial Intermediary Lending. The Independent Evaluations Group (IEG) review
o f Bank Line o f Credit (LOC) operations under OP 8.30 rules for Financial Intermediary
lending identified the need for a sound analysis o f the financial intermediaries by the Bank.
The Bank has conducted a detailed due diligence o f the financial operations o f HIFU, first
in the context o f a detailed AAA which was completed in FY05, and more recently through
a consulting assignment with an international accounting firm. The analysis confirms that
HIFU has a strong financial position. The Bank has appraised HIFU’s financial viability
vis-a-vis i t s investment practices: for example, it prices loans at market rates and invests in
cost recovery oriented infrastructure in partnership with the private sector. Specific
financial covenants governing its financial policy have also been put in place to further
strengthen HIFU’s financial position. Other elements o f project design which address the
risks identified by the IEG report include:
8
HIFU maintains annual audited financial statements, which provide reasonably reliable
data on financial performance and portfolio quality. HIFU Management has agreed to
switch to International Audit Standards.
Strict and comprehensive qualification criteria have been applied to select HIFU, with a
view to establish a model for the participation o f other LDIFs in Bank programs under
the LDIFP.
A review has been conducted to analyze HIFU projects pipeline and i t s implementation
track-record to confirm that HIFU has the capacity to invest and manage the IDA
credit.
The MOF will on-lend the funds to HIFU in Vietnam Dong (VND), which will protect
HIFU against any fluctuation in the VND foreign exchange rate.
The foreign exchange hedging cost as well as the IDA commitment fee i s fully priced
in the on-lending rate charged by the M O F to HIFU as required under current
Vietnamese regulations governing ODA. In addition, the MOF on-lending terms do not
present a disadvantageous maturity mismatch for the MOF.
HIFU charges market (positive real) interest rates on its loans, and i t s target ROE on
equity investments are based on a risk free treasury rate plus a margin.
Comprehensive operational frameworks have been established in the form o f Project
Preparation and Appraisal Manual and the Private Sector Participant Selection Manual.
The framework has been developed in close collaboration with HIFU, Department o f
Planning and Investment, Department o f Finance, and other city departments. The
manuals have been reviewed and approved by the H C M C PC. HIFU will implement the
framework with the help o f international on-the-job consultant advisors and specialists,
which will develop HIFU’s operational capacity and further reduce project risk.
31.
Link to National Policy. The Bank experience in Vietnam and around the world
indicates that the results o f projects can be maximized if they are linked to andor are
supported by a broader national policy framework. The H D P i s linked to a national
program and a Bank strategy for engaging with LDIFs in Vietnam which has been
established over a period o f 2-3 years.
32.
Government Ownership. Previous Bank-financed infrastructure funds point to the
importance o f a strong and consistent government ownership. The H D P i s well anchored
because o f the LDIFP and the deep history o f government ownership o f the Bankrecommended LDIF reform agenda dating back to 2004. The project has been endorsed by
the MOF, M P I and other relevant GOV agencies. The commitment o f the H C M C PC i s
also strong and it has been confirmed with the issuance o f the official H C M C PC Decision
approving the project and the conditions relating to the internal policy o f HIFU.
5. Alternatives considered and reasons for rejection
Establishing a National Municipal Development Fund. Creating one fund at the
33.
national level was initially considered as it was deemed to reinforce the Bank’s focus on
the wholesale model. However, there were concerns that a national fund: (i)
might not
adequately support the decentralization objectives o f the G O V which has devolved the
responsibility o f financing and managing municipal infrastructure to the provincial
governments; (ii)
would reduce the buy-in from Provincial People’s Committee; (iii)
would
fail to leverage the operational track record already established by successful LDIFs such
as HIFU; (iv) would result in more cumbersome decision making processes involving
9
many central government entities; and (v) i s less effective than decentralized institutions to
identify high quality cost-recovery projects.
34.
Providing a Wholesale Guarantee Facility. Providing a wholesale guarantee
facility aimed at decreasing the cost and extending the maturity o f loans provided for
infrastructure projects in Vietnam was considered as an alternative to directly supporting
the LDIFs. However, given that the problem in Vietnam i s both one o f access to long-term
financing as well as that o f identification and preparation o f financially viable projects, i t
was decided that providing long-term financing and detailed technical assistance on
operational reforms to qualified LDIFs would help achieve such objective more effectively.
Moreover, direct support to the LDIFs would also allow the Bank to pursue other
developmental objectives such as corporate governance and social and environmental
sustainability, which would be much harder to accomplish under the wholesale guarantee
facility model. Accordingly, i t was agreed that the wholesale guarantee facility model may
be pursued at a future stage as an appropriate extension o f the current operational approach.
35.
Relying on the WB-IFC Sub-national Finance Program. This option was initially
considered in coordination with IFC and was eventually disregarded because: (i)
being
exclusively transaction oriented, i t would not provide the right entry point to provide the
required long-term policy advice and technical assistance to HIFU; and (ii)
being more
expensive, i t would most likely have affected the affordability o f the municipal
infrastructures financed by the project.
C. IMPLEMENTATION
1. Partnership arrangements
36.
W h i l e the project does not involve any formal co-financing, it i s very central to the
engagement o f other donors. Since the LDIFs present a promising model for financing
municipal infrastructure in Vietnam, the donors are all very keen to work with LDIFs. The
Bank’s AAA on LDIFs i s widely regarded as the most in-depth analytical analysis o f the
policy and operational issues associated with the development o f LDIFs, and i t has been
shared very broadly with all interested donors. The donors are very interested in replicating
the frameworks (e.g., manuals, financial covenants, safeguards standards) which are being
prepared under the H D P in their engagements with the LDIFs. The coordination on
capacity building technical assistance for HIFU has also been very strong. The HDP and
the associated technical assistance very closely complements the technical assistance
programs financed by United States Trade and Development Agency (USTDA) and
Agence Franqaise de DCveloppement (AFD) in particular. AFD Technical Assistance
Project aims to improve HIFU’s internal management capacities and to improve the
operating and financial management skills o f managers engaged on projects financed under
AFD Credit Facility - a Euro 30 million line o f credit for HIFU targeted at health,
education, housing and environment projects. USTDA has conducted a review o f the
performance o f HIFU’s activities, which has been useful for the identification and
preparation o f HDP. A follow-on capacity building program i s planned by USTDA. Other
donors have also expressed interest in engaging with HIFU and possibly other LDIFs
through the platform provided by H D P and LDIFP, building on lessons learned from these
projects. Finally, IFC has expressed a very strong interest in financing investments
(subprojects) in partnership with HIFU, and plans to review the HIFU subproject pipeline
10
to possibly announce a formal commitment to finance 3-4 projects in year 2-3 o f H D P
implementation.
2. Institutional and implementation arrangements
37.
The implementing agency for the H D P will be HIFU as it institutes key operational
reforms and undertakes investments in municipal infrastructure with private sector
involvement. The implementation structure mirrors the current system and role o f HIFU,
with the HDP further enhancing and developing the function o f HIFU. HIFU operates as a
specialized agency within the municipal government, working with the Department o f
Planning and Investment (DPI) and other line departments in the municipal government.
The DPI as the planning agency for the province identifies the investment needs as well as
project ideas, including those which can be financed with private sector participation. The
DPI in collaboration with the H C M C PC then assigns the investment targets and project
ideas to the concerned line departments. The line departments prepare the technical details
o f the projects and consult with HIFU on the financial structuring with a view to involve
private sector. The Department o f Finance - o n behalf o f the H C M C P C - will work with
HIFU to ensure that an appropriate process i s used to select private sector partners and
provide oversight on the financial operations o f HIFU.
38.
The IDA credit will be on-lent by the MOF to HIFU in VND on terms which are
stipulated in Decree 134 and detailed in MOF decision No. 3936 dated March 22, 2007.
The equity or paid-in capital o f HIFU (referred to in Vietnam as charter capital) i s provided
by the HCMC-PC. HIFU will invest the investment capital provided under the project
according to the loan conditions which restrict the investment to cost-recovery municipal
infrastructure and define the sectors o f focus. The key financial covenants cover the whole
financial operation o f HIFU (not restricted to IDA credit) to ensure the financial and
operational viability o f HIFU as an institution. The project conditions will help to further
support HIFU’s qualification under Bank OP 8.30. The disbursements to HIFU will be
based on a 6-months report based system, which will require HIFU to document how the
funds received based on the previous report were utilized, and describe how the h n d s
requested for the next period will be used.
3. Monitoring and evaluation o f outcomes/results
39.
A comprehensive monitoring system has been established in close collaboration
with HIFU to monitor and evaluate the project activities and operations leading to the
project objectives. The monitoring system has four components:
1. HIFU internal system will provide the baseline data and report on results as
follows: HIFU Department o f Planning and Promotion will collect information on
the indicators for private sector involvement and o n private sector partner selection;
and HIFU Department o f Appraisal will collect information about the progress
made in implementing the Project Preparation and Appraisal (PPA) manual.
2. Quarterly unaudited financial statements will be provided by HIFU to the Bank;
Yearly audit report o f the financial statements-prepared by an independent auditor
to conduct international standard financial audits-will be provided to the Bank
within six months after the end o f HIFU fiscal year.
3. Independent consultants will monitor the compliance o f each sub-project with the
social and environmental safeguards requirements.
11
4. Bank Supervision Team (with support from a contract with an international
accounting firm in conducting financial assessment o f HIFU) will conduct periodic
reviews of un-audited quarterly as well as review o f the annual audited financial
statements to ensure compliance with the financial covenants and the achievement
o f operational reform milestones (subproject appraisal system and framework for
the selection o f private sector partners).
Project Review. All project information will be compiled by HIFU management
40.
and discussed with the HCMC-PC and the Bank in a workshop to be held every six
months. The workshop will provide an opportunity to discuss project progress and any
outstanding issues, including the need to refine or adjust any project components. The
operational and institutional framework (PPA and PSP manuals) will be reviewed at least
once every year by HIFU and the PC and discussed with the Bank during the six monthly
reviews. The manuals may be amended by a resolution o f the PC, provided the written
agreement o f the Bank is obtained before the amendment is approved by the PC.
4. Sustainability
41.
The development o f LDIFs in general and HIFU in particular i s an important
priority for the GOV, for which it has consistently sought Bank assistance. HDP and the
upcoming LDIFP should therefore be seen as a coherent and phased support to the LDIF
framework for which there i s strong commitment at the central and provincial government.
This series o f projects i s also closely linked to the Bank’s policy dialogue with the GOV in
the context o f the Poverty Reduction Support Credit (PRSC) process, and specific central
government actions aimed at improving the legal and administrative structure for LDIF
operations were included in the conditions o f PRSCS. Furthermore, the project activities
will be closely coordinated with the work o f the Bank’s Financial and Private Sector
Development team in Vietnam with regard to the development o f regulatory framework for
the domestic debt market and the GOV contingent liability management.
42.
The project i s expected to have negligible fiscal impact on all parties involved,
including HIFU, H C M C government, and the GOV. The GOV is undertaking this project
under an on-lending arrangement with terms that cover the foreign exchange hedging cost
as well as the cost o f processing the loan. The loan will be repaid by HIFU. The H C M C
PC does not need to provide any additional capital to HIFU, which i s fully able to cover all
i t s operating expenses with i t s own income. HIFU has been operating very successfblly
over the last ten years. The financial analysis demonstrates that HIFU can recover all i t s
operating costs (including staff salaries) and make a profit from i t s investments. The cost
recovery orientation o f the project also provides an opportunity to HIFU to take advantage
o f the project reflows as loans are repaid and HIFU exits out o f equity investments. I t i s
anticipated that HIFU will continue to use the operational framework which i s being
established under HDP to invest the reflow proceeds. The capital investment risk will be
addressed through the covenants o f this project. LDIFP will also help establish a national
policy framework to fbrther reduce finance risk.
5. Critical risks and possible controversial aspects
43.
Because o f the innovative nature o f the wholesale approach supported by the
project, the new features introduced in the management o f LDIF and the lack o f operational
experience in Vietnam in this regard, the project inevitably carries substantial risks. By
12
focusing o n the best performing LDF (HIFU) the associated risk i s somewhat mitigated.
Furthermore, a clear delineation o f Bank responsibility in this Financial Intermediary (FI)
operation has been agreed upon, which mitigates the main reputational risks for the Bank.
Risks
Inadequate
Financial
Performance of
HIFU
HIFU i s reluctant
to mainstream the
manual
Poor compliance
with Env. and
Social Safeguards
HIFU operations
crowding out the
private sector
Mismanagement
o f HIFU as a
result o f overcapitalization
Slow preparation
and
implementation
o f projects
L o w capacity o f
HIFU t o implement
the n e w manuals
Delays in the
mobilization o f
the TA
Overall Risk
Rating
Risk Mitigation Measures
Due diligence o f HIFU’s financial operations for eligibility under OP8.30 concludes
that current financial position o f HIFU i s sound. Agreement o n clear and achievable
financial covenants and associated TA will help enhance HIFU’s financial viability
0
Quarterly un-audited financial statements will b e provided by HIFU to the Bank;
Yearly audit report o f the financial statements-prepared by an independent auditor t o
conduct international standard financial audits-will be provided to the Bank after the
end o f HIFU fiscal year
0
Reports-based disbursement program which w i l l allow the Bank t o monitor the use
o f funds over the previous six months as w e l l as assess the anticipated need for capital
over the coming six months
TA is provided under component 2 t o help implement the manuals
0
Progress in implementing the PPA and PSP manuals will b e reviewed twice a year
by HIFU and the P C in conjunction with the B a n k
0
The manuals prepared with participation o f HIFU, Line Departments and P C
0
TA is provided under component 2 to help implement the provisions o f Annexes of
the P P A manual o n Environment and Social safeguards.
0
Independent monitors will be recruited to monitor each subproject
0
Prior review o f category A projects
crowding out private funds is negligible in the short-run, specific l i m i t s o n HIFU
participation have been set.
0
PSP manual implemented t o make the private sector participant selection transparent
and efficient
0
The investment eligibility criteria i s provided in the internal investment policy,
which i s part o f the operational reform package
0
Independent audits and evaluations will monitor HIFU performance
0
Clear financial covenants monitored under Bank supervision via an international
accounting firm o n contract to the Bank
0
Identification o f a robust project pipeline with detailed description o f projects
0
The wholesale approach, combined with HIFU’s excellent disbursement record, in
the project design mitigates the risk o f slow disbursements
Private sector involvement i s expected further to enhance HIFU performance
The TA component i s specifically targeted at strengthening the relevant capacity.
This is recognized an area o f substantial risk requiring a sound monitoring system
0
International and technical consultants t o provide on-the-job advice and training t o
HIFU staff over the first 3-years o f project implementation
0
Six month review to review and discuss implementation progress with HIFU and the
HCMC P C
The six TORSpackage for Technical Assistance prepared and approved along with
the Procurement Plan by the HIFU Board o f Management. Mobilization o f three k e y
consultant a condition for effectiveness; RFPs expected t o be issued by Board approval
Risk Rating
& Mitigation
M
S
S
N
S
M
S
M
S
Risk Rating - H (Hi h Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)
13
6. Loadcredit conditions and covenants
44.
0
0
45.
0
0
46.
Credit Conditions
The G O V through MOF will make the IDA credit available to HIFU under
subsidiary agreement which will (i)
protect the interests o f IDA, (ii)
meet the
project objectives, and (iii)
include provisions for the repayment o f the principal,
interest, and applicable commitment fee associated with the IDA credit.
HIFU and H C M C PC through HIFU will ensure the compliance o f the credit
conditions by HIFU which include but are not limited to (i)
investment o f credit
proceeds in the form o f loans or equity in cost recovery oriented municipal
infrastructure projects in partnership with the private sector; (ii)
compliance with
the provisions o f the manuals for project preparation and appraisal and private
sector partner selection (iii)
recruitment o f consultants to implement the project
according to the five Terms o f Reference (TORs) which have been agreed with the
Bank; (iv) compliance with requirements regarding environmental protection and
social safeguards and ensuring the sub-project enterprises comply and implement
the same; (v) maintenance o f a financial management system and records and
accounts adequate to reflect expenditures in respect to the sub-projects, and
provision o f reports o f the same to the Bank; (vi) provision o f financial statements
which have been audited by independent auditors and are in line with international
audit standards; (vii) organization o f semi-annual reviews with Bank and H C M C
PC to evaluate the progress o f the project with respect to implementation.
Project Effectiveness Conditions
Execution o f the Subsidiary Agreement between the G O V and HIFU - copy o f the
signed Subsidiary Agreement; and
Engagement of: (i)
an independent monitoring consultant for social safeguards; (ii)
an independent monitoring consultant for environmental safeguards; and (iii)
a
consulting firm in respect o f the implementation o f the Project Preparation and
Appraisal (PPA) Manual - copies o f the contract between HIFU and such
consultants and consulting firms, together with their respective TORs.
Financial Covenants
HIFU has a sound financial position, and maintaining i t s financial viability i s a critical
priority o f HDP. The financial covenants o f the HDP are critical for the future
development o f HIFU, as the record o f financial discipline will allow HIFU to raise capital
from the market and substantially increase i t s investment scale. The following financial
covenants have been agreed:
14
1
2
3
4
~
5
6
FINANCIAL COVENANTS’
Aggregate equity investments shall not exceed 50
percent o f the total amount o f the Fund’s paid in equity
capital.
The Fund’s debt-to-equity capitalization ratio (Le.
Leverage) shall not exceed 3:1, where debt means all
debt liabilities plus contingent liabilities and equity
means paid in equity capital plus retained earnings and
reserves not allocated to cover specific liabilities.
Liquid Assets shall be sufficient to cover projected Fund
operating expenses over the subsequent 18 months.
Total investment (debt and/or equity) in a single obligor
shall not exceed 15 percent o f total find capital
(including debt and equity).
In all HIFU investments involving H D P proceeds, HIFU
will not take greater than 30% ownership (equityldirect
investment) in a Project Enterprise
In all HIFU investments involving H D P proceeds, the
debt to equity ratio will not exceed 3: 1. Specifically,
debt will not be greater
than % o f the total financing o f
the subproject
APPLICABILITY
Applies to all HIFU
operations
Applies to all HIFU
operations
Applies to all HIFU
operations
Ann1i-a
tn
011 U
T
C
U
Applies to the use o f
IDA proceeds only
Applies to the use o f
IDA proceeds only
D. APPRAISAL SUMMARY
1. Economic and financial analyses
47.
The detailed due diligence o f HIFU financial accounts was conducted to determine
the financial viability o f HIFU as a potential Bank partner vis-&-vis a Financial
Intermediary Loan. The analysis reviewed the quality o f HIFU loan portfolio, including the
level o f non-performing loans and a detailed review o f randomly selected loans to
determine loan rates and repayment quality. The equity investments o f HIFU were also
analyzed to determine HIFU’s exposure vis-Bvis industry and investment instrument. The
key equity investments were identified and reviewed to determine asset quality. The
Income Statement was analyzed v i s - h i s profitability and operational efficiency. Finally,
the investments in portfolio companies (non-infrastructure investments) account for a
significantly minor proportion o f total fund assets and therefore present limit exposure to
market fluctuations. The analysis confirmed that HIFU i s in a strong financial position
(details are in Annex 9).
48.
The project will significantly improve the financial sustainability o f HIFU and
reduce the risk i t may present to financial market development due to inappropriate
borrowing practices involving short-term roll-over debt. Also, the project will not add any
additional cost to H C M C fiscal position but will help H C M C government to protect i t s
’
The GOV has issued a draft decree o n Institution and Operation o f LDIFs, which specifically addresses
covenants 2 and 4. These two covenants, as stipulated above, are consistent with the Bank’s technical advice
to the GOV. The task team has agreed with HIFU and HCMC PC that during implementation, covenants 2
and 4 can be adjusted in line with the final, approved stipulation o f the GOV Decree as part o f the six
monthly review o f a l l H D P conditions which i s described in t h i s PAD.
15
investments in HIFU (in the form o f charter capital or equity) by improving the financial
sustainability o f HIFU operations, and attracting private capital in the development of
municipal infrastructure.
2. Technical
49.
HIFU will use the IDA credit to invest in cost recovery oriented municipal
infrastructure investments in partnership with the private sector. A pipeline o f projects has
been identified, and it confirms that HIFU can absorb the investment capital which i s being
made available via the project. Two sub-projects to be financed in year one o f project
implementation have been appraised successfully. Details o f the appraisal are in the project
files, and a summary i s provided in Annex 4.
3. Fiduciary
Financial Management
50.
The inherent risk to the project from the financial environment i s assessed as
moderate and the project control risk i s assessed as l o w with the mitigation measures. The
overall financial management risk i s assessed as Low.
51.
The financial management function o f HIFU i s well established, and it i s
adequately staffed with personnel with satisfactory competence and qualifications. The
accountants have educational background in accounting (at least bachelor degree) and
experience in managing the operations o f the Fund, The internal control procedures are in
place and effectively maintained. However, improvement on Risk Management and I T
systems is required which will be supported by the Technical Assistance under the project
and/or in collaboration with the Technical Assistance provided by AFD and other donors.
The current Accounting and Reporting system is assessed as adequate for accounting and
reporting on the receipt and use o f funds from IDA, but needs further enhancement to
better serve the management o f Fund’s operations in the future. These enhancements will
be implementedwith the support o f the Technical Assistance provided under the LDIFP.
52.
The financial management personnel do not have experience with IDA funded
projects, in particular, disbursement procedures and IDA reporting requirements. Training
on these therefore was delivered to those involved in the project financial management by
the Bank Financial Management Specialist.
Procurement
Procurement capacity. Procurement under the proposed project would be carried
53.
out by HIFU (consultant services under component 2 self-financed by HIFU) and the
private sector/public sector autonomous commercial f i r m s who would receive financing
from HIFU (in the form o f loans and / or equity investment). The Bank team has done an
assessment o f the procurement capacity o f HIFU and the first two potential borrowers of
HIFU loans, namely West Bus Terminal Co. and Hoa Binh Waste Treatment Co. Ltd. The
summary o f this assessment i s provided in Annex 8. The procurement risk o f the proposed
project i s rated ‘medium’. To mitigate the risk and strengthen the implementing agency’s
procurement capacity, specific actions summarized in Annex 8 are proposed. These
actions have been discussed and agreed with the Borrower.
16
54.
Procurement Arrangements. Procurement for the proposed project would be carried
out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans
and IDA Credits ” dated M a y 2004, revised October 1, 2006; and “Guidelines: Selection
and Employment of Consultants by World Bank Borrowers ” dated M a y 2004, revised
October 1, 2006, and the provisions stipulated in the Credit Agreement. General
arrangements o f the project procurement, Procurement Plan and Bank review are discussed
in Annex 8.
Anti-corruption
55.
The main corruption risk under the project stems from the selection by HIFU o f i t s
private sector partners. As one o f the key reforms supported by the project, a Private
Sector Partner (PSP) selection manual has been prepared to introduce in a phased manner
competitive selection o f private partners, with specific processes to deal with unsolicited
proposals. Independent advisors will be appointed to conduct the required evaluation (see
Annex 4). The project will also allow HIFU to take important steps towards increased
disclosure as the HIFU website will be used to disclose the summary o f HIFU’s audited
financial accounts and the l i s t o f subprojects which are being pursued by HIFU. The
financial management structure provides for improved credit management policies,
including requirement that all project enterprises involved in HIFU’s equity investments
provide audited financials o f their operations to HIFU. Finally, the disbursement will be
report based, which will: (a) directly link periodic disbursements with reports verifying the
appropriate use o f IDA proceeds; and (b) allow supervision flexibility to monitor and
manage the disbursement for specific investments (loans or equity investments) o f HIFU.
56.
HIFU i s a Local Development Investment Fund which has been audited every year.
The Project introduces international standards for such audits. Furthermore, quarterly unaudited financial statements will be received and reviewed by the Bank. Strict Financial
Covenants have been put in place to ensure that HIFU financial performance i s further
strengthened, and to provide a long-term engagement point for Bank dialogue on the
importance o f financial viability and increased disclosure o f financial operations. As part
o f the supervision activities, the Bank will recruit and retain an international accounting
firm on a long-term contract to help evaluate HIFU financial statements/operations.
4. Social
57.
HDP will mostly have positive impact on the society through improving
infrastructure and living environment for the City and i t s citizens. However, the project
will also have some adverse impacts related to the need for land acquisition and
involuntary resettlement. A Resettlement Policy Framework for the project has been
adopted by the H C M C PC and approved by the Prime Minister. Guidelines have been
included in the PPA Manual to guide HIFU and its borrowers/investment partners on how
to minimize and mitigate the impacts to the people and how to prepare and implement the
safeguards documents to meet the Bank’s requirements. Supervision framework has also
been established to ensure compliance. These guidelines have been put in practice in the
preparation o f the two proposed subprojects for the first year o f implementation. Among
these two subprojects only one required land acquisition (Septic tank waste treatment plan).
The compensation and resettlement activities have been implemented since 2005. The
background o f the remaining complaints which have not yet been resolved i s discussed in
17
the Annex 10. Satisfactory resolution o f these i s a condition for the subproject to be
financed by the Line o f Credit provided under the HDP.
58.
Taking into account the fact that there are two ethnic minority groups living in
H C M C (Cham with about 5,200 persons and K h M e r with about 4,800 persons in
accordance with the data o f 1999 general population census), an Ethnic Minority Planning
Framework (EMPF) has been prepared. Ethnic Minority Plans will have to be developed in
accordance with the project EMPF for the subprojects having any ethnic minority group in
the subproject areas. There are no ethnic minorities in the proposed two subprojects for the
first year o f implementation.
5. Environment
59.
The HDP i s expected to have mostly positive environmental and public health
impacts contributing to improvement o f the city’s infrastructure; solid waste management,
efficient and safer transport systems, and on-site sanitation services. Adverse impacts could
arise through: (a) temporary pollution (air, noise, vibration, surface mn-off), excavation
work, and disturbances to local transport, waterways or drainage systems, that could occur
during construction; (b) wastewater discharge and disposal o f sludge from the waste
treatment plants; (c) disposal o f dredged material; and (d) transportation and disposal o f
solid waste in the landfill sites.
60.
Detailed guidelines on Environmental safeguards, acceptable to the Bank has been
included in the PPA manual and approved by the H C M C People Committee. The Manual
will be used by HIFU staff in carrying out environmental safeguard (ES) work to meet the
requirements o f GOV and the Bank for the projects that would be financed by the line o f
credit provided to HIFUthrough the project.
6 1.
The environmental guidelines (an annex o f the PPA Manual) include a process with
the following features: (a) screening that could possibly exclude areas and subprojects due
to environmental siting and other potential negative impacts by using an exclusion l i s t
acceptable to the Bank; (b) EIA preparation per the GoV regulations and Bank
environmental safeguard policies including an internal due diligence assessment o f EL4
reports (when already available) o f subprojects that pass the screenings and Government
environmental approval; and (c) institutional arrangements for HIFU and Bank supervision
as needed under the H D P o f the implementation o f environmental management plan
(EMP).
62.
The PPA and guideline processes were used by HIFU in preparing and appraising
two subprojects for Year One as a pilot program o f the HDP in a manner acceptable to the
Bank. The PPA i s being applied for the preparation o f all other subprojects HIFU expects
to finance through the line o f credit provided under the project. HIFU will implement and
continuously improve the PPA Manual with assistance from on-the-job consultants to be
hired as part o f component 2 o f the project.
63.
Due diligence assessment processes and outcomes have been implemented as an
approach to ensure subproject safeguard compliance. This includes: (a) scoping new EA
works in accordance with the PPA Manual; (b) assessing the adequacy o f the EA work
approved by DONRE; (c) developing risk management plans to remediate the mitigation
work defined in the EIA if implementation i s found insufficient; (d) obtaining borrower’s
18
written commitments to HIFU to implement the risk management plan; (e) assessing
borrowers institutional mechanism to carry out EIA work for A-category subprojects; and
( f ) testing the PPA Manual with HIFU using Year One Pilot Projects.
64.
Specifically for the Year one pilot program, due diligence assessments were carried
out for the Initial Environmental Evaluation (IEE) o f the West Bus Terminal and the
Environmental Impact Assessment (EIA) o f the Septic Tank Waste Treatment subprojects.
As a result o f the due diligence assessment, a risk management plan has been developed for
each o f the subprojects. The plans were signed between HIFU and the borrowers. Annex 10
provides the details regarding processes to ensure compliance o f these two sub-projects.
65.
The potential negative impacts o f all subproject activities will be mitigated through
environmental management plans (EMPs) prepared for each subproject in accordance with
the environmental guideline and in compliance with OP 4.01 on EA. The EMPs will
include mitigation measures, monitoring plans and institutional responsibilities connected
with their implementation. Mitigation measures will be included in construction contracts.
For the subprojects which have obtained from D O N R E an approval to the EIA report, or
environmental certificate, due diligence assessment o f the EA work will be conducted and
supplemental environmental information or study will be required as necessary.
66.
HIFU will arrange for the monitoring o f E M P implementation in each subproject,
and will prepare semi-annual environmental compliance progress reports submitted to PC
and IDA. An independent environmental safeguard monitoring consultant will be hired to
assist HIFU in this task, and also to provide guidance to the borrowers in internal
supervision and reporting on the implementation o f mitigation measures as specified in the
EMP.
6. Safeguard policies
Safeguard Policies Triggered by the Project
Environmental Assessment [OP/BP/GP 4.0 1)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Cultural Resources (OP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples [OD 4.20, being revised as OP 4.10)
Forests (OP/BP 4.36)
Safety o f Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP/GP 7.60)
Projects on International Waterways (OP/BP/GP 7.50)
Yes
[ XI
[I
[I
[I
[ XI
[I
[I
11
[I
[I
No
[I
[XI
[XI
[XI
[I
[[XI
[XI
[XI
[XI
[XI
67.
The yedno responses in the above table refer to the safeguards expected to be
triggered for most o f the sub-projects to be financed under the line o f credit. Screening
mechanisms as specified in the PPA Manual will be applied to investment pipeline
subprojects in determining safeguard triggers for OP 4.04,4.09,4.10, and 4.1 1.
68.
The safeguards screening category is S2, which means one or more safeguard
policies are triggered but impacts are limited and technically/institutionally manageable.
19
The project i s determined to be an environmental screening category FI. Subprojects
environmental screening categories will vary.
69.
Public consultation. The PPA manual specifies when and how public consultation
has to take place for each sub-project. Consultation for the EIA report for the Subproject
Septic tank waste treatment (A category) has been completed with the local authority
(Ward People Committee D a Phuoc) and local NGO (the Father Front o f the District Binh
Chanh) in accordance with the new national law on environmental protection. N o public
consultation on environmental issues was required for the West Bus Terminal.
70.
Public disclosure. The PPA manual specifies when and how the various
safeguards documents need to be disclosed. HIFU has confirmed the public disclosure o f
the EL4 report for the Septic tank waste treatment and the Initial Environmental
Examination (IEE) for the West Bus Terminal subproject in the ward PC offices since Mar
05, 2007 as per the Bank’s disclosure requirements. A copy o f the drafi Environment
Guidelines and Social Safeguards Manual as a part o f the PPA Manual have been disclosed
locally and sent to InfoShop in Washington D C and made available in English and
Vietnamese in Hanoi’s Development Information Center (VDIC) on March 20,2007.
7. Policy Exceptions and Readiness
Policy Exceptions: NA
Readiness: The following project elements outline the readiness o f the project:
HIFU project pipeline i s ready with 13 projects identified with detailed project
descriptions.
Two (2) year 1 projects have been appraised, including fill safeguards
documentation, and financial analysis. Projects ready for financial close.
5 TORs package for technical assistance and the procurement plan ready and
approved by HIFU Management; mobilization o f the three key consultants under
the approved TORs to take place before loan effectiveness.
Project team operational - includes designated procurement and FM staff.
Manuals for Project Preparation and Appraisal (PPA) and Private Sector
Participant (PSP) selection prepared with broad participation o f city departments,
and formally approved by the H C M C PC for implementation by HIFU.
Results framework in place; base line available.
FM arrangements setup; FM capacity analyzed.
Audit arrangements agreed with client.
Counterpart fbnding confirmed with client.
Resettlement Policy Framework (RPF) approved by the Prime Minister.
.
20
Annex 1: Country and Sector or Program Background
VIETNAM: HIFU Development Project
Municipal Infrastructure in Vietnam. Municipal infrastructure demand i s increasing
rapidly in Vietnam as the country copes with rapid urbanization, decentralization and high
rates o f economic growth. There i s wide agreement that a significant investment gap exists
vis-a-vis municipal infrastructure demand. Commentary on the investment climate in
Vietnam i s beginning to increasingly cite the lack o f infrastructure in general and
municipal infrastructure in particular as a key bottleneck to investment and economic
growth. I t i s unlikely that Vietnam can significantly increase public investment in
infrastructure from the recent level o f 8.7-10.0% o f GDP; in order to meet the increasing
demand for municipal infrastructure Vietnam will therefore have to attract private capital
and increase the efficiency o f investment, which will require policy reforms and
improvement in planning and management o f infrastructure assets. To date, Vietnam has
neither established the appropriate investment channels for attracting private financing, nor
the institutional and regulatory frameworks to involve private sector in the provision o f
infrastructure. The public sector agencies have also been slow in undertaking the necessary
sector policy reforms-including tariff increases and cost recovery-to improve the quality
and increase the coverage o f infrastructure delivery. The challenges facing Vietnam vis-avis financing o f municipal infrastructure are further complicated by the following two
developments :
At present, there i s a severe shortage o f long-term capital in the market in general,
and for municipal infrastructure in particular, as the risks associated with municipal
infrastructure investment remain prohibitively high for the private sector. In the
near to medium term the private financial markets in Vietnam-which
are
unlikely to become
currently at the very initial stage o f development-are
adequately deep or broad to meet Vietnam’s infrastructure financing needs. W h i l e
the critical and immediate infrastructure financing needs o f the country call for
immediate public sector action, measures must be taken to ensure that actions taken
in the interim period take into account the risk o f private sector crowding-out in the
medium to long-term
0
Vietnam i s fast transitioning towards a decentralized governance model through a
political process that has very strong political support. The responsibility for
municipal infrastructure has already been devolved to the provincial governments.
The provincial governments have limited budgetary resources for municipal
infrastructure, and suffer from a combination o f weak institutional capacity and
policy uncertainties which will affect the flow o f private capital/expertise into
municipal infrastructure development
The Decentralization Challenge. Decentralization has increased the spending obligations
at sub-national levels. According to the developing decentralization regime in Vietnam,
municipal infrastructure is primarily the responsibility o f the local governments. As
decentralization has progressed, the share o f sub-national governments in total government
expenditures has risen from 26% in 1992 to 48% in 2002. The estimated annual financing
requirement to achieve the government’s targets between 2010 and 2020 will be of the
order o f U S $ 377.5 million for urban water supply, U S $ 280 million for wastewater
collection and treatment, U S $ 239.3 million for drainage (including canal rehabilitation),
21
and US$ 835.4 niitliori for loxv income h o u s ~ nin~urban areas, a t ~ u n ~ c i pres~?o~zsibi~ity.~
al
This gives a total o f US5 1.7 to 1.8 b i l ~ ~ oann~I~Ily,
n
or between 3.0% and 4.0% o f CDP
annually. This cstimare excludes required ~nvesrn~ents
in urban t r a n s ~ ~which
r t ~ are I X U G ~
harder to ~ u a n ~but
~ f are
y expected to be s ~ ~ ~ ~ c a n t .
EiCMC i s the largest city in Vietnam and a major ind~~strial
and cona~ercialcenter with a
population o f 6 ~ ~ ~ l I~t ios na ,~ a t e ~ o rIy city r e p o directly
~ ~ ~ ~to ~the Central
~ o ~ ~The~ city
~ has
~ been
~ in
e the~ forefroIit
z t o~f the t r ~ z s ~ in~tiated
~ ~ o ~ bi y the economic
reform ""Open door" and ' ~ R e n o ~ a t i opolicies
~"
which have led to ~npreccdc~~tcd
growth
for the c ~ ~ ~ n pt r ~~ 'r , ~ ~ cn ~the~ i t~~ ad ~r sl t r~sector.
~ a l This growth has been most ~ r o n o ~ t ~ c e d
i n MCMC, xvhich accounts for 35-40 percent o f the n ~ t ~ o nCDP.
a ~ The annual growth rate
o f the HCMC urban ~ o ~ ~ ~i s~between
t i o n 5-7 percent with thc ~ o ~ u in~ 2020
~ ~ ~ o r ~
expected to he approx~matel~
10 ~ ~ i l ~rcsidcnts.
ion
The increase ixa urban p o p ~ ~ a t i oand
n
the cconornic g r o ~ t hi s putting increased pressure on. the urban set+es
o f thc city. For
example, it was recently reported ~~~~e~~~~~
News, 15 January 2007) rhat there has been an
annual increase i n the ttsc o f public t r a n ~ in
~ oHChiIC
~
o f around 20 percent. The r~rban
arcas face simifar problems in other sectors such as wder, e d ~ ~ a t i Q
and
n hcatth. I t i s
estim~~ed
that HCMC needs to invest ~ p ~ r o ~ ~ $3
~ ~biIlion
zate
an inu~ all^^ to meet the c t t ~ ~ c n t
i17f r ~ s t r u c ~den1
~ ~ rand.
c
~ ~ ~ ~ ~~ ~ t ~jModel.
u ~ As
~t Vicfnam
u r ~~
preparcs to
~ meet the ~demand for
i iticreascd
~
in~re~rnient,
i f needs to also undertake me~suresto start p r e ~ a for
~ ~the
n ~~ r ~ s i t i oaway
n
from c o n ~ e ~ s ~donor
o ~ ~ a~ ~n a ~ z c ifor
n ~urbm ~nfrastn~crure
sewiccs. The ~iccessar~
nene bot:dS
13%
~
Key reforms related to the planning and management o f infrastructure services can also
improve the financing possibilities. In particular, ensuring cost-covering tariffs for
infrastructure services, where feasible, can provide infrastructure enterprises with the
possibility o f self-financing using retained earnings, and open the possibility for alternative
financing sources that rely on future revenue streams. Important reforms to improve the
efficiency o f infrastructure procurement and services can also help to defer the need for
new investment and reduce the overall financing needs.
Financial Sector Development
Vietnam continues to move forward with the reform of the banking. Since the Government
started accelerating the reform in 2001, the five state-owned commercial banks (SOCBs)
have evolved from specialized policy lending vehicles towards increasingly commercial
orientation; by improve their credit policies and procedures, accounting practices,
information systems, products and services. In June 2003, the Government announced i t s
intention to equitize the SOCBs as a step to fully commercialize them. Joint-stock Banks
(JSBs) have also been consolidated to form stronger banks. Serving mostly for private
businesses, some o f them have posted strong growth and are gradually gaining market
share. The environment in which banks operate has also been improving with the removal
o f interest rate ceilings and the implementation o f a national payment system and modem
core banking systems at the largest banks. The SOCBs and leading JSBs are also
competing to expand their ATM networks. The State Bank o f Vietnam (SBV) has
promulgated numerous regulations, gradually leveling the playing field for foreign banks,
setting prudential standards and reclassifying NPLs to support their resolution. A credit
information center was officially set up in 1999, and a registry for secured credit
transactions in 2002, both o f which are expected to improve the access to finance. As a
result, both bank deposits and credits have been registering rapid growth (over 25%
annually since 2002), and the banking sector assets now amount to 66% o f GDP. The
improved confidence in the banking system and the local currency has been leading to
gradual ded~llarization~
and use o f non-cash payment instruments.
The stock market and the non-bank financial institutions have also shown phenomenal
growth. During 2006, the number o f companies listed has increased by nearly fivefold4
while the market capitalization increasing by more than tenfold to surpass 22% of GDP,
already well surpassing the Government’s original target o f 15% by 2010. The largest
enterprises including the SOCBs are only yet to come to the market. The number of
securities companies has also been doubling while many are increasing their capital to
undertake new business such as underwriting o f public offers. The insurance sector also
has registered healthy growth till recently while increasingly faced with tough competition
with banks’ savings products. Development o f the capital markets and the planned
liberalization o f foreign participation in the statutory casualty insurance sector are expected
to bring a renewed impetus to the sector’s growth.
Despite the impressive development, there are important issues left unresolved. In
particular, meaningful measures are yet to be taken to develop the debt capital market. The
Other factors include: higher interest rate on VND savings than foreign currency and the lack o f deposit
insurance in foreign currency.
192 including 106 at H C M C STC and 86 at Hanoi STC as o f January 16,2007.
23
rapid growth of the financial industry and market is also creating dangerous gaps and
imbalances in the regulatory and supervisory capacity and financial infrastructures. In
addition, the financial sector i s already faced with the second generation issues as Vietnam
moves swiftly toward a middle income country status. Concerns are growing with the slow
progress o f the restructuring and equitization o f the state-owned commercial banks
(SOCBs) and enterprises (SOEs). Uncertainty surrounding hTLs, the practice o f rolling
over short-term credits to generate long-term funds, the difficulty in valuation, etc. are
delaying the process. The equitization i s considered as essential to enhancing their
efficiency and competitiveness amid the growing competition due to the WTO accession
and integration into the regional and global economy. The SOCBs are responsible for
nearly 70% o f all credits to the economy and are primary creditors to SOEs. Therefore,
SOCBs’ restructuring and equitization are linked with those o f SOEs. W h i l e a half o f the
over 6,000 SOEs have been equitized, largest ones are left untouched, leaving the large
share (85%) o f the original state enterprise assets s t i l l in the state hands. The equitization
o f Vietcombank and Mekong Housing Bank has also been delayed.
The capacity building of the financial sector regulatory and supervisory authorities is also
lagging behind the development of their respective sectors. The State Bank o f Vietnam
(SBV) is only in the initial preparatory stage o f fundamental reform to become a fullfledged central bank o f a market economy. Reform and upgrading o f i t s bank supervision
capacity can be done only as part o f the process. The Deposit Insurance o f Vietnam (DIV)
has been in operation but i s lacks capacity and i t s responsibilities overlap with those o f the
bank supervisor. The State Securities Commission (SSC) needs to urgently upgrade i t s
capacity to guide the civilized development o f the rapidly growing securities market
including the OTC market as well as the Stock Trading Centers. To do so, i t needs to
become able to effectively discharge the much expanded responsibilities under the new
Securities Law. An investor protection fund i s yet to be established. The Insurance
Department o f the MOF has only 25 staff with only very basic information and
communication technology capacity to supervise the growing and diversifying indu~try.~
Vietnam continues to receive growing amount of foreign investment. In addition to a
record level o f foreign direct investment, the country i s now receiving the third wave of
foreign portfolio investment (FPI, amounting to $3 billion in accumulated total).
Remittances are even greater than FPI while exports and tourism are booming. There i s
now an appreciation pressure on VND which the SBV i s struggling to manage while at the
same time trying to contain the inflationary pressures. Cross border capital flows and
exchange rate are expected to be increasingly liberalized to implement Vietnam’s WTO
commitments. The authorities must strengthen the prudential regulation and supervision o f
banks and NBFIs and strongly promote their sound risk management to mitigate risks
associated with foreign exchange, interest rate, maturity mismatches, liquidity, etc.
Financial market must also offer instruments to manage such risks (e.g., bond market,
derivatives). I t i s also necessary to build a capacity to closely monitor the sector- or
economy-wide risks.
24 insurance companies (eight lifes and 16 non-lifes), seven insurance brokers, one reinsurer and 144 agents
offering over 900 products which are growing rapidly.
24
Vietnam is faced with a need to invest aggressively in infrastructures which require a huge
amount of long-term resources estimated to be in excess of 10% of GDP through 2010 and
beyond. Enhancement o f the access to finance by the poor i s also a key policy objective to
continue to reduce poverty. The former requires development o f the domestic bond market
and mobilization o f private resources to release the pressure o n the currency and maturity
mismatches. Yet, one common factor cutting across the two issues i s a need to strengthen
policy-based financial institutions. The Vietnam Development Bank (VDB) has been
established by transforming the former Development Assistance Fund. However, it i s yet to
build the capacity to take on these challenges. Similarly, the Vietnam Bank for Social
Policy (VBSP), Vietnam Postal Savings Corporation (VPSC) and People’s Credit Funds
(PCFs) all need technical assistance and training and the appropriate policy framework to
carry out their functions. The reform o f the policy lending institutions will have important
l i n k s with the equitization o f the SOCBs.
Private Investment in Infrastructure. There is great potential in Vietnam for increased
private investment in infrastructure. Private investment, including foreign investment,
offers a virtually limitless source o f financing, and could go far to meeting the
infrastructure investment agenda. As Table 1.2 below indicates, over the period 1997-2003
private participation in infrastructure (PPI) commitments amounted to about 15% o f the
total infrastructure investment-or 8.5% if we exclude one U S $ 1.3 billion gas field and
pipeline project. Private sector participation in urban infrastructure (water, solid waste, and
other development infrastructure sectors) financing has been particularly weak.
Table 1.2: Private Investment in Infrastructure (Contractual Commitments in U S $
million)
Ports
Airports
Toll-roads
Telecoms
Water
Electricity
Gas
1994
10
1995
128
15
205
1996
110
1997
70
1998
38.8
120.5
1999
16.3
20
2000
16.2
154
2001
10
16.2
480
1,300
2002
20
246.3
412
2003
2004
Total
100
15
10
423
212.8
1,540.3
1,300
Source: PPI database. These figures record investments promised at the time o f contracting. In some
instances o f projects with multiplephases where subsequencphases did not occur actual disbursements may
differ f r o m commitments.
But involving the private sector in undertaking significant investments in infrastructure i s a
complex and difficult task. To attract private finance, investors must expect to earn a
return on the capital invested commensurate with the risks undertaken, but these needs
must be balanced with the protection o f consumers from the market power o f privatized
infrastructure. This balancing act must be implemented in transaction documents (legal
contracts, licenses, and laws established to induce the initial investments) and in the
ongoing regulatory environment established to govern the infrastructure f i r m ’ s operations.
To get all o f this right i s a highly complex affair, requiring skilled economists, accountants,
25
and lawyers, as well as carefil political guidance, The best way o f establishing these skills
would be through experience, which suggests that Vietnam should, in addition to the IPP
program envisaged for electricity, seek to establish pilot projects with private participation,
including management control rights, in a range o f infrastructure sectors.
Policy Framework for FIL
Emerging Framework for Municipal Finance. The Government o f Vietnam (GOV) has
actively encouraged the provincial governments to take greater responsibility for financing
municipal infrastructure. The 2001 Pubic Administration Reform Master Program (for 20012010) lays the groundwork for putting in place the regulations on decentralization o f
administrative management and fiscal functions. The two most significant components o f the
emerging municipal finance framework include permission to the provincial governments to (i)
establish Local Development Investment Funds (LDIFs), and (ii)
borrow up to 30% o f their
annual budget for development investments-HCMC and Hanoi are allowed to borrow up
to 100% o f annual state budget through revenue or general obligation bonds. The LDIFs
offer an operational and legal structure for the provincial governments to focus on
infrastructure, including the ability to mobilize capital and enter into contracts with the
private sector.
The H o Chi Minh City Investment Fund for Urban Development (HIFU) was the first
LDIF established in June 1996. Since then, twelve other provincial governments have
established LDIFs with the approval and support o f the GOV. The increase in the number
o f LDIFs is matched by the increase in the intensity with which provincial governments
have pursued the LDIF model, as evidenced by the increase in the charter capital o f the
LDIFs which increased by approximately 45% per year from 1997 to 2004 and was
estimated to be approximately $400 million by the end o f 2006. The most active LDIFs are
making progress in bringing the new forms o f public-private partnerships, including the
more sophisticated contracting mechanisms (BOO and BOT, etc.) to Vietnam. The LDIFs
can also become a valuable instrument for instituting provincial policy reforms that support
decentralization and increase the efficiency o f public sector management.
The LDIFs can be segmented into three distinct tiers based on their operational
performance. HIFU leads the field, followed by the three middle tier LDIFs. The remaining
nine LDIFs are far behind the top-4, and will likely not be able to make significant progress
in the near fiture without a significant effort. The critical capacity building and
institutional development needs o f LDIFs are described in the table below.
26
Relative Performance and Institutional Development Priorities
Top
Performance
Tier
Top 3 Development
Needs
Dong Nai IF
Binh Duong IF
HANIF
HIFU
LDlFs
-
investment PolicyIRisk Mgmt.
Cwporate Governance
* Investment PoiicyIRisk Mgmt.
Financial Structuring
Bottom
Middle
* Investment Appraisal
* Cwpwate Governance
-
Investment Appraisal
*Investment PolicyIRisk Mgmt.
*Staffing & Operational Resources
The most urgent priority for the G O V at this stage i s to ensure that the top-4 LDIFs,
particularly HIFU, develop appropriate operational models. HIFU i s in a position to set the
standards for other LDIFs, and encourage other provincial governments to use the LDIFs in
an appropriate fashion. The success o f HIFU has in particular encouraged many provincial
governments to establish LDIFs, and its focus on cost recovery and partnership with the
private sector provides an excellent initial roadmap for other LDIFs.
The capital structure o f LDIFs requires critical attention. Specifically, the LDIFs are
currently engaged in short-term borrowing on a roll-over basis. The LDIF borrowing
should be directly tied to their assets, particularly their Charter Capital. I t may be prudent
for LDIFs to not increase their commercial borrowing until they have undertaken the
necessary reforms. The long-term business model o f LDIFs should involve the use o f
equity (Charter Capital) to raise debt for investment purposes. Short-term borrowings particularly if they are not tied to LDIF credit - can lead to short-term oriented investments
which can channel LDIF capital away from long-term infrastructure development projects.
Preliminary estimates indicate that approximately 80% o f all LDIFs mobilized capital i s
short-term (< 12 month tenor) with roll-over features, and approximately 20% i s medium
term (>12 <60 month tenor). There i s almost no long-term debt. Inappropriate borrowing
by the LDIFs can have a negative affect on the developing banking sector. I t i s essential
that in the immediate future the qualified LDIFs utilize technical assistance and long-term
debt from ODA program to establish a good investment and financial management record,
before they start raising senior debt from the market.
The development o f LDIFs will require a sustained, long-term effort. In particular, the
LDIFs should first establish a performance record vis-a-vis financial management and
execution o f projects in partnership with the private sector, and raise debt from the market.
In the later phases o f development the goal can be expanded to include raising private
equity into the fbnds. As discussed above, i t is important for the LDIFs to take advantage
o f IDA technical assistance and long-term financing to establish sounds systems and
processes before they engage in raising debt from the market. The discussions with various
private sector parties in Vietnam indicate that while the private investors are willing to
engage LDIFs at the project level (as partners in project entities), they will be very
27
reluctant to invest directly in the LDIFs in the near-term. The involvement o f the private
sector in the financing and management o f LDIFs should be an important long-term
objective o f the government. The following diagram provides a possible long-term
development model for the LDIFs.
Stage I
Stage II
Stage 111
LDIFs and Financial Market. There are four categories o f risk associated with
government owned FIs which apply to the LDIFs. The Bank team has worked closely with
the GOV and provincial governments to develop a practical risk mitigation approach which
can be implemented in Vietnam.
1. Policy Capture: Provide appropriate incentives to the LDIFs and the Provincial
Governments to highlight the value o f LDIFs as important tools for addressing the
growth-oriented infrastructure needs o f the cities, rather than a convenient channel for
providing subsidies for politically important projects.
2. Private Sector Crowding-Out / Market Distortion: Incentivise and help develop the
LDIFs to work in partnership with the private sector. It is also very important to ensure
that LDIFs do not price their investments below market. This will also require
establishment o f the necessary institutional framework within the provincial
government to ensure identification o f appropriate projects, and development o f LDIF
capacity to prepare good, bankable projects which allow for market pricing.
3. Mismanagement: Establish clear frameworks for financial management and operations,
and ensure that capital provided to the LDIFs i s in line with their project pipeline.
4. Contingent Liabilitymarket Risk: Develop models for monitoring the debt service
capacity o f LDIFs because the LDIF borrowings do carry implied government
guarantees. Specifically, at a time when the market infrastructure (e.g. rating agencies)
is not in place and banking sector and capital market development is at an initial stage,
inappropriate borrowing practices o f LDIFs can severely impact the financial market.
28
Strategic Framework for World Bank FILs in MunicipaUInfrastructure Finance. The
task team has utilized a framework prepared by the EAl? Sustainable Development
Department to conduct strategic review o f the appropriateness o f pursuing FILs for
municipal/infrastructure finance in Bank operations. The framework i s specifically
designed to allow infrastructure task teams to review the cross-sector impact of the
projects, particularly on financial market development. I t also facilitates the identification
o f the long-term role o f the FI, and the provision o f measures to help manage the transition
o f the project entity (FI) towards an appropriate long-term role.
The following tables summarize the results o f the application o f the framework to HDP.
-0cus
FI approach with HlFU is justified based on the following considerations:
- Traditional engagements (SILs) have had limited success in financing
infrastructure
-There is a lack of long-term capital in the market
- Private market is not ready to directly finance program objectives
- Public sector co-financing is necessary to attract private capital
- Credit enhancement is necessary to finance infrastructure projects
- Lack of capacity to prepare financially viable projects
- Need for a specialized public institution to negotiate with private sector
(PPI contracting, etc.) and attracting private capital
Is the FI approach
necessary to achieve
program objectives?
Financial
Market
Will the FI support market
development?
The risk of private sector crowding-out is limited in the short-term, but may
become significant in the long-term unless HlFU transitions towards a private
market support role
National policy l incentive structure defining the long-term role of HIFUlother
LDlFs
Financial covenants in place to ensure co-financing with the private sector
Project puts HlFU on track to develop new market instruments (HIFU Bonds),
and improve standards for infrastructurefinancing - appraisal, risk management,
Framework
:ocus
Sector Policies
HlFU can continue to support sector policy reforms
-Separation of investmentswhich offer cost recovery and can be
financed by HlFU from those which require budget support
-As an investor in infrastructure projects, HlFU supports tariff rate
increase to ensure sustainabilityof infrastructure assets
- HIFU’s disclosure practices will set higher standards for SOEs and city
departments
- ImDroved standards for safeguards practices
Can the FI structure
contribute to sector policy
reform?
* institutional structure in place to minimize the “policy capture” risk
Partnership
Conditions
Is the engagement
Partnership
Strategy
- Int’l Audit Standards: Financial Covenants; and implementation of
Are the appropriate
conditions in place to
ensure strategic clarity?
supporting a transition
towards an appropriate
long-term business
models?
-
Project Preparation and Appraisal Manual
Appropriate financial risk management structure is in place
-market pricing, cost-recovery, portfolio monitoringlmanagement
Institutional capacity to manage social/environmentalsafeguards
Co-financinglsyndicationwith private sector ensure loan conditions
Financial risk management identified as key prerequisite for growth
Capitalization of HlFU tied to portfolio risk and absorption capacity
Technical assistance provided to HlFU (and MOF) to facilitate transition
towards commercializationl corporate independence
Manuals and conditions designed to help HlFU set safeguards standards
29
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
VIETNAM: HIFU Development Project
Bank financed
Public-private
partnership
in
infrastructure projects
(on-going)
Rural
finance;
promotion o f private
sector investment
Financial
sector
modernization
(ongoing)
Financial
sector
modernization;
broaden access to
finance
Rural
finance;
promotion o f private
sector investment
Deterioration
of
sanitation systems and
institutional weakness
(ongoing)
Lack o f access to
infrastructure
and
tenure insecurity in
urban poor areas
(ongoing)
Lack o f access to
water
supplies,
deterioration o f water
supply systems and
institutional weakness
(ongoing)
Other Development
Agencies
Public/Private Partnership
Generation Project (P086509)
(Board proposed 7/08/08)
Implementati
on Progress
(IP)
Power N/A
Vietnam Second Rural Finance S
Project (P072601) (Board approval
5/30/02)
Financial Sector Modernization and N/A
Information Management
(P088759) (Board proposed 9/27/07)
Second Payment System and Bank
Modernization Project (P082627)
(3/10/05)
Vietnam Guarantee Project
Vietnam Rural Finance Project S
(P004847) (Board approval 5/07/96)
Ho Chi Minh City Environmental U
Sanitation Project (Cr. 3475)
Urban Upgrading Project (Cr. 3887)
S
Urban Water Supply Development MS
Project (Cr. 4028)
30
Development
Objective
(DO)
N/A
S
N/A
S
MS
S
S
Annex 3: Results Framework and Monitoring
VIETNAM: HIFU Development Project
PDO
To develop HIFU as a model LDIF (in
terms o f internal policy and procedures
for
financial policy,
sub-project
appraisal, social and environmental
safeguards, and partnership with the
private sector) and increase private
sector participation in financing
municipal infrastructure in HCMC.
Intermediate Results
ComDonent 1: HIFU uses the line
o f crddit to finance quality municipal
investments
Component 2: HIFU capacity to
appraise and monitor projects is
strengthened
.
Increase in total number o f
HIFU investment (debt and direct)
per year in municipal infrastructure
with private
sector
projects
involvement
Increase in total amount o f
HIFU investment (debt and direct)
per year in municipal infrastructure
with private
sector
projects
involvement
Improvement in the leverage
ratio (new private capital / HIFU
direct investment) in municipal
infrastructure projects per year
Evidence that HIFU performs as a
model LDIF :
1- Compliance o f HIFU with the
Financial Covenants
2- Percentage o f HIFU projects
processed in accordance with the
P P A manual guidelines
3- Percentage o f Private Sector
Partners o f HIFU selected using the
PSP manual guidelines
.
Information will be used every six
months t o assess the extent to which
HIFU i s able to leverage private
capital through i t s investments.
While the information will be used
to ensure that projects funded by the
LOC are processed according t o the
agreed guidelines, it will also help
assess the extent to which such good
practices are adopted by HIFU for
projects financed with non-IDA
sources
ter
dic
Number and amounts o f n e w To establish benchmarks and
investments undertaken by HIFU standards for F I operations o f similar
nature in Vietnam
with the Line o f Credit
0
Portfolio quality indicators
maintained
0
Projects feasibility studies by Information will be used t o assess
HIFU and Line Departments meet the effectiveness o f the technical
assistance provided under the
adequate quality standards
project
Level o f compliance o f projects
review
of
the
with Environment and Social Annual
implementation o f the manuals will
Safeguards
PSP manual i s implemented in be an opportunity to improve them
a phased manner (see Annex 4 for
specifics)
31
Arranpements for results monitoring
A comprehensive monitoring system has been established in close collaboration with HIFU to
monitor and evaluate the project activities and operations leading to the project objectives. The
monitoring system has four components:
1.
HIFU internal system will provide the baseline data and report on results as follows:
HIFU Department o f Planning and Promotion will collect information on the indicators
for private sector involvement and on private sector partner selection; and HIFU
Department o f Appraisal will collect information about the progress made in
implementing the PPA manual.
Quarterly un-audited financial statements will be provided by HIFU to the Bank; Yearly
2.
audit report o f the financial statements-prepared by an independent auditor to conduct
international standard financial audits-will be provided to the Bank after the end o f
HIFU fiscal year.
Independent consultants will monitor the compliance o f each sub-project with the social
3.
and environmental safeguards requirements.
4.
Bank Supervision Team (and an on-going contract with an international accounting firm
which worked with the Bank in conducting the initial financial assessment o f HIFU) will
conduct periodic reviews o f un-audited quarterly as well as annual audited financial
statements to ensure compliance with the financial covenants and the achievement o f
operational reform milestones (subproject appraisal system and framework for the
selection o f private sector partners).
Project Review. All project information will be compiled by HIFU management and discussed
with the HCMC-PC and the Bank in a workshop to be held every six months. The workshop will
provide an opportunity to discuss project progress and any outstanding issues, including the need
to refine or adjust any project components. More specifically, the operational and institutional
framework (PPA and PSP manuals) will be reviewed at least once every year by HIFU and the
PC and may be amended by resolution o f the PC, provided the written agreement o f the Bank i s
obtained before the amendment i s approved by the PC.
32
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Annex 4: Detailed Project Description
VIETNAM: HIFU Development Project
Project Components
Component 1: Investment Capital (US$80 million; IDA U S $ 5 0 million)
A line o f credit will be provided to HIFU for it to invest in cost recovery oriented municipal
infrastructure investments in partnership with the private sector. A Project Preparation and
Appraisal Manual governs the way HIFU investments under the line o f credit will be identified,
developed and appraised. A Private Sector Partner Manual describes the way private sector
participants in Project Enterprises financed under the line o f credit will be selected. (See
component 2 for a description o f the institutional changes supported by these manuals).
HIFU will work with DPI and other departments within the provincial government to identify
investment needs in HCMC, as described in HCMC master plan, which can be financed via public
private partnerships. HIFU will then work with the city departments to put in place effective
project structures and then invite private investors to participate in the projects. The pipeline of
projects identified in the table below confirms that HIFU can absorb the investment capital which
i s being made available via the project.
7
8
9
10
Daphuoc
North Cemetery and Crematoria in either
Cuchi or Hocmon
Hazardous waste treatment in Phuoc Hiep
Cornpostingplant in Phuoc Hiep
High Technology Medical Treatment
11
I Nguyen Du Underground Parking and
12
13
Services
General Port Catlai Area 1 New Port
General Port Catlai Area 2 New Port
Sub-Total
Ditto
4.5
2009-2010
Ditto
Ditto
Ditto
25
7
6
2009-2011
2009-2011
2009-2010
I Ditto
16
Ditto
Ditto
30
85
177
35
I
2009-2011
20 10-2012
2010-2013
These sub-projects have been reviewed by city Depts, and are consistent with the development
master plan o f HCMC. A detailed appraisal o f the two year one pilot projects i s provided below
as attachment to Annex 4.
The IDA credit will be made available to HIFU according to the proposed on-lending structure
agreed between HIFU and M o F according to the Decree # 134 o f the central government on
O D A management. The Bank team has reviewed the structure and confirmed that i t will
support the project objectives and conforms to the stipulations o f the Decree 134. The structure
involves the Ministry o f Finance borrowing IDA credit from the Bank and then on-lending the
hnds to HIFU under reasonable terms which take into account the cost o f foreign exchange
risk and other administrative costs. (Annexes 6 and 7 provide the details o f these
implementation and disbursement arrangements respectively).
The Bank has conducted a detailed financial due diligence o f the financial accounts o f HIFU
through an international accounting firm and confirmed that HIFU i s in strong financial
position. HIFU issues audited annual financial statements, and it engages in market-based
investment practices. Specifically, HIFU loans are priced at market rate. The Bank can
confirm that HIFU i s ready to carry out the hnctions o f a financial intermediary as required
under Bank OP 8.30. The financial covenants o f the credit agreement will hrther reinforce the
financial soundness o f HIFU operations and contribute to i t s institutional development as a
financial intermediary. (Annex 9 provides the details o f the financial analysis o f the project).
Component 2: Technical Assistance (US$0.5 million; IDA US$ 0.0 million)
7 1.
HIFU will finance the technical assistance to support the implementation o f operational
reforms, including: (i)
support to implement the PPA manual with on-the-job chief advisor and
technical specialist, as well as a social specialist and an environment specialist; (ii)support to
implement the PSP manual with on-the-job chief advisor and private sector specialist; (iii)
independent monitoring consultants for social and environmental safeguards policies; and (iv)
Financial Audits o f HIFU to International Auditing Standards.
72.
Detailed set o f Terms o f Reference (TOR) for technical assistance consultants have
been prepared. The package o f TORs and the associated procurement plan has been reviewed
and approved by the H C M C PC as part o f the final HDP project approval. The H C M C PC
approval makes the implementation o f the procurement plan, including the utilization o f an
estimated $0.5 million HIFU capital for the assigned objective o f recruiting international and
local consultants in accordance with the TORs, a firm and official mandate for HIFU. In order
to ensure timely mobilization o f key consultants, the mobilization o f consultants under three (3)
o f the most critical TORs - including the TOR for independent auditors to ensure compliance
with safeguards policies - has been established as a Condition o f Loan Effectiveness.
The technical assistance will contribute to the institutional development o f HIFU.
73.
Specifically, i t will build upon the current practices o f HLFU and develop capacity in HIFU to
implement the PPA and the PSP manuals. The long-term institutional development plans have
been prepared in consultation with the Bank and are documented in the two main manuals. The
capacity building o f HIFU i s a part o f a broader initiative which involves AFD, USTDA, the
World Bank and other donors. The Bank team has worked very closely with USTDA to scope,
prepare and provide capacity building technical assistance to HIFU. The phase one
(approximately $300,000) o f the U S T D A technical assistance was concluded in 2006. The
36
planned phase I1 to focus on internal operations i s currently being reviewed by USTDA
management. Similarly, AFD has approved a technical assistance package o f approximately
Euros 1.5 million which will provide significant technical assistance and training to HIFU and
its borrowers in financial management and other operational functions. The technical assistance
provided by AFD and USTDA complements the IDA credit and the associated HIFU-financed
technical assistance. Further details o f the partnership strategy vis-a-vis the development o f
LDIFs i s described on section C. 1.
74.
The H D P i s focused on helping HIFU implement those important operational reforms
which are under the authority o f HIFU Management and the H C M C PC. Broader national level
policy reforms are being addressed under the LDIFP planned to be submitted for Board
approval in FY08 . I t should be noted that some o f the operational reforms demonstrated under
the H D P may be adopted as national policy/MOF guidance under the LDIFP at a later stage.
75.
The Bank, HIFU and the H C M C P C will work in close co-operation in the application,
review and amendment o f the two manuals. The implementation o f the manuals will be
reviewed at least once every year by HIFU and the H C M C PC, and discussed with the Bank
during the six monthly reviews. The manuals may be amended by resolution o f the H C M C PC,
provided the written agreement o f the Bank i s obtained before the amendment i s approved by
the PC. The Bank may also request or suggest amendments to the manuals to HIFU and the
H C M C PC during the implementation o f the project.
Project Preparation and Appraisal (PPA) Manual. HIFU has to date successfully identified
and invested in several projects. I t s current project appraisal process appears to have worked
reasonably well. However, HIFU has recognized that with the anticipated increase in the
volume o f its business, i t will require a more comprehensive and consistent process for
appraising investments. In order to facilitate this, a new project preparation and appraisal
system has been developed and agreed with HIFU and the H C M C PC. The Project Preparation
and Appraisal (PPA) Manual is a comprehensive integration o f technical, financial,
environmental and social safeguard assessment and it includes the following:
0
Initial identification and exclusionary screening o f projects
0
A sensible, simple appraisal matrix that describes the appraisal outcomes so that
projects can be prioritized
0
A process by which projects are appraised by Line Departments in H C M C PC in
terms o f both financial and non-financial mandates combining project and social
safeguards appraisal methodologies
0
A risk appraisal methodology
0
A necessary due diligence process
0
L i n k s with the HIFU Private Sector Participant Selection Framework.
0
Monitoring, evaluation and reporting requirements
The manual is prepared for practical implementation; i t uses flow charts and step by step
explanation o f various processes, It will apply to all new projects funded under the H D P but i s
also available to HIFU for use on other projects. A regime for its annual review and
amendments o f the Manual i s established.
I t covers both the appraisal o f loan funding requests where HIFU does not have a project
preparation role as well as project preparation for new projects in which HIFU will invest
37
equity. It also sets out a consistent standard for project appraisal regardless o f whether or not
they are unsolicited proposals.
The Manual on Project Preparation and Appraisal (PPA) will become applicable from date o f
effectiveness for all projects that are not in development (that i s have not proceeded beyond
project identification and screening). Since infrastructure projects have long lead times it i s not
necessary to set out a phased application other than for requirements for the development o f
unsolicited proposals.
Two external consultants (a consultant with international experience on project preparation and
appraisal, a consultant able to provide accessible support from Vietnam on project preparation
and appraisal) will establish with HIFU and utilize a screening process for projects to ensure
that projects meet HIFU criteria. They will also coordinate the range o f appraisal and
preparation activities throughout the project preparation life-cycle and will assist HIFU to
proactively plan activities in the preparation and appraisal o f specific projects.
They will also review the application o f the manual on specific projects so as to accurately
report on activities and on areas where the application can be improved or amended and
provide six monthly reports to the WB on the projects in preparation and appraisal and the
application o f the manual.
An on-the-job environmental consultant will also be hired by HIFU under HDP funds to assist
HIFU in implementing the environment guideline (Annex F). This task will include the
following:
1. Environmental due diligence review o f projects in municipal infrastructure.
2. Implementation o f safeguard policies including review o f environmental safeguards
documents and monitoring o f the implementation o f environmental management plans,
3. Technical input to the HIFU team on project environmental planning and management,
4. On-the-job training for HIFU staff on environmental planning and management
5. On-the-job training for HlFU staff on the environment aspects o f project technology
evaluation,
6. Implement an improved project appraisal system over a period o f 3-years to include
environmental safeguards
A local consultant will be hired to provide on-the-job training and technical assistance to HIFU
on a part-time basis for implementation o f social safeguard policies including socio-economic
screening o f the proposed projects, preparation o f TORS, evaluation o f socio-economic
assessments, guiding the investorshorrowers to prepare and implement social safeguards
documents, review and appraisal social safeguard documents, monitoring its implementation
and reporting the results to the HCMC’PC and WB. The consultant will also help HIFU in
determining the relevance and effectiveness o f project social programs including Resettlement
Plans and Land Acquisition as well as in implementing the social aspects o f the Project
Preparation and Appraisal Manual.
Private Sector Partner (PSP) Selection M a n u a l A framework for the selection o f SPS in the
Project Enterprises i s necessary to:
0
establish transparent processes that provide information and certainty to potential
investors;
0
ensure the consistent application o f selection processes; and
38
meet international good practice requirements as part o f the development o f HIFU
governance and operations systems.
This manual has been drafted to achieve these objectives in the selection o f private sector
investors who participate in the ownership o f the Project Enterprise formed to implement the
project. I t does not cover the procurement o f any goods or services by the Project Enterprise,
which shall be done in accordance with applicable Vietnamese law. A formal Legal Opinion
has been obtained from a top tier law firm in Vietnam to confirm the compliance o f the manual
with current Vietnamese laws and regulations.
Given the current absence o f a coherent selection process and the current reliance on
unsolicited proposals, the full development o f a Private Sector Participant (PSP) selection
process for HIFU will be phased over three years. The process will be streamlined for
maximum efficiency while meeting international good practice requirements for competitive
selection by the end o f the third year after adoption o f this framework. The framework will not
apply retrospectively to projects already implemented. Key components are:
0
establishing HIFU as project financier available to all bidders
0
the use o f Special Purpose Vehicle Enterprises
0
how HIFUdeals with cases where there i s no bidder response to RFP
0
an exit strategy for HIFU from Project Enterprises
clear guidance on how Enterprises with State Owned Shares and enterprises in
which HIFU already has an investment stake may participate as PSPs
0
a process by which unsolicited proposals are managed
0
evaluation criteria and processes that i s fair, transparent and cost-effective.
The PSP Manual i s closely aligned with the Project Preparation and Appraisal Manual in that
both set out a means by which HIFU can rely less on unsolicited proposals and more on
projects brought to a competitive market. I t allows a maximum o f one year to establish the
unsolicited proposal framework and communicate this to the market. The PSP manual requires
more complex reforms within HIFU and i s also related to parties not in the control o f HIFU.
Thus, a phased application is established as set out below.
Application o f Manual
Evaluation
system
proposals
Unsolicited Proposals
for
solicited
1
Prequalification o f Bidders
I
Participation o f Enterprises with State
Owned Shares in Project Enterprise
Exit Strategy for HIFU
The manual applies to Enterprises with HIFU participation in equip( ownership.
Operational
Develop detailed evaluation process and Commence
with pilot
bidding rules
Unsolicited proposals accepted before manual Operational
Operational
adopted without competitive selection process.
Manual adopted and hade known to market
I
Not applicable
Commence
Operational
I with pilot
All Enterprises with State Owned Shares eligible (including Only private sector Enterprises.
SoEs)
No restriction
Enterprises with State Owned Shares
to make available their services to all
PSP bidders.
Subject to Charter and covenants
Commence
Operational
I with Pilot
I Operational I Operational
I
Not required
I
I
I
No restriction
Participation o f Enterprises with State
Owned Shares as Sub Contractors to
the Project Enterprises
Maximum equity stake
Use of SPVs
End of Year 3
End o f Year 2
End o f Year 1
In development
39
I
I t must be noted that the pipeline for the first year includes only loan type projects. HIFU will
thus be able to apply the PSP Selection manual to projects that it has prepared in terms o f the
PPA manual from year 2.
A PSP consultant will provide HIFU with expert assistance in applying the PSP selection
processes established in the Manual to projects in the HIFU portfolio and will review every six
months the manner in which the manual has been applied, will identify beneficial amendments
to the manual and to provide comprehensive reports on these to HIFU, the H C M C P C and the
World Bank.
This consultant will ensure that the Manual i s applied for projects under the HDP and will
coordinate the selection activities throughout the selection process to assist HIFU, who has to
manage a complex range o f stakeholders including line departments and bidders in order to
manage the selection process as efficiently as possible.
This consultant will also develop standard bidding documents as well as standard evaluation
process documents with a view to effectively evaluate bidders, and to assist HIFU to carry out a
satisfactory due diligence on all aspects o f bidders’ technical and financial capacity as well as
history and proven capability to meet the stringent environmental and social safeguard
requirements for each project.
Independent Environmental and Social Safeguard Monitoring. Independent consultants to
will be hired under HDP to monitor the compliance with environmental and social safeguards
policies. The consultants will provide the following services:
Independent Monitoring (Environment) Consultant: Independent consultant will be
1.
hired to monitor the performance o f the HIFU Joint Ventures /project enterprises
and borrowers with respect to compliance with the environment requirements. The
consultant will also highlight need for additional mitigation measures, need for
capacity development within HIFU and Project Enterprises, and to adapt HIFU and
Project Enterprise systems for each future development project environmental
planning process.
Independent Monitoring (Social) Consultant: Independent consultant will be hired
2.
to monitor the performance o f the HIFU Joint Ventures /project enterprises and
borrowers with respect to compliance with the social requirements. The consultant
will also highlight need for additional mitigation measures, need for capacity
development within HIFU and Project Enterprises, and to adapt HIFU and Project
Enterprise systems for each future development project environmental planning
process
40
Attachment 1 to Annex 4 - Detailed appraisal of the two Sample Sub-Proiects
{Total Estimated Investment - $5 million) identified for vear 1.
Subproject 1 -West Bus Terminal Upgrade
1.
Rationale
The West Bus Terminal presently receives around 1,200 buses per day and approximately
18,000 passengers. The number o f daily passengers received during peak time (Vietnam New
Year) amounts to approximately 50,000. With a wide frontage along Kinh Duong Vuong
Street, the site offers high-valued commercial potential. There is an urgent need to improve the
existing service facilities and in providing the general public with higher standards o f service,
especially in respect to safety and health standards.
2.
Existing West Bus Terminal Facilities
With large passenger and bus numbers the existing facilities are unable to efficiently handle the
traffic volumes and are greatly in need o f refurbishment and redevelopment. The facilities are
outdated and in their present form are unable to maximize their full commercial potential. One
o f the present problems o f the site i s the regular flooding that occurs during monsoon season,
with regular flooding o f the bus parking area and passenger waiting areas as the internal
drainage system i s unable to drain to the existing drainage facilities along Kinh Duong Vuong
Street. The duration o f flooding i s usually around 2 hours but during this time considerable
inconvenience is caused to passengers and commercial operations alike. This situation is
further exacerbated in that the existing drainage system i s a combined system and used for both
rain water and waste water.
3.
West Bus Terminal Management
The West Bus Terminal i s managed and operated by the West Bus Terminal Joint Stock
Company, with 51 percent o f i t s shares owned by the State and 49 percent by West Bus
Terminal Company staff. The Company comprises a Board o f Directors represented by the
State (3 members), and representatives from the founding shareholders and consisting o f the
Dong A Bank Securities Company Limited, the Thai Binh Shoes Joint Stock Company, and a
staff representative, making a total o f six board members. The chartered capital o f the
Company i s VND25 billion. The general Company Charter allows it to operate the two interprovincial bus terminals including West Bus Terminal along with other associated activities
such as provision o f services within the terminal sites, tourism transportation, leasing and
management o f commercial areas, freight cargo handling, car spare parts trading, and
maintenance and repair services.
4.
Proposed Subproject Works
The proposed West Bus Terminal Upgrading building works will consist o f upgrading and
expansion o f both the two storey departure and arrival hall buildings, along with the ticketing
office areas; upgrading and provision o f new departure area bus shelters; provision o f new
arrival area bus shelters; construction o f a new staff parking building; construction of a
RepairMaintenance Bus Workshop; provision o f a new fuel service station; construction o f a
dining hall and lodging facilities for drivers; provision o f new public toilet facilities; and
construction o f a Security/Guard House, All structures will be constructed from reinforced
concrete with color bonded aluminum roofing and ceramic floor tiles.
41
Due to the existing drainage/flooding problems, there will be a need to reshape the ground level
o f the bus terminal site, and to replace and upgrade existing drainage facilities. For waste water
sources from toilets and commercial areas, septic tanks will be constructed. For vehiclebus
washing areas, and where lubricating oils are being used, sand tanks shall be provided to allow
treatment o f washing water and lubricants and to ensure that these materials do not enter the
drainage system. Water supply facilities are readily available and the present system will be
rehabilitated with new pipes. The construction o f a 135 cubic meter watedstorage tank will be
provided in order to enhance fire protection capabilities. Within the site there i s presently an
underground water source that i s utilized for vehiclebus washing, and this source will
continued to be used for such purposes. Further deepening o f the well will be required.
In respect to electricity and power supply, the existing 63 KVA power station will be replaced
with a 250 KVA power station. In addition, the installation o f underground cables for servicing
the site will be required along with an outdoor lighting system within the bus parking areas and
along the boundary fence for security. For fire prevention and safety, i t i s proposed to provide 7
water hydrant points and two underground water tanks with 150 cubic meters capacity and
associated pumps.
Equipment, including computers, printers, and associated I T equipment, will be procured to
support the operation and management o f the West Bus Terminal.
5.
Technical Justification
All the subproject components have been based on appropriate technologies that are both cost
effective and technically feasible. They have been developed with consideration o f the
operating company’s capacity to operate and maintain the various physical works components,
while minimizing the associated operating and maintenance costs. The proposed standards for
drainage improvements are compatible with existing facilities. The proposed improvements
will greatly enhance the site and provide a much improved public facility.
6.
Cost Estimate
The total cost o f the subproject i s estimated at VND 53,106,710,268 (approximately US$3.32
million). The following table provides a breakdown o f the costs.
No.
1
2
3
4
7.
I t e m Description
Construction Works
Machinery and Equipment
Project Development and Implementation Costs
- Project Design and Bidding Documents
- Implementation Supervision
- Project Completion Activities
Contingency Fund
T o t a l Subproject Investment Cost
T o t a l Cost (VND)
41,647,380,245
2,990,175.345
3,658,111,088
329,230,000
3,145,975,535
182,905,553
4,811,043,590
53,106,710,268
Financing Plan
I t i s proposed that the subproject will be financed through an equity investment by the West
Bus Terminal Joint Stock Company o f 30 percent o f the total investment cost, or an amount o f
VND 17,029,446,407 (US$ l.O6million), with a loan from HIFU for the remaining 70 percent o f
the funds o f VND36,077,263,861 (US$2.26million). The HIFU loan funds will carry an interest
42
rate o f about 10 percent over a period o f 10-12 years, including a 2 year grace period during
construction.
8.
Implementation Arrangements
The implementation o f the subproject will be undertaken over a two year period in two phases,
with the first phase consisting o f all civil works including site grading, drainage, water supply,
power supply, sanitation facilities, and fire protection works, while the second phase will
consist o f the construction and upgrade o f the service facilities, including departure and arrival
areas, waiting halls, office facilities, ticketing facilities, and other support facilities.
9.
Operation and Maintenance
Responsibility for the operation and maintenance o f the subproject facilities will be assumed by
the West Bus Terminal Joint Stock Company. W h i l e the present facilities are generally well
maintained, i t i s expected that routine maintenance will be regularly undertaken to minimize
large scale maintenance works on the upgraded facilities. Adequate annual budget allocations
should be made to cover required routine maintenance costs.
10.
Social Safeguard Issues
a.
Resettlement
There are no land acquisition or resettlement requirements within the subproject site. The
subproject site land area was allocated to the West Bus Terminal Joint Stock Company on 18
August 2005 through a decision by the H C M C People’s Committee. In respect to commercial
areas, the West Bus Terminal Joint Stock Company i s presently renting a number o f kiosk areas
to various bus operators/enterprises on a 6 month renewable contract basis. The Bus Company
advises that they have informed the kiosk renters about the proposed upgrading works and
advised them that they will be given priority in respect to renewing their respective contracts
once the upgrading works have been completed.
b.
Environmental Aspects
A summary initial environmental assessment (SIEE) has been undertaken for the subproject
which showed that no significant adverse effects are anticipated and that a detailed
environmental impact assessment (EIA) i s not required. The proposed upgrading works will
generally enhance the existing bus terminal conditions. Flooding will be eliminated due to site
grading and improved drainage facilities resulting in a reduction in the present disruption to the
traveling public as well as to commercial and business activities. Improved traffic flow and
parking arrangements within the terminal site will result in greater safety and convenience to
the traveling public.
11.
Financial and Economic Analyses
a.
Financial Analysis
The analysis has been undertaken to work out Financial Internal Rate o f Return (FIRR) for the
sub-project while analyzing its sensitivity to an increase in the investment cost, increase in
operating costs, and reduction in business revenues. The analysis assesses the financial viability
by comparing (i)
the FIRR based on incremental revenue generation with the updated average
cost o f capital for each component; and (ii)
the average incremental financial revenue with the
43
average incremental financial cost. The HIFU loan funds will carry an interest rate o f about 10
percent over a period o f 10-12 years, including a 2 year grace period during construction. The
sensitivity analysis conducted on the West Bus Terminal Upgrading Sub-project indicates that
its current FIRR o f 12.36% will only decrease to 11.47% if the investment cost was increased
by 10 percent. In fact, the FIRR o f the subproject remains positive until the investment cost
increases by more than 40 percent. Additionally, there exists considerable opportunity for
increases in user fees and tariffs which are currently at l o w base levels. An increase o f tariffs,
if and when enacted, will have minimal affordability impact on the transport users.
b.
Economic Analysis
For the economic analysis and calculation o f the sub-project Economic Internal Rate o f Return
(EIRR), the methodology and assumptions utilized follow standard methodology for
development sub-projects. The calculation o f the EIRR also used economic opportunity cost o f
capital o f 12 percent as standard for the feasibility study o f development project. The subproject has economic efficiency with an EIRR o f 13.53 percent and an ENPV o f 12 percent
equivalent o f VND 7,112 million.
c.
Debt Service Capability
The capability for debt repayment o f West Bus Company depends on annual income of the
company, loan size, repayment period, and annual interest rate. The annual income bases on the
financial performance and approximated in financial analysis. The intended loan borrowing
represents 70 percent o f the total sub-proj ect investment and equals approximately VND
37,106.7 million. Three annual interest rate scenarios have been used ranging from 7 to 10
percent. Repayment period o f 10 years, with a 2 year grace period and an 8 year repayment
period has been adopted. The calculations o f Debt Service Coverage Ratio (DSCR) at this
lending terms has confirmed the company’s capability to repay the proposed loan even with the
current level o f user fees and tariffs.
Subproject 2 - Septic Tank Waste Treatment Plant in Da Phuoc, Binh Chanh District
1.
Rationale
The Hoa Binh Waste Treatment Disposal Company Limited i s jointly owned by two partners
each owning 50 percent o f the total operations with initial financial contributions o f VND6,OOO
million each. Employing a total o f 46 staff, the Hoa Binh Waste Disposal Company i s the only
licensed company in H C M C that undertakes the de-sludging and treatment o f septic tank waste.
Since its establishment, the Company has maintained i t s business operations entirely on septic
tank waste disposal and over time has expanded i t s operations into the production o f biproducts such as organic fertilizer used in agriculture production and micro-biological slurry
used in wastewater treatment processes. Prior to the closing o f its original operations site, the
operational capacity o f the operations was around 250 cubic meters per day.
The Hoa Binh Waste Disposal Company Limited disposal and treatment site was previously
located near the H C M C Tan Son International Airport. Due to urbanization and environmental
requirements, the Company was requested to relocate i t s operations to the outskirts o f the City.
44
2.
Proposed Subproject Description
The proposed site o f the Septic Tank Waste Treatment Plant i s a 9.4 hectare site located in the
D a Phuoc Solid Waste Treatment Complex in Binh Chanh District, HCMC. The site i s adjacent
to a 40 hectare site proposed by the H C M C Urban Sewerage Company as a sludge waste
treatment plant and next to the solid waste landfill development site o f Vietnam Waste Solution
Company which i s presently under development. An existing cemetery i s located near the
entrance to the site. The D a Phuoc area has been designated as one o f the city’s major locations
for waste disposal in general, be i t solid waste, drainage sludge, or septic tank waste. The area
i s well clear o f any residential areas and i s separated from surrounding urban development by a
series o f canals and a major water course. The proposed location o f the Hoa Binh Septic Tank
Waste Treatment Plant within this development area i s therefore consistent with proposed
planning guidelines.
The proposed Septic Tank Waste Treatment development follows a separated treatment
technology process where the sludge and waste water are separated and independently treated.
The total fully developed capacity o f the operation i s based on a daily septic tank sludge
volume o f up to 500 cubic meters per day and i s calculated on an average o f 1.5 cubic meters
per household and septic tank de-sludging once every 3-5 years (depending on the size o f the
household septic tank). With relatively high density urban living standards within H C M C it is
likely that the majority o f septic tanks would require de-sludging once every 3 years. The Hoa
Binh Waste Disposal Company will provide the full service from household septic tank sludge
collection, transportation to the disposal site, and treatment o f the septic sludge. Processing o f
the septic sludge will be undertaken through proven and tested Japanese technological
processes in producing organic fertilizers for agricultural uses as well as in the production o f
micro biological slurry for waste water treatment systems where biological treatment processes
are utilized.
The treatment o f septic sludge into organic manure will be processed through a reinforced
concrete receiving tank (20 meters long x 10 meters wide x3 meters deep) where the sludge is
exposed to the sun, then into tanks o f 500 cubic meters capacity where the sludge and waste
water are separated, and after a period o f around 5 months the sludge will be further dried in
large drying beds and then composted into fertilizer. The whole process will take around 12
months with a production output o f around an equivalent o f 7 tons per day o f organic fertilizer.
For the waste water, this shall be treated in reinforced concrete tanks where the sludge shall be
self-destroyed with the waste water passing through regulating tanks where the water content i s
regulated, then into an organic compound tank for chemical treatment, then into a tank for
biological processing o f bacteria, and lastly to a sterilization tank where the waste water i s
further chemically treated before discharge o f the sterilized water into the surrounding water
courses. Odors will be minimized through chemical treatment at various stages o f the
processing chain.
The Hoa Binh Waste Disposal Company proposes to develop the treatment site in two phases,
the first phase developing a capacity o f around 300 cubic meters per day, which would meet the
projected demands o f septic waste disposal in the city over the next 5 years, or to 2012, and the
second stage through expanding the overall capacity to around 500 cubic meters per day
beyond 2012. The expansion o f the treatment plant would be a relatively straight forward
45
No.
1
2
3
4
No.
1
2
3
4
5
5.
Item Description
Total Cost (VND)
Construction Works
Machinery and Equipment
Project Development and Implementation Costs
Project Design and Bidding Documents
Implementation Supervision
Contingency Fund
Total Overall Subproject Investment Cost
Item Description
Construction Works
Machinery and Equipment
Project Development and Implementation Costs
- Project Design and Bidding Documents
- Implementation Supervision
Interest During Grace Period
Contingency Fund
Total Overall Subproject Investment Cost (Phase 1)
19,324,997,978
5,499,609,675
1,844,033.375
1,590,720,224
253,3 13,15 1
2,686,189,101
29,548,080,108
Total Cost (VND)
8,369,138,500
5,242,448,500
1,844,033,375
1,590,720,224
253,3 13,15 1
265,212,716
2,686,189,101
18,407,022,192
Financing Plan
As only Phase 1 o f the subproject will be initially financed and developed, it i s proposed that
the subproject will be financed through an equity investment by the Hoa Binh Waste Disposal
Company Limited o f 46.6 percent o f the total Phase 1 investment cost, or an amount o f
VND8,584,328,992, or approximately US$536,520 equivalent, with a loan from HIFU for the
remaining 53.4 percent o f the subproject cost o f VND9,822,693,200, or approximately
US$613,919.
46
6.
Implementation Arrangements
I t is estimated that the implementation o f the first phase o f the subproject will be undertaken
within a one (1) year period.
7.
Operation and Maintenance
Responsibility for the operation and maintenance o f the subproject facilities will be assumed by
the Hoa Binh Waste Disposal Company Limited. Adequate annual budget allocations should be
made to cover required operational costs as well as routine maintenance costs.
8.
Social Safeguard Issues
a.
Resettlement
The compensation and resettlement activities have been implemented since 2005. According to
the due diligence report, there are s t i l l 1.9 out o f 9.4 ha having not yet been cleared with about
10 households waiting for their complaints to be resolved and land plots in a resettlement site to
be provided. On March 1, 2007 HCMC-PC has instructed Binh Chanh district PC to resolve the
issue as soon as possible, including allocation o f land plots in a neighbor commune for the
displaced people to be relocated. The interviewed displaced people were satisfied with the
applied compensation and resettlement policies. Resolution o f this issue in a manner
satisfactory to the Bank i s a condition for the subproject to get financing from the Line o f
Credit.
b.
Environmental Aspects
An Environmental Impact Assessment (EIA) Report o f the proposed Septic Tank Waste
Treatment Subproject was prepared by the Environmental Management and Engineering Center
and submitted to the Department o f Natural Resource and Environment (DONRE) for approval.
After receiving commentdfeedback from the Appraisal Committee under DONRE, the Report
(version January 2007) was finalized and approved by DONRE on March 20,2007.
Assessment o f the institutional mechanism o f the Hoa Binh Ltd. to carry out EA work for the
Septic tank waste treatment was submitted to the Bank on March 27,2007. The Bank has found
this satisfactory, provided that the Hoa Binh Ltd. will hire consultants for internal monitoring
and HIFU will get consulting service for independent environmental monitoring as part o f the
TA to HIFU.
9.
Financial and Economic Analyses
a.
Financial Analysis
The analysis has been undertaken to work out Financial Internal Rate o f Return (FIRR) for the
sub-project while analyzing i t s sensitivity to an increase in the investment cost, increase in
operating costs, and reduction in business revenues. The analysis assesses the financial viability
by comparing (i)
the FIRR based o n incremental revenue generation with the updated average
cost o f capital for each component; and (ii)
the average incremental financial revenue with the
average incremental financial cost.
After year 10 i t i s projected that the volume o f collected sludge and produced fertilizer will
attain the maximum capacity o f the first phase investment which would amount to 300 cubic
47
meters per day or 104,025 tons per year. O n reaching the maximum capacity, and after 10
years, the Hoa Binh Waste Company will invest i t s own funds to expand the plant capacity to
500 cubic meters per day at which time the volume o f collected sludge will amount to 182,500
tons per year and fertilizer 1,916 tons per year. The H C M C People’s Committee presently pays
a fee equivalent to US$6/ton for disposal o f collected sludge, while the average price o f
fertilizer sold in the market i s around VND400,000/ton. Based on the projected volume o f
sludge and collection fees and the price o f fertilizer, the septic tank waste treatment plant i s
expected to generate revenue over a ten year timeframe as shown in the following table.
The results show that Septic Tank Waste Treatment Plant Sub-project has FIRR o f 11.5% and
s t i l l has financial efficiency with minimal negative impact from an increase in investment costs
o f 10 percent with an FIRR o f 10.47 percent. Nevertheless, there exists considerable
opportunity for increases in user charges due to there present very low base levels, and these
increases would significantly improve the financial prospect o f the sub-proj ect.
b.
Economic Analysis
For the economic analysis and calculation o f the sub-project Economic Internal Rate o f Return
(EIRR), the methodology and assumptions utilized follow standard methodology for
development sub-proj ects. The calculation o f the EIRR also used economic opportunity cost o f
capital o f 12 percent as standard for the feasibility study o f development project. The
subproject has economic efficiency, with an Economic Internal Rate o f Return (EIRR) o f 26.14
percent and an Economic N e t Present Value (ENPV) o f 12 percent equivalent o f VND 23,869
million.
c.
Debt Service Capability
The capability for debt repayment o f the Hoa Binh Waste Treatment Company Limited
depends on annual income o f the company, loan size, repayment period, and annual interest
rate. The annual income i s based on the financial performance and approximated in the
subproject financial analysis. As the Investor i s prepared to invest 43 percent o f the total
subproject cost, the loan amount represents 57 percent o f total sub-project investment or an
amount o f VND 9,882,693 million. Three annual interest rate scenarios have been used ranging
from 7 percent to 10 percent. Repayment period o f 10 years, with a 2 year grace period and an
8 year repayment period has been adopted. All scenarios generate high capabilities o f the Hoa
Binh Waste Treatment Company Ltd. in i t s ability to repay the proposed loan.
48
Annex 5: Project Costs
VIETNAM: HIFU Development Project
Local
Total
Project Cost By Component andor Activity
us
Foreign
Investment in municipal infrastructure
Technical Assistance for Project Monitoring
$million
60.0
0.3
$million
10.0
0.2
$million
70.0
0.5
60.3
6.0
2.7
69.0
NA
NA
69.0
10.2
1.o
0.3
11.5
NA
NA
11.5
70.5
7.0
3.0
80.5
NA
NA
80.5
Total Baseline Cost
Physical Contingencies
Price Contingencies
Total Project Costs'
Interest during construction
Front-end Fee
Total Financing Required
us
us
'Identifiable taxes and duties are U S $ 8 million, and the total project cost, net o f taxes, i s U S $ 72 million.
Therefore, the share o f project cost net o f taxes i s 69%.
49
Annex 6: Implementation Arrangements
VIETNAM: HIFU Development Project
Implementation Structure
The implementing agency for the H D P will be HIFU as it institutes key operational reforms
and undertakes investments in municipal infrastructure in participation with the private sector.
The implementation structure mirrors the current system and role o f HIFU, with the HDP
(involving operational reform and increased investment capital) h r t h e r enhancing and
developing the h c t i o n and o f HIFU. HIFU operate as a specialized agency within the
municipal government with the charge o f working with the Department o f Planning and
Investment (DPI) and other line departments in the municipal government to finance costrecovery oriented municipal infrastructure projects in partnership with the private sector. The
DPI in i t s role as the planning agency for the province identifies the investment needs as well
as project ideas, including those which can be financed with private sector participation. The
D P I in collaboration with the H C M C PC then assigns the investment targets and project ideas
to the concerned line departments. The line departments prepare the technical details o f the
projects (detailed engineering designs, etc.) and consult with HIFU vis-&vis financial
structuring to involve with private sector participation. The Department o f Finance - on behalf
o f the H C M C PC - will work with HIFU to ensure that an appropriate process i s used to select
private sector partners and provide oversight o n the financial operations o f HIFU.
HDP Project Implementation Structure
MoF
($)
IDAto
F\
On-lending
VND at 4% + WB
Commitment Fee
25 yr term, 10 yr
grace period
Investment
Capital (booked
as debt on BS)
I I
Repayment
to IDA ($)
niru
I
Repayment
of the VND
Loan to McIF
HIFU
4
Financed Projects 4
CaDital
Private Sector
HCMC PC
Pvt. Investors
The flow o f IDA credit i s described in the illustration above. The IDA credit will be on-lent by
the MOF to HIFU in VND on terms which have already been negotiated between HIFU and
50
M O F in consultation with the Bank Task Team. The capital on-lent from MOF will be booked
on the HIFU balance sheet as debt. The equity or paid-in capital o f HIFU (referred to in
Vietnam as charter capital) i s provided by the H C M C PC. HIFU will invest the investment
capital provided under the project according to the loan conditions which restrict the
investment to cost-recovery oriented municipal infrastructure and define the sectors o f focus.
The key financial covenants cover the financial operations o f HIFU (they are not restricted to
IDA credits only) to ensure the financial and operational viability o f HIFU as an institution.
The project conditions will help to further support HIFU’s long-term qualification under Bank
OP 8.30. The disbursements to HIFU will be made via a 6-months Report Based system, which
will require HIFU to document how the h d s received based on the previous periodic “Report”
were utilized, and describe how the funds requested for the next period will be used in line with
the loan conditions - please see annex 7 for details.
p
Role
MOF
I
HIFU
Depts.
WB Task
Auditors
Roles and ResDonsibilities
HDP Impact/Notes
Provide IDA Credit t o GOV
On-lend VND to HIFU
I
Invest in cost recovery oriented municipal
infrastructure projects; leverage private
capital in projects; repay the MOF loan;
maintain a sound financial position
Approve a l l H D P documentation; ensure
compliance with loan conditions; oversee
project progress
Plan infrastructure investments in HCMC
and identify project ideas for private sector
investment
Prepare project details, e.g., engineering
designs and FS; consult with HIFU o n
relevant projects
Supervise project implementation; provide
strategic advice to HIFU Management and
HCMC PC; review project progress,
including monitoringhesults indicators
Monitor project progress; provide reports
o n project indicators
51
I
I
I
I
I
$50 m i l l i o n
25 yr, 10 yr grace, 4%+WB Commitment fee,
denominated in VND
H D P will strengthen the financial operations
and provide capital for increased activity,
including the ability to proactive prepare
projects and then invite private investors
H D P will reduce the risk o f contingent liability
associated with HIFU; strategic clarity o n
investment planning and increasing private
sector investment in municipal infrastructure
H D P will allow D P I to better utilize HIFU for
strategic investments involving private sector
participation
Increased investment capital will make it easier
and faster for HIFU to structure and finance
projects for the departments
Demonstrate that Vietnamese institutions can
implement projects; improve disbursement;
establish development models which can help
Vietnam become a MIC
Establish a model for transparency in municipal
government operations
I
I
I
Annex 7: Financial Management and DisbursementArrangements
VIETNAM: HIFU Development Project
Country Issues
The 2001 C F A A for Vietnam concluded that the public financial management system
represented some level o f fiduciary risk. The 2005 PER-IFA recognized improvements in
transparency and accountability arising from (i)
a new audit law (May 2005) which will
enhance oversight by the National Assembly and Provincial People’s Councils over public
finances and increase public access to information on government finances; (ii)
the new decree
on independent audit (March 2004) which regulates the status o f auditors and audit f i r m s and
define the value o f audit results; (iii)
the accounting law (2003) which establishes the legal
framework for Vietnamese Accounting Standards for public and private sectors on the basis of
international standards.
However, the PER-FA identifies a large agenda for improvement in public financial
management. The key challenges include: (i)
implementation o f the legislative frameworks
which are largely in place; (ii)
strengthening the effectiveness o f the State Audit o f Vietnam;
(iii)streamlining the internal control framework; (iv) building the financial management
capacity, particularly at the sub-national level; and (v) adopting international public sector
accounting standards.
Recently, corruption and collusion has been highlighted as a significant risk in some donor
funded projects in Vietnam. The risks particularly relate to procurement, however the
weaknesses in internal control and financial monitoring and oversight combined with capacity
weaknesses increase the inherent risk in relation to mis-use o f finds for approved purposes
which are accounted for through government systems and processes to substantial.
Risk Assessment and Mitigation
The inherent risk to the project from the financial environment i s assessed as Moderate. The
project specific control risk taking into account the risk mitigation measures that are to be
implemented for the project i s assessed as low. The overall financial management risk of the
project is assessed as Low.
Risk
Inherent Risk
Country level: Overall
Fiscal Environment
Entity and Project
level: Funds may not
be used efficiently and
Risk
Rating
Risk Mitigation Measures Incorporated into
Project Design
Risk After
Mitigation
Condition of
Negotiation,
Board or
Effectiveness
Moderate
Capacity building in MTEF and budgeting,
implementation and monitoring, commitment
control and debt management; Performance
expenditure reviews at least annually
(i)
Annual financial audit by independent
auditor for Financial Statements o f HIFU
including the notes o n Fund and Uses o f Fund
Moderate
Moderate
52
Moderate
Risk
Risk
Rating
economically and for
purposes intended
Entity and Project
level: the P P M U may
not have necessary
capacity to implement
the project
Overall Inherent Risk
Control Risk
1. Budgeting
Low
2. Funds F l o w
Low
3. Staffing
Low
4. Accounting Policy
& Procedures
5. Internal Audit
Moderate
6. External Audit
Low
7. Reporting &
Monitoring
Moderate
8. Information Systems
Moderate
Overall Control Risk
Moderate
Risk Mitigation .Measures Incorporated into
Project Design
under HDP, (iiGuidance
)
o n Financial
Management o f HDP, (iii)
independent
consultant t o monitor ,the compliance o f
safeguard performance, fiduciary requirement
and (iv) technical assistance o n accounting and
reporting system financed by LDIFP
Training on the bank procedures and project
management be provided t o the project staffs
Moderate
Low
Moderate
Moderate
Moderate
Risk After
Mitigation
Condition o f
Negotiation,
Board o r
Effectiveness
(i)
Budgets are prepared o n a quarterly basis (ii) L o w
Technical assistance provided (partially) a n d o r
in cooperation with TA f r o m AFD t o enhance
the m e d i u d l o n g term planning and budgeting
Low
Funds will flows directly f r o m the IDA t o the
designated accounts maintained at a commercial
bank acceptable to IDA whose signatories are
management HIFU.
Low
Finance staff to b e trained o n IDA procedures
and project management.
Low
Accounting system for HFU’s operations will
be improved under the LDIFP
Moderate
The Supervision Board function i s t o be
enhanced to cover aspects o f internal controls
under the TA o f LDIFP/ AFD. Internal Audit
function (as function o f Supervision Board) to
be set UD if determined necessarv bv the TA
Low
Annual Financial Statements o f HIFU
(including the Financial Statements o f the
Project as a note/part) will be audited by
independent auditors with TOR acceptable t o
IDA
Moderate
(i)
Upgrade o f I T system partly self-financed
and under the TA o f AFD, (iiimprovement
)
of
the accounting and reporting system under the
TA o f LDIFP
Upgrade o f I T system partly self-financed and
under TA o f AFD.
Low
Low
Implementation arrangement
H C M C People’s Committee will have overall responsibility for overseeing implementation o f
the project, reporting to the Government o f Vietnam and fulfilling the requirements o f the
World Bank. H C M C Investment Fund for Urban Development (HIFU), which was established
53
in 1996 as a national financial institution, will be the implementing agency for the project
responsible for financial management relevant to the project components. HIFU will report to
H C M C PC for necessary approval. The proceeds from the Credit can be used for both lending
and equity investments which meet the criteria agreed with the Bank.
Staffing of financial management function at HIFU
HIFU already has an established financial fbnction that i s adequately staffed and the staff has
satisfactory competence and qualifications. The accountants in HIFU have accounting
educational backgrounds (at least bachelor degree) and experiences managing the activities of
the fund. However, the accounting staffs do not have experiences with IDA funded projects, in
particular, disbursement and financial management requirements o f IDA. Training on these was
delivered to those involved in Financial Management.
Budgeting
Budgeting procedures have been established at the HIFU. Financial Plans and budgets are
prepared and finalized with the cooperation o f different departments (e.g., Finance and
Accounting, Investment, Credit Appraisal, Planning Department) within the Fund. The HIFU’s
planning department i s responsible for preparing the consolidated budget and plan, obtaining
approval from the Management o f the Fund and sending to the H C M C PC for final approval.
At HIFU, the planning and budgeting which i s done on a quarterly and annual basis for the
short-term period (ie., under one year) was assessed as adequate though the plans and budgets
for the longer term (medium and long term) are not comprehensively prepared. The analysis o f
actual against budgets i s performed on a monthly basis and the overall assessment i s done at the
year end, which i s considered as adequate.
I t is concluded from the financial management assessment that the current level o f budgeting
and planning, short-term budget and plan is reliable, thus can be used as basis in the report
based disbursement method. The longer t e r m planning and budgetingwill be enhanced with the
technical assistance component provided under the AFD Credit Agreement and LDIFP.
Accounting
In accordance with the permission o f the MOF, HIFU has adopted the same accounting regime
employed by the Development Assistance Fund under the Decision 78/2003/QD-BTC.
Decision 78 introduces (a) the accounting principles, (b) system o f accounting papers/vouchers/
receipts, (c) chart o f accounts, (d) system o f accounting books and (e) format for financial
reports.
The adoption o f the DAF’s accounting policies to LDIFs in general and to HLFU in particular i s
not entirely suitable. This i s mainly due to the fact that there are significant differences in the
nature and scope o f operations o f DAF and LDIFs. DAF’s business i s mostly l i k e a not-forprofit organization while the LDIFs are playing a role o f more financially viable and
commercial-oriented entities. LDIFs’ activities are more diversified including syndicated
investment and lending in co-operation with other commercial banks. Due to those differences,
there i s lack o f some significant regulation o f accounting policies such as equity investment,
syndicated lending and taxation. HIFU therefore has designed such accounting policies for i t s
54
operations which are (i)
generally similar to those o f commercial banks and (ii)
not “legalized”
(Le. regulated) in the accounting regime issued by the MOF.
The project will use HIFU’s current accounting system which i s assessed as adequate for
accounting and reporting the receipt and use o f funds received from the IDA as well as other
donors, The accounting regime for LDIFs will be changedimproved in the h t u r e upon the
issuance o f the new Decree on the management o f the LDIFs. Technical Assistance under the
LDIFP will be provided to the M O F to achieve those.
Internal Controls
The management o f HIFU i s responsible for ensuring that an adequate internal control
framework and internal controls are in place and operating. Overall, the current internal control
system i s assessed as adequate as HIFU has: (i)established clear defined Financial
Management responsibilities, supervision, monitoring and reporting structures; (ii)
observed
the segregation o f duties; (iii)
defined and documented financial processes and procedures; (iv)
set up adequate management reporting including analysis o f variances and findings with
monthly and quarterly reporting to the Board o f Management; and (v) set up proper procedures
and documentation retention. However, there are certain areas o f the risk management
processes where improvements are required: (i)
development o f procedures for identification o f
risks o f concentration liquidity and market and; (ii)use o f tools and modules for risk
assessment processes such as maturity analysis, re-pricing analysis, interest sensitivity model,
etc. In addition, the information technology system should also be upgraded to hrther facilitate
the efficient management o f the hnd’s operations.
Technical assistance for the development o f investment policies (which includes the risk
management) i s being provided by a Bank executed assignment o f which the output will be
recommendations to HIFU (and other LDIFs) for improvement o f the risk management. The
upgrade o f the information technology o f HIFU will also be partially self- financed and
partially by the technical assistance component o f this project andor with the AFD’s project.
Amount o f Credit
Allocated (million US%)
YOof Expenditures to be
Category 1- Equity Investments by HIFU
20
100%
Category 2- Loan Investments by HIFU
30
100%
50
100%
Expenditure Category
TOTAL
Financed
Eligible expenditure
Eligible expenditure means equity investments and loan investment for the reasonable costs o f
goods, works and services o f sub-projects which meet the criteria agreed with IDA. The
subprojects must meet the criteria, as set out in the D C A and the PPA Manual vis-a-vis: (i)
cost
recovery; (ii)
municipal infrastructure investment and (iii)
being implemented in partnership o f
private sector.
55
Disbursement Methods
The project will use the following disbursement methods:
0
0
0
Reimbursement - The Bank may reimburse the borrower for expenditures eligible for
financing pursuant to the Loan Agreement (“eligible expenditures”) that the borrower
has pre-financed from i t s own resources.
Advance - The Bank may advance loan proceeds into a designated account o f the
borrower to finance eligible expenditures as they are incurred and for which
supporting documents will be provided at a later date
Direct Payment - The Bank may make payments, at the borrower’s request, directly to
a third party (e.g., supplier, contractor, and consultant) for eligible expenditures.
The Disbursement Deadline Date will be four months after the Closing Date o f the project.
Supporting documentation to evidence that funds have been used for eligible expenditures
under the reimbursement and advance methods are the Interim Financial Reports (IFRs). The
un-audited IFRs will be required to be submitted to the Bank at least quarterly and will be
reviewed by the Financial Management Specialist prior to recording o f the expenditures against
the project expenditures categories by the Loans Department. Under the Direct payment
method the supporting documentation i s the records o f eligible expenditures; or any other
supporting documentation that the Bank may request by notice to the borrower. The format of
the IFRs needs to be agreed between the representatives o f GOV and IDA at the negotiation.
Designated Accounts and Ceiling
A Designated Account (DA) in USD is maintained at a commercial bank with the terms and
conditions acceptable to IDA. The Ceiling o f the DA i s the 6 month forecast o f the cash flow
requirements.
Application for Advances
HIFU may apply for an advance in an amount up to the Ceiling less the aggregate amount of
those advances previously received for which HIFU has not yet provided supporting
documentation (IFRs). The advance requested will be based on the forecast estimate o f equity
investments and loan investments which HIFU expects to disburse in the next 6 months period.
HIFU will provide information on the expected disbursements for approved sub-projects in the
quarterly IFRs required to be submitted to the Bank. Forecasts will be reviewed by the financial
management specialist and task team for reasonableness.
Frequency of Reporting Eligible expenditures paid from the DA
HIFU will report on the use o f loan proceeds advanced to the DA on a quarterly basis through
unaudited interim financial reports.
Retroactive financing
Retroactive financing in the aggregate amount o f US$1.5 million will be provided for
expenditures made prior to the date o f the Credit Agreement but after appraisal date, for
urgently required disbursement for Equity and Loan Investments. The procurement procedures
shall be in accordance with IDA Procurement Guidelines.
56
Fund flow diagram
The IDA Credit will be on-lent by the Government o f Vietnam to HIFU on terms and
conditions acceptable to IDA. The IDA funds will be directly deposited to a designated account
in USD at a commercial bank, acceptable to IDA, maintained and operated by HIFU.
Withdrawal applications will be prepared by HIFU and processed through the MOF - External
Financing Department. HIFU will be responsible for the flow o f funds to equity and loan
investment beneficiaries and suppliers.
Fund flow from IDA to HIFU and Beneficiaries (sub-projects)
MOF/ External
A
I
t
Commercial Bank
I
I
Beneficiaries
1. HIFU prepares the withdrawing application and sends to M O F - External Finance
Department (EFD) for verification
2. EFD verifies and notifies HIFU
3. HIFU submitted the withdrawing application to IDA
4. IDA transfers fund to the DA o f HIFU at commercial bank
5. Beneficiaries send the requests for payment to HIFU
6. HIFU instructs the Commercial Bank to make the payments
7. Commercial Bank makes payments to Beneficiaries
57
Details o f Fund Flow from HIFU to Beneficiaries (Sub-projects)
Beneficiaries (subproject holders)
(1) Beneficiaries (sub-project holders) apply for loanshnvestments from the HDP;
(2) HIFU approves the loanshnvestment proposals;
(3) Beneficiaries s i g n contracts with contractors to carrying out work;
(4) Contractors claims for reimbursement based on work completed, submitting supporting
documentation to Beneficiaries;
(5) Beneficiaries review and forward reimbursement claims to HIFU (together with copies
o f supporting documentation). Beneficiaries to retain the original copies o f supporting
documentation;
(6) HIFU makes payment from H D P designated accounts, retaining the copies o f
supporting documentation.
58
Monitoring of Sub-project Financial Performance and Use of Funds
Monitoring procedures by HIFU
Diagram o f the credit monitoring process (for loan investment) i s as follow:
Appraisal
Department (1)
Appraisal
Credit Department to
’ council (1)
’ process the loan (2) (3)
I
I
I
I
I
I
I
(------------------------------------------J
I
I
I
I
I
+
I
Accounting and
Finance Department
’
Claims for payments
from
suppliers/contractors
In summary, there are 3 types o f monitoring supervision implemented by HIFU for loans:
1. The appraisal procedures taken before the loan i s processed by Appraisal Department and
Appraisal Council;
2. Check documentation o f each and every claims for payments to suppliers and contractors
(of the borrowers) to ensure the loan proceeds are used for agreed purposes. This check is
done by credit officer and technical expert;
3. Post disbursement inspection where credit department performs inspection to ensure: (i)
the
proceeds from loans have been used for the agreed purposes; and (ii)
that the borrower can
repay the loans. This inspection also includes review o f periodical financial statements and
analysis o f financial indicatodratios.
Note: The documentation required may comprise o f contract, invoices, certificate o f
construction volume, etc.
Based on the result o f due diligence review by Emst and Young, and the result o f Financial
Management Assessment, i t i s concluded that the procedures discussed in (2) and (3) are
adequately provided while the procedures o f (1) should be improved.
For equity investment, the same monitoring procedures o f (1) and (3) are in place. However the
procedures o f (2) cannot be performed due to the nature o f the disbursement process for
investment whereas checking procedures cannot be performed against each and every payment.
Furthermore, it i s not clearly regulated in HIFU that the investees should submit the audited
financial statements to ensure that: (i)the proceeds from equity investment are used for
intended purpose and (ii)
to reflect truly and fairly the financial position and performance o f
investees.
59
The constraints o f the current monitoring procedures o f HIFU can be enhanced by the
followings which are the key elements o f the oversight and monitoring arrangements to ensure
that funds are used for eligible purposes and properly accounted and reported:
HIFU adopts the Manual o f Preparation and Appraisal o f the Projects (PPA Manual) and
the Manual for the Selection o f Private Sector Participants (PSP Manual) where projects are
appraised, selected and monitored following guidelines and procedures and criteria agreed
with the Bank;
HIFU will require through the sub-project agreements the beneficiaries to maintain
adequate records and to provide such financial information as HIFU requests, to carry out
the sub-project with due diligence and with efficiency. HIFU will also require the right to
inspect by i t s e l f or jointly with representatives o f the Bank, the plans, operations, works,
goods, services, activities and any relevant records and documents o f the sub-project;
HIFU will require the sub equity investment projects to submit to HIFU the annual audited
financial statements and auditor report prepared by acceptable Auditor to HIFU;
An international auditing firm (as a part o f Bank supervision team) will conduct on a
quarterly basis, a review o f the un-audited and audited financial statements and the progress
manual implementation, including the confirmation o f whether the loans and equity
investments are meeting the agreed sub-project criteria, specifically, are they being
prepared according to PPA Manual and PSP Manual;
Independent Consultant monitors the compliance o f each sub-project with the social and
environmental safeguards requirements;
All project information will be compiled by HIFU Management and discussed with the
H C M C PC and the Bank in a workshop to be held every six months. The workshop will
discuss project progress and any outstanding issues, including the need to refine or adjust
any project component;
Annual External Financial Audit whereby HIFU’s Financial Statements which include the
notedparts o f Financial Statements o f the Project will be audited in accordance with the
International Standards on Auditing.
Financial Reporting
HIFU’s current financial and management reporting i s assessed as adequate and accurate in
accordance with the requirements o f Decision 78.
Quarterly Interim Financial Reports (IFRs) will be prepared by HIFU for monitoring of
financial performance o f the project in a format to be agreed between the representatives o f the
GOV and the IDA during loan negotiations.
HIFU will submit IFRs to the Bank within 45 days o f the end each quarter to the Bank. The
IFRs will cover all project activities and will include:
Financial reports (analyzing expenditures against budgets)
IFR 1.1
Sources and Uses o f Funds by expenditure category (including forecast
o f funds requirement for the next 6 months);
IFR 1.2
Detailed Six Month Financial Plan
60
0
IFR2.0
IFR3.0
IFR4.0
0
IFR5.0
0
Uses o f Funds by Components;
Statement o f Designated Account Reconciliation;
Report o n Contract Progress (applied for Component 2: Technical
Assistance only)
Report on Procurement Monitoring (applied for Component 2: Technical
Assistance only)
The IFRs are not requiredto be audited.
Annual Project Financial Statements: HIFU will prepare annual project financial statements
which will be included in the notes o f HIFU’s financial statements consisting o f
A Statement o f Sources and Uses o f Funds / Cash Receipts and Payments which recognizes
all cash receipts, cash payments and cash balances controlled by the entity; and separately
identify payments by third parties on behalf o f the entity.
The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be
presented in a systematic manner with items on the Statement o f Cash Receipts and
Payments being cross referenced to any related information in the notes. Examples o f this
information include a summary o f fixed assets by category o f assets, and a schedule o f
credit withdrawals, listing individual withdrawal applications; and
0
A Management Assertion that Bank funds have been expended in accordance with the
intended purposes as specified in the relevant World Bank legal agreement.
The annual financial statements are required to be audited and submitted to the Bank within 6
months o f the end o f each financial year.
The key accounting policies are included in the HIFUproject financial management guidelines.
Key accounting policies include:
0
Vietnamese Accounting Standards are applied for the accounting for the Income and
Expenses o f the Project which required the accrual basis to be applied;
0
Interest income from IDA funds i s recorded as income o f the project thus i s reflected in
the closing fund balance.
Audit Arrangements
The current financial statements o f HIFU are audited by D T L Auditing Company (a local
company, which i s a member o f Howarth International) in accordance with Vietnamese
Standards on Auditing. The audit opinion on the recent financial statements i s unqualified.
However, performance o f DTL Auditing Company has not been assessed by IDA.
External Audit. HLFU’s financial statements which include the notedparts o f Financial
Statements o f the Proiect will be audited in accordance with international auditing standards by
independent auditors and TORS acceptable to IDA. The audited financial statements and audit
reports will be submitted to the Bank within six months o f the end o f each financial year, and
the date o f closing o f the project.
61
Supervision Plan
The FM risk i s assessed as low. On this basis, the FM supervision will consist o f review o f the
quarterly IFRs and annual financial statements and accompanying audit reports, and the results
o f the supervision auditors’ reviews o f the project’s operations (including eligibility of
expenditures) and financial reports. An annual on-site supervision mission to review all aspects
o f the project financial management will be undertaken. The on-site supervision will review the
project’s financial management system, including but not limited to operation o f the
Designated Account, Statement o f Expenditures, internal controls, reporting and follow up of
audit findings and mission’s findings. The financial management supervision will be conducted
by IDA’Sfinancial management specialist staff.
62
Annex 8: Procurement Arrangements
VIETNAM: HIFU Development Project
A. General
Bank-fundedprocurement for the proposed project would be carried out in accordance with the
World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y
2004, revised October 1, 2006 (the Procurement Guidelines); and “Guidelines: Selection and
Employment o f Consultants by World Bank Borrowers” dated M a y 2004, revised October 1,
2006 (the Consultant Guidelines) and the provisions stipulated in the Financing Agreement.
The general description o f various items under different expenditure categories i s described
below. For each contract to be financed by the IDA Credit, the different procurement methods
or consultant selection methods, the need for prequalification, estimated costs, prior review
requirements, and time frame are agreed between the Borrower and the Bank project team in
the Procurement Plan. The Procurement Plan will be updated at least annually or as required to
reflect the actual project implementation needs and improvements in institutional capacity.
HIFU i s expected to invest in selected infrastructure projects under two possible forms (i)
loans
to private sector f i r m s and/or autonomous commercial f i r m s in public sector and (ii)equity
investment in partnership with private sector firms. In addition, consultant services are
expected to be procured by HIFU under component 2 o f the project. These consultant services
are to be wholly financed by HIFU own funds and would be procured in accordance with the
national Procurement Law.
Al- Procurement under HIFU loans to private sector firms and/or autonomous
commercial firms in public sector
Procurement o f Works. C i v i l works to be procured under HIFU loans to private sector f i r m s
and/or autonomous commercial f i r m s in public sector include urbdtransport facilities such as
bus/truck terminal, river port, inland depot, waste treatment facilities, workshops, etc.
Procurement o f works would mainly be undertaken by respective borrowersheneficiaries o f
HIFU loans using the established private sector and/or commercial practices in accordance with
paragraph 3.12 o f the Bank’s Procurement Guidelines. The following private sector and
commercial practices are intended to be used for the project. For small works (no specific
threshold i s established but normally about less than VND1 billion or US$70,000), entities may
negotiate a contract directly with a Contractor with due attention to qualifications and
reputation o f contractor would be used. Alternatively, the entity may invite quotations from a
minimum o f three Contractors to assure competitive prices. Such small works may also be
directly constructed by the f i r m s if they have adequate construction experience, personnel and
equipment capabilities (force account). For larger works, open competitive bidding (similar to
the national competitive bidding o f the national Procurement Law) would be used. These
practices are basically found acceptable to the Bank considering the incentive o f HIFU
borrowing f i r m s in ensuring economy and efficiency o f their borrowed funds due to
commercial interest rate they have to pay to HIFU. However, i t i s recommended that for large
and complex works which are estimated to cost more than US$5 million per contract, I C B
method as provided in Section 11, the Bank’s Procurement Guidelines may be the most
appropriate procurement method and should be used.
63
Procurement o f Goods. Goods under loans from HIFU to i t s borrowers (Component 1)
include equipment associated with the facilities they invest such as bus terminal equipment,
driers, air compressors, generators, etc. These goods would be procured by respective subborrowersibeneficiaries using the established private sector and/or commercial practices in
accordance with paragraph 3.12 o f the Bank’s Procurement Guidelines. The following
commercial practices are intended to be used for the project. For small goods items (no specific
threshold i s established but normally about less than V N D l O O million or US$7,000), direct
contracting would be used. Direct contracting may also be used for equipment o f proprietary
nature or when need i s urgent. For goods items o f about less than V N D 2 billion or US$125,000
per contract, shopping would normally be used. Larger goods contracts may be procured using
suitable open competitive bidding procedures. These practices are basically found acceptable.
The Bank team recommends that where possible, I C B method as provided in Section 11, the
Bank’s Procurement Guidelines should be used for purchase o f large single items o f goods or
large quantities o f l i k e goods which can be grouped together for bulk purchasing under
contracts estimated to cost more than US$1 million each.
Selection o f Consultants. Consulting services under loans from HIFU to i t s borrowers include
preparation and appraisal o f engineering design, procurement support, construction supervision,
technical transfer, etc. These consulting services would be procured by respective HIFU loan
borrowersheneficiaries using established commercial private sector and commercial practices
in accordance with paragraph 3.14 o f the Bank’s Consultant Guidelines. The following
commercial practices are intended to be used for the project. For small contracts (no specific
threshold i s established but normally less than VND500 million or US$30,000), single source
selection (but usually based on a comparison o f qualifications o f several candidates or previous
experience with the firm) would be used (to some extent, this procedure i s more or less similar
to the Bank’s CQS method). For larger contracts, consultants would be selected through a
competitive process similar to the Bank’s QCBS or LCS methods. It i s recommended that
large assignments estimated to cost more than US$1 million per contract should be procured
through the QCBS method described in Section 11, the Bank’s Consultant Guidelines.
A-2 Procurement under HIFU Equity Investment
Apart loans to private sector f i r m s and/or autonomous commercial f i r m s in public sector, HIFU
would invest in selected infrastructure projects under the form o f equity investment in
partnership with private sector firms. This i s an innovative operation. The selection o f such
partnering f i r m s would be conducted following a competitive procedure established based on
the global experience and best practice, under the Private Sector Participation (PSP) Manual
prepared for the project. This procedure has been agreed with the Bank and i s described in
Annex 4 o f the PAD. Procurement o f goods, works and consulting services for such projects
would be done by respective newly established joint venture companies (of which HIFU is a
partner) following their own procedures or commercial practices.
A-3 Procurement under component 2 o f the project
Consulting services under Component 2 procured by HIFU for i t s technical assistance needs
include social/environmental monitoring, preparation o f PPA manual, on-the-job advisory,
training, financial auditing, etc. These consultant services are to be wholly financed by HIFU
own h d s and would be procured in accordance with the national Procurement Law.
64
B.
Assessment o f the apency’s capacitv to implement procurement
An assessment o f the procurement capacity o f HIFU and the first two f i r m s which would
borrow HIFU loans (West Bus Terminal Co. and Hoa Binh Waste Treatment Co. Ltd) was
carried out during the project preparation. This assessment provided the following key
findings: (i)
all agencies have institutional capacity in place but they have not yet arranged
specific organization and staffing for project/procurement implementation; (ii)although the
agencies do not appear to have prior knowledge and experience o n Bank procurement, because
this is a Financial Intermediary Loan and given the Project’s specific financing arrangement,
the implementing agencies are not expected to implement their procurement using the Bank’s
traditional competitive methods, but mostly through commercial practices. The commercial
practices intended to be used for the project are found generally acceptable; (iii)
the agencies
have different levels o f experience in procurement using commercial practices. HIFU has
successfully participated in a multi-million U S D BOO water supply plant project and gained
good experience on competitive bidding. However, -both W B T C and H B D C - lack knowledge
and experience on competitive bidding, and the procurement practices they were familiar with
are mainly direct contractinglsingle source selection, shopping and force account; (iv) HIFU
staff generally have good qualifications and capabilities, some o f them were trained on basic
Bank procurement and the national Procurement Law; and (v) To address procurement capacity
deficiencies, the agencies already planned to hire consultants to assist their procurement
implementation. Based on the above findings and the specific nature o f procurement work
required for the project, the procurement risk for the proposed project is rated as ”medium”.
To mitigate the procurement risk and to strengthen the project procurement implementation
capacities, the following key actions have been discussed and agreed with the Borrower.
0 Organization o f the implementation unit within HIFU/WBTC/HB WTC,
including
designation and j o b descriptions for procurement staff should be prepared. Other
prospective borrowers should designate procurement staff for the HIFU loan before
implementation o f their subprojects.
0 An
internationally experienced consultant should be hired to prepare detailed
guidancekidding documents and assist/train HIFU and relevant city departments in
implementing competitive selection o f private sector partners for i t s equity investment
operation.
0 A procurement operational manual for guidance to HIFU borrowers should be prepared
based on the experiences o f the first two subprojects.
0 A procurement session should be organized during the project launching workshop to
introduce the project’s specific procurement requirements with a focus on commercial
practices to be used for HIFU loans. An in-depth training should be conducted for HIFU
and relevant city departments on detailed procedures for competitive selection o f private
sector partners during project implementation.
0 Prospective HIFU borrowers should hire consultant(s)
to help implement their
procurement as needed.
C.
Procurement Plan
The Borrower developed a detailed Procurement Plan for implementation o f Component 2 and
the first two subprojects under Component 1. This plan (Attachment 2) has been discussed and
agreed between the Borrower and IDA during negotiations. The Procurement Plan will be
65
made available in the Project’s database and in the Bank’s external website. I t will be updated
in agreement with the Bank team at least annually or sooner if required to reflect the actual
project implementation needs and improvements in institutional capacity.
D.
Bank Prior-Review and Frequency o f Procurement Supervision
The following requirements for Bank procurement prior-review are recommended:
0
The first two contracts for procurement o f goods and works procured through open
competitive bidding under the commercial practices by HIFU loan borrowers.
0
All contracts for procurement o f goods and works to be procured under International
Competitive Bidding (ICB) and all contracts for procurement o f consultants’ services to
be procured under Quality and Cost Based Selection (QCBS)
Other contracts than those mentioned above shall be subject to the Bank’s post review
procedures. I t i s recommended to carry out supervision missions to conduct post review o f
contracts o n a frequency o f every twelve (12) months.
Attachment 1
Details o f the procurement arrangements involving international competition
Goods and Works and non-consultingservices.
L i s t o f contract Packages which will be procured following I C B method:
No ICB contracts are expected at the time ofproject preparation.
Consulting Services.
L i s t o f Consulting Assignments with short-list o f international firms:
No consulting contracts with shortlist of international firms are expected at the time of
project preparation.
66
Attachment 2: Indicative Procurement Plan for the First 18 Months
I.
GENERAL
Project information:
Country: Vietnam
Borrower: Socialist Republic o f Vietnam
Project Name: HIFU Development Project
Loadcredit No.: NA.
Project Implementing Agencies (PIAs): HIFU, West Bus Terminal Co. (WBTC), Hoa
Binh Waste Treatment Co. Ltd (HBTC) and other private sector f i r m s / autonomous
commercial f i r m s in the public sector
Period covered by this procurement plan: 18 months
11. Goods and Works and non-consulting services.
1.
Prior Review Threshold: Procurement Decisions subject to Prior Review by the
Bank as stated in Appendix 1 to the Guidelines for Procurement: Refer to Section D,
Annex 8 o f the PAD.
2.
Special Procurement Arrangements: Selection o f private sector partners for
HIFU equity investment operation shall be done following the competitive procedures
described in Annex 4 o f the PAD. Works and goods contracts under H o a Binh Waste
Treatment Co.3 Subprojects are expected to be procured in advance o f the Financing
Agreement signing. The expenditures under these contracts incurred after the cut-off date
specified in the Financing Agreement and prior to signing o f the FA with IDA, would be
eligible for retroactive financing, subject to meeting all the specified conditions o f
eligibility that would apply to expenditures incurred after the signing.
1
2
Ref.
No.
Contract
Descriptions
3
Est.
cost
(US%)
4
5
6
7
Procurement
Method
P
Q
Domestic
Preference
Review
by Bank
8
Expected
Bid-Opening
Date
No
No
Prior
Apr. 2008
No
No
Post
Jul. 2008
No
No
Post
Jul. 2008
No
No
Post
Apr. 2008
No
No
Post
Jul. 2008
West Bus Terminal Co.’s Subprojects
BX-13 Yard road &
130,000 Commercial Practice
technical
(Open Competitive
infrastructure
Bidding)
BX-14 Terminal &
80,000 Commercial Practice
platform
(Open Competitive
Bidding)
BX-15 Other supporting
40,000 Commercial Practice
works
(Open Competitive
Bidding)
BX- 18 Equipment for
90,000 Commercial Practice
road and yard
(Shopping)
BX-19 Equipment for
95,000 Commercial Practice
terminal
(Shopping)
9
Comments
HB-1
Intake tanks,
septic tanks,
treatment works,
pump station,
weighing station
and access road
Site leveling and
preparation
270,000
Commercial
Practice (Open
Competitive
Bidding)
30,000
HB-3
Passive aeriation
area
150,000
HB-4
Workshop and
stor age
40,000
HB-5
Water drainage
and lighting
system
28,000
HB-6
Lightning
protection
system
5,000
Commercial
Practice
(Direct
Contracting)
Commercial
Practice (Open
Competitive
Bidding)
Commercial
Practice
(Direct
Contracting)
Commercial
Practice
(Direct
Contracting)
Commercial
Practice
(Direct
HB-7
I Dredging
60,000
HB-2
I pumping/gradin I
I gequipment
I
I
I
Commercial
Practice
(Shopping)
No
No
Post
Jun. 2007
No
No
Post
May 2007
No
No.
Post
Jul. 2007
No
No
Post
Jul. 2007
No
No
Post
Jul. 2007
No
No
Post
Jul. 2007
No
No
Post
Jul. 2007
111. Selection of Consultants
1.
Prior Review Threshold: Selection decisions subject to Prior Review by Bank as
stated in Appendix 1 to the Guidelines Selection and Employment o f Consultants: Refer
to Section D, Annex 8 o f the PAD.
2.
Short list comprising entirely of national consultants: Because the nature and
value o f consultant services required, almost consultants are expected to be national.
However, there would be some international individual consultants required for
Component 2.
3.
Special Procurement Arrangements: Consultant contracts under H o a Binh
Waste Treatment Co.’s Subprojects are expected to be procured in advance o f the
68
Financing Agreement signing. The expenditures under these contracts incurred after the
cut-off date specified in the Financing Agreement and prior to signing o f the FA with
IDA, would be eligible for retroactive financing, subject t o meeting a l l the specified
conditions o f eligibility that would apply to expenditures incurred after the signing.
1
Ref. No.
I
2
I
Description of
Assignment
I
7
Est.
4
I
HB-14
I Technical transfer,
commissioning and testing
Procurement support
I
h
7
Review
by
Bank
(Prior
I Post)
Expected
Proposals
Submissi
on
Date
Comments
60,000
Gov’t proc.
procedures
NA
Oct. 2007
50,000
Gov’t proc.
procedures
NA
Oct.2007
Bank prior review
TOR I
qualifications only
Ditto
70,000
Gov’t proc.
procedures
NA
Feb.2008
Ditto
100,000
Gov’t proc.
procedures
NA
Nov.2007
Ditto
100,000
Gov’t proc.
procedures
NA
Oct. 2007
Ditto
120,000
Gov’t proc.
procedures
NA
Oct.2007
Ditto
Post
I Aug. 2007 I
Post
May 2007
cost
HB-13
1
Selection
Method
(us9
HIFU’s Component 2
Independent resettlement
TA- 1
monitoring consultant
(firm)
Independent
TA-2
environmental monitoring
consultant (firm)
On the job safeguard
TA-3.
advice and training for
HIFU (firm or individual)
On the job advice and
TA-4.
training for implementing
PSP framework (firm or
individual)
On the job advice and
TA-5
training for implementing
project
preparatiodappraisal
manual (firm)
Independent financial
TA-6
audit
West Bus Terminal Co.’s Sub
s
3,000
I
3,000
69
Commercial
Practice (SSS)
Commercial
Practice (SSS)
I
Annex 9: Economic and Financial Analysis
VIETNAM: HIFU Development Project
FINANCIAL ANALYSIS OF HIFU
Financial Intermediary Analysis
The detailed due diligence o f HIFU’s financial accounts was conducted to determine the
financial viability o f HIFU as a potential Bank partner in a financial intermediary loan.
T h e analysis reviewed the quality o f HIFU’s loan portfolio, including the level o f nonperforming loans and a detailed review o f randomly selected loans to determine loan rates
and repayment quality. The equity investments o f HIFU were also analyzed to determine
HIFU’s exposure vis-a-vis industry and investment instrument. Again, the key equity
investments were identified and reviewed to determine asset quality. Finally, the Income
Statement was analyzed vis-a-vis profitability and operational efficiency. The team
conducted C A M E L Analysis, key financial ratios analysis.
The analysis confirmed that HIFU i s in a strong financial position with total paid-in
capital (charter capital) o f VND 1,288,224 billion and a very healthy capital adequacy
ratio. Total assets have increased from VND 2,203,529 billion in 2003 to 3,323,603
billion in 2005, N e t income has increased from VND 55,433 billion in 2004 to VND
85,369 billion in 2005. The quality o f the loan portfolio i s good, with non-performing
loans accounting for 0.04%. T h e interest rate in the random sample o f 10 loans reviewed
was around lo%, which i s above the standard market rate as indicated by the SOCBs. The
quality o f the investment portfolio was also very strong, with the high possibility that the
current (marked to market) value o f the investments will be far higher than the values
reported in the financial statements. Finally, the investment portfolio (loans and
investments) i s heavily concentrated in infrastructure related investments. The interest
income from lending accounts for approximately 70% o f total sources o f income.
Operating and administration expenses o f the Fund are very l o w considering the size o f
the current operations o f the Fund. Finally, the investments in portfolio companies (noninfrastructure investments) account for a significantly minor proportion o f total fund
assets and therefore present limit exposure to market fluctuations. The detailed analysis o f
HIFU’s financial position i s provided below. The detailed analysis o f HIFU’s financial
position i s provided below.
70
Financial Analysis o f HIFU
2005
MVDm
2004
VNDm
2003
VNDm
ASSETS
Cash and current accounts with banks
Loans and advances to customers(**)
Long-term investments
Fixed assets (net)
Construction in progress
Other assets
110,979
2,916,085
256,292
38,290
917
1,040
208,596
2,608,246
155,675
38,673
917
43 1
3 70,443
1,695,751
127,693
3,117
917
5,608
Total assets
3,323,603
3,012,538
2,203,529
TOTAL LIABILITIES
Customer deposits and other amounts due to
customers
Borrowed funds (***)
Other liabilities
35,198
1,828,205
66,250
32,309
2,153,780
43,775
49,625
1,482,383
44,661
Total liabilities
1,929,653
2,229,864
1,576,669
OWNER’S E Q U I T Y
Chartered capital
Foreign exchange difference
Retained earnings
Reserves
1,288,224
515
85,371
19,840
687,209
927
82,266
12,272
452,617
777
55,433
118,033
Total owner’s equity
1,393,950
782,674
626,860
Total Liabilities and Owner’s Equity
3,323,603
3,012,538
2,203,529
LIABILITIES AND OWNER’S EQUITY
(*):Figures are extractedfrom the auditedjnancial statements of the Fund.
I**)
Including
loans from trusted funds to customers amountinp to VND 676,298m 12004: VND 673.422mL
2003: 579.752m) which HIFU does not bear credit r i s k .
I***)
Including funds for trusted finds
amounting to VND 777,789m (2004: 1.483,522m. 2003: 1.114.677m)
as discussed in 1**I
71
3.1.1
Loans to customers
Loans to customers include long-term and medium-term loans from the source o f (i)
the
chartered and mobilized capital, (ii)
other banks in syndicated lending and (iii)
entrusted
fund. As discussed above, loans to customers which are from the participation o f other
banks in syndicated loans and entrusted fund should not be recognized as assets in the
balance sheet o f the Fund according to the prevailing regulation o f the SBV.
Loans to customers hold a high percentage in the total assets though this high proportion
seemed to experience an up trend over the years.
Overall loan portfolio review
Medium and long-term loans to customers
Loans from trusted funds to customers'"
Other loans to customers
Transportation
infrastructure
Water/ Electricity
Supply
Industrial/ Residential
Zone Infrastructure
Public Health
Education
Others
1,761,217
676,208
478,660
1,272,824
673,422
662,000
1,115,999
579,752
2,916,085
2,608,246
1,695,751
749,764
33%
576,232
30%
324,919
29%
199,360
9%
210,487
11%
53,442
5%
837,775
222,248
126,792
103,937
37%
10%
6%
5%
710,259
202,162
116,737
118,947
37%
10%
6%
6%
394,131
153,988
90,742
98,777
35%
14%
8%
9%
2,239,877 (*)
100% 1,934,824 100% 1,115,999 100%
-
(*) This amount excluded loans from trusted funds to customers but included the portion
of loans from the participations of other banks in syndicated lending, which can not
be separated by the Fund.
Loan portfolio o f HIFU i s much concentrated on the infrastructure o f transportation,
industrial, residential zone, and public health. T h i s structure o f funding i s consistent with
strategic development policy o f the H C M C People's Committee.
lo
Trust fund investments are fully at the risk o f the beneficiary o f the Trust (HCMC PC), subject to
standard fiduciary responsibilities
72
State Owned Enterprise
Limited Liability Company
Joint Stock Company
Private
1,914,486
12,614
308,281
4,496
2,239,877
85% 1,773,627
1%
5,908
14%
155,289
0%
-
92%
0%
8%
0%
978,227
20,329
117,443
-
88%
2%
11%
0%
100% 1,934,824 100% 1,115,999 100%
-
The major borrowers o f HIFU are s t i l l SOEs accounted for over 85% o f total portfolio. I t
i s a common practice that SOEs s t i l l play an important role in infrastructure development
projects.
Non-performing loans and write-offs
Loans to customers from sources o f chartered
capital, mobilized capital and other banks in
syndicated loans (net)
.
Overdue loans
%
2,238,913
1,933,586
1,114,651
964
1,238
1,348
0.04%
0.06%
0.12%
Provision for loan losses
As reported by HIFU, their non-performing loans only account for a minimal portion in
the loan portfolio. And those non-performing loans are being collected and recovered
over the 3 years.
I t i s noted that, HIFU has not implemented any loan classification and provision system.
As a consequence, we could not have any information to assess the overall quality of the
loan portfolio. Currently, banks in Vietnam i s to follow Decision 493/2005/QD-NHNN
issued by the State Bank o f Vietnam regarding the loan classification and loan loss
provision in lending activities.
In the following part, we will present the result and our comments o n the review o f the
sample o f 10 customers as at 3 1 December 2005 according to Decision 493.
Loan review sample
We have randomly reviewed 10 customers who operate in different industries and
borrowed money from HIFU for different purposes with different contractual conditions
and have significant loan balances with the Fund. It was noticed that source o f repayment
o f the state directed lending was mostly from the budget o f the H C M C People’s
Committee which i s reliable but might be delayed due to bureaucratic procedures o f using
the state budget.
73
The reviewed 10 items covered about 70% o f total portfolio o f which we do not note
down any impairment or downgrade o f the reviewed item that requires the Fund has to
create additional specific provision against them.
General provision
Decision 493 requires credit institution to maintain a general provision at the rate o f
0.75% o n the current loans (group 1). Should the Fund wish to apply that approach, the
Fund i s required to additional book a general provision o f VNDm 16,792 in the income
statement for the year ended 31 December 2005.
74
I
I
i
i
I
I
i
Investment portfolio
Other long t e r m investment
Investment in securities
1,208
126,484
786
154,889
389
255,903
127,692
155,675
256,292
9%
12%
18%
% o f total assets
Investment portfolio accounts for a significant part in total assets o f HIFU and increases quickly
over the years. The investment portfolio is rather diversified in terms o f the types o f investment,
industry and size.
Investment
I n vestme
nt value
(MvNDI
type
Development
Commercial Joint
Stock Bank
Viet A Joint Stock
Commercial Bank
City Infrastructure
& Technology JV
Company
2
3
4
5
I
I
I
6
I
I
7
8
9
I
I
Binh Chanh
construction and
investment JV
Company
REE Refrigerator
~vcompaiy
Cu Chi Industrial
zoneconstruction
and investment JV
Phu Nhuan Gold &
Jewelry JV
Company
K e n h Dong Water
JVCompaiy
Thu Duc B O O
Water JV
Company
Joint
stock
Joint
stock
Banking
Banking
Joint
stock
I
I
Joint
stock
Joint
stock
I Joint
I
I
I
I stock I
I
I
Joint
I stock I
Joint
stock
Thu Duc Housing
Development JV
10 Company
Joint
stock
Song Than JV
11 Company
Joint
stock
%of
sg;s
(
)
%of
%of
shares
shares
(2004)
(2005)
N/A
(*>
N/A
Share
urchase
Share
urchase
Infrastructure
construction
Develop and
invest
infrastructure
and technical
deployment o f
main Project
Real estate
trading
Industrial zone
infrastructure
trading
Gold and
precious stone
trading
Clean water
business
Water business
Houses and
accommodation
management
and trading
Industrial zone
infrastructure
trading and
Founding
shareholder
28,973
Transfer o f
State hnd
6,000
Founding
76
N/A
(*>
*
.
12
Bach Tuyet Cotton
Joint Stock
Company
14
SACOM
HSC Securities
Joint Stock
Company
15
Vinamilk
13
16
M E C O Joint stock
Joint
stock
Joint
stock
Joint
stock
Joint
stock
Joint
stock
Cotton
manufacturing
Telecommunic
ation Cable
Manufacturer
Share
purchase
NIA
(**)
NIA
530
Share
purchase
NIA
(**)
NIA
2,047
Securities
trading
Milk products
manufacturer
Founding
shareholder
Share
purchase
Found
shareholder
30
NIA
(**)
NIA
(*)
30
NIA
Hospital
10,000
1,833
85
**
**
**
NIA
1
1
30
0.1
NIA
(*I *
Investments are recorded at original costs, normally at par value being the amounts that the Fund
invested on the establishment ofjoint stock companies, or acquiring o f shares injoint stock
companies or managing the stakes o f SOE being equitized which are delegated by local People’s
Committee. The investee companies operate mostly in the infkastructure development, such as
water supply, construction, housing development.. .
Overall, HIFU is holding shares o f companies having high market value. Please refer to the
following table to compare the market value o f the portfolio o f the Fund.
(*)
(**)
Unlisted firms, price i s obtained from OTC market and provided by HIFU as o f February 12,2007
Listed firm, price i s obtained from Hochiminh City Securities Market as of February 12,2007.
77
After the acquiring date, the Fund has not reflected subsequently these investments at the market
price and consequently, the value o f the investment portfolio i s understated as at 31 December
2005 at least by due to information on the value o f share o f certain unlisted companies i s not
available,
Chartered capital and reserves
The chartered capital o f HIFU significant increased from VND 687,209m in 2004 to VND
1,288,244m, (the initial registered capital was only VND 500,000m). The increase in chartered
capital i s mainly attributed by the actual cash contribution from the H o Chi Minh City’s State
Budget in the year to strengthen the financial capacity o f the Fund in order to provide financial
supports to new projects in the coming period and the recapitalization o f earnings of previous
years.
Capital adequacy ratio
The capital adequacy ratios o f the Bank over the years are as follows:
Chartered Capital
Reserves (non-distributable)
1,288,224
99,939
687,209
91,395
452,617
171,567
Total capital
1,388,163
778,604
624,184
Risk Weighted Assets (RWA)
1,249,727
1,085,777
1,063,520
111%
72%
59%
% total capital funds/ RWA (Capital Adequacy
Ratio)
The ratio indicates that the Fund i s well capitalized and i s potential for hrther expansion o f total
assets by providing new loans or investing in new projects.
Analysis o f the income statement (extracted from the audited financial statements)2004
TOTAL INCOME
Interest and similar income
Interest and similar expenses
103,018
(3 7,129)
103,460
(3 0,6 14)
79,456
(25,528)
N e t interest margin
Fees and commission income
Fees and commission expenses
Dividend income received
Other operating income
65,889
1,387
(572)
26,799
1,597
72,846
1,017
(832)
16,154
1,798
53,928
912
(621)
8,304
365
TOTAL O P E R A T I N G INCOME
95,100
90,983
62,888
Employees expenses
(6,330)
(5,977)
(4,484)
78
Depreciation, amortization and maintenance
Other operating expenses
9594)
(2,807)
(503)
(2,239)
(1,198)
(1,773)
85,369
82,264
55,433
TOTAL
PROFIT BEFORE TAX
In the total income o f HIFU, interest income from lending accounts for approximately 70% of
total sources o f income. The next significant contribution to the income i s dividend income.
There has been a steady growth in those sources o f income over years as a direct result of the
growth and the good quality o f the lending and investment portfolio.
N e t interest income i s relatively high at 64% in 2005 (in 2003-2004: about 68% to 70%). This
shows a very high margin o f the Fund which i s attributed by the fact that a significant h n d
resources are from owner's equity which i s free o f cost.
Operating and administration expenses o f the Fund are also very l o w provided that the current
size and operations o f the Fund. This i s because the Fund i s s t i l l operating under the umbrella of
the People's Committee so certain operating expenses are not at the normal market condition yet.
Also the staff cost o f the Fund i s still in line with the overall salary scale applicable to public
servants rather than o f commercial entities. The current salary scale o f the Fund is also far below
the salary structure o f commercial banks having similar size.
Hereafter i s the summary o f key performance ratio o f the Fund as follows:
6.85%
7.12%
6.17%
INTEREST INCOMEITA
5.32%
6.02%
5.50%
INTEREST EXPENSEITA
1.76%
1.53%
1.77%
3.6%
4.2%
3.7%
NIA
NIA
NIA
NET INCOME/TA"
= ROA"
PROFIT
NET INTEREST MARGIN/TA13
PROVISION EXPENSEl4ITA
Interest Rates
I t should be noted that the traditional financing method for municipal infrastructure in Vietnam
involves GOV borrowing ODA for projects and providing the proceeds to the municipal
government as grants. Indeed, to date all o f the W B ' s municipal infrastructure projects in H C M C
have been financed with GOV grants. In the HDP, the H C M C government, WB and the GOV
are taking the first step towards rationalizing the use o f GOV subsidies for municipal
infrastructure. Specifically, the project underscores the need to distinguish the infrastructure
investments which require budget support from those which can offer cost recovery and can be
financed with market capital under public-private partnership arrangements. As a government-
'' TA = Total average assets
l2ROA = Return on Average Assets
l3NIMiTA =
(INTERST INCOME -INTEREST EXF'ENSE)/TA
bad debt
l4Total provisions for
79
owned FI, the on-lending rate which HIFU receives from the GOV must be determined by the
MOF strictly according to Decree 134, which provides legislated rules for determining the onlending rates for ODA projects according to sector o f focus and other variables that are important
to the government. The on-lending i s in VND. The focus o f the project design has been o n the
interest rate charged by HIFU in the subprojects to ensure against market distortions.
HIFU will continue to price i t s loans at market rates for infrastructure in Vietnam. Specifically,
HIFU will price the loans at the l o w end o f the State-Owned Commercial Banks SOCB rates,
which i s currently at 10.4%. The rate will be reviewed every six months by HIFU and the WB
team. The current interest rate regime in Vietnam i s described in the graph and table below for
reference. However, it should be noted that for infrastructure projects the benchmark is
increasingly being set by the Vietnam Development Bank.
IO-year Interest Rate Benchmarks (2006)
2.00%
0.00%
8.00%
6.00%
4.00%
2.00%
0.00%
10-year
10-year City HTPT- DAF SOCBs 10Government
Bond
(VDB) 10year
Bond
year
HIFU 10year
Source: HIFU
Note: Represents the SOCB and HIFU low range.
2005
Low
Benchmark (annual rates)
5-year Government bond interest rate
10-year Government bond interest rate
5-year City bond interest rate
10-year City bond interest rate
HTPT- DAF (VDB) interest rate for 5 year loans
HTPT- DAF (VDB) interest rate for 10 year loans
SOCBs interest rate for 5 year loans
SOCBs interest rate for 10 year loans
HIFU interest rate for 5 year loans
~HIFUinterest rate for 10 year loans
Source: HIFU
80
6.60%
6.60%
9.56%
9.56%
9.56%
9.56%
High
11.56%
12.06%
12.56%
11.06%
I
I
2006
Low
8.20%
8.60%
8.80%
9.00%
7.80%
7.80%
10.40%
10.40%
10.40%
10.40%
High
12.40%
12.90%
11.40%
11.90%
Directed Credit
.
.
.
.
The IDA credit i s being provided to HIFU as a FIL to achieve the following objectives:
Finance municipal infrastructure - which i s a key bottleneck to economic growth - and
provide affordable infrastructure services to the public
Develop alternative model for financing municipal infrastructure which do not require 100%
G O V grants
Reduce the risk to financial market development posed by inappropriate borrowing practices
o f LDIFs, such as HIFU
Implement operational reforms in HIFU geared towards improvement in project appraisal
standards, financial management including international standard auditing, and appropriate
due diligence for environmental and social safeguards.
Ensure the financial sustainability o f HIFU by establishing clear Financial Covenants which
can be implemented and monitored
I t i s understood and anticipated that the HDP will allow HIFU to establish a track record - vis-avis clear and consistent investments appraisal standards, good operational practices, and sound
financial management. After successfully implementing HDP, HIFU will be in a position to raise
capital from the market via bank borrowing or bonds.
Subsidies
There are no subsidies involved in the HDP structure.
Fiscal Sustainability
The H D P i s designed to ensure the financial sustainability o f HIFU by putting in place a
framework for HIFU to start operating like a “hnd” which can utilize i t s equity (charter capital)
to raise investment capital (debt) from the local market. The H D P will help establish appropriate
project appraisal and financial management practices which will allow HIFU in the future to
safely raise investment capital from the local market. The owner o f HIFU - the H C M C Peoples’
Committee - has been investing substantial equity in HIFU over the years. The H C M C PC
therefore has a very strong incentive to ensure the financial feasibility o f HIFU. The H C M C PC
has very publicly announced that development o f HIFU as a professional and competent
institution capable o f financing municipal infrastructure in H C M C i s an important pillar o f the
city’s long-term development strategy. The lack o f long-term capital in the Vietnamese market
has resulted in the current inappropriate HIFU practice o f borrowing o f short-term capital on a
roll-over basis. The HDP allows the H C M C PC and HIFU Management a chance to take
advantage o f long-term IDA credit and Bank technical assistance to substantially improve the
capacity o f HIFU. Specifically, the HDP provides an opportunity for the H C M C PC and HIFU
Management to establish, test and perfect the internal HIFU systems for project appraisal and
financial management. In short, the H C M C PC and HIFU Management are well aware o f the
value o f the long-term IDA credit and the associated technical assistance associated with the
project. The clients also realize that success o f H D P will allow HIFU to raise substantial capital
from the local market in the h t u r e and finance badly needed municipal infrastructure in HCMC.
HDP w i l l have noJisca1 impact on the HCMC government. The HDP will create no additional
fiscal burden on the H C M C financial position. The H C M C PC provides no operating budget to
81
HIFU, and the project requires no additional equity investment in HIFU from H C M C PC. In
particular, the HDP will have no affect on the H C M C financial position vis-a-vis the following:
There will be no impact on H C M C PC financial position vis-a-vis incremental taxes; and the
project does not provide any additional subsidies.
There will be no increase in recurrent costs for H C M C P C or HIFU.
HDP will have no impact on the H C M C PC current fiscal situation, as the project will not
require any additional capital or operating budget from H C M C PC. There will also be no
impact on the G O V fiscal position because the project is structured as an on-lending
arrangement in which the MOF i s able to fully cover not only the cost o f foreign exchange
risk, but also the IDA commitment fee and any transaction costs incurred by the MOF.
H D P will have no negative impact on the overall level o f recurrent costs required to operate
the municipal infrastructure sectors adequately and the volume o f financing provided by the
Government in the recent past. Indeed, the participation o f private sector and focus on cost
recovery projects will likely reduce the relative provincial government outlay in the target
sectors.
The availability and certainty and formal commitment o f the HFU Board o f Management to
contribute an estimated $0.5 million in counterpart funds from HIFU for technical assistance
has been confirmed during project appraisal.
Summary o f the eligibility criteria for FIs
The selection o f HIFU as an F I i s based on the following- assessment:
a. HIFU has demonstrated adequate profitability, capital, and portfolio quality and local
collections. The financial due diligence o f HIFU was carried out by an international
accounting firm, under contract to the Bank. The detailed financial analysis o f HIFU i s
provided in the PAD. HIFU already provides audited financial statements, and HIFU
Management has agreed to switch to international auditing standards, which can be
carried out by approximately 4-5 Vietnam based international accounting firms.
b. HIFUhas acceptable levels o f loan collections.
C. HIFU has the appropriate capacity, including staffing, for carrying out subproject
appraisal and supervising subproject. Currently HIFU has 83 professional staff, which
includes 20 staff with M B A s andor graduate degrees. At least 10 HIFU staff are fluent
in English, and an additional 10 have basic conversational skills and can read and write in
English. The majority o f HIFU staff i s on private employment contracts, with only about
5 senior staff maintaining city employee status. Implementation o f comprehensive
manuals for project preparation and appraisal and private sector partner selection will
ensure that all relevant Bank policy requirements will be carried out by HIFU. The HIFU
Board o f Management has also officially approved the decision to use an estimated $0.5
million o f HIFU capital as client contribution to hire international consultants to provide
on the job advice and training to HIFU staff for a 3-year period.
d. The current borrowing practice o f HIFU requires improvement. The project will help
HIFU establish the investment track record and appropriate financial management
standard to mobilize capital via bank loans or bonds in the future.
e. As an LDIF, HIFU i s a government-owned FI. The project i s initiating the process o f
developing adequate managerial autonomy and commercially oriented governance in
HIFU. This will require 1) provision o f incentives to the Peoples’ Committee to utilize
LDIFs in the appropriate fashion and 2) development o f prerequisite capacity in the
82
LDIFs to carry out their h c t i o n s and raise capital without undermining financial
viability, and without government support.
f. The project i s further improving the prudential policies, administrative structure, and
business procedures in HIFU. This includes the implementation o f a comprehensive
manual for project preparation and appraisal, and the manual for the selection o f private
sector participants o f HIFU. HIFU already provides audited annual financials. HIFU
Management has agreed to switch to international standard financial audits. Finally, the
following Financial Covenants have been agreed to monitor and manage the financial
4
5
6
FINANCIAL COVENANTS”
Aggregate equity investments shall not exceed 50
percent o f the total amount o f the Fund’s paid in equity
capital.
The Fund’s debt-to-equity capitalization ratio (i.e.
Leverage) shall not exceed 3: 1,where debt means all
debt liabilities plus contingent liabilities and equity
means paid-in capital plus retained earnings and reserves
not allocated to cover specific liabilities.
Liquid Assets shall be sufficient to cover projected Fund
operating expenses over the subsequent 18 months.
Total investment (debt and/or equity) in a single obligor
shall not exceed 15 percent o f total fund capital
(including debt and equity).
In all HIFU investments involving HDP proceeds, HIFU
will not take greater than 30% ownership (equity/direct
investment) in a Project Enterprise
In all HIFU investments involving HDP proceeds, the
debt to equity ratio will not exceed 3: 1. Specifically,
debt will not be greater than % o f the total financing o f
the subproject
APPLICABILITY
Applies to all HIFU
operations
Applies to all HIFU
operations
Applies to all HIFU
operations
Applies to all HIFU
nnnrot;
UpLadns
Applies to the use of
IDA proceeds only
Applies to the use o f
IDA proceeds only
Coordination with IFC
IDA and IFC have been coordinating very closely on the engagement with HIFU. The I F C had
attempted to execute transactions with HIFU (senior loan) as well as one o f its portfolio
companies (equity investment in CII). However, the transactions did not materialize for various
reasons, which have lead IFC to the conclusion that HIFU requires substantial institutional
development before IFC can do a direct transaction with it, IDA and IFC have therefore decided
that the Bank i s better suited to undertake the initial task o f building institutional capacity o f
HIFU, establishing a supportive national policy and H C M C municipal government framework,
and providing long-term capital for investment in partnership with private sector. The I F C will
play an important role in co-financing HIFU transactions in partnership with the private sector.
The GOV has issued a draft decree o n Institution and Operation o f LDIFs, which specifically addresses covenants
2 and 4. These two covenants, as stipulated above, are consistent with the Bank’s technical advice to the GOV. The
task team has agreed with HIFU and H C M C P C that during implementation, covenants 2 and 4 can be adjusted in
line with the final, approved stipulation o f the GOV Decree as part o f the six monthly review o f a l l H D P conditions
which i s described in this P A D .
83
As discussed and agreed with IFC, the advantages o f getting I F C involved at the project level (as
oppose to the HIFU level) are as follows:
IFC’s risk appetite i s better suited to the subprojects financed by HIFU rather than the
financing o f HIFU itself. The financing o f HIFU involves policy risk, which i s better suited
for IDA finded operations.
IFC’s involvement in the HIFUjoint ventures will allow HIFU to establish good models for
corporate governance and other operational functions o f a joint venture.
IFC’s involvement in HIFU joint ventures will allow HIFU to learn the principles o f good
project structuring, including development o f legal contracts and negotiations with the
private sector.
The Bank i s better positioned to invest in HIFU which will require substantial technical
assistance and very close coordination with the GOV and H C M C municipal government.
I F C can be relatively more competitive in Vietnam with i t s equity products than i t s debt
products. This i s because Vietnam i s an IDA country with access to very cheap financing,
particularly for infrastructure projects.
84
Annex 10: Safeguard Policy Issues
VIETNAM: HIFU Development Project
Environmentalassessment (OP 4.01)
The HDP project i s classified as Category FI. The complexity o f subprojects evaluated for
investment i s varied. All subprojects will pass initial review and screening against the G o V and
WB/IFC exclusion lists. Based on the size and the nature o f the potential impact on the
environment from the subproject activities financed under the HDP project, categorization will
be determined for each o f the subproject in the investment pipeline, which has passed the review
against the Government and IFC exclusion lists.
A manual on Project Preparation and Appraisal (PPA Manual), including a detailed guideline o n
Environmental safeguards acceptable to IDA, has been developed and approved by the H C M C
People Committee. The manual and annexes:
0
clearly lay out the steps where environmental assessment and supervision are undertaken
during the project cycle;
review Environmental Safeguard (ES) requirements o f GOV and the Bank;
identify the discrepancies ES between G O V and Bank requirements, and when there are
discrepancies, identifies proper approaches to best comply with the Bank ES requirements;
clarify ES activities, including due diligence assessment for the subprojects with EA
government approval prior to the lending from HIFU,
0
describe when and who has to do what to meet the ES requirements; and
0
guide the assessment o f the borrower’s institutional mechanism to carry out EA work for
category A subprojects.
The PPA Manual clearly defines the procedure and responsibility o f the EA work as integrated in
the sub-project preparation and supervision process, The Environmental guideline included in
annexes o f the PPA Manual specify how to carry out environmental assessment (EA) work at
each stage during the project cycle. The approach described in the manual follows a due
diligence assessment which includes: carrying out new EA works in accordance with the Manual
which provides guidance to meet the requirements o f Government regulations and the Bank
safeguard policies; assessing the adequacy o f the EA work which have been approved by
DONRE and developing a risk management plan if the EA work i s not sufficient; borrower’s
written commitments to HIFU to implement the risk management plan; and assessing the
borrower’s institutional mechanism to carry out EA work for A-category subprojects.
The PPA Manual will be used by HIFU staff in carrying out environmental safeguard (ES) work
to meet the requirements o f G O V and IDA. The Environmental Guideline o f the Manual was
used by HIFU in appraising two subprojects for Year One as a pilot program o f the HDP, in a
manner acceptable to IDA. It will also be applied for the preparation o f the other subprojects in
the investment pipeline for the following years. HIFU will implement the Manual with assistance
from on-the-job consultants who will be hired as part o f component 2 o f the project.
Environmental appraisal o f the two year 1 pilot subprojects:
For the two year 1 pilot subprojects, a due diligence assessment has been carried out for the
Initial environmental assessment (IEE) o f the West Bus Terminal (B-category sub-proj ect)and
85
the Environmental Impact Assessment (EIA) of the Septic Tank Waste Treatment (A-category
subproject).
Summary of major environmental impacts of the two pilot subprojects in Year One: K e y
environmental issues during construction work under the two subprojects are noise and dust
pollution, traffic congestion, transportation and disposal o f waste construction materials,
transportation o f filling soils. Major environmental impacts during the operation phase are
related to the operations o f the waste treatment plant include odor and pathogenic bacteria,
insects and bugs vermin, collection truck leakage, vehicle exhaust fimes, ground water pollution
from pipe and tank leaks during the treatment process and surface water pollution from runoff,
effluent discharge from treatment facilities. Other impacts could be related to the management
of waste generated at the bus terminal.
The two sub-projects will help address current environmental sanitation problems and i s
expected to have a positive impact on existing environmental and social conditions. The design
standards will ensure that effluents from wastewater at the bus terminal be connected to the
city’s sewer. Discharge from the septic tank waste treatment plant i s expected to comply with the
requirements for water quality o f the receiving bodies. Better solid waste management would
also contribute to improved environmental conditions o f the cities.
Nevertheless, improper transportation and disposal o f the construction materials and the wastes
would impose noise and dust pollution. Inadequate design o f the disposal site would have longterm soil pollution and lead to hygiene consequences. Poor O & M o f the septic tank waste
treatment plant would cause serious environmental problems in the surrounding areas, especially
the residential areas and the canals supplying water for agriculture and aquaculture activities.
Environmental Management Plan (EMP):
For the Septic tank waste treatment subproject, categorized as a category I1 (Vietnamese
categorization) project, an Environmental Management Plan was developed in the EIA. However
the due diligence assessment has found it inadequate. As a result, HIFU has requested an
Environmental Management Program be provided in adequate detail to indicate how the
mitigation plans described in the EIA will be implemented for each project phase.
For the West Bus Terminal, no EMP was required although commitments to environmental
compliance were made before DONRE environmental certificate was issued. The application for
the environmental certificate, however, did not specify the resources for the implementation.
At a request from IDA, a risk management plan has been developed for each o f the subprojects.
Those plans will be signed between HIFU and the borrowers as a M O U prior to the disbursement
o f HIFU funds to the borrower. The MOU clarifies that by receiving the HIFU funds the
borrower is signing on a commitment to implement the Plan,
In addition, as guided by the PPA Manual HIFU will arrange monitoring o f the implementation
o f the EMP and risk management plan in each o f the two subprojects and will prepare semiannual environmental compliance progress reports to be submitted to PC and IDA. An
independent environmental safeguard monitoring consultant will be hired to assist HIFU in this
task, and also to provide guidance to the borrowers in internal supervision and reporting on the
implementation o f mitigation measures as specified in the E M P and risk management plan.
Assessment of the institutional mechanism o f the Hoa Binh Ltd. to carry out EA work for the
Septic tank waste treatment was submitted to the Bank on March 27, 2007. The Bank has found
86
this satisfactory, provided that the Hoa Binh Ltd. hire consultants for internal monitoring and
HIFU hire consulting services for independent environmental monitoring as part o f the TA to
HIFU.
Ensuring GoV environmental certzfzcation: An approval for the EIA report for the Septic tank
waste treatment facility were received from the H C M C DONRE on March 20, 2007. According
to the Decree 80/2006/ND-CP dated August 09, 2006 “Guideline on the implementation of the
National Law on Environmental protection ”, an Environmental certificate for the West Bus
Terminal subproject, which i s classified as a type I11 i s a condition for the HIFU loan
disbursement to the borrower.
Cultural Resources (OP 4.11)
For the subprojects to be financed by the line o f credit, careful design to avoid possible vista or
damage to historic and cultural sites, and proper construction supervision will be needed during
project implementation, particularly excavation and dredging works, to check for possible buried
artifacts. As far as the two year 1 sub-projects are concerned, cultural property does not exist in
their respective locations.
Natural habitat (OP 4.04)
For the subprojects to be financed by the line o f credit, exclusion l i s t will be used in
environmental screening to make sure that the project will not finance adverse impacts or
conversion o f critical natural habitats. N o natural habitat i s involved in the two year 1
subprojects.
Pest management (OP 4.09)
The use o f any chemicals listed in the Government restriction will be subjected to the exclusion
from H D P finance. OP 4.09 i s not triggered for the two year 1 subprojects.
Involuntary Resettlement (OP/BP 4.12)
A Resettlement Policy Framework (RPF) for HDP has been prepared to ensure that affected
people can restore the losses and living standards as pre-project level. This framework has been
adopted by HCMC-PC and was [approved] by the Prime Minister. All compensation and
resettlement activities, occurred under the project, will need to follow the approved RPF.
The Social Safeguards Manual (Annex G o f the Project Preparation and Appraisal Manual)
includes provisions for HIFU and its borrowers, investment partners to minimize and mitigate
the impacts to the people and to prepare and implement the safeguards documents to meet the
Bank’s requirements. In particular, the respective responsibilities o f the HIFU and
investorshorrowers are spelled-out in the manual. HCMC-PC will have to approve prepared
Resettlement Plans (RPs) in accordance with the approved RPF for all subprojects requiring land
acquisition except for the ones where the investors can negotiate and agree with the affected
people on the buying-selling basis without involvement o f the local authorities. For subproject
where the land was cleared before, a confirmation report i s required. If there are still some
remaining issues, a due diligence report should be provided to identify the problems and clarify
how they will be resolved. Satisfactory resolution o f outstanding issues i s a condition for the
borrower to receive HIFU funds from HDP.
87
Supervision framework has also been established to ensure the compliance. Under component 2
o f the project, HIFUwill hire independent consultants to monitor compensation and resettlement
activities to help HIFU in ensuring the project objectives are met.
For the two year 1 subprojects, only one relates to land acquisition (Septic tank waste treatment
plan), where the compensation and resettlement activities have been implemented since 2005.
According to the due diligence report, there are s t i l l 1.9 out o f 9.4 ha having not yet been cleared
with about 10 households waiting for their complaints to be resolved and land plots in a
resettlement site to be provided. Most o f the complaints relate to the issue o f identification of
land use right to define the land category to be compensated. The interviewed displaced people
were satisfied with the applied compensation and resettlement policies. O n March 1, 2007
HCMC-PC has instructed Binh Chanh district PC to resolve the issues as soon as possible,
including allocation o f land plots in a neighbor commune for the displaced people to be
relocated.. Resolution o f this issue in a manner satisfactory to the Bank i s a condition for the
subproject to get financing by HIFUunder the HDP.
Indigenous Peoples (OP/BP 4.10)
There are no ethnic minorities in the proposed two subprojects for the first year o f
implementation. However, taking into account the fact that there are two ethnic minority groups
living in H C M C (Cham with about 5,200 persons and K h M e r with about 4,800 persons in
accordance with the data o f 1999 general population census), an Ethnic Minority Planning
Framework (EMPF) has been prepared. The EMPF was approved by HCMC-PC.
Ethnic Minority Plans will have to be developed in accordance with the project EMPF for the
subprojects having any ethnic minority group in the subproject areas. All monitoring and
reporting arrangements for resettlement activities will be applied to Ethnic Minority Plan
implementation.
PPA manual implementation advisors with international experience and local social consultants
will be hired by HIFU to help deal with social safeguard policies compliance and i t s
management for the first three years o f the project implementation.
Public consultation. The PPA manual specifies when and how public consultations have to take
place for each sub-project. EIA report for the Subproject Septic tank waste treatment (A
category) has been consulted with the local authority (Ward People Committee D a Phuoc) and
local NGO (the Father Front o f the District Binh Chanh) in accordance with the new national law
on environmental protection. N o objections to the project or environmental concerns other than
those about emission and odor from the operation o f the Septic tank waste treatment and that has
been incorporated in the final EIA report. Public consultation on environmental issues was not
required for the West Bus Terminal. HIFU and local resettlement related agencies have been
consulted intensively during preparation o f RPF and social safeguards manual. A consultation
mechanism has been developed to be applied during resettlement plan (RP) preparation and
implementation to ensure the needs and wishes o f all related stakeholders, especially potentially
affected people be reflected. The R P s will detail the plan for consultation including the
procedures, methodologies and subjects o f consultation. The RPs will also describe grievance
redress mechanism with the steps and procedures for grievance filing as well as the responsible
institutions and timeframe for receiving and addressing the grievances.
88
Public disclosure. The PPA manual specifies when and how the various safeguards documents
need to be disclosed. HIFU has confirmed the public disclosure o f the EIA report for the Septic
tank waste treatment and the Initial Environmental Examination (IEE) for the West Bus
Terminal subproject in the ward People committee offices since March 05, 2007 as per the
Bank’s disclosure requirements. A copy o f the draft Environment guidelines and Social
safeguards manual (Annexes F and G o f the PPA Manual), as well as the RPF and the EMPF
have been disclosed locally and sent to InfoShop in Washington D C and made available in
English and Vietnamese in Hanoi’s Development Information Center (VDIC) on March 20,
2007.
Institutional capacity assessment and strengthening:
HIFU has the institutional arrangement to manage investments, and i t s departments have clear
understanding o f the requirements for implementing the Government and the Bank safeguard
policies during a subproject appraisal, investment and monitoring phases, though World Bank
policies on involuntary resettlement are quite new for them. HIFU has staff that has training in
environmental management and work experience on land acquisition and resettlement policies.
They have gained familiarity with environmental assessment and compensation, resettlement
tasks through other HIFUprojects. To assist HIFU in improving its staff skills on environmental
and social safeguard management, on-the-job training consultants will be hired during the first
three years under component 2 o f the project to help HIFU implement safeguard policies
including review o f environmental assessment and social safeguards documents, preparation of
TORS, and monitoring o f the implementation o f environmental management and resettlement
plans. In addition, independent monitors will be recruited to monitor the performance of
safeguard compliance within the specific subprojects. These monitoring reports will assist HIFU
in focusing efforts to improve project due diligence procedures.
89
Annex 11: Project Preparation and Supervision
VIETNAM: VN - HIFU Development Project
P C N Date
Initial PID to PIC
Initial ISDS to PIC
Appraisal
Negotiations
Board/RVP approval
Planned date o f effectiveness
Planned date o f mid-term review
Planned closing date
Planned
January 2007
April 2007
March 2007
April 2007
M a y 2007
June 2007
September 2007
Actual
January 2007
April 2007
April 2007
April 2007
M a y 2007
December 2012
K e y institutions responsible for preparation o f the project:
H o Chi Minh City People’s Committee
H o Chi Minh City Investment Fund for Urban Development (HIFU)
Bank staff and consultants who worked on the project included:
Name
Title
Kamran Khan
Sr. Infrastructure Finance Specialist, TTL
Cuong Duc Dang
Senior Operations Officer
Isabel D. Mutambe
Program Assistant
Giang Thi Huong Nguyen
Program Assistant
William Dachs
Senior Infrastructure Specialist
Cung Van Pham
Financial Management Specialist
K i e n Trung Tran
Senior Procurement Specialist
Hoa Thi Mong Pham
Senior Operations Officer
Phuong Thi Thanh Tran
Senior Environmental Specialist
Luc Lecuit
Senior Operations Officer
Joseph F. Wells
Safeguards Due Diligence Specialist
Hoi-Chan Nguyen
Senior Counsel
Tri Pham
Senior Auditor
Alan Carroll
Peer Reviewer
Ellis Juan
Peer Reviewer
Anthony Pellegrini
Peer Reviewer
Bank funds expended to date on project preparation:
1. Bank resources:$243,778
2. Trust fimds: $0.0
3. Total: $243,778
Estimated Approval and Supervision costs:
1. Remaining costs to approval: $0.0
2. Estimated annual supervision cost: $65,000
90
Unit
EASOP
EASUR
EASUR
EACVF
FEU
EAPCO
EAPCO
EASSD
EASEN
EAPCO
Consultant
LEGEA
IADDR
LCSQE
IEF
External Advisor
Annex 12: Documents in the Project File
VIETNAM: HIFU Development Project
1. Social Safeguard Manual
2. Resettlement Policy Framework
3, Ethnic Minority Planning Framework
4. Environmental Safeguard Manual
5. Project Paper - LDIF-Splitting Operations Memo
6. Project Concept Note (HDP)
7. QER Minutes (HDP)
8. Project Concept Note (LDIFP)
9. Project Preparation and Appraisal (PPA) Manual
10. Private Sector Partner (PSP) Selection Manual
11. Financial Analysis o f HIFU Conducted by E&Y
12. Detailed Appraisal o f the 2 year-1 Pilot Projects
13. Detailed Description o f the Subprojects in the HIFU Project Pipeline
14. Approved TOR o f the U S T D A Phase I1Technical Assistance to HIFU
15. Approved AFD Technical Assistance Plan for HIFU
16. Credit Statute o f HIFU
91
Annex 13: Statement o f Loans and Credits
VIETNAM: VN- HIFU Development Project
Difference between
expected and actual
disbursements
Original Amount in US$Millions
Proiect I D
FY
P101608
2007
VN-Avian & Human Influenza Control
&Prep
0.00
20.00
0.00
PO82295
2007
VN-COASTAL CITIES ENVMT SANIT.
0.00
124.70
PO85071
2006
Customs Modernization
0.00
65.90
VN-TRANS & DISTRIB 2
0.00
200.00
PO84871
2006
Pumose
IBRD
IDA
SF
GEF
Cancel.
Undisb.
0.00
0.00
20.30
0.00
5.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Orin.
Frm. Rev’d
0.00
0.00
126.01
0.00
0.00
66.58
-0.25
0.00
199.90
12.56
0.00
70.29
-1.83
0.00
PO79663
2006
VN-Mekong Regional Health Support Proj
0.00
70.00
0.00
0.00
0.00
PO79344
2006
VN -1CT Development
0.00
93.72
0.00
0.00
0.00
87.20
1.27
0.00
PO77287
2006
VN-RRD RWSS
0.00
45.87
0.00
0.00
0.00
45.75
2.72
0.00
PO75407
2006
VN-RT3
0.00
106.25
0.00
0.00
0.00
108.92
5.00
0.00
PO73361
2006
VN -Natural Disaster Risk Mngt Project
0.00
86.00
0.00
0.00
0.00
79.20
-6.57
0.00
2005
VN-Avian Influenza Emergency Recovery
Pr
0.00
5.00
0.00
0.00
0.00
2.10
1.88
0.00
PO85260
2005
VN-EFA Support Program
0.00
50.00
0.00
0.00
0.00
32.13
0.00
0.00
PO85080
2005
VN-ROAD SAFETY
0.00
31.73
0.00
0.00
0.00
29.26
5.3 1
0.00
PO82627
2005
Payment System and Bank Modernization
2
0.00
105.00
0.00
0.00
0.00
99.57
39.50
25.67
PO82604
2005
VN-HIV/AIDS Prevention Project
0.00
0.00
0.00
0.00
0.00
26.96
-1.56
0.00
PO80074
2005
VN-GEF-RURAL ENERGY 2
0.00
0.00
0.00
5.25
0.00
4.95
0.20
0.00
PO74688
2005
VN-RURAL ENERGY 2
0.00
220.00
0.00
0.00
0.00
217.36
52.53
0.00
PO74414
2005
VN GEF Forest Sector Development Proj
0.00
0.00
0.00
9.00
0.00
8.50
2.37
0.50
PO73763
2005
VN-WATER SUPPLY DEV.
0.00
112.64
0.00
0.00
0.00
109.56
6.98
0.00
2005
VN - Forest Sector Development Project
0.00
39.50
0.00
0.00
0.00
48.69
6.02
0.73
225.26
0.00
0.00
0.00
210.82
102.26
0.00
149.25
28.20
0.00
PO88362
PO66051
PO59663
2004
-
VN-ROAD NETWORK IMPROVT
0.00
PO65898
2004
VIETNAM WATER RESOURCES
ASSISTANCE
0.00
157.80
0.00
0.00
0.00
PO70197
2004
VN-URBAN UPGRADING
0.00
222.47
0.00
0.00
0.00
200.93
5.20
0.00
PO44803
2003
VN-PRIMARY EDUC FOR
DISADVANTAGED CHILRE
0.00
138.76
0.00
0.00
0.00
156.52
43.19
-1.24
PO75399
2003
Public Financial Management Reform
Proj.
0.00
54.33
0.00
0.00
0.00
50.54
36.49
-0.63
PO71019
2003
VN-GEF DEMAND SIDE MGMT &
ENERGY
0.00
0.00
0.00
5.50
0.00
2.80
1.47
0.00
PO73305
2002
VN-Regional Blood Transfusion Centers
0.00
38.20
0.00
0.00
0.00
37.57
26.32
0.00
0.00
110.00
0.00
0.00
0.00
26.25
-3.48
0.00
PO59936
2002
VN -Northem Mountains Poverty
Reduction
-
PO72601
2002
VN Rural Finance I1 Project
0.00
200.00
0.00
0.00
0.00
20.46
-67.40
0.00
PO66396
2002
VN-SYSTEM ENERGY,
EQUITIZATION & RENEWAB
0.00
225.00
0.00
0.00
0.00
187.02
145.63
62.58
PO73778
2002
VN-GEF-System Energy EquitizationRenewal
0.00
0.00
0.00
4.50
0.00
3.52
3.52
0.00
PO51838
2002
VN-PRIMARY TEACHER
DEVELOPMENT
0.00
19.84
0.00
0.00
0.00
9.94
6.75
4.96
PO42927
2001
VN-MEKONG TRANSPORTELOOD
PROT.
0.00
110.00
0.00
0.00
0.00
52.67
35.65
0.53
P052037
2001
VN-HCMC ENVMTL SANIT.
0.00
166.34
0.00
0.00
0.00
148.92
94.44
85.86
92
PO62748
2001
VN - COMMUNITY BASED RURAL
INFRA.
0.00
102.78
0.00
0.00
0.00
48.53
25.51
0.00
PO42568
2000
VN - COASTAL WetlProt Dev
0.00
31.80
0.00
0.00
0.00
3.73
1.81
1.81
-
PO04845
1999
VN MEKONG DELTA WATER
0.00
101.80
0.00
0.00
0.00
28.51
23.55
-9.01
PO51553
1999
VN-3 CITIES SANITATION
0.00
80.50
0.00
0.00
7.40
26.26
27.58
22.23
PO04828
1999
VN-HIGHER EDUC.
0.00
83.30
0.00
0.00
0.00
16.41
9.83
10.45
PO45628
1998
VN-TRANSMISSION & DISTR
0.00
199.00
0.00
0.00
39.69
36.60
67.92
3.24
0.00
3,643.49
0.00
29.25
47.09
2,800.48
740.57
207.68
Total:
93
VIETNAM
STATEMENT OF IFC’s
Held and DisbursedPortfolio
In Millions o f U S Dollars
Committed
Disbursed
IFC
FY Auoroval
Comuanv
Loan
2003
ACB-Vietnam
2002
CyberSoft
2002
2002
IFC
Equity
Quasi
Partic.
0.00
5.02
0.00
0.00
0.00
0.06
0.00
0.00
Dragon Capital
0.00
0.00
1.05
F-V Hospital
5.00
0.00
3.00
Loan
Equity
Quasi
Partic.
0.00
5.02
0.00
0.00
0.00
0.06
0.00
0.00
0.00
0.00
0.00
1.05
0.00
0.00
5.00
0.00
3.00
0.00
0.00
0.00
2005
Khai Vy
6.00
0.00
0.00
0.00
0.00
0.00
0.00
1998
MFL Vinh Phat
0.13
0.00
0.00
0.00
0.13
0.00
0.00
1997
Nghi Son Cement
10.09
0.00
0.00
1.88
10.09
0.00
0.00
1.88
2004
Olam
20.00
0.00
0.00
0.00
20.00
0.00
0.00
0.00
2005
Paul Maitland
7.20
0.00
0.00
0.00
7.20
0.00
0.00
0.00
2001
RMIT Vietnam
7.25
0.00
0.00
0.00
3.50
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.77
0.00
0.00
0.00
2.77
0.00
0.00
2.3 1
0.00
0.00
0.00
2.31
0.00
0.00
0.00
2.05
0.00
0.00
0.00
2.05
0.00
0.00
Sacombank
0.00
3.05
0.00
0.00
0.00
3.05
0.00
0.00
VEIL
0.00
0.00
2.00
0.00
0.00
0.00
2.00
0.00
2003
VEIL
0.00
7.41
0.00
0.00
0.00
7.41
0.00
0.00
2007
VEIL
6.15
0.00
0.00
0.00
6.15
0.00
0.00
28.82
6.05
1.88
45.92
28.82
6.05
1.88
2006
SABCO
20.00
0.00
2003
Sacombank
0.00
2004
Sacombank
0.00
2005
Sacombank
2006
2002
0.00
Total portfolio:
75.67
Approvals Pending Commitment
FY Approval
Company
Loan
Equity
Quasi
Partic.
2000
MFL-AA
0.00
0.00
0.00
0.00
2006
CCS-Asia
0.02
0.00
0.00
0.00
2000
Interflour
0.01
0.00
0.00
0.01
2006
CII-Vietnam
0.00
0.00
0.00
0.00
2000
MFL Mondial
0.00
0.00
0.00
0.00
2002
F-V Hospital
0.00
0.00
0.00
0.00
1999
MFL Minh Minh
0.00
0.00
0.00
0.00
1999
MFL Chau Giang
0.00
0.00
0.00
0.00
0.00
0.00
0.01
Total pending commitment:
0.03
94
Annex 14: Country at a Glance
VIETNAM: VN- HIFU Development Project
Vietnam
East
A8ia a
Paclflc
Lowincome
83.0
820
514
1885
1627
3,067
2,353
580
1364
11
2.1
0.9
13
19
2.3
41
70
29
15
79
91
115
18
30
59
80
39
75
62
D4
in
99
POVERTY and SOCIAL
2005
Population, mid-year (millions)
GNiparcapita (Atlasmathod, US$)
GNI(At1asrnathod. US$ billions)
) e v e l o p m e n t diamond'
Life expectancy
A v e r a g e annual growth, 1999.05
Population (%,
Lab0r force (%)
GNI
par
capita
M o s t r e c e n t e s t i m a t e ( l a t e s t year available, 1909-05)
Poverty (% of population balownationalpo varty line)
Woan population (%of fotaipopuiatlon)
Lifa axpectancyat birth (pars)
Infant mortality(per /000iiva births)
Childmainutrition (%ofchildrenundar5)
Access to animprovadwatarsourca(%ofpopulation)
Literacy(%ofpopuiation age S+
Gross primaryanrollmant oof school-agepopulation)
Mala
Famala
29
26
70
n
28
85
90
98
01
94
Gross
primafi
anrollmant
Access to improvadwatarsourca
-Vietnam
ID
-Lo wincoma group
KEY E C O N O M I C R A T I O S a n d L O N G - T E R M T R E N D S
1985
GDP (US$ blilions)
Gross capital formation/GDP
Exports of goods and sarvicasiGDP
Gross domestic savingdGDP
Gross national savingslGDP
14.1
Current account balancaiGDP
lntarast pa)rments/GDP
Total dabtiGDP
Total debt sarvicaiaxports
Present valueof dabt1GDP
Present value of dabtlagorts
-3.8
0.0
0.4
.,
..
..
..
..
1985-95 1995-05
(average annual gro Mh)
GDP
GDP percapita
Exports of goods and sewices
8.5
4.3
25.2
6.9
5.8
15.8
2004
2005
20.7
27.1
32.8
8.0
s.2
45.2
35.8
86.4
28.3
322
52.4
-B.5
0.4
P2.8
4.7
-3.8
07
39.4
2.6
34.1
50.4
1995
2004
I
2005 2 0 0 5 - 0 9
8.4
7.4
'6.0
7.7
8.6
27.9
E c o n o m l c ratios'
7.5
8.4
15.0
Trade
I
1
I
Indebtedness
-Vietnam
Lowincoma group
STRUCTURE o f the E C O N O M Y
1985
(%of GDP)
Agriculture
Industry
Manufacturing
Services
Household final consumption axpanditura
General gov't final consumption aganditura
imports of goods andsarvicas
1995
40.2
27.4
20.5
32.5
27.2
28.8
'6.0
44.1
218
40.1
20.3
38.2
..
73.8
8.2
419
65.3
8.4
73.6
..
..
1985-95 1995.05
(avarageannualgronth)
Agriculture
Industry
Manufactunng
Services
Household final consumption axpenditura
Ganaral gov't final consumption axpanditura
Gross capital formation
Imports of goods and services
2004
2004
3.5
7.3
4.3
8.4
4.1
D.0
110
5.7
3.5
0.2
0.1
7.5
..
5.2
3.8
9.8
8.5
7.1
7.8
0.5
25.2
..
25.8
24.2
2005
G r o w t h o f c a p l t a l a n d G D P ('A)
W
01
02
-GCF
2005
03
W
05
-GDP
j G r o w t h o f e x p o r t 8 a n d I m p o r t s ('A)
w
01
02
03
M
05
Nota: 2005data are praliminaryastimatas.
This tabla was producadfrom the Davalopmant Economics LDB database.
'The diamonds showfour kayindicators in the country(in bold) compared with its incomagroupavaraga. If data are missing, thadiamondwili
be incomDlata.
95
.............
..............................................................................
"
tnliarioo
(a)
v-
185
%7
.;Export
______-. ....................................
and import t w o 1 8 (US$ milt.)
~
1.M coo
I
990
*-
-
--
I
---
iCurrsnt account btilancs to G D P ('At
Currunt accoirrif balancn
-933
265
269
c
MAP SECTION